Skip to content

Dynamic Pricing

October 18, 2011

The ability to price electricity based on its cost, which varies during the 24-hour day, is projected to be a major benefit of smart meters.

Customers would be charged a higher price during peak periods when electricity costs the most to produce, and lower prices during off-peak hours when it costs less to generate electricity.

The supposed benefits of dynamic pricing are to discourage usage during periods of peak demand and encourage usage at night when demand is much lower.

Theoretically, this would cut peak loads and save utilities the cost of building new power plants.

It would also prepare utilities for the day when plug-in electric vehicles (PHEVs) and electric vehicles (EVs) will be ubiquitous, since it encourages their owners to recharge batteries at night.

While this concept has considerable appeal, especially if PHEVs and EVs are ever widely used, there is the issue of how high prices should be set during the daytime hours, especially during hot summer days.

While few mention the possibility that electric rates for peak periods could be as high as 40 cents per kilowatt hour, four or more times current rates, such a rate could readily reflect the actual cost of generating electricity during peak periods.

Many people already find the cost of air-conditioning to be a burden. Imagine the impact if the cost of running air-conditioning units was four times greater than today.

There are other means for getting owners of PHEVs and EVs to only charge their vehicles at night. One is to equip home-charging systems with timing devices that prevent charging during the day.

The proponents of smart meters rarely mention the issues surrounding dynamic pricing.

What should be the maximum rate?

Should rate schedules be based on income? Should rate schedules be based on a person’s age? Or a combination of these?

Are smart meters a means for social engineering or for efficiently managing the grid?

If smart meters are used to force people to do their laundry at midnight or to limit the amount of air-conditioning people use, they are a means for social engineering.

If, on the other hand, they are used to identify the cause and location of outages or for determining transformer loads, they are being used to manage the grid more efficiently.

Utilities can benefit from smart meters and they should pay for their installation. How smart meters affect consumers is an issue for regulators and government.

Dynamic pricing needs more transparency, analysis and discussion.

*  *  *  *  *  *

If you find these articles on energy issues interesting and informative, you can have them delivered directly to your mailbox by going to the Email Subscription heading below the photo.

Please forward this message to those who might be interested in these articles on energy issues.

 

*  *  *  *  *  *

 

[To find earlier articles, click on the name of the preceding month below the calendar to display a list of articles published in that month. Continue clicking on the name of the preceding month to display articles published in prior months.]

© Power For USA, 2010 – 2011. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Power For USA with appropriate and specific direction to the original content.

Advertisements
No comments yet

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s