This paper focuses on using DR (Demand Response) as a means to provide reserve in order to cover uncertainty in wind power forecasting in SG (Smart Grid) environment. The proposed stochastic model schedules energy and reserves provided by both of generating units and responsive loads in power systems with high penetration of wind power. This model is formulated as a two-stage stochastic programming, where first-stage is associated with electricity market, its rules and constraints and the second-stage is related to actual operation of the power system and its physical limitations in each scenario. The discrete retail customer responses to incentive-based DR programs are aggregated by DRPs (Demand Response Providers) and are submitted as a load change price and amount offer package to ISO (Independent System Operator). Also, price-based DR program behavior and random nature of wind power are modeled by price elasticity concept of the demand and normal probability distribution function, respectively. In the proposed model, DRPs can participate in energy market as well as reserve market and submit their offers to the wholesale electricity market. This approach is implemented on a modified IEEE 30-bus test system over a daily time horizon. The simulation results are analyzed in six different case studies. The cost, emission and multiobjective functions are optimized in both without and with DR cases. The multiobjective generation scheduling model is solved using augmented epsilon constraint method and the best solution can be chosen by Entropy and TOPSIS (Technique for Order Preference by Similarity to Ideal Solution) methods. The results indicate demand side participation in energy and reserve scheduling reduces the total operation costs and emissions. (C) 2013 Elsevier Ltd. All rights reserved.