Smart meters, smart information and smart prices

Smart meters, smart information and smart prices

In-Home Displays (IHDs) revolutionize the way utilities communicate information to customers because they can induce changes in customer behavior even when they are not accompanied by a change in electric prices or rebates for purchasing efficient equipment.  IHDs provide consumers with direct feedback-real-time information on energy consumption and costs -and turn a once opaque and static electric bill into a transparent, dynamic, and controllable process. 

The experiments reveal that direct feedback provided by IHDs encourages consumers to make more efficient use of energy.  In regard to conservation impacts, we find that direct feedback provided by IHDs encourage consumers to lower energy use by three to 18 percent, with an average of seven percent.  Even higher savings are obtained when IHDs are combined with a bill prepay program in which the customer pays their bill ahead of time and if his or her consumption is going to exceed the previously purchased amount, has the option of buying additional power again on a prepaid basis.  In regard to demand response impacts, we find that the affect of smart rates are augmented by direct feedback from IHDs. 

While IHDs do motivate behavioral change and promote energy savings and efficiency in the near term, their long term effects are uncertain.  The possibility exists that consumers may initially respond to the direct feedback provided by IHDs but may lose enthusiasm or interest over time.
However, that was not the case in two of the eleven pilots where IHDs were combined with prepay programs.  In these pilots, which have lasted for more than a decade, the energy savings have persisted.

Turning to the evidence on smart pricing, we find that households respond to higher prices by lowering usage during peak periods. The magnitude of price response depends on several factors, such as the magnitude of the price increase, the presence of central air conditioning and the availability of enabling technologies such as two-way programmable communicating thermostats and always-on gateway systems that allow multiple end-uses to be controlled remotely. 

Across the range of experiments studied, time-of-use rates (in which the peak period price is about two times higher than the off-peak period
price) induce a drop in peak demand that ranges between three to six percent.  Critical-peak pricing tariffs (in which the price during the top one percent of the hours of the year is six to nine times higher than the price in the off-peak periods) induce a drop in peak demand that ranges between 13 to 20 percent. 

The presence of enabling technologies such as programmable communicating thermostats substantially boosts demand response.  Of course, these technologies can only be provided to customers with central air conditioning or space hating systems.  It has been found that the demand response of such customers lies in the 27 to 44 percent range.

Based on the empirical evidence, one can safely aver that IHDs and smart pricing practices will lower the growth in peak demand, thereby reducing the need for expensive peaking capacity and ensuring that the lights stay on.  In addition, they will lower the growth in energy consumption, reduce the consumption of fossil fuels, lower dependence on imported oil and, most notably, help contain carbon emissions. 

What is all this worth?  Over the next forty years, under some fairly standard assumptions about load growth and fairly conservative assumptions about the customer acceptance of customer adoption of IHDs, smart prices and enabling technologies, the combined value in the United States is around $85 billion.

Written For SmartMeters.com by:
Ahmad Faruqui, Ph. D.
Principal

The Brattle Group
353 Sacramento Street, Suite 1140
San Francisco, CA 94111
Voice: 415.217.1026
Fax: 415.217.1099
Cell: 925.408.0149


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