(October 2009) In his article “Paradox of Thrift, author James M. Seibert looks to be calculating his average service lives as the reciprocal of depreciation rates, whereas utility...
Letters to the Editor
not shift the peak demand to the present off-peak period and require the building of hundreds of base load plants?
This year for Christmas I’m going to send all progressive politicians and dynamic pricing warriors an explanation of a utility’s load duration curve.
New Haven, CT
The Author Responds: Mr. Lundrigan argues that dynamic pricing programs are a trap, which simply swap one problem for another. In other words, while they may be effective at reducing the need for peaking capacity, they will create a need for more off-peak capacity. This is not consistent with the empirical evidence on dynamic pricing, which has consistently shown that dynamic prices reduce peak loads without significantly affecting off-peak loads. Indeed, in some cases, dynamic pricing has been shown to result in overall conservation of energy, especially when it is accompanied by enabling technologies such as smart thermostats and in-home displays.
As for the potential boost that dynamic pricing may provide to plug-in hybrid electric vehicles (PHEVs), it will be several years before they make a significant dent in the automotive market. Even in the most optimistic projections, PHEVs capture only half of the passenger vehicle fleet market by the year 2050. Experts have opined that even then the off-peak load created by these vehicles will not require new baseload capacity to be constructed, given the current surplus of generation during off-peak hours. Furthermore, PHEVs will reduce our dependence on foreign oil, reduce carbon emissions and provide net social benefits. In net terms, PHEVs will yield positive benefits.
Even if that were not the case, is Lundrigan suggesting that building base-load generation capacity is the only way to meet an increase in base-load demand? That is indeed how business was transacted in the 20th century. But that is not the way of the future, in which a smart power grid, by offering dynamic pricing signals to consumers and producers, will enable variable, non-dispatchable energy sources such as wind power to serve base-load demand.
If the industry continues to insulate customers from the true cost of power, selling it through “flat and static” rates, it will continue being forced to use subsidies and quotas to achieve the goals that a new generation of consumers have set for themselves in terms of demand response, energy efficiency, renewable energy, carbon mitigation and energy independence.
Ahmad Faruqui, Ph. D., The Brattle Group