Posted: 10/12/2007 | Author: H. Sterling Burnett
Meeting Our Need for Electric Power
By H. Sterling Burnett & D. Sean Shurtleff
Originally Published In: Energy Pulse Magazine
America needs more electric power. At the same time, consumers are howling for lower electricity prices. Continued economic growth, and the prosperity it brings, relies upon continued growth in power. Despite efficiency gains allowing ongoing improvements in the amount of Gross National Product (GNP) and Gross Domestic Product (GDP) per unit energy used, the world has yet to discover a way to decouple continued economic growth from increased power use. Accordingly, the Department of Energy has estimated that during the next 20 years the country could need as many as 1,900 new power plants to meet an expected 45 percent increase in electricity demand.
The problem is, even under the best political conditions, which we don't have, building new power plants take time - time we don't have if the country wants to avoid periodic, and increasingly frequent outages.
Fortunately, the electric power industry, especially in states that have gone through deregulation, is bringing an answer online - one that can reduce electric bills while relieving, at least in the short-term, stress on the power grid.
Beginning in the 1990s, 20 states deregulated (or restructured) electric power, allowing customers to choose their electricity providers and requiring regulated utilities to transmit the power produced by independents. In order to compete while maintaining reliability, utilities in these states began to introduce smart meters and associated demand response programs.
Smart electrical meters hold the key to lower costs, and increased reliability. Unlike mechanical meters that merely record electricity usage and have to be read manually by legions of meter readers, smart meters are electronic. They can continuously communicate information about electric power usage through broad-band over power lines, computer signals over radio frequency, or normal radio frequency transmission. These capabilities allow utilities to monitor power outages and spikes, and to reduce the flow of power to specific customers.
Enabling Demand Response Programs
Smart metering is essential to demand response (DR) electricity pricing plans. DR plans charge customers rates that are based on the time of day and the customers' willingness to reduce electricity consumption, or to have their service temporarily interrupted when demand overloads the system. Customers are charged lower rates during off-peak hours, and more when demand is highest (usually between 8 a.m. and 10 p.m.). The system can notify consumers when they should reduce their consumption and when their power will be interrupted.
Consumer response to these programs has been positive and the energy savings encouraging. For example, in 2003, the Center for Neighborhood Technology (CNT) and Commonwealth Edison Electric (ComEd) implemented the first large-scale demand-response pilot program offering real-time hourly prices. The program was administered by CNT with ComEd providing the electricity and pricing information. During its first year in 2003, participants in the Illinois DR pilot project saved an average of 20 percent on their electric bills. From 2003 to 2006, the three years the program was offered, they saved an average of 10 percent per month. In addition to cutting consumer costs, the pilot project yielded these results in 2005:
- Customers had a price responsiveness (elasticity) of -4.7 percent, which meant they curtailed energy usage by almost 5 percent when electricity prices doubled.
- Energy usage among customers was 3 to 4 percent lower during the summer than it would have otherwise been without the program.
- On days with the highest peak prices, consumers reduced energy usage by 15 percent compared to what it would have been under flat rates.
After the success of the pilot project, the Center for Neighborhood Technology and another electric utility, Ameren Electric, filed a petition asking the Illinois legislature to allow real-time pricing throughout the state. The request was approved in 2006, and CNT was once again designated the administrator. The legislature also required that the program be voluntary for residential customers. Now, in select locations, Illinois customers can save 10 percent on their bills by paying $2.25 a month to use a smart meter and receive real-time pricing.
After experiencing major blackouts in 2000 and 2001, California was confronted with the inadequacies of its electricity infrastructure. Hoping to prevent the same disaster from happening again, the state embarked on a market experiment to determine how residential customers would respond to time-varying electricity rates. From July 2003 until December 2004, California's three investor-owned utilities and two regulatory commissions managed a pilot project involving 2,500 customers, and offering time-of-use rates and two forms of critical-peak pricing rates. The average customer reduced demand during the hottest summer hours by 13 percent in response to peak prices five times the standard price. Customers who had smart thermostats reduced their load about twice as much (27 percent) and customers with gateway systems (which adjust the electricity use of multiple appliances) reduced their usage 43 percent. Overall, customers saved 10 percent on their monthly bill when they lowered their peak usage by 30 percent.
Other deregulated states, including Pennsylvania, Wisconsin, Maryland and Texas, have either already embraced or are moving forward with smart metering/demand response programs or pilot projects.
Studies Estimate Savings
If smart metering and innovative service plans were implemented nationwide, consumers and utilities could save $32 billion over 20 years, according to a 2004 RAND Corporation study, and if all the regulatory barriers to competition were eliminated, they could save up to $132 billion.
The United States will need 258 gigawatts of new generating capacity by 2030 that will cost $412 billion to build. The Brattle Group conservatively estimates that implementing DR nationwide would reduce peak electricity demand by 5 percent. This would eliminate the need for 625 power plants and associated infrastructure that are used only during peak loads. The savings in avoided investment in plant and equipment would amount to $35 billion over 20 years. By contrast, installing the technology nationwide will require an estimated investment of $14 billion to $26 billion, according to the Federal Energy Regulatory Commission (FERC).
Available power can be rationed by allowing the market to set prices, or it will be rationed by blackouts and brownouts. However, by increasing the use of smart technology to manage electricity use, many consumers can avoid huge price hikes - or at least slow the growth in their energy bills - and in the short-term utilities will be able to prevent blackouts. While not obviating the country's need for new power plants to avoid energy shortages and economic harm in the medium term, smart meters and demand response mechanisms can provide breathing room until energy entrepreneurs can clear the political hurdles slowing new energy generation.