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In this paper, a customer incentive scheme is proposed for retailers to build an effective demand response program over the peak demand period to minimize the financial risk. Firstly, an objective function is formulated based on the market operation and an optimal incentive price is derived from this objective function. Secondly, the incentive price is employed as a part of an incentive scheme to encourage customers to reduce their electricity demand to a certain level during peak hours. Two typical customer response scenarios are studied to investigate the impact of customer response sensitivity on the loss of utilities’ and customers’ profit. Finally, a dataset for the state of New South Wales, Australia is employed as a case study to examine the effectiveness of the proposed scheme. The obtained results show that the proposed scheme can help to improve the elasticity of demand significantly thereby reducing the associated financial risk greatly. Moreover, the proposed scheme allows customers to get involved voluntarily and maximize their profits with minimum reduction of their comfort levels.

Keywords: Customer incentive scheme, demand elasticity, demand response, electricity price spikes, financial risk.

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