Posted by: nialljmcshane | July 7, 2010

Update on real 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 plan.  At that time the weather 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 price exceeded the fixed rate of 7c per KwH.

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

Sample ComEd Predicted and Actual Pricing – July 7 2010.

Note the deltas between predicted and actual pricing for several hours, the daily peak of 16c in the hour ending at 11:00 am and the extended peak pricing into the evening hours.

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Responses

  1. Thanks for posting this data.

    As a consumer I can’t help but think that the flat rate pricing still looks good to me. Everywhere I’ve looked, I’ve seen little to no demand for RTP.

    At the conferences and such where you talk to industry insiders, what is the reasons they are doing RTP?

    In my own experiences in the utility industry, the only reason its being done is to achieve compliance with stimulus funding requirements.

    • Jack,

      As I note in my earlier posting (https://nialljmcshane.wordpress.com/2010/07/04/engaging-the-consumer-in-smart-grid/) at least some utilities’ Smart Grid strategies do seem to have little more depth than a desire to capture some of the available stimulus money but I also note in that article that the Smart Grid initiative pre-dates the current stimulus funding by many years.

      The real reason behind real time pricing is to introduce market forces into the electricity supply industry and encourage conservation, especially during peak demand times. In the comments to that earlier article I cite references to a number of examples where utilities have been successful in achieving demand response and significant customer savings.

      I have been monitoring the ComEd site for sometime and the reason I chose yesterday’s data to post an update was because that data represents something close to a worst case scenario. I think if you look at the data today, even though it will still be a relatively warm day, you will see significantly lower real time pricing. Go to http://www.thewattspot.com/ and click on the “Today” link in the green bar near the top of the page to see the current data. There will be a few days in Chicago when the real time prices get this high but, in general, consumers on this plan will pay a lot less for their electricity.

      The other thing to note is that ComEd clearly have very limited ability to predict actual demand on an hourly basis right now. Deployment of smart meters that provide data on consumption on hourly or 15 minute intervals will improve the utility’s forecasting ability which, in turn will allow them to purchase the excess power they need ahead of time at lower rates. The meter data will also enable them to better segment their consumer base and develop pricing programs and other incentives that appeal to different segments.

  2. Hi Nial

    Good information. I’m dubious about the behavioral economics of this. Unless of course people are forced into it (which has its own downsides). I think it comes down to how we buy and use electricity now. We don’t buy electricity because its cheap, we buy it because we want to use something now. If we could automate the purchase of electricity during off peak hours, store it locally, and then use it during peak hours, well that would be something. Of course, the utilities aren’t dumb and would have to adjust their pricing across the board to reflect this change in demand.

    The other element is that I (and I think most consumers) do not want to have to become an electricity day trader. This could be solved a little the same way that cell phone service providers have set up different rates for night, day, and weekend, etc. but even there market pressures are pushing for flat rates (I don’t use the phone because minutes are cheap, I use it because I want to call someone now). Setting up these blocks of hours changes the nature of RTP however, and might negate the benefits.

    Your thoughts?

  3. I have some reservations about the behavioral changes too although several studies seem to confirm that demand response does indeed elicit the desired behaviors. In his article on the successful demand response pilot study in Washington DC that I referenced in the earlier column, Phil Carson acknowledges that the persistence of the observed behavior changes remains an open question. Speaking personally, I generally don’t use air conditioning but, yesterday during the peak demand period, I turned it on so I was going in the opposite direction out of necessity.

    You are absolutely correct in observing that consumers do not want to have to manage this on a daily basis. That is where the intelligence of the Smart Grid comes in. Consumers need to be able to define policies for how they will respond to price signals from their utility and then leave the system to take care of things. They also need to be able to override those policies (and pay the higher costs) if they wish. If a peak demand event happens to coincide with a party when I have 30 people in my home, I want to be able to set the thermostat to a comfortable level and I am probably willing to pay the extra cost for that.

    As to the question of storage – I believe this is the key technology that is going to make a huge difference. The ability to store locally generated electricity from a solar PV panel or to purchase low cost electricity overnight and then consume that during higher priced periods (or even sell it back to the utility) will really open up this market. I also addressed this topic in a recent blog post: https://nialljmcshane.wordpress.com/2010/06/20/the-smart-grid%E2%80%99s-killer-app-democratization-not-demand-response/.

    The impact of a storage model on the utility’s overall pricing structure may not be as much as you fear. Having monitored ComEd’s real time pricing for some time now, the overnight cost of electricity is often below 1c. I have seen it as low as zero. The fact that baseload generating capacity is not designed to be shut off means that utilities typically dump power overnight when the demand isn’t there. Having storage solutions for this electricity actually benefits the utility in two ways. First of all, it increases demand and therefore price in the overnight hours. It also reduces the peak demand that they need capacity for, thereby reducing their overall costs to provide for the extreme peak hours that represent such a small portion of their overall business but which are the most expensive for them to serve. The downside is that many will argue the increase in usage overnight will shorten the life of key distribution network components such as transformers that need a cool-down cycle overnight to maintain ideal operating conditions.

  4. I’m sure that DR will make people buy electricity in a new way: that seems obvious. My point is that given the choice, I don’t think consumers want to opt to pay that way.

    But, I was thinking about this more today. How do we currently help the poor save money on their utility bill? Two ways: 1) subsidies and 2) flat rate pricing. Number 2 is really the interesting feature. Sometimes called the “budget plan” or something similar it gives people predictable pricing. It is for reasons like this that I think people want that kind of pricing structure (see my earlier comment about cellphone plans and anytime minutes, etc.).

    I’ve always thought that there is another economic problem with DR and RTP: what’s in it for the utilities? If we are to believe that the utilities want to lower our bills, then what economic force would compel them to dump millions (billions?) of dollars into this infrastructure? Note that this is specifically for DR/RTP as I’m sure there is a benefit vis-a-vis smartgrids for longevity of generation equipment, responding to outages, etc. Simply put, if I am a business, why would I invest money in a program that will result in lower revenues? The only conceivable scenario is that there are market externalities (government incentives/fines) that may make this a rationale decision. In which case, I conclude that there is no demand for these services.

  5. That is the challenge facing the utilities: how to engage the consumer in this. As for the utility benefits from Demand Response, that is in the reduction of the peak demand. As Robert Dolin, CTO of Echelon pointed out, in the US, utilities experience peak demand just 2% of the year but their ability to meet that demand accounts for a full 15% of their annual costs. It is in the off peak hours that the utilities make their profits. If they can even out the demand profile so that the gap between their baseload generation capacity and the peak demand that they have to provision for is reduced, they will have more profits even on a smaller revenue base.

  6. >>That is the challenge facing the utilities: how to engage the consumer in this.

    Agreed. Although put this way it sounds like hyperbole. I prefer to just say that the utilities have to make this a compelling value proposition for consumers. Or else influence regulators to force their customers to buy. I prefer the former 🙂

  7. Here’s an alternate perspective on the whole topic:

    http://www.intelligentutility.com/article/10/07/rising-electricity-prices-and-value-delivery

  8. I think there are a number of aspects to consider here. Initial DR programs to some extent have to be fairly manual. In this way, they will educate the consumer about price and consumption of energy, something most energy consumers are blissfully unaware of at the moment. Once the consumer has that awareness, buying a system to automate DR will become an attractive proposition. This is where truly smart appliances all networked via a HAN really have their value – reacting to real time pricing in accordance with the consumer’s preferences. The controversial part is initiating this; fundamentally, this can probably be only done by imposing RTP or making it clearly less attractive financially staying on a fixed tariff. This has to be done in conjunction with a system to show cost and consumers have to understand why prices do vary and why load shedding is of benefit not just to the utility but also to the consumer, i.e. it can actually prevent blackouts due to overloading.

    With regards to your comments in a preceding article about a WiFi HAN – much work needs to be done to ensure that the WiFi component of this does not consume a lot of power, or else the justification for using them goes away very quickly. A NIC which is capable of transporting real-time video is probably overkill for an a/c switch. That normally means limiting transmit/receive power and this is where mesh networking using technologies such as 802.15.4 become much more attractive. With the work being done in the IETF, ZigBee and IPSO, these networks are also becoming IP-enabled and thus able to integrate seamlessly into the home environment

  9. Robert – my earlier comments regarding WiFi use for a HAN were in the context of the fact that many homes already have such WiFi systems in place so there would be no net increase in power consumption and, by leveraging existing infrastructure, the cost hurdle for installing the HAN would be lowered.

  10. Niall – many homes may have WiFi routers but there is no existing smart appliance network based on WiFi. Adding WiFi to something like an a/c switch or a thermostat may not be feasible and the current star topology of WiFi can be limiting, especially in Europe where there is a limit of 100mW EIRP.

  11. A new online article reports on a study of the impact of dynamic pricing models on low-income consumers. The study finds evidence that dynamic pricing actually benefits most low-income consumers, even in the absence of effective demand response for these consumers.

    http://www.smartmeters.com/the-news/1079-dynamic-pricing-and-low-income-customers-can-they-co-exist.html

    To quote from the article: “We find that a majority of low income customers can benefit even without responding to dynamic pricing programs because they use relatively less energy during the peak hours compared to the average customer. The percentage of low income customers who would benefit from dynamic pricing ranges from 65 percent to 79 percent depending on which specific rate design is being evaluated.”

  12. My vision is a little different. This country didn’t grow to where it is today by finding better ways at cutting back. It got hear with on the mantra of “faster, better, cheaper”. What we need is more power, for less money, where and when we need it.

    For homes and small buildings I would use a 4kW photovoltaic system, an electrolyzer and a fuel cell. During the day the PV generates enough hydrogen to power the fuel cell for the home power (100% renewable tax credits), at night, grid electricity at the lowest rates, runs the electrolyzer to make extra hydrogen for fuel cell vehicles (more credits) and backup storage. Now nearly all my energy needs are met without fossil fuels. Natural gas is needed only for cooking and heat. Total grid electricity used is about even though its now distributed to off peak hours. No gasoline required. No ice storm blackouts. Total CO2 is drastically reduced.

    The smart grid and RTP to make this as attractive as possible. Flat rate pricing takes away much of the incentive. I now see the smart grid & RTP as an enabling technology that can open up new opportunities. Hydrogen fueling stations could generate at night at a few cents per kW and distribute during the day.

    Capital cost has been the major barrier for this type of distributed production but that is going to change drastically over the next 1-2 years.

  13. @Richard

    Yes, I guess there is a lot of fascinating things we can do with an unlimited amount of capital. However, we have to make real trade offs about what is feasible and sustainable. This is why we are living with the reality that we have now.

    The real problem isn’t the current economies of scale, it’s that the technologies aren’t efficient enough to attract enough investors and customers (I’m talking private sector — We’re already throwing gov’t money at this to distort the market, and it still doesn’t work.).

    Don’t misunderstand, I think it will someday. But we have to face the fact that there is a lot of science, engineering, and hard work before your vision comes close to fruition.


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