Although the goal is to shift consumption to off-peak hours when cheaper, cleaner electricity is available, experts say it is still many years away, despite billions in federal subsidies that have helped finance the switch to the so-called smart grid.
Pointer from Tyler Cowen.
The article ends with a quote from an official in Maryland’s Office of People’s Counsel.
“I’ve never seen an analysis that shows that shifting my dishwashing, clothes-washing and clothes-drying load is going to make a significant impact on my monthly bill,” he said. “It’s just not that much electricity.”
I do not find this statement persuasive. Perhaps he needs to be charged more for use of electricity at peak times in order to get himm to understand the concept of dynamic pricing.
The trouble with electricity is that you can’t hold inventories or a supply reserve, and it’s best to keep production constant, so the game is all in demand, shifting it, or creating a ‘demand reserve’ that always marshals to use any excess capacity.
At some price differential you can always shift demand in time, but it may be more dramatic and annoying than people will accept as legitimate compared to what they’ve gotten used to.
Smart appliances would help; if they all had timers or connected to wifi to turn on whenever the rates fall. Push the buttons on your dishwasher whenever you want, and it runs at the best time, costs you less, and smooths the demand profile.
Also, as a happy coincidence, at least on average, solar power produces energy on a time profile that closely matches peak demand. So you need air conditioning in the southwest at noon on a sunny summer day, and that’s when the solar panels are putting out their power too, so you could have stand-alone solar-AC systems that don’t push or pull from the grid very much.
Another thing that may solve the problem is if computation becomes very valuable (perhaps by emulating minds), and the electricity costs become much higher than the capital costs. Then it would make economic sense to spin up the otherwise idled chips whenever demand falls below the base-load production, at whatever price makes that profitable. That’s the demand reserve.
Of course one could set prices at a painful level, but in general the time-of-use pricing schemes I’ve seen do not make a dramatic difference for the average residential customer. As mentioned above, it’s the critical peak times where the utility is most interested in lowering demand, but they don’t happen all that often (so even if the price goes way up at those peaks, it does not impact the normal day-to-day behavior).
This makes no technical sense. We don’t need a smart grid for this, we only need something called the “internet”. Peak supply and demand pricing is set and known at the point of generation. If electrical providers want to they can provide dynamic pricing data very inexpensively via web services. It is then up to home users to pull the data, and have the necessary devices which can be networked and managed using standard wireless technology.
My guess is that the electrical companies are screwing up the deployment of technology improvements in the same way the cable companies are: by trying to keep the entire chain of deployment a closed system. They don’t want this to be an open technology you deploy with your own hardware and software. They want smart meters they control, and closed data systems consumers can’t use themselves. This doesn’t need one dime of federal money.
This is already happening with electric cars that are programmable to charge late and do store a fair amount of energy, but also being combined with solar panels to provide peak power. Yes, it will take time for these to scale up, but the leveling is already underway.
Is there a special word for “optimizing the wrong thing to give supposedly free-market economists that special thrill of power which accrues to central planners?”
Real, actual central planners have created the electricity time-of-use pricing problem by mandating the use of astonishingly inefficient “renewable power sources” which deliver current when they feel like it, not when users naturally want it.[1] An economist who writes “[p]erhaps he [the utility customer] needs to be charged more for use of electricity at peak times in order to get him to understand the concept of dynamic pricing” is acting the role of kapo in the central-planner’s customer detention camp. Without central planners trying to force customer demand to fit a Procrustean bed of ill-timed (and unreliable) supply, utilities would not inflict (because small customers rationally resist) aggressive “dynamic pricing” schemes.
“Dynamic pricing” is the same thing as “volatile pricing,” which makes it hard for small customers to budget and wastes customers’ most precious possession: their time and attention. Also, every way in which customers are supposed to “respond” to dynamic pricing increases their other costs, often by more than the electricity price to be saved.
Run the dishwasher in the middle of the night? Sure, but the noise interferes with sleep; and a doorseal water leak which the owner would notice during waking hours will continue while the owner is asleep until the kitchen floor and cabinet bases are ruined. Wash clothes in the middle of the night? Same objections (especially the clamor of unbalance during an extraction spin), plus the inconveniences of doing one load per night (who wants to rise in the middle of the night to shuffle laundry in and out of machines?) and having a damp load mildew in the washer every few weeks because it wasn’t transferred to the dryer promptly. Of course a utility customer can spend more on appliances, replacement clothes, home repairs and insurance, earplugs, midday yawning, etc. to mitigate the damage. That is not neutral, and again, squanders the customer’s precious time and attention.
(Many other adaptive moves urged on beleaguered utility customers involve the end user maintaining a costly “inventory” of some sort. For example, heat shower-water off-peak? That means replacing a flow-through water heater with a storage-tank model, which costs money and takes up costly space.)
Variations in electricity demand throughout the day legitimately arise from considerations other than instantaneous price. The fact that many people all want hot showers within a couple of morning hours, for instance, reflects concerns like arriving at the office minus excessive B.O.. People don’t “respond” to small variations in electricity prices the way central planners wish because their demand versus time is fairly inelastic, yet large variations in electricity prices are not caused (or justified) by real elasticities of supply– they occur only if mandated by regulators. That’s why skeptics reasonably think deadweight loss from forcing small customers to modulate their consumption hourly by jacking up their rates on short notice exceeds the value to be conserved.
When some economist accepts the central-planner’s framing of “the problem” as “how to force customers to shift their electricity demand around to suit inefficient generation” rather than “how to get out of the way so utilities and customers can rendezvous around comprehensible prices for reliable service at convenient times,” that economist starts up the road to Mordor– from the South, in company with armies of Corsairs and Haradrim.
Obviously supply and demand curves need to cross at some price(s) and the various elasticities of demand and supply under various conditions may motivate some forms of dynamic electricity pricing (e.g., discounts for late-night electricity, which change only occasionally so that small customers can factor them into their budgets and usage patterns).
But without the pernicious meddling of “regulators” and nitwit economists who exhort them to torque up peak prices until customers are forced to pay attention, there would be no “dynamic pricing” problem. Customers would bargain for fairly smooth prices and utilities would build and operate their systems to provide those (with, you know, base load generation, variable generation, and peaking generation, using distribution systems sized to accomodate peak load, recovering their costs in average prices).
Utilities would invest in a mix of generating sources and the stories that enthusiasts tell about solar cells powering air conditioners in the Arizona summer would come true where they made sense.
[1] Arrogant regulators have messed up electricity markets in other ways, of course. For example, by mandating generation/transmission separation along with utterly corrupt “single price” auctions for short-term wholesale power contracts while outlawing long-term contracts.
I assume you realize that actual regulators make none of these decisions, unless you count State Governments, Congress and the President as the regulators.
If you take away the “volatile” sources of energy you are railing about, we are left with huge industrial supply chains of coal, oil and natural gas, and none of these chains can exist without massive regulation. The components of these chains are enormous and highly intrusive pieces of infrastructure that no one would have the right to deploy in a pure free market. They would infringe on the rights of far to many people for them to ever get built via private agreements. The democratic process and the regulations that go with it are the only possible way to obtain legitimate consent for their creation and operation.