Daily Archives: August 22, 2007

Thomas Friedman on Energy Efficiency in the New York Times Today

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Lynne Kiesling

Today’s New York Times has a column by Thomas Friedman, “Go Green And Save Money” (TimesSelect $$), on the importance of energy efficiency for both reducing costs and reducing overall resource use. In it Friedman draws attention to the crucial fact that both electricity use and prices are determined by the interaction of supply and demand, not just generation supply. He also highlights the energy efficiency proposals of Duke Energy’s Jim Rogers; this attention is worthy, because Rogers is proposing novel ways of thinking about the role of energy efficiency in this industry. In particular, Rogers emphasizes how important it is for utilities to have incentives to make the capital investments required to make large-scale energy efficiency choices available and easy for large numbers of consumers; those choices make it easier for them to reduce use, thereby leading to lower wholesale generation prices.

One important insight to draw from that point is that such capital investments will also pay off in reduced operation costs to utilities, particularly if these investments are made in technologies that are interoperable with other technologies, devices, and parts of the communication system. Interoperability is the ability of two or more networks, systems, components, devices, or applications to exchange information and to use that information effectively for action, often with little or no human intervention. Creating an intelligent interconnected network, with fluid information flows all the way to and from power plants to end-use premises, will deliver better reliability and higher throughput at lower long-term costs. Thus the potential for energy efficiency investments to reduce ultimate retail prices comes not just from reducing wholesale electricity prices, but also from enhancing information flows and reducing operating costs.

However, both Friedman and Rogers are overlooking the potential benefits that such an intelligent distributed network can deliver when it’s coupled with dynamic pricing to end-use customers. By focusing on the top-down provision of energy efficiency from the utility to the customer, both Rogers and Friedman perpetuate the centralized, control-and-manage vision of this industry as it moves into the technological, and probably carbon-constrained, future. This vision is too narrow.

Another vision exists, and in some ways it is complementary with the utility-driven vision. consider the fact that consumers are the ones who are best situated to figure out what energy uses, technologies, product bundles, and efficiency strategies work for them. Entrepreneurial retailers, who may or may not be the utility, can risk their own capital coming up with products and services that attract consumers and induce them to change their enegy use. But the crucial component in that distributed, decentralized dynamic is pricing.

Customers and retailers entering into dynamic pricing contracts that, for example, give customers access to low overnight prices and charge them higher peak prices through a real-time price, provide a distributed, decentralized approach to changing energy use behavior. And it’s an approach that gives customers the incentives to weigh their own decisions, using their own local knowledge, in ways that the utility can never access, because they cannot tap that local knowledge that individual customers possess about their own preferences and situations. Transparent, dynamic pricing enables consumers to evaluate the costs of their decisions, and provides them with incentives to take energy use and device investment decisions that reflect the true value that they place on energy efficiency.

Without dynamic retail pricing, the energy efficiency proposals that Rogers is promoting are unlikely to be particularly effective at producing sustained demand reduction. One reason why the justifiably-scorned energy efficiency and “demand-side management” programs of the 1980s were so ineffectual was that they did not provide incentives for utilities to cater to the diverse, heterogeneous ways and times that their consumers use power and could change their behavior.

Energy efficiency, digital technology, and dynamic pricing go hand in hand to optimize our resource use at the lowest feasible long-term cost, and interoperability is the grease in that information-flow system that will enable us to achieve that vision. Rogers’ proposals and Friedman’s column draw attention to an important part of what is possible.

NOTE: I also wrote about Rogers’ proposals back in March 2007, along the same lines.

More on AMR and AMI

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Lynne Kiesling

I just want to amplify what Mike just said about the difference between AMR and AMI, and why you, the non-energy-professional, should care. Over the past couple of decades, some utilities have been putting in new meters with AMR capabilities when they’ve had to replace meters. AMR meters are only capable of one-way communication; they digitally communicate your usage to the utility, often to a meter-reader in a truck driving down your street. AMI allows true two-way digital information flow, so that the utility can send you information as well as receiving information from you. Furthermore, AMI can take advantage of the native communication capabilities of electricity wires, or it can use a broadband connection that you already have, to capture, aggregate, analyze, and respond to those data remotely.

AMR was all about reducing meter reading costs to the utility, which in turn should contribute to lower retail rates to residential customers. AMI, however, promises more. It offers such deep, broad, granular communication capabilities that there are many ways that utilities can achieve lowers costs with AMI. But it also opens up opportunities to offer different, novel, custom value propositions to different customers. AMI enables product differentiation, particularly through differential pricing of electricity use across time and by volume. As a communication service, it also can be bundled with other services that are valuable to homeowners (such as security, entertainment, etc.).

Now the question is twofold: 1. Can utilities in states without retail competition come up with differentiated, bundled products that appeal to residential customers, and in states with retail competition, can the retailers do it? 2. What differentiated, bundled products will appeal to residential customers? Will they buy them?

This is yet another example of why we should care about infrastructure questions that we routinely take for granted.

AMI Not AMR: Getting the Right Kind of New Meter

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Michael Giberson

An article about meter technology company Itron in the Spokane (WA) Journal of Business makes the distinction between the last hot new thing in metering — automatic meter reading (AMR) — and the latest new thing — advanced meter infrastructure (AMI).

AMR provided a giant leap forward in reducing meter reading costs and improving accuracy and timeliness. The article reports that Itron is the No. 1 supplier of automatic meter-reading equipment in North America, but perhaps because of their success at AMR, they were a little slow jumping into the AMI business.

But AMI, because it provides a platform for two-way communication between the meter and the network, is the truly transformative development. The story explains:

When demand for electricity peaks on a utility’s system, the utility can seek to reduce usage by raising the rates it charges for power, and when demand falls, the utility can lower its rates, giving customers an incentive to use electrical equipment at such times, [Itron svp Philip] Mezey says. Two-way communication enables a utility to signal to customers when rates are being raised or lowered, and gives their customers’ meters the capability to measure their energy usage during periods of increased or decreased rates and the capability to price usage at the appropriate rates during those periods.

The article list several other options, none of which will be surprising to anyone who has been reading Lynne’s posts here. This Google search for “meter” on the KP site produces over 400 search results. (Note that some posts show up more than once.)