Real-Time Pricing — Get What You Pay For
How real-time energy pricing can foster renewable integration, fight income inequality and turn us all into conservatives.
The last few months have given us some great headlines on the energy front: the U.S. has achieved the Sun Shot target of $1/W three years early, multiple auto companies are electrifying their fleet, and energy storage proved its resiliency in a crisis by maintaining power during Hurricane Irma. This is all wonderful news but also feels like validation of the inevitable. What has me truly excited is…wait for it…utility bills.
You may not have put much thought into your bill or how your rate is structured, but that is where change is afoot. Many utilities divide your bill into energy and demand. Energy refers to your usage over time and is measured in kilowatt-hours. Demand reflects your surges in power draw and is measured in kilowatts (here are some more details on this). Utilities do their best to ensure they don’t deploy excess resources that sit unused on an average day while still being able to meet customer needs during a peak. This ratio of average energy to peak energy is called load factor and the closer a utility can come to unity, the better they are running their business.
Traditionally, utilities have born this soothsaying task themselves, relying on historical data, weather forecasts and customer mix (industrial versus residential). These days, smart devices, better communication and alternative energy sources are enabling customers to get in on the act.
Enter the source of the coming sea change: real-time pricing (RTP). By passing on the true cost of energy in a given moment, including peaks and valleys, utilities can influence behavior of customers and reduce their amplitude. This will improve utility load factor and lower operating costs of extraneous power plants. For the customer, this translates to more direct control over your energy bill and savings for those willing to make adjustments.
RTP and Renewables: a Surprising Match
The most common objection to renewable energy like wind, solar and even hydro, is uptime. Solar production, for instance, does not always align with increased load, particularly in winter months when the sun has set by the time most people get home from work. However, with increased adoption of smart (and kind of smart) technology, some of these heavy loads can be shifted to or optimized to better align with supply. Many appliances, which can have a heavy heating load, come equipped with delayed-start features. Setting the timer on the dishwasher to run around 1:00 pm when solar panels are generating and other loads are low means this small spike in demand is absorbed. Taking it a step further, allowing utility-generated signals to affect when a device is run can further manipulate loads; imagine your smart air conditioner pulsing on when alerted by the utility that excess energy from wind is available.
The desired outcome is that loads are shifted sufficiently to sync up renewable supply with consumer demand. Another piece in this puzzle comes from a Carter-era law called the Public Utilities Regulatory Policies Act (PURPA) that, among other things, requires utilities to sell the cheapest available energy to its consumers, even if it is generated by a non-utility (i.e., rooftop solar.) These two factors combined could create a positive adoption cycle where solar smoothly absorbs subscriber load, is deployed more frequently, becomes cheaper and then is pulled further into the market by PURPA.
Energy Equality For All
Net-metering of solar includes unseen inequity in cost that can be alleviated with RTP. Enter again the age-old issue with solar production not aligning with consumer consumption. When the sun goes down and load goes up, the utility still has to have power generation available. This cost is spread evenly across all subscribers, regardless of whether that subscriber has a deluxe rooftop solar system on the considerable footprint of his mansion or is a low-income-earner living in an apartment with neither the income nor ownership rights to install solar. While this sounds egalitarian in theory, in practice it means that the wealthy solar user is actually making money when solar is producing and thus paying less of a share of those queued up generation resources than the apartment dweller.
A number of utilities have addressed this issue with a cross subsidy surcharge for subscribers with solar, effectively destroying the market for solar adoption for economic reasons. However, RTP could actually drive sufficient change to eliminate this punitive surcharge and the inequity. By increasing pricing when solar is unavailable, subscribers both rich and poor are encouraged to use energy when prices are low (i.e., in the middle of the night or when rooftop solar generation is prolific.) As load is shifted into non-peak periods, the cost of peaks will come down with demand. The net effect is that utilities need fewer generation resources and subscribers pay less.
Join the Conservative Party, As In, Celebrate Conserving Energy and Money
All of the aforementioned load-shifting ideas rely on the concept of free-market economics. If your energy bill increases beyond your comfort level, you will change your behavior. Some of these changes may be enabled by technology. Smart devices like the Nest thermostat can optimize a heating or cooling schedule to provide a comfortable house with minimal operation of the furnace or A/C unit (it should be noted that the many smart thermostats like the Nest and Ecobee are incompatible with electric heating systems, meaning your energy savings will be on natural gas, not electricity.) Many utilities are even offering rebate programs for smart thermostats, EnergyStar appliances, high-resistivity windows and more, making them accessible to a wide swath of subscribers.
Changes can also be low-tech and free. A habit of running the washer after going to the gym rather than when solar production is high or demand is low requires more mental effort than we ever want to assign to laundry. This is where RTP enters the picture: it is a lever — proven effective time and again — to force this change. How much is this laundry habit worth to you? For perspective, real-time energy prices in Fayetteville, Arkansas at 3:45 pm on September 25th were around $550/MWh. At 6:45 pm that same night, they were closer to $30/MWh. You the consumer get to decide whether it is more annoying to run the washer during dinner and save some money or run the washer when you want and pay more. RTP monetizes the mental effort.
Real-time pricing of energy can make people squeamish. It relies heavily on social psychology, vague economic policies and it can feel predatory to the consumer. The fact is that we are already paying utilities extra to absorb the volatility of energy pricing. RTP would create transparency between power generators and consumers, giving subscribers more control of their billing destiny. The person who is willing to clip a coupon to save $0.32 on toilet paper is willing to run the dishwasher at three in the morning to save the same amount. Because utilities can manipulate load in the face of changing conditions, their operating costs decrease as load factor moves towards parity. Both parties in this customer relationship can benefit.
Many utilities are already steering us towards RTP. Time-of-use (TOU) rates, which divide the day into large chunks of time with different rates, are very common amongst commercial/industrial customers and are being rolled out in pilot programs for residences. However, there are some barriers that must be eliminated before TOU becomes true RTP.
The first is communication. It is unfair and likely unethical to flip the switch on RTP without priming customers and counseling them on how the effects and how to mitigate them. Carefully constructed pilot programs are necessary to ensure the desired outcome of more evenly distributing loads and reducing energy bills is achieved rather than just shocking subscribers with an astronomical and byzantine rate structure.
The second barrier is also communication, but of the digital variety. How will a customer know that a price increase is coming? How will a device know that a peak is occurring because a storm cell just blew in? Robust email and text notifications could address the customer side, but may not cover 100% of the user base. Power Line Communication (PLC) is one of the more viable options for device signaling, but is still pretty noisy and again does not have heavy market penetration. Due care must be given to providing accurate and timely information to consumers in order for this plan to work.
The final concern is effectiveness. Energy pricing is already based on a huge number of variables, most of which are beyond our control. Adding in human behavior could muddy the waters further. Attentive monitoring of RTP programs, including average monthly bills and load shifts, is a must, as the goal is to generally save subscribers money, not punish them.
While there are a number of hurdles to clear, RTP will change how we use and value energy. By giving our energy consumption habits presence of mind, the decision to turn up the A/C or leave on every light in the house will be more tangible. The fact that it will save us money and reduce our carbon footprint makes it all the better.
I am an executive and engineer in the clean energy space and brought lithium-ion batteries to data centers. Previously at Toyota and Ford SVT.