Cost-based approach for time of use pricing decision

Current electricity pricing menu for demand response (DR) which oriented purpose, for example TOU (Time of Use) playing more and more important role in deregulation market, especially after mass introduction of renewable energy and application of demand response mechanism in power market. However, the current studies manly focused on market mechanism and not pay attention sufficiently on the relationship between the electricity price setting menu and the actual power supply cost structure. This paper proposed a cost-based pricing scheme. First, we analyzed the cost structure of variable cost, fixed cost, and reliability loss cost of each power source based on the cost structure of the power supply configuration from long-term economic viewpoint, then conducted a basic study on the setting of electricity charges by time period considering the recovery of these costs. We use a simple example to demonstrate the applicability of this propose and concludes some useful results. The methodology proposed in this paper is one of the cost-based foundational study for actual DR pricing scheme.