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During the dark days of early 2009, one of the brightest spots anywhere on the economic horizon was the smart grid, and more specifically, the anticipated full-speed-ahead, full-scale deployment of smart meters. The expected benefits were well-understood and significant: instant meter reads, quick bill settlements, and improved visibility into local outages. Smart meters also enable time-variant rates, which have the potential to smooth spiky load curves and thereby improve efficiency up and down the grid.
But a funny thing happened on the way to the future. Consumers in a growing number of markets have begun to express doubts and even anger about their smart meters. At the very least, this backlash threatens to slow AMI approvals and deployments. Thus we have Smart Energy Problem #1: How can we overcome consumer resistance to smart meters?
Then there is the unfulfilled promise of residential demand response. The opportunity is tremendous: in California, for example, residential air conditioning is the largest component of peak demand. In contrast to the situation in commercial DR, where a business may shed load by shutting down a manufacturing process, thereby creating explicit economic costs that must be compensated for with financial incentives, residential air conditioning can be trimmed with only a short-lived effect on comfort, and many affected homes are likely to be unoccupied during peak periods.
But residential DR has proven to be another difficult nut to crack. Aggregation of large numbers of small loads is expensive, and maintaining consumer satisfaction is a challenge. These issues have held residential DR to an asterisk on the overall DR market. As Bob Dolin, CTO of Echelon Corp., acknowledged, "Residential demand response has yet to prove that it works."1
Thus Smart Energy Problem #2: how can we effectively leverage residential air conditioning as dispatchable load?
I'd like to suggest that these two problems are really one problem. And I suspect that most readers of this publication will not like my diagnosis, because in both of the cases mentioned above, I don't think consumers are the problem.
When you read the list of smart meter benefits in the first paragraph, did you notice anything missing? Because something was, and usually is, missing from the list -- benefits to the consumer.
And when you read through the list of benefits flowing from residential DR, did the list look complete? Because the same vital ingredient is again missing. A consumer who asks his prospective DR aggregator WIIFM -- "What's In It For Me?" -- is not usually going to get a very compelling answer.
We should not lose sight of the fact that, one way or another, consumers are the ones paying for smart meters and AMI infrastructure, and they like to feel that they are getting something for their money. So the foremost question ought to be this: how can we make the benefits of having a smart meter and demand response tangible and quantifiable -- not to the utility, or at the level of a diffuse common good, but to the individual consumer?
In my view, the problem is not that consumers are ignorant or irrational. The problem is that, unlike the utility value proposition, the consumer value propositions for both smart meters and demand response have generally been poor. And the reason they have been poor is that the consumer has often been an afterthought. Given the way these products have been rolled out, I think it completely rational for consumers to insist on a significantly better deal than what I see them being offered.
When it comes to the smart grid, utilities have focused by and large on their own needs, and their own pain. There is nothing wrong with that -- it's what people and businesses alike tend to do. But we run into problems when we assume that others share the same concerns.
Take peak demand. The problem is very real, and the potential consequences dire. But the pain it creates is really at the grid level. Asking consumers to sacrifice their comfort to alleviate that pain is to rely on some combination of altruism and trust. While these are among the best aspects of human nature, they tend not to be a reliable foundation for solutions to broad social problems like pollution, global warming, etc.
And yet the value proposition for residential DR has in essence been this: "Hi, Mr. Jones. I'm from your friendly local utility/aggregator, and I'd like to turn off your air conditioner for a few hours during the hottest hours of the hottest days of the year. You'd sure be helping me and your community out, so whaddaya say?"
It isn't always quite that bad in reality, of course -- the request is often combined with a small cash payment. (As Dan Ariely points out in his excellent book, "Predictably Irrational," that might actually make things worse for many people -- for those who are willing to act out of altruism, an offer of payment can actually interfere with the altruistic impulse.)2 I am sure there are some people who are willing to offer up their homes and their comfort in pursuit of the common good. And I assume there are also people willing to sweat for a few days for $25. But I submit that as long as the problem is couched in terms of asking specific individuals to sacrifice for a common good, buy-in will remain an outlier.
We don't expect our utilities to change their behavior out of altruism. We shouldn't expect consumers to do so, either. I think that the right question to ask is, "Can we offer consumers a superior solution that aligns the their self-interest with the larger goals we have set?"
Fortunately, it turns out that the answer to that question is an emphatic "yes!"
One of the keys to a win-win solution is to recognize and overcome the fundamental limitation inherent in the way residential DR is usually implemented. That limitation is hidden in plain sight in the name it is usually given -- load-shedding.
When an individual homeowner's air conditioner is recruited into a conventional DR event, the system neither knows nor cares about how the event will affect the temperature inside his home. The load is simply turned off, or cycled at a reduced rate, or the setpoint is raised an arbitrary amount. In each case, the net effect is that the temperature drifts outside the consumer's comfort zone for a few hours. Demand is reduced, but so is comfort. The "no pain, no gain" paradigm applies.
This load-shedding strategy fails to account for the home's individual characteristics or the conditions in the house prior to the DR event. It also fails to anticipate the impact of the DR event on those conditions once the event has ended.
In computer geek-speak, most residential demand response approaches are roughly analogous to stateless applications -- they operate without regard to conditions preceding their operation. But houses are not stateless. Conditions change, and they matter -- they affect comfort both during and after DR, and they affect the extent to which a given home will be able to contribute to a reduction in peak load. More importantly, the state of a given home is not a given -- it is constantly changing.
Traditional DR assumes that state is irrelevant, or at least unknowable. I would like to challenge both of those assumptions. I believe that understanding the state of each home as it changes over time is not only possible, but essential.
Stateful applications are now commonplace in computing. It is not difficult for Web applications to "remember" you and recognize whether or not you are signed in, etc. In contrast, the thermal state of a building is both complex and impossible to directly read. But that does not mean that it is unknowable. And the state of a building such as a single-family residence can be determined with surprising accuracy with just a single, low-cost sensor.
It is possible to optimize pre-cooling strategies on a house-by-house, day-by-day basis in order to deliver both demand response AND consumer comfort. What's needed are three essential pieces of information: the effective size of the "thermal battery" that a specific house has available on a given day, some knowledge about the consumer's preferences for temperature, and the price of energy over the course of the day.
In other words, we are not limited to straight load shedding, with its attendant zero-sum effects on comfort. We can, to the extent permitted by a given home, shift load out of the peak period. And we can reduce or even eliminate the discomfort associated with such shifting.
Because no home is perfect at energy storage, there is some increase in overall energy use with any load-shifting strategy. But most consumers are not especially interested in how many kilowatt-hours they use; they are interested in saving money.3 Relatively small differentials between peak and off-peak rates can make load shifting economical for consumers even without direct DR payments.
The implications of this capability are wide -reaching. Air conditioning is often the largest component of the consumer's electricity bill. The ability to shift a large percentage of its usage from high to low price periods creates an opportunity to for significant savings. The ability to accomplish that shift automatically makes that opportunity attractive to a large percentage of users who are not interested in carefully monitoring the price of electricity.
So let's go back and revisit the two big problems facing the smart grid.
As long as smart meters are perceived as components of the smart grid of the utilities, by the utilities and for the utilities, there will be some consumers who view them with suspicion. And even a few angry consumers can derail our lofty ambitions for a 21st century grid. But if smart meters can be positioned as a tool that empowers consumers to significantly reduce their energy bills, automatically and without sacrifice -- and if they can be proven to actually deliver on that promise -- the ground shifts beneath us all.
As long as the solution to peak demand is a form of suffering to be imposed upon ratepayers, we will have to rely on the civic virtue of the few, and bribe those we cannot flatter, to get them to participate in DR programs. But if the reward for load shifting is substantial economic benefit, and if that benefit comes largely without sacrifice, enough consumers will embrace this approach as a reliever of consumer pain that significant percentages of aggregate demand will begin to shift, and the need to pay customers not to use electricity will largely disappear.
In sum, I think that demand response and smart meters will continue to meet resistance from consumers as long as (a) they are presented as standalone technologies and (b) the problems they are optimized to address are not consumer problems. But when these tools are rolled into a complete solution aimed at delivering what consumers really care about, I believe utilities will end up with things they really care about -- a more manageable load curve, and consumer acceptance of the smart grid.
Footnotes
1. "Demand Response: The Home vs. C&I Debate", Cleantech Media 4/9/2009. Click Here
2. Predictably Irrational: The Hidden Forces That Shape Our Decisions (2008)
3. There is the possibility of negative GHG effects from an increase in energy use. But the real-world application of these strategies is likely to reduce GHG emissions, because peaking power plants tend, by definition, to be the worst offenders from an efficiency standpoint. In other words, the last kilowatt of electricity ordered up from the last peaking plant brought on line on a hot August afternoon is likely to be substantially dirtier than the baseline power employed when a load is shifted.
For information on purchasing reprints of this article, contact sales. Copyright 2013 CyberTech, Inc.
A very well written article that gets to the heart of the issue. Air conditioning is, in fact, the biggest driver of peak demand in most of the country today. Rational prices that reflect grid conditions, a little automation, a little creative thinking and a healthy dose of consumer education are all it takes to solve this trivial problem. Assuming, of course, that consumer advocates, regulators and politicians can ever bring themselves to stop "protecting" consumers.
Len Gould 6.30.10
A good article, though I notice immediately that it still carefully protects to jobs of price regulators, imho an obsolete function see IMEUC.
Roger Levy 6.30.10
Excellent article, however your comments regarding the customer value function still understate a key part of the problem. Utilities are in business to serve customers, not themselves. Consequently, the customer value function should be the first and highest priority. If customers are willing to shift or reduce load and reduce system costs and congestion, great. If customers aren't willing to shif or reduce load then there are two remaining choices: (1) provide the capacity and price it accordingly, or (2) politicians and regulators can step in and decide whether we stay cool or start to sweat.
Jerry Watson 7.1.10
Roger
Investor owned utilities are not in business to serve customers, they like all for profit investor owned businesses exist to increase shareholder wealth. Their actions are predominantly prudential in nature and as a whole are skewed towards doing the most possible for the bottom line. IOU’s and even many Munies, like used car salesmen, talk a good line but their actions often reflect different motives. My personal favorite scam is smart meters and seasonal Time of Day (TOD) rates or sliding rates based on time of day and time of year. My guess is future plans will look a lot like the current plans that most utilities currently offer except the utilities will get regulatory buy in and make these plans the actual base rates. Like current plans the off peak prices will be slightly cheaper around 75% of current cost, the peak periods will 200% of current with random critical periods at 600%. The shoulder hours will be at the current levels. What this means if one organizes one’s life around his/her electric bill they will save maybe 10%. The vast majority will pay 25% or so more and the utilities will keep it as return on the investment in the Smart Grid Technology. The winners will be the utilities, consultants and software vendors not ratepayers. The losers will be ratepayers and taxpayers and the whole sad affair will celebrated as success for the rate payers. In truth, I like TOD rates it is the scaling that I disagree with. Off peak should be fuel only recovery since there is and excess of capacity, capacity should have little value. Off peak should be 30%-40% of the of current rates. The shoulder hours should be 80% since again capacity is more than adequate. I feel the 200% peak rate is on target for the winter period and shoulder months and could be persuaded that increasing it to 300% for the summer was necessary to give correct incentives. Then those willing to schedule their lives around the power meter could cut their utility bills by half. Even lazy consumers like me might invest in high efficiency air conditioners and a little thermal storage to keep power bills in line with current levels. I am opposed to the critical period rates of 600% or any non predictable rate. These subject consumers to random convergence points and pass the cost of poor planning and or poor maintenance to them. I am also opposed to any type of real time pricing it is complex and requires home automation to be useful. Also real time prices can be and have been manipulated in the past. Using them will breed further manipulation it is just too easy to do. Also, I am guessing the author has some software and automation devices to sell to home owners to help them with intelligent load shedding.
Jack Ellis 7.2.10
It appears we could have an endless debate about the feasibility of real-time prices. Here's my personal situation: I'd sign up if I could get it, even though it's almost impossible for me to benefit because we do not have appliances that could take advantage of dynamic pricing (no air conditioning, gas heat and hot water, gas cooking). The price differentials have to be larger than they are today if that's what system conditions require.
Having been on a TOU rate for nearly 15 years, I can tell you they are exceptionally annoying. In our old home, cooling was electric and during the summer, we'd typically make sure cooking was done outside the peak demand period, but the thought of having to eat a cold meal for dinner on otherwise mild days if my wife forgot to do the cooking outside the peak demand period always irritated me.
Besides, all of the empirical research to date suggests there are lots of customers who would be happy to adopt dynamic pricing and buy suitably priced automation if it saved them money. Let's at least allow those folks an opportunity to try something different. In other words, let's make this stuff available and allow people to try it rather than pushing it on them.
Edward Reid, Jr. 7.4.10
Jerry Watson,
"Not always right, but never in doubt."
"The trouble with our liberal friends is not that they are ignorant, but that they know so much that isn't so.", Ronald Reagan
You might want to learn about how utilities are regulated and operated before expounding publicly on the subject, especially in a forum such as this.
Ed Reid
Bob Amorosi 7.6.10
The author has it right saying the "consumer has often been an afterthought" for any benefits of smart metering and demand response initiatives.
If utility companies were to SELL smart meters and home automation technology to individual consumers, and also provide some education on how to use them to save money on their energy bills, there just might be more willingness on consumers to take some ownership of this stuff and participate willingly. Sadly most utility companies have little interest in doing this because they are regulated i.e. they will only pursue whatever regulators ALLOW them to commercialize to individual consumers, and in most places this is simply energy, not technology or education.
It's sad when you consider CATV and telephone service providers have successfully developed businesses for decades providing basic services to residential customers as well as selling and supporting optional in-home technology and optional services to any customers that want to buy them on top of their basic services. The root of the problem in the electricity industry is regulators need to wake up and permit utility companies do the same.
Len Gould 7.6.10
Ed: You should read George Friedman's "The Next Hundred Years". He's founder of Stratfor, an independent geopolitical forecasting company It will if nothing else, convince the reader that strongly held political positions are meaningless and pointless in US politics, and in fact the solutions to the regular 50-year economic crises which upset the US economy are dictated by events and implemented by whichever political ideology happens to hold power at the time required. An insightfull author, even if, I think, over-reaching in his predictions of the future.
"Written with the keen insight and thoughtful analysis that has made George Friedman a renowned expert in geopolitics and forecasting, The Next 100 Years presents a fascinating picture of what lies ahead."
Len Gould 7.7.10
1880's - problem was international distrust of US currency, solution was implement gold standard to re-gain international investor trust.
1930's - problem was gold standard which excessivly limited circulating currency, solution obviously was drop gold standard.
1980's - problem was adherence to Galbraith economic theory and excessive corporate taxes, solution was "Thatcherism / Reaganomics / etc".
2030's - problem will be the "mushroom demographic" (too many retirees, too few workers), solution will be open immigration, attracting latino esp. Mexican immigrants.
2080's - problem will be "Mexicanization" of entire southwest, it attempts to split off and re-join Mexico, from where it was taken in the 1800's.
Say something or say nothing, but no need to waste the effort saying something that means nothing. Just a few facts would nice.
Personal I do not care what Reagan may have said, If memory serves he was a career politian/actor.
Also, I am guessing I know as much about the grid and utilites as you. I was NERC certiifed as a reliability coordinator for five years and PJM certified as Generation operator another five. Also I both marketed and dispatched a plant ERCOT for an IPP. What are your credentials?
Michael Keller 7.7.10
The driving force behind "smart" meters is to enable utility companies to make more money by selectively charging higher rates, pure and simple. To suggest otherwise is disingenuous.
For the consumer, the bulk of energy usage is heating and cooling related, which is more or less not particularly affected by "time-of-use". When it is too hot (or too cold) in your home, you want the air conditioner (furnace) “on”. A programmable “set-back” thermostat is an inexpensive way to minimize HVAC use when no one is home … no “smart meters” required.
Running a dish washer or washing machine in the middle of the night is an inconsequential use of electrical energy on a relative scale and is a poor justification for “smart meters”.
Very efficient gas turbines (aero derivatives) in conjunction with combined-cycle plants are readily capable of providing reasonably cost effective power during peaking periods
Rather than waste money on smart meters, a more rational policy would be to (1) replace the vast numbers of older and inefficient heating & cooling air machines with more efficient machines (2) phase out the older and inefficient heavy frame combustion turbines used as peaking machines and replace them with more efficient units.
Edward Reid, Jr. 7.7.10
Jerry Watson,
Retired utility Vice President, Marketing. Retired industry center Executive Director. Energy consultant since 1997.
Ed
Len Gould 7.8.10
Michael Keller:
1) "The driving force behind "smart" meters" -- I don't think so. Its mainly a way to increase the utility of the present large investments in AMI etc. As long as they are spending 75% of the mioney with a genuine near-zero return for the customer, we should have our regulators force them to implement something like IMEUC which would then give you direct access to wholesale market prices.
2) "A programmable “set-back” thermostat is an inexpensive way to minimize HVAC use when no one is home … no “smart meters” required." -- I disagree. The smart meter is required to penalize those who refuse to install or use the setback features and to reward those who do, eg. market-based incentive system.
3) "Very efficient gas turbines (aero derivatives) in conjunction with combined-cycle plants are readily capable of providing reasonably cost effective power during peaking periods " -- I disagree. Gas turbine plants are either combined cycle and very efficient and quite expensive OR simple cycle and cheap to build and useful as peakers ONLY. Not both.
Michael Keller 7.8.10
Len, 1. Not sure what you are driving at. However, doubtful that consumers would have any great desire to access the wholesale power market place -- it's pretty complicated.
2. "Penalize"? As decided by who? Some government bureaucrat? If a consumer wants to spend more of his own money buying power, that's his choice. Your liberal "control the masses" tendencies are showing. A "set-back" thermostat costs around $25 (and is easily installed by the consumer), which is orders of magnitude less expensive than a "smart meter"
3. Combined-cycle plants can maneuver down to roughly 60% load. As such, they can accommodate load swings associated with daily peaks. Combined-cycle plants are, (hands-down), the lowest cost large power stations to build.
The General Electric aero derivative LMS 100 is about 38% efficient, a LM6000 about 36% efficient while a newer heavy frame machine (7FA) is about 33% efficient while older machines (Frame 5) are about 26% efficient. The heavy frame machines are superior to aero derivatives when used as combined-cycle machines because their turbine exhaust temperatures are much higher, enabling them to approach 55% efficiency. By contrast, aero derivative machines used in a combined cycle application are perhaps 44% efficient. These are all real world numbers (higher heating value of natural gas with the machines "used", as opposed to brand new).
A "peaking plant" operates for around 2200 hours per year, which makes the simple cycle machine the more cost effective option. If the operating hours are appreciably beyond that, then the combined-cycle plant becomes the more cost effective option. If the hours are somewhere in between, converting an aero derivative simple cycle machine into a combined cycle plant can be a cost effective option.
The combination of combined-cycle plants that can maneuver and efficient simple cycle machines can (and already does) provide for reasonably cost effective power during peaking periods.
Mike
Jerry Watson 7.8.10
Mike,
WOW, Someone with expertise I am impressed. I have worked at a LM6000 based simple and combined cycle plants and a 7FA based combined cycle. To boot I am about to get some M501F experience. Your numbers look good we are expecting around a 48% efficiency or 7000 heat rate HHV. I marketed power from a 7EA plant and it was more a efficient combined cycle unit than a LM6000. But I love the LM6000s fast loading and cycle tolerant little machines. I was impressed with them as peakers. I would like some exposure to Prat FT8s, I here there are great machines but I do not have any personal experience with them.
David Parsons 7.8.10
As a consumer, I do not like anyone else controlling anything in my house but me. I think I would reject any type of outside control except in an emergency situation such as a short time problem that would lead to load shedding. If the price of the electricity could relate to actual production cost one could build storage into the loads, such as ice storage to offload cooling demand for a while. If general estimates of savings cannot be estimated for different time frames, how can consumers justify the increased costs of appliances, etc? Do you buy a half hour box or an 8 hour box or just forget it all and buy a backup generator for the rolling blackouts? I think a lot of people are buying generators today. In my mind, a smart grid should be able to include smart pricing also.
Don't get me wrong, I do have a crude understanding of power generation and demand. I really don't have any idea how someone could go about a fair way of pricing electricity, but if you wand mass acceptance of adaptive loading, things need to move in this direction. I think a lot of people may see electric supply as something like the stock exchange. The stock exchange even talks about thier trading stops as " circuit breakers" . Just my slant on "food for thought" Try not to take my comments personally.
Michael Keller 7.9.10
Jerry, I've always been partial to the heavy frame machines because they are usually pretty forgiving, although I've also worked with a number of aero derivative machines (LM's, FT-4 & 8's and several Solar machines). I'd tend to characterize the heavy frame machines as big plow horses while the aero derivatives are more like race horses (a little tempermental at times), but fun to operate.
In any case, I'll take gas turbine power plants over coal and nuclear plants any day -- the later (which I've also run and worked with) are pains in the butt to operate and manage for a variety of reasons.
Mike
Len Gould 7.12.10
Micheal: 2. "Penalize"? As decided by who? Some government bureaucrat? -- No Micheal, the purpose of this design (IMEUC) is to keep bureaucrats OUT of the market, and the only way to do that is to provide direct market negotiation between generating entities and end customers. The penalizing comes in the form of higher prices paid for on-peak consumption plus penalties paid for incorrectly estimating next-day consumption (estimating entirely done by the "outrageously more expensive than a thermostat" ;<) smart meter. (The replacement cell phone my phone company GAVE me last month is much more capable than required.)
Michael Keller 7.12.10
News Flash Len. The vast majority of consumers have no interest in complicated IMEUC schemes. They just want reasonably priced power and have little time (or patience) for "playing-the-market".
Bob Amorosi 7.12.10
News Flash Michael. The vast majority of "market players", including those that trade on the stock market, don't sit in front of a screen 24/7 to make decisions. In the modern world, software tracks and monitors market prices, trends, and in many cases makes the decisions on when to buy or sell.
In Len's IMEUC proposal, software would automatically communicate with the grid and with your automated home appliances to decide who to buy electricity from and at what price, for how long, and when it's acceptable to shed a load or increase load, all based on user-defined parameters in software that the customer can update whenever he has time to.
Welcome to modern computer and electronics technology Michael. BTW what I've just described too isn't even that sophisticated or demanding of technology by today's standards.
Jim Beyer 7.12.10
Michael,
The vast majority of utilities would LOVE to have the option of turning off non-essential consumer power uses, as this would save them $$$ during the 100 or so hours per year that can cost them up to 10% of their annual fuel and operating expenses (extreme peak usage). So there is a definite push on the utilities part to have these things.
IMEUC represents an attempt to implement the same sort of thing with something other than a "big brother" approach. The two strategies need not even be mutually exclusive. If you don't want big-brother-utility turning off your stuff at their whim, then you can abide by the real-time pricing and act on your own.
Michael Keller 7.13.10
Golly gee ... think how much money for fuel utilities could save by turning off the power for 2 hours a day! Or better yet, 24 hours a day!
Power trading models used with the transmission systems are already quite complicted and now we are going to move them down to the level of individual houses? Use of the trading systems is not "free" either, with hundreds of personnel involved (see number of employees at say, Midwest ISO) and associated costs tacked on to each transaction.
I strongly suspect the IMEUC "scheme" is really just a front for those attempting to control greenhouse gas emissions by dictating to the consumer when and how much power "big brother" believes should be used, with most Utilitiies more than happy to "aid and abet" the scheme because they can make more money easier than in the past.
As I pointed out earlier, "smart meters" are not needed by the consumers.
How about utilities provide power as required by users, just like they always have? The generation facilities are designed to do just that.
Bob Amorosi 7.13.10
Michael,
IMEUC would not change how real-time prices are set at the wholesale generator level. The real-time wholesale prices would still be open to competition between generators under IMEUC as they are now, but instead of bidding prices to grid operator, they would be offered directly to consumers. There would be no "big brother" involved at all in setting them. Under IMEUC consumers would then have a CHOICE of generator prices at all times, something we don't enjoy now under price regulation.
Smart meters would be necessary under IMEUC to track detailed time-of-use such that the appropriate billing could be assigned for whatever generator is contracted by the consumer’s software and for whatever (variable) length of time he uses it.
Furthermore greenhouse gas emissions has nothing to do with IMEUC. It is a "scheme" that would permit consumers an electronic method of shopping for the best electricity prices they can find 24/7, and practicing their own demand responses according to their own criteria for doing so. The whole idea would be to permit consumers a way to minimize their energy bill efficiently without having to sacrifice control over their environment or practice draconian conservation measures.
Another reality you seem to be blind to is that the days of utilities providing power "as required" by users is slowly coming to an end as demand will outstrip supply in the years ahead.
Jim Beyer 7.13.10
Quote from Dan Delurey, Demand Response and Smart Grid Coalition:
Mr. DELUREY: "Something that most people are surprised to hear is that 10 to 20 percent of the overall electricity costs in the U.S. come from the top 100 hours on the electricity system."
This guy obviously has his biases, but I've read similar numbers elsewhere. Given these costs, I don't think re-examining the "provide-the-demanded-electricity-at-all-costs" paradigm is out of bounds. Every other consumer commodity responds to supply and demand. Electricity is a special sort of commodity, that's understood, but some notion of cost variation during times of high demand seems reasonable.
Bob Amorosi 7.13.10
Jim,
There's more to simply beefing up generation capacity if supply were to keep up with future demand in general as distribution capacity bottlenecks at the local grid level are a big problem also.
Already in California some utility people are reported as quietly terrified of looming brownouts as more plug-in electric vehicles appear. In some urban neighborhoods it is predicted concentrated clusters of more affluent consumers that can afford the initial higher prices of electric vehicles will be the first to buy them, and the fear is there will eventually be pockets of localized overloading of transformers and feeders. As one utility official said, a plug-in electric car is equivalent to adding a second air conditioner (or more) to a house's energy demand when it's being recharged.
I fear it would ultimately be horrendously expensive to maintain a “provide-the-electricity-at-all-costs” paradigm.
Bob Amorosi 7.20.10
Currently there is no incentive for regional distribution utility companies to pay for expanding the capacities of long-distance transmission lines and / or their local distribution grids. Regulators in fact try to keep a lid on rate increases for any reason, let alone the potentially horrendous costs of these.
There is a way perhaps to give them an incentive but it would mean a drastic change in the regulation of utilities. If permitted by regulatory reforms, local distribution utility companies might / could make extra money from commercializing residential renewable source micro-generators, and smart grid products and smart grid communication services to residential customers. They could help individual customers with buying a rooftop solar PV or solar thermal, or geothermal system, and even make money with clever marketing by e.g. offering consumers temporary discounts on rates, and / or possibly free electrician help to hook-up to their local grid in return for getting a piece of the action i.e. a share in the profits whenever the customer’s micro-generator sells power back to the grid.
This extra money earned could help finance the cost of beefing up local urban distribution networks and / or towards adding more long-distance transmission lines to handle much more distributed local generation capacity and higher local grid loading. But this is probably wishful thinking unfortunately because the necessary regulatory reforms would need our governing politicians to change regulator's mandates, and a drastic change in utility company business models; much easier said than done.
Dean Tibbs 10.1.10
The problem the author is describing is much deeper and more pervasive than he seems to recognize. Customer value is not considered by utilities in any context. It is just more blatantly obvious than usual when utilities reach past the meter and demand something from the buyers of electricity. Reality is that utilities do not have customers. They have rate payers.
Companies with customers need to delight those customers, at least to some degree, to get money from them. So customer value is the starting point. Utilities must delight regulators to get money from the regulators, who in turn order those who use electricity to cough up. Delighting regulators is the utility's first priority. The second priority is maximizing rate base because that is how profit is maximized in a reliable fashion. Maximizing rate base and minimizing the grid's capital efficiency are just two sides of the same coin. So the grid is the most capital intensive industry, and there has been no consistent effort to maximize its utilization. Utilization is the key to efficiency and attractive prices in a high fixed cost industry.
Regulators have attempted to impose some form of reduction in air conditioning needle peaks with mandated DR programs and bribes for utilities to implement them. The utilities, therefore, delight the regulators by doing as they are told, with care to insure the utility does not accidentally promote any innovation that would significantly increase grid capital efficiency. Smart meters are attractive toys so regulators and politicians have promoted them without a clue as to what can be accomplished by installing them. They are billions in new rate base so the utilities delight in pushing them down rate payers' throats. But residential rate payers are suspicious that regulators cannot push the utility string enough to provide better customer value by optimizing prices and service.
Anyone want to bet the regulators will prove the rate payer suspicions wrong? I will take the other side. Mr. Steinberg merely needs to reverse the industry incentives and culture to solve the problem he has recognized. But even then, it is not clear that the most brilliant and enthusiastic efforts can get a reasonable payback for the high cost of smart meters in the residential market.
