Real-Time Pricing: Ready for the Meter? An Empirical Study of Customer Response
Evidence suggests a decision point at 6 cents per kWh, indicating that self-generation becomes a highly viable option at that price
WHAT ROLE SHOULD REAL-TIME PRICING play in a deregulated electricity market? Can it serve as an incentive to induce customers to remain loyal to their power supplier? How do customers respond to price changes carried out under RTP tariffs?
Real-time pricing programs are now being used as a proxy for market-based pricing. The recently passed deregulation bill in Illinois directs utilities to develop and offer real-time pricing to all customer classes as a proxy for market based pricing. Utilities are offering "virtual" products that operate very much like RTP and are aimed at providing customers access to market priced power, while still retaining the customer. Even the newly instituted locational marginal pricing scheme in the PJM pool represents an application of RTP.
So far, however, the typical customer billed under real-time pricing has been a large industrial firm with a monthly individual peak demand of at least 1 megawatt and a 250-kilowatt demand peak coincident with the utility system peak. These customers are large and flexible enough to shift a major amount of usage from peak to off-peak periods when provided with appropriate financial incentives. RTP programs have not yet made it to the small residential customers.
According to a newsletter published earlier last year by the Electric Power Research Institute, somewhere between two-thirds to three-quarters of all electric customers respond to real-time pricing by shifting load when RTP is incorporated into utility rate structures.
According to EPRI, typical values for load shifts range from 0.02, for slightly responsive customers, to around 0.50, for the very responsive. Those customers that do respond show a load-weighted average of about 0.14 for within-day flexibility - a load response on the same day of the price change. Values for between-day flexibility typically run about the same. Thus, a doubling of the hourly price from a given reference level (i.e., 100-percent increase) will typically lead to a 14 percent shift in load from that hour to other hours of the day.
As a general matter, based on evidence from a variety of sources, one can say that certain customer attributes appear relevant in producing different levels of response to RTP across customer groups. One such factor is on-site generation. Nearly all RTP customers with on-site generation show a significant load response; parameters that measure customer flexibility tend to average anywhere from two to 10 times the values seen for other responding customers that cannot generate their own power. Another important factor is the previous willingness of a particular customer to nominate a portion of load as interruptible. Among those customers without on-site generation, those formerly designated as interruptible show a greater propensity (84 percent) to shift load than that exhibited by other customer categories (only 60 percent by comparison). Flexibility parameters for these previously interruptible customers average about twice the magnitude (.13) of comparable variables exhibited by the non-interruptible responders (0.6).
Moreover, industrial customers in certain SIC groups (Standard Industrial Classification) tend to show a