14
Jul

Can Smart Grid succeed without dynamic pricing?

categories Blog, Public Policy and Regulation, Roadmap Development

 
4 Comments

Recently announced results from a survey circulated to regulatory commissions suggest a concerning—if not altogether surprising—scarcity of dynamic pricing programs across the U.S. Specifically, among 41 state PUCs or other regulatory agencies who were surveyed this past spring, a whopping 83 percent responded in the negative to the question of whether their states will require utilities to include a dynamic pricing model as part of smart meter installation plans. Included in the same survey, among 121 responding utilities just under half indicated that dynamic pricing was an integral part of their smart meter implementation. So one conclusion that may be drawn from this: In the absence of mandatory programs, utilities generally do not appear to be pushing for these programs on their own.

Again these numbers may not be surprising—the general lack of support for dynamic pricing has been broadly discussed—but the long-term ramifications that the numbers suggest are rather staggering. If an inherent component of a smart meter is its ability to enable dynamic pricing programs (whether they be TOU, CPP or RTP) and yet under half of utility smart meter implementation plans offer a DP option, can the full benefits of the smart grid truly be achieved?

I won’t use this forum to argue the pros and cons of dynamic pricing programs as that has been done extensively elsewhere. I also will bypass the debate over mandatory dynamic pricing programs and whether they are effective or not, including the impact of decisions such as the CPUC “opt out” policy that gives customers in PG&E’s territory who are opposed to smart meters to the right to refuse one. Rather, at this moment, I am more interested in the questions that remain unanswered but certainly will shape the future of the smart grid sector: Can the benefits of smart grid that have been extensively vetted and calculated in numerous business cases be achieved without dynamic pricing program going hand in hand with a broader smart grid initiative? What happens to the multi-billion-dollar utility investments in new technologies if customers have the option of rejecting smart meters that will enable those technologies to successfully operate? Can dynamic pricing programs themselves succeed if large segments of customers are precluded, obstructed, or otherwise disengaged from participating in them? And, perhaps most importantly, if a number of pilot programs that have included dynamic pricing suggest that customers who are provided accurate price signals and the necessary technology to affect change are responsive to changing their consumption habits…Why are dynamic pricing programs still so difficult to create?

By: Will McNamara

Leave Comments
  1. Chris Lewis
    July 14, 2011 at 11:37 am

    Will,
    Thanks for this post – I think you’re questions are great. Here is my humble opinion.
    DM Programs are only as effective as the economic stimulus (positive or negative) that they create. Even some of the best programs I’ve researched can provide homes the equivalent of a cup of coffee a week of savings. Without large price increases the economic stimulus is not material enough to peak the interest of any more than the early adopter group.
    If the utilities are serious about achieving peak-shaving benefits from smart grid they should better create rates that encourage micro generation and storage through solar and EV specific tariffs.

  2. Will McNamara
    July 18, 2011 at 1:17 pm

    Hi Chris! Thanks for your comments. I agree with you that the effectiveness of DP programs relies heavily on the economic stimulus that is associated with them. I also think that education of consumers is really key to the success of the programs. I am encouraged by the results of various pilot programs indicating that customers, when they are provided adequate information about the new rate designs AND able to access the technology needed to control their usage, not only understand the dynamic tariff but they are willing and eager to respond to the new tariff with modified behavior. As the intelligence captured from these various pilots is now readily available, I sure hope utilities and regulators are studying these results as they build their own unique programs. Thanks again for your comments and I will continue to blog on this issue.

    Will

  3. Juan Ramon
    September 28, 2011 at 6:22 pm

    Thank you very much for your post and comments I agree almost fully. From my spanish point of view I think the knowledge that people in general has of energy metering is very small, and if we talk about Smart Metering is null.

    There is a huge work to do to educate citizens to be concerned about energy usage, but the lever to motivate them to move into this concern is to deploy DP to flatten peak demand through really cheap energy rates at those intervals where power Generation is cheaper.

  4. Rex Arul
    May 9, 2012 at 10:56 am

    The 800-lb gorilla in the room for the lack of zeal in promoting DP is the dearth of DP talent within the Utility workforce. Talk to vendors and utilities, you will immediately grasp what is primordially at stake here: talent in designing dynamic-pricing rates. At least, that is one main factor, I have keenly observed in this space. Besides, we have a do-it-now,think-about-others-later factor too, which only means the push for DP may well be delayed. However, addressing the talent issue is going to be one of the most critical factors.

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