Some Smart Grid Consumer Value Propositions

Lynne Kiesling

Katharine Hamilton, President of the GridWise Alliance, wrote a letter to the editor in the Wall Street Journal that summarizes some of the consumer-facing benefits of smart grid technology:

I would ask consumers this question: Do you want to adjust your energy usage based on your monthly bill, then wait until the next month to see if what you did had any effect? Wouldn’t you rather know that your TV converter box uses twice as much electricity as your refrigerator and that, even though appliances are turned off and cell phones disconnected from their chargers, those outlets are still using electricity? Rather than having to call when your power is out, wouldn’t you like the utility to know who is out so that they can respond more quickly?

Customers can now see on-line what their bank account contains and make adjustments without having to wait until they get the monthly statement in the mail. Wouldn’t that also make sense for your electricity account? Perhaps you could even automate your energy use preferences based on utility prices.

Let me pile on here: wouldn’t a lot of us be better off (higher individual utility) if we could choose from among these various value propositions? Haven’t we had more and more such valuable options available to us in other industries over the past two decades due to business innovation around technological change?

Hamilton was writing in response to “Smart Meter, Dumb Idea?” by Rebecca Smith in the Wall Street Journal. In this article Ms. Smith spends almost no time discussing the variety of ways that smart meters can enable new products and services, including new products and services that would reduce energy use and save consumers money. For example, she devotes all of one paragraph to a cursory mention of how California policymakers see smart meters as a means of enabling consumers to choose dynamic pricing. I’m disappointed to see yet another article from Ms. Smith that demonstrates her failure of imagination with respect to how we could innovate around a smart grid platform.

However, her utility-centric perspective does provide a cautionary note as we move forward with smart grid policy and the crucial regulatory reform that must accompany it. If we think of the scope of smart grid investments as being focused on utility benefits, reducing the cost of providing customers with the same plain-vanilla electricity product that we’ve been getting for a century, then she may very well be right. If we do that, we truncate the consumer-facing product and service innovation that would be the source of real benefits (and that I’ve been talking about at KP for years).

Smart meters provide a platform for retail service innovation … but existing regulatory institutions and a mindset that cannot imagine those possibilities can stifle those benefits.

8 thoughts on “Some Smart Grid Consumer Value Propositions

  1. Would a smart meter also enable us to choose an electricity supplier dynamically? Right now, I can choose which vendor supplies my electricity, but I seldom compare prices and just stick with the one I opted for months ago. Why not a smart meter that allows the house to get the lowest price at any time?

  2. Now *that’s* the kind of imaginative thinking I’m talking about!

    The details matter — are you going to have a contract with a retailer and through that retailer you will have access to a variety of suppliers so you can get the lowest commodity price at any time, or are you talking about shopping in real time among competing retailers?

    I don’t know how it would shake out, but putting those kind of options in the mix as we think about the architecture of the system and the regulatory institutions is really what I’m talking about.

  3. I’m not quite sure what I mean. How does a company claim ownership of an electron, anyway? The way I understand it, there are a group of suppliers I can choose from based on my location. What I would like is for my meter to be able to choose the lowest priced one at any time.

    Maybe that’s not practical, as I might end up with five different bills a month. It would be nice to get a readout of pricing over time. Maybe one retailer is cheaper during peak hours, and one cheaper during off-peak hours. I wouldn’t mind switching between the two and getting two bills.

    Of course, the Utility could be nice and put it on one bill and pay everyone else. 🙂

  4. You know, I must admit that one of my first thoughts after reading a presentation from Google on their iGoogle energy usage program was: what happens when Google decides they want to tell you who has the cheapest electricity prices, then provides a way for the customer to get that price from that provider, or if you want to be “green” and only want to use renewable power, Google could direct you to that provider. Where does Google fit in the regulatory perspective?

    I find it increasingly ironic that all of these potential advances in customer choice coming out of Google, based in California, are currently thwarted here in California by a legislature that doesn’t get it.

  5. Switching retailers in real-time seems an awful lot like buying at the real-time price. Retailers offer products *other* than energy on-the-spot at real-time price, and some commitment is required to make them meaningful, I would think. Suppliers (as opposed to retailers) in systems where real-time prices are avaiable already offer into the market and receive the clearing price. Anyone buying power *with no intertemporal commitment* should expect to find no sellers willing to undercut the real-time price, at least not in a single-price system. But why would somebody want to do all of that transacting anyway? You could automate it, of course, but that seems redundant with what’s already going on on the wholesale side. The efficiency there is better than it would be with pay-as-bid, which is consistent with the idea of finding a supplier willing to sell below market with no commitment.

  6. Following on Doug’s thoughts, if we had true real-time metering, would some people choose to sign up for true real-time spot pricing for the energy component of their bill? This would remove any energy price risk for the delivering utility. But then there would have to be extra charges on the bill for capacity, ancillaries, and so on, that are currently buried in the energy price on the bill.

  7. Exactly, Bartman. Retail service is generally a structured product, where the retailer or another middleman provides the service of procuring and bundling the various required components. Perhaps we can imagine a highly advanced metering/automation regime that could purchase these components on the fly, but that would be automating the retailer out of the picture. And again, it would be very much the same as buying in the wholesale market at spot prices, which are about the best you should be able to do without any intertemporal commitment.

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