Forbes Article on Smart Grid Technology and Dynamic Pricing

Lynne Kiesling

The headline of this Forbes article reads “What Would You Pay To Stay Cool?” Using pending Congressional energy legislation as the springboard for the article, Ashlea Ebeling does a very good job of discussing the combination of digital technology and dynamic pricing that can transform the electric power network into a more resilient, dynamic, transactive, and cost-effective one.

She notes correctly that the combination of enabling technology and dynamic pricing would create the opportunity for even small, residential customers to get access to lower power prices in off-peak periods, and that even though utilities are balking at the expense of investing in AMI (advanced metering infrastructure), they will get some operational and cost benefits too:

But the utilities need smart grid too because it will help them meet new federal standards for power reliability, argues Sterling Burnett, a senior fellow at the National Center for Policy Analysis in Dallas, a free-market think tank. “In almost every region we’re soon to be below the safe margin (for reserve energy) for high energy use days,” he says. “This is a quick way of reducing demand,” he adds. Burnett, naturally, is a fan of deregulation and argues that it helps spawn innovative ways to control costs and rates, including smart grid technology.

As of now, most residential and commercial customers still pay their electric utility a flat rate multiplied by the kilowatt hours they use. A meter man stops by each house and reads the electric meter, or drives by and picks up the reading. “That ‘s a dumb grid,” says Burnett. (In deregulated states, some commercial customers–for example, a big office building or factory using 500 kilowatts or more at once–already have special pricing deals with utilities, with prices varying by the hour.)

But with a smart grid in place, a utility could restructure rates, and then offer all its customers products that allow either the customer, or the utility, to control usage based on demand and hourly rates. Example: A smart thermostat allows a customer to program it so when the electric rate hits a certain price on a summer day, the target temperature in his house becomes two degrees warmer and the air conditioner doesn’t run as much.

She then goes on to discuss the increasing opportunities customers will have to receive prices to devices, to automate their responses to price changes. She closes by discussing the technology and pricing pilots that have shown the potential value creation from enabling technology + dynamic pricing, and which I discussed in my paper in the Searle Center Annual Review of Regulation 2007.

See also the post on the article over at the Economist’s Free Exchange blog.


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