Amidst Solar Eclipse's Test On Clean Power, One Smart Grid Solution Offers A Cautionary Tale
Almost 2,000 utility-scale solar plants could experience a shortfall in power next week big enough to light up Los Angeles—all due to a solar eclipse set to sweep across the country on August 21. While power operators stand ready and are confident that the steep drop in solar power won’t impact service, the event highlights an increasing challenge for utilities: managing intermittent power sources.
Over the last couple years, the United States has experienced rapidly rising levels of power generation from solar and wind—electricity sources that only operate on average for 25% to 40% of the time. In fact, of the new electricity generating capacity that came online last year, more than 60% was from solar and wind. And this spring, for the first time since 1984, utility-scale renewable power generation surpassed supplies from nuclear. Further, the influx in renewables is not just happening in this country. By 2040, Bloomberg New Energy Finance expects wind and solar to make up a third of global electricity supply.
Amidst increasing reliance on these intermittent sources, utilities need to leverage smarter technologies that can change the way we get, use and pay for power. One way they are changing how we pay for power is through dynamic, or time-based, pricing. Through time-based pricing models, utilities charge customers more or less based on the amount of supply and demand. On an especially sunny day, there may be more solar power generated than there is demand, lowering the price of electricity. Or, in the middle of a hot summer day, when people are cranking up their air conditioners, demand can spike, necessitating the use of more expensive electricity supplies, thus increasing the price of electricity.
A key advantage of charging customers based on supply and demand—and an insight from Econ 101—is that it encourages them to use power in ways that minimize system costs. Prices rise during peak times, incentivizing households to use less power, thereby easing pressure on the grid. Low prices overnight or during peak solar generating hours tell customers it might be a good time to run the dishwasher. It sounds like a win-win. But, are such pricing models delivering results?
Perhaps. But maybe not the results utilities are expecting or hoping for.
Despite the benefits, the number of households choosing to take up time-based pricing models has historically been quite low, and mandating this pricing can be politically difficult. So, my colleagues and I decided to investigate what would happen if households were given more information about how opting for the time-based program would save them money. Further, what would happen if households were given a cash incentive to join?
We studied more than 2,000 households in Japan who could join a new time-based program that offered a low electricity rate during the morning and night, and a higher rate in the afternoon when electricity use was at its peak. Our goal was to measure what role information and incentives play in the customers’ decision-making. Some customers received very little information about the programs. Another group of customers was given information on how much their electricity bills would increase or decrease under the new plan. And a final group was given the same information plus a $60 bonus for switching.