Last Friday National Public Radio ran a Planet Money story called “Do smart meters curb energy use?” (first link is to program listing, second is to story transcript) Members of the KP community will not be surprised by any of the content in the report, but it does provide a good introduction to the “information and energy efficiency” literature for the non-specialist.
The story refers to the work of Carnegie-Mellon behavioral economist George Loewenstein, who contends that smart meters could actually increase energy use by revealing how cheap electricity is:
In fact, some of the information that a smart meter would give you might actually worsen your behavior because, for example, electricity is really amazingly cheap. It’s amazingly cheap to air-condition your whole house for a few hours. And if the smart meter is giving you objective information about how much it’s costing you, you might be surprised at how cheap it is rather than surprised at how expensive it is.
I think he’s failing to take into account the probability that electricity prices will increase either (1) if fuel sources become more scarce, (2) if we implement a carbon policy that increases electricity costs, or (3) if we implement renewable energy mandates that increase electricity costs. He also doesn’t take into account the variations in costs of producing electricity over the course of the day, in which case what’s important is not the level of the price, but the variability in the price and how that relates to the variability in the cost of providing the service. Still, it’s a pretty good story.
One other element that is missing from the story, and from Loewenstein’s framing of the question, is the transactive capabilities of intelligent end-use devices that the smart meter enables. Loewenstein doesn’t offer an example of “devices doing the work for you” that is any more sophisticated than direct load control, in which the consumer signs a contract that allows the retailer or the distribution company to cycle off the air conditioner as system conditions warrant. The combination of intelligent end-use devices and dynamic pricing, enabled by a smart meter, creates the potential to be so much more innovative, clever, and effective in optimizing individual energy use, and to do so in a much more user-friendly and less intrusive manner. That’s where the Planet Money team should be focusing their attention, not on direct load control.
We need to move beyond direct load control, which is a top-down sledgehammer in the energy efficiency toolkit. Bottom-up technologies that integrate more directly and subtly into individual lifestyles, such as Direct Energy’s vision that I discussed the other day, are likely to be more effective, more robust, and more sustainable.