Posted by: nialljmcshane | May 12, 2010

So What is Smart Grid Anyway:Smart Meters and Demand Response (Part two)

May 12, 2010

In part one of this article, I presented an overview of the scope of the smart grid and discussed in some detail the role of smart meters and demand response.  I described the most commonly discussed scenario for demand response as it applies to residential consumers, which involves the creation of a Home Area Network allowing smart devices within the home to receive real time pricing signals from the utility and modify consumption patterns based on price.  I also noted the view of skeptics that the cost of all this automation does not represent a good return on investment for the majority of homes that are spending an average of $100 a month on electricity.  Even at somewhat higher monthly costs, the return on investment may be questionable.  People who are motivated by environmental concerns will change their behavior for nominal financial benefit. Those who aren’t will not change their behavior even if the benefits are moderately large.

In the nearer term, while demand response may be automated as envisioned in this scenario, much of the value of variable rate pricing can be obtained through less automated and less costly means.  Back in 1986, I bought a flat in London.  The only form of heating in the flat was an electric radiant heater in the living room so I decided to install storage heaters.  The electric utility offered a variable rate which provided a lower cost overnight and I signed up for that rate.  The storage heaters were designed to take advantage of this rate, storing heat overnight which could then be released as needed during the day.  I also purchased a couple of inexpensive timer switches that allowed me to schedule the washer/dryer and the water heater to run overnight.  I didn’t have AC or a dishwasher.  I cannot quantify my savings but the important point is that I didn’t need a lot of technology to make this work.

In the Chicago market, the local utility, Commonwealth Edison, offers a variable rate plan ( as an alternative to the normal fixed rate tariff.  The cost of generating and delivering electricity varies considerably during the course of a single day and from day to day throughout the year based on current demand levels and supply availability.  For consumers who are on a fixed rate price plan, the utility absorbs the impact of these fluctuations by charging an average rate for every KWh consumed regardless of what the actual cost of that KWh is.  Most consumers in Chicago pay a flat rate of 7 c per KwH with slight variations for summer and winter.  By signing on to the real time pricing plan, consumers get day-ahead forecasts of what wholesale prices will be for each hour of the day and they can plan their energy use accordingly.   Prices vary from under 2 c to as high as 21 c per KwH and they also vary by the day of the week and the time of year based on projected supply and demand.  The actual rates depend on the wholesale market and may vary from the forecasts but there are mechanisms to warn consumers if prices peak above a certain threshold that they can select.  Most of the time, the real time prices are lower than the 7 c per KwH charged on the fixed rate plan and so, consumers are empowered to save money by planning how and when they use energy.  Refer to Figure:  Sample ComEd Predicted and Actual Pricing for a sample of the daily predicted and actual costs in the Chicago area.  A new smart meter that allows the utility to collect data on hourly usage is required to implement this plan and that meter is installed at the utility’s expense (although there is an added monthly fee for the new meter).   One person who I have spoken with about the plan reports that, without any in-home automation of appliances etc he has saved an average 22% in energy costs due to lower rates compared to the flat rate offered to all residential customers and another 15% to 30% (depending on month) from lower energy consumption.  This is a single data point representing an individual who is working in the field and is certainly not representative of the general population.  However, it serves to illustrate that, in addition to the savings associated with lower rates, there are additional savings to be gained from having access to more data about how we are using energy which tends to cause a change in our behavior.

For those consumers who want to take a step further, ComEd offers a couple of options where they will install a switch on the air conditioner that can be programmed to moderate the AC usage automatically when real time prices reach one of two thresholds.

So it seems that we can achieve many of the goals of effective demand response (reduced peak demand, reduced greenhouse gas emissions, lower overall utility costs, and consumer savings) without significant automation but let’s go back and explore the topic of HANs and smart devices a little more closely:

Many homes already have existing WiFi HAN solutions connected to the internet to enable in-home networking of computers, printers etc. If the Home Energy Management Systems can hang off this same network, part of the cost goes away. The smart energy profile used for communicating with smart devices is independent of the physical layer protocol so we could see HAN Gateway products and smart devices communicating over WiFi and leveraging existing infrastructure and existing internet access points.

Secondly, this isn’t going to happen overnight. Remember back in the 80’s when cell phones first appeared? The costs were prohibitive and only the very wealthy or those who needed a mobile for business purposes had them. Today, cell phones are ubiquitous. Many service providers give them away for free when you sign up for a two year contract and many people have abandoned their land lines and rely exclusively on their cell phones.

What happened? Well, a couple of things made these changes possible: first of all, the cell phone manufacturers have been aggressively driving the price-performance factor for cell phones. With improved economies of scale and newer digital technologies to improve the basic voice quality, the cell phone became a competitor for the land line systems rather than an expensive incremental service. Secondly, innovation has brought previously unimagined services into existence that make the value proposition of the cell phone much greater than it used to be and much greater than that of the land line phone. As a result, most of us today are paying more than ever for telephone services but we perceive that there is an intrinsic value in the services that we are purchasing that makes it worthwhile.

Over time, I expect to see the same trends occurring in the HAN space with reduced cost, increased functionality and the innovation of services that will make consumers buy in to the concept in ways that we cannot envision today.  When that happens, the potential of demand response to shape the way we use energy and the resulting benefits in terms of reduced consumption will go far beyond what we can envision today.  Clearly demand response and consumer participation while not defining the Smart Grid is central to its future.  Ten or twenty years from now, we will look back on this technology in much the same way that we now look at cellular phones and the internet and wonder how we ever managed without it.  Watch this space!



  1. Great perspective, once the consuming public does buy into the fact that they will save $ thru demand response, they can measure tangible ROI.

    Then it will become culturally accepted, like the cell phone.

  2. My wife and I installed an energy consumption meter (WATSON) 18 months ago. Immediately we were able to recognise where and when the wastage occurred. Not only has this changed our behavior (and reduced our consumption) it also changed our attitude. The act of switching of a light or powering down the TV provides a response from the meter and thus a tangible reward. I hope this would alter the authors view that even those whom are not environmentally concerned may change their attitudes with this very simple piece of kit.

    • Thanks Mark. I certainly recognize that people may be motivated by different things and there is a generally accepted rule that the simple act of measuring something will change its behavior. I have no doubt that people who are motivated to start monitoring their energy consumption more closely will respond to the new information that they have by taking steps to manage that consumption.

      What motivated you to put in the consumption meter initially? Was it purely for the potential cost savings? How much did you pay for the meter plus installation and how long is your expected return on investment going to take?

  3. Great paper and very thought provoking.

    The emphasis on how low-tech consumers can obtain energy benefit (either by reduced cost or pollution) is a vital one in the short to medium term and has the potential to have a positive impact on the most vulnerable in our society i.e. those on fixed incomes and who cannot harness technology. I feel that this is an area that would deliver the greatest net short term benefit since the majority of households are probably in the low tech zone, not the one us techhies inhabit.

    In addition, low-tech solutions have the potential to have the greatest impact for some of the worst polluters in the world, who have growing energy needs without the sophistication to control, manage or govern usage. This is a good place to look when making the big difference that is sought.


  4. Phil Carson at Intelligent Utility Daily just published an insightful article on the topic of demand response from the perspective of the commercial and industrial users who represent the largest consumers of electricity and who have already embraced demand response programs as a way to cut costs for their facilities but who have myriad concerns about the rollout of new Smart Grid technologies and how that will alter their relationship with the utilities.

  5. […] time pricing in Chicago Back in May I posted the second part of an article entitled “So What is Smart Grid Anyway: Smart Meters and Demand Response” in which I discussed Chicagoland utility, Commonwealth Edison’s, variable rate pricing […]

  6. At the time this article was posted, the weather in Chicago was relatively cool and in the sample data that was available the peak demand was predicted to remain low, with no periods in which the predicted price exceeded the fixed rate of 7c per KwH.

    The last few days have been much warmer so I have provided updated sample data that more clearly illustrates the significant price variation that can occur.

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