Imagine a future in which electricity pricing not only reflects the benefits and costs of electricity services, but can also create a win-win-win for utilities, customers, and the environment. Imagine a rate design that is sophisticated enough to work with a whole host of distributed resources, yet simple enough for the customer to easily adopt. Imagine a rate design that will help to reduce customer costs while maintaining or increasing system resilience and reliability. eLab’s report Rate Design for the Distribution Edge discusses how we can do exactly that.
As an example, let’s take a hypothetical look into the future at the Jones family, at a time when utilities offer more sophisticated pricing structures and third-party service providers offer solutions that will keep both customers and the utility happy.
Taking the first step
The Jones family is a typical electricity customer. They rarely think about their electric service. But like many people, they would like to save money on their monthly bill provided doing so was relatively simple and would not impact their comfort. Since their monthly utility bill compares their energy usage to that of their surrounding neighbors, they have learned that their bill is higher than average for a family in their neighborhood. They are also aware, via various advertisements from their utility and other providers, that solutions exist that could help them save money and use energy more efficiently.
One day, Mrs. Jones contacts one of these third-party service providers to learn more. With just some basic information, the firm is able to let the Joneses know there are many ways for them to save money every month with only minimal involvement on the family’s part. For example, a clothes dryer can turn off the heating element for a few minutes while keeping the clothes spinning, or a refrigerator can cycle in and out more intelligently; both things that enable savings and grid benefits without any change to customer habits.
To enroll, the service provider makes an appointment to visit the home and install devices that will automate responses to price signals from the utility. Advanced metering infrastructure (AMI) enables two-way communication between customers and the utility, and relays signals to and from the devices—networked thermostats, automatic switches, and a communications hub. This ensures that the Jones family notices no unwelcome impact on comfort or convenience and that they achieve the promised bill savings.
Behind the scenes
Behind the scenes, the service provider examines the AMI data along with distribution system maps provided by the utility to analyze load, potential solar generation profiles (and other on-site generation or demand-response possibilities), and locational value for the customer. The best rate design can be determined because the utility recognizes that the value of electrons varies based on how, where, and when they are being provided, used, or avoided. This “unbundling” of services allows the third-party service provider to match services both that the Joneses need and that can unlock greater value for the grid. This can be done through time- and location-based rates. The provider can determine whether the utility serving the Joneses is short on generation resources and will have to build new generation assets if they can’t find a way to drive down peak load, or whether the Joneses are on a congested distribution system circuit, for example, and would be eligible for a “hot spot” credit.
The analysis reveals the Jones family would be better served under a real-time pricing rate. In real-time pricing the utility company bills and compensates customers for the services they require and provide based on hourly or even sub-hourly spot market prices. The service provider then translates those price signals into actions. During peak demand when prices are highest, the firm controls and turns off the Jones’ water heater for a few minutes, which has no noticeable effect on the family’s comfort. The Joneses may also decide to install a PV system, which paired with the electric Nissan LEAF that they already drive, can store electricity generated on site to power the home for short periods when the cost of grid electricity is highest. The EV can also be used for demand response when the grid needs more capacity, receiving a fair price for contributing to grid stability. All of these things can provide great service to the utility, contributing value to the grid, while also lowering the Jones’ monthly utility bill. The service provider can also help the Joneses respond to low electricity prices by programming their LEAF to start or stop charging, preheat or cool the home, and perform other energy-intensive tasks when prices fall below a pre-defined point.
The service provider takes care of the change in rates with the utility and guarantees the Joneses a monthly billing range that includes a maximum bill guarantee. The service provider is able to do this because it is capturing some of the surplus value that is being unlocked by aligning the interests of all electricity system stakeholders. If the monthly bill exceeds this rate, the service provider is responsible for the difference. Critically, the Joneses didn’t have to wade through all the options available to them and make difficult decisions. Customers are automatically enrolled in the rate option that best aligns with their lifestyle and the capabilities of their new distributed energy resources (DERs).
In this scenario, the Jones family does not need to understand the complexity of energy, capacity, and ancillary services markets. Instead, they can seek out an offer that provides the bill savings they want without unanticipated impacts to their lifestyle and without lots of “meet the contractor” appointments or paperwork. The combination of DERs ensures the experience is no different from what the Joneses know today and is likely improved with the extra money saved. As word spreads of their savings, neighbors once again find themselves trying to keep up with the Joneses.
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