By Chris King, eMeter
In the smart grid, residential energy engagement is an exemplary member of the energy ecosystem, creating a symbiotic relationship among consumers, utilities and the environment.
For consumers, dynamic pricing makes the cost and value of energy use transparent, therefore empowering them with actionable information to manage their energy use and reduce consumption. With dynamic pricing poised to become an indispensable function of the smart grid, the potential for customer-driven demand response grows. With it, utilities are enabled to meet regulatory and market demands while conservation mitigates the negative impact of energy generation on the environment.
There are different types of dynamic pricing, each reflecting the varying cost of wholesale power at different times. Time-of-use (TOU) rates have daily peak and off-peak rates, much like cellular phone plans. Peak-time rebate (PTR) programs reward consumers monetarily for not using as much electricity during summer afternoons for 10 peak days per year. Critical-peak pricing (CPP) is lower 99 percent of the time but is up to 10 times more expensive for about 100 hours per year; consumers who reduce power usage at those times save money. Hourly prices track wholesale costs and offer the greatest savings for those with the flexibility to respond to them with smart thermostats or smart appliances.
Pilot programs include the PowercentsDC Pilot Project, an ongoing program for some 1,200 customers. It began in July 2008 and will run through February 2010. PowerCentsDC participants are being tested in parallel on three dynamic pricing programs. The programs will enable policymakers in the district to compare results for PTR, CPP and hourly pricing over the same customer population. PowerCentsDC also includes consumer engagement software, smart thermostats and smart meters.
PowerCentsDC demonstrates the benefits of residential demand response. In July, consumer engagement software displaying usage, pricing and carbon emission-saving information was introduced. Through basic behavioral science, proactive energy consumption alerts and actionable information, the software makes it easy for consumers to track their energy use and engages them to become active in their energy management, thus increasing conservation and savings.
What are benefits for the utilities? First, it helps those seeking stimulus bill funds: The Department of Energy’s smart grid grant funding application rules that were announced recently strongly promote dynamic prices as a component of smart grid projects funded under the American Recovery and Reinvestment Act of 2009. Applicants–utilities–must consider dynamic pricing programs as part of their projects, and dynamic pricing is part of the decision criteria for receiving grant funding. The rules state that one of the key “customer-level metrics” in measuring smart grid program progress is the percentage of electricity customers “served by dynamic pricing programs” and that smart meter programs are to include dynamic pricing.
Dynamic prices also reduce the need for peaking plants, which account for up to 20 percent of utility power plants and serve the peak energy demand that occurs during the top 100 hours of the year, sitting idle the rest of time. In addition to the cost savings from decreased idle capacity, diminishing peak energy load creates environmental value by reducing dirty resources usually used to meet peak electricity demand (some peaking resources use clean-burning natural gas, though). Thus, dynamic pricing embodies the symbiotic relationship that will be an integral part of the smart grid. Informed consumers are monetarily rewarded for energy conservation, utilities benefit from satisfied customers and meeting regulatory necessities, while the environment benefits from reduced generation and increased conservation.
Chris King is the chief strategic officer of eMeter and the founder and a board member of the Demand Response Smart Grid Coalition.