With the desire to improve the efficiency and the reliability of the power system as well as the advancement of smart meter and communication networks, the demand response (DR) program has been facilitated to become a key component in the smart grid. Many current researches focus on incentives‐based DR research orientation. In addition, accurately quantifying the incentive payment is also a significant challenge because of the fact that the incentive payment is currently determined depending on knowledge, experience, and experimental results. This paper presents a method of pricing incentive payments for the incentive‐based DR program through social welfare maximization framework which ensures the benefits of all participants involved. Besides, this study also proposed the quantification of incentive payments by a theoretical approach based on the satisfaction level of electricity consumers which is approximated through a fuzzy logic model. Moreover, the impact of renewable energy sources on the pricing mechanism and benefits of all parties participating in the DR program is also discussed through the calculation cost for renewable energy integration and emission cost function. The results show the validity and feasibility of the method.