System and method of solving, in a single-period, an optimal dispatching problem for a network of energy generators connected via multiple transmission lines, where it is sought to find the lowest operational cost of dispatching of various energy sources to satisfy demand. The model includes traditional thermal resources and renewable energy resources available generation capabilities within the grid. The method considers demand reduction as a virtual generation source that can be dispatched quickly to hedge against the risk of unforeseen shortfall in supply. Demand reduction is dispatched in response to incentive signals sent to consumers. The control options of the optimization model consist of the dispatching order and dispatching amount energy units at generators together with the rebate signals sent to end-users at each node of the network under a demand response policy. Numerical experiments based on an analysis of representative data illustrate the effectiveness of demand response as a hedging option.