Not all power is created equally. So why does it all cost the same?
Like many at RMI, I care about climate change and reducing the carbon intensity of the electric grid. I also care about my monthly electricity bill, and I鈥檓 keenly interested in keeping it as low as reasonably possible. If there are things I can do as a homeowner to tackle both topics, I鈥檓 all for it. And so, for example,听听my home鈥檚 incandescent light bulbs for energy-efficient LEDs; they鈥檝e reduced my monthly consumption and bill in one fell swoop.
But until earlier this year, there was a big elephant in the room鈥攐r, more accurately, mounted to the wall: our thermostat. It was old, with a broken screen so that we couldn鈥檛 read what setting it was on. My wife and I pressed the temperature up and down buttons until we got the house to what we thought was a comfortable temperature鈥攚ithout knowing exactly what the temperature was鈥攁nd then simply pressed the 鈥渉old鈥� button to keep our house at that temperature, 24 hours a day, 7 days a week. It鈥檚 a horribly inefficient (and expensive) way to condition a house, yet we muddled along that way for far too long.
WHEN AC AND PEAK GRID DEMAND COLLIDE
Finally, at the beginning of the summer we bought and installed a new programmable thermostat. I eagerly set up weekday and weekend programs designed to keep the house comfortable when we needed it to be, and operating in a low-energy mode when we didn鈥檛. My wife is home with our young children during the day, so we don鈥檛 have the same opportunities as some folks to put their house into an energy-saving 鈥渁way鈥� mode during the work day, but we still did what we could.
Even during summer, where we live in Colorado gets nice and cool overnight, so we鈥檇 turn off the AC system and open the windows. In the morning when I woke up before work I鈥檇 close all the windows to lock in that cool air while the outside temperature climbed as the day progressed. The AC system, meanwhile, was programmed to turn on around noon, working hard through the hottest hours of the day to try and keep the inside of our house comfortable. Then the system would turn off later in the evening, after the sun had set and the outside temperature started to drop again.
That was all well and good except for one problem: such a schedule directly aligned my home鈥檚 AC use with the听听during the summer months. If you look at the grid鈥檚 load profile for residential customers like me during the months of July and August, demand really starts to climb around noon, peaking somewhere in the 6:00鈥�8:00 p.m. range before tapering off to a low around 4:00鈥�5:00 a.m. the next morning. By overlapping that load profile for the grid, the thermostat program I鈥檇 so enthusiastically set exacerbated peak demand and thus two issues I was trying to help fix: 1) By exacerbating grid peak I was helping force my听听to call upon less-efficient听 peaking plants (translation: more carbon emissions). 2) Those peaking plants are also pricier sources of generation, incurring added costs for my utility, and obliquely, eventually for me and other customers.
EXPERIMENTS IN PRE-COOLING
But then, inspired by a conversation I had with Jim Avery from California utility SDG&E, I decided to do something about it. I resolved to shift my AC demand, and set a new thermostat program to make it happen by precooling my house and minimizing my AC run time during the grid鈥檚 peak hours.
We still opened our windows at night and shut them in the morning. But now we ran the AC system during the mid to late morning, before grid demand started to climb and when our AC wouldn鈥檛 have to fight against the hottest hours of the day. During summer we like to keep our house around 75 degrees Fahrenheit, but now we precooled the house down to 70. When noon rolled around and grid demand was starting to climb significantly, however, our AC system was off. Instead of the system kicking on to work hard at cooling the house back down to 75 in the face of a 95-degree summer afternoon, we sat back and watched as鈥攈our by hour鈥攐ur home鈥檚 inside temperature slowly climbed back up to 75 from the pre-cooled 70. Later in the afternoon when our AC did have to turn on and do some work, it was cycling on and off, simply maintaining the house at 75, rather than running at full blast for hours on end during grid peak.
听
Normally I鈥檇 be tempted to celebrate this as a personal victory. We successfully shifted our AC demand to largely avoid system peak. But alas this story doesn鈥檛 have a completely happy ending. You see, aside from my personal motivations to make this happen, I should be financially incented by my retail electricity price structure to do things like this, but I鈥檓 not. My utility offers most residential customers a single rate option: an inclining block rate. I pay a per-kWh price for the first 750 kWh I consume each month, and a slightly higher price for the next block of kWhs above that. It doesn鈥檛 matter when I consume those kWhs, so the fact that I shifted my AC run time from grid peak to off-peak hours had zero impact on the price I paid for that electricity.
THE OPPORTUNITY OF TIME-OF-USE PRICING
As my RMI colleagues who wrote听听noted in their eLab paper, however, it鈥檚 time to evolve beyond the bundled, block, volumetric pricing utilities like mine continue to offer. We鈥檙e due to make a decisive move toward increasingly sophisticated electricity pricing, including time-of-use pricing that would financially incent customers like me to shift my energy management in ways that can benefit both me and the grid, like with precooling a home during off-peak hours.
It鈥檚 not such a big leap to offer customers a rate option that emphasizes that when you produce and consume electricity matters. Some utilities do offer optional time-of-use pricing programs, but such offerings are far from universal (witness my local utility and many others that don鈥檛 offer it) and far fewer customers are opting in to such time-of-use pricing than could be. More utilities should start offering a time-of-use pricing option for customers, and utilities can take another step and make time-of-use pricing adoption more widespread by making it the default structure with a chance for customers to opt out to a 鈥渞egular鈥� rate.
Such a time-of-use rate should be sufficiently granular as to make meaningful differentiations across times of day, and those blocks of time should correspond to real differences in cost of service based on demand during those times, not simply blocks of time for their own sake. In New York City, for example, utility ConEd offers electric vehicle owners a听听that has off-peak and peak period pricing, with a 鈥渟uper peak鈥� period embedded within the peak period (only for a restricted set of hours and certain months of the year). The peak period spans a whopping 16 hours of the day, from 8:00 a.m. through 12:00 a.m. If that truly reflects a higher cost of service because of elevated demand鈥擭ew York is, after all, the city that never sleeps鈥攇reat. But if there are other meaningful differences in cost of service within that 16-hour peak period, there may be further opportunities to offer an even more sophisticated time-of-use option for energy-savvy EV drivers and other customers.
Along similar lines, the price differences between the various times of day should be sufficiently large to truly influence customer behavior. The price signals I get for running my AC during off-peak or peak hours should more accurately reflect my cost of service during those times and be strong enough to motivate me to actually shift the hours during which I run the AC.
One of the country鈥檚 most progressive utilities moving forward with more sophisticated time-of-use pricing for customers is eLab member Sacramento Municipal Utility District (SMUD) in California. SMUD recently completed a two-year pilot study in which thousands of customers either opted in to or were defaulted in to听听that had up to four time blocks and prices鈥攊ncluding on-peak and critical peak, similar to ConEd鈥攂ased on cost of service.
The results of that pilot program were overwhelmingly positive. Both customers that opted in to and that were defaulted in to the time-of-use rates had significantly higher levels of overall satisfaction and higher levels of understanding of their utility bills than customers who stayed on their standard residential pricing. And whether customers voluntarily joined or were defaulted into the pilot, very few opted out of the time-of-use option.
Now looking ahead, time-of-use pricing听听pricing structure for all SMUD customers starting in 2018, though they鈥檒l retain the option to opt out and go back to flat per-kWh pricing.
If we can do just that much for customers with more utilities across the country, imagine the humble possibilities. Imagine if, instead of just my home shifting its AC, my entire community shifted its AC demand to off-peak hours, and what that could mean for the carbon intensity and electricity generation costs of my local grid that still听. I鈥檒l of course continue to precool my home in future summers, but I hope the day is coming鈥攁nd soon鈥攚hen millions of residential customers like me will have a much clearer incentive, via pricing, to do that too.
