[BETA] Fortnightly

Pilot projects are demonstrating the potential of smart metering and smart rates to make the most of supply and demand resources. But as empirical studies show, not all pricing designs are equally suited to every region.

Advanced metering and other smart technologies will allow more granular monitoring of conservation efforts, making them highly predictable for resource planning and system dispatch. Eventually, the smart grid will erase distinctions between wholesale and retail markets.

Energy efficiency holds the key to meeting lofty greenhouse-gas (GHG) reduction goals. Rate design can help—specifically residential inclining block rates should be considered as part of the industry’s efforts to comply with forthcoming GHG targets.

Achieving the smart grid’s potential requires a revolution in electricity pricing. Smart metering and smart rates might yield surprising and beneficial changes in the U.S. utility industry. But capturing those benefits will require an intelligent and careful approach to implementing dynamic pricing.

The advent of the smart grid is sparking interest in intelligent rate design. But while state and federal goals encourage more efficient rate structures, regulatory and political considerations complicate the process. Getting to a next-generation rate design will require a phased transition.

Despite overwhelming theoretical and empirical evidence, we aren’t seeing more DR when it is needed most—during emergency periods. The reasons boil down to two obstacles, both of which must be addressed before widespread DR implementation can move forward.

Does the volatility of the customer’s energy cost create much concern regarding the impact on the customer’s core business? One customer may be very comfortable taking on significant electricity cost risk to obtain electricity price and subsequent bill concessions. Another may be willing and anxious to pay a premium to accept less electricity cost risk than normal. Both of these customers, and all the customers in between, should be offered products that fit their needs, and these products should be priced upon sound risk fundamentals.

Advanced metering infrastructure (AMI) evaluations will benefit greatly from creating an appropriate DR portfolio as part of the overall solution.

In the Energy Policy Act of 2005 (EPACT), Congress sent a strong message to electric utilities, consumers, and industry regulators that they need to get serious about advanced metering, time-based rates, and demand response (DR).

To underline this point, EPACT states:

The “N-word” in the title first appeared in this journal more than 20 years ago, courtesy of the celebrated environmentalist Amory Lovins and his widely quoted piece, “Saving Gigabucks with Negawatts” (Fortnightly, 1985). Scroll forward a few decades. With restructuring of wholesale electric markets at FERC, plus formation of regional transmission organizations and independent system operators, the game was changed.

Does demand response increase or decrease overall electricity usage?