Today\u27s electric grid is undergoing drastic changes to evolve into a smart grid. Deregulation of the integrated and monopolistic power system into genco, transco and disco has led to tremendous competition among these players. These entities are in the process of developing innovative smart grid strategies that can improve their reliability and profit. In this thesis work, some of the smart grid initiatives by discos have been explored.;This thesis work is driven by two major objectives. The primary objective is to explore Demand Response (DR), develop its comprehensive model and to analyze various effects and implications of DR on distribution networks. The second major objective of the thesis is to integrate the developed demand response model into a microgrid market optimization. A microgrid network is a real world demonstration of smart grid that integrates and coordinates various demand side resources into its operation. For this reason, a microgrid has been chosen in this work so that it offers a broader scope where in addition to DR models, Battery Energy Storage System (BESS) and Distributed Energy Resources (DER) or Distributed Generation (DG) can also be modeled and integrated.;This thesis develops a model for DR by utilizing consumer behavior modeling considering different scenarios and levels of consumer rationality. Consumer behavior modeling has been done by developing extensive demand-price elasticity matrices for different types of consumers. These Price Elasticity Matrices (PEMs) are utilized to calculate the level of demand response for a given consumer. DR thus obtained is applied to a real world distribution network considering a day-ahead real time pricing scenario to study the effects of demand reduction and redistribution on system voltage and losses. Results show considerable boost in system voltage that paves way for further demand curtailment through demand side management techniques like Volt/Var Control (VVC).;Following this, the thesis develops a market optimization model for an islanded microgrid that includes Smart Grid elements namely DR, DERs and BESS. Comprehensive models for DR and BESS have been developed and integrated into the optimization program. Demand Side Bidding (DSB) by DR Aggregators is introduced into the proposed double sided microgrid energy market by utilizing the DR models developed. The optimization program uses Linear Programming (LP) technique to determine the dispatch schedule of DERs, BESS and the level of DR to minimize the operating cost of the microgrid market. A time series simulation of a large microgrid test system is performed to show the feasibility of the proposed market optimization
