Monday, May 4, 2009

How Electricity Is Sold - A Primer

This article from the NY Times special section called, "Business of Green", describes how our electricity has been sold for the past many decades and how it will be sold in the future. For early adopters of cars that run on kilowatt hours instead of gasoline, this is important.

"The first “dumb” thing to go may be flat pricing. Today, a kilowatt-hour of electricity, enough to burn a 100-watt bulb for 10 hours, costs the same to most customers at all times, whether it is a sweltering summer afternoon or a balmy spring night. But the cost to the utility swings wildly, and the company may have to spend much more money to supply extra energy at peak times than during slack periods."

Time of use pricing (TOU) is very popular among those who buy solar systems since the cost of peak energy (noon to 9 pm for some utilities, 10 am to 6 pm for others) is much higher than off peak energy. Those peak times tend to coincide with the peak output of the solar system, so if you are generating more than the house is using, you can "sell" back to the utility at the higher rate. As I sit here in my home office, my 3 kW solar system is generating more than my house is using and Southern California Edison (SCE) is crediting me at over 30 cents per kWh for the excess energy. At night, when the sun is down, I buy those credits back, but at a much lower rate, around 10 cents kWh. That is when I charge my EV or use other heavy electrical loads.

As the people interviewed for this article attest, this incentive works very well for shifting loads from peak times to off peak times.

One thing the article did not discuss was tiered rates. In Los Angeles, the municipal utility, LADWP, charges a low flat rate no matter how many kWh you buy. In SCE territory here in Santa Monica, we pay according to how many kWh we use. The utility gives us about 300 kWh at a low price, then there are 4 more tiers of kWh at an every increasing price. The top 3 tiers are very expensive, which provides a great incentive to cut back on waste. This is also an very good incentive to go solar since the solar is paid off with the more expensive energy first.

A combination of TOU pricing and tiered rates are necessary to reduce waste and shift electric loads to off peak times.


A Little Give And Take On Electricity

Published: April 29, 2009


YOUR utility wants to talk to you.

John Kieken of Manhattan, Ill., is already listening. He used to turn on the lights and run the washing machine, air-conditioners and other electrical appliances in his 106-year-old farmhouse whenever he wanted. At the end of the month he would get a bill from Commonwealth Edison, the big Chicago-based utility, and write a check.

Now he is in continuous conversation. He watches a Web page that gives him an estimated price for electricity at the current time, and he treats a kilowatt-hour as if it were a pound of hamburger or a shirt on a department store shelf; if it is on sale, buy now, and if not, wait.

He routinely turns off an air-conditioner if the price rises too high, and if the price sinks low enough he turns off his oil furnace and heats with electricity instead.

“I’m saving a ton of money,” said Mr. Kieken, a Web page developer — $900 in the last 14 months. He has discovered that at odd times at night, the utility will pay him to use electricity, a quirk previously obvious only to wholesale customers. “Normally I wouldn’t think of heating with electricity,” he said.

Mr. Kieken is an early volunteer in an experiment in the “smart grid” — a suite of technologies intended to even out demand for electricity, cut expenses and make the electric system more stable.

Experts have talked about a smart electric system for two decades, with many false starts, but cheaper communications and computing — and federal stimulus money — could soon make the idea a reality. “The rewards are massive, and it’s highly transformational and has amazingly powerful environmental consequences,” said Roger W. Gale, a former Energy Department official and now a consultant to utilities.

Start-up companies, as well as giants like I.B.M.Honeywell and Cisco, working in the United States and around the world, are offering smart meters or products that allow digital control of the demand for electricity. Other devices monitor transmission lines, transformers and switches more closely, to warn early of blackouts.

The first “dumb” thing to go may be flat pricing. Today, a kilowatt-hour of electricity, enough to burn a 100-watt bulb for 10 hours, costs the same to most customers at all times, whether it is a sweltering summer afternoon or a balmy spring night. But the cost to the utility swings wildly, and the company may have to spend much more money to supply extra energy at peak times than during slack periods. None of this can be inferred from the bill, even though it eventually turns up there.

“What customers have paid for 75 years or more in this industry is an averaged rate,” said Anne Pramaggiore, executive vice president for customer operations at Commonwealth Edison, which is experimenting with rates that depend on when electricity is used.

Flat pricing may not be helping customers either, said Frederick F. Butler, president of the National Association of Regulatory Utility Commissioners.

“It’s like if you walked into the supermarket and everything was priced the same, and you could take as much or as little as you wanted, swipe a card at the cashier, walk out, and six weeks later they’d send you a bill,” said Mr. Butler, who is also commissioner of the New Jersey Board of Public Utilities. “It gives you no data on how much things cost, how much you’re using and how you can switch from one thing to another.”

A smart grid, according to advocates, would let consumers take control.

Smart meters cost $200 or so, compared with well under $100 for the conventional kind, and the new technology, like many kinds of electronics, could become obsolete in a few years. Standard mechanical meters can survive for 20 years or more, one reason public service commissions have been reluctant to let the utilities they regulate install the new ones at customer expense.

But a smart grid serves other purposes. Either through a smart meter or directly, the system can also give operators an important tool for balancing supply and demand, especially as supply becomes less predictable.

Wind turbines provide little of the grid’s electricity today, so if a turbine farm or two are becalmed the grid will barely notice. But if wind provided, for example, 20 percent of the nation’s electricity, some grid operators would need a quick way to shed some load, or at least defer it, to cope with calm conditions. With solar power there is an even greater potential need for flexibility: clouds could knock out hundreds of megawatts of supply in a few seconds.

Some utilities learned 30 years ago how to shed load without blacking out whole neighborhoods. For example, some have convinced thousands of customers, in exchange for a discounted price on energy, to let the utility put a radio-controlled kill switch on a water heater or a pool pump — the idea being that most customers would not notice if these devices were shut off for two or three hours. Other utilities take control of central air-conditioners and turn them off for about 15 minutes at a time.

But a full-scale smart grid would multiply the possibilities. The messages might go to a person by e-mail, or more likely to a household thermostat or appliance or industrial equipment. The message might be the equivalent of, “Are you sure you want to run the dishwasher now? You can save money by waiting till tonight.”

The meter could become a participant in the utility’s auction, agreeing to turn off certain equipment at the right price. The customer, either by watching that price or programming the appliances, could decide how much to buy, sometimes forgoing a purchase and sometimes delaying it to an hour when energy would probably be cheaper.

Such a system would require that appliances and other equipment be outfitted with new circuitry — which might not add much to the cost, but won’t happen until there are industry standards. Right now, smart meters being considered or installed by utilities differ in technical details and capabilities.

The “conversation” would give most consumers their first inside view of the electricity world, with its extreme fluctuations in price. Prices are estimated for each hour of the day, but the actual charge is not always what was estimated, and in off-peak hours in mild weather, prices can be negative — that is, the utility will pay the customer for using power. (Some power plants are hard to shut down, and their owners would prefer to run them during periods of low demand.)

Not everyone is confident that the smart grid will work well. “I think it makes sense, if we can do it economically,” said Gregory P. Kunkel, vice president for environmental affairs at Tenaska, an Omaha-based energy company. “But these things are often a lot easier to describe in some theoretical way than to actually implement.” Getting into tens of millions of houses to evaluate energy efficiency and install equipment is “just not so easy,” he said.

At the Electric Power Research Institute , a utility consortium based in Palo Alto, Calif., Revis James, director of the Energy Technology Assessment Center, said a smart grid could trim peak loads and avoid the need for expensive new “peaker” plants, which generate power only at times of high demand. But, he added, “We don’t know for sure how much you can buy through smart grid improvements.”

Mr. Butler, the utility regulator, said smart meters could lead to a revolution in how electricity was provided in the United States, unless they started a revolt among ratepayers first. “Smart meters are expensive — right now we’re talking about approximately $150 to $200 per meter — so we must be very careful in forcing anyone to upgrade if they are not willing,” he said in testimony to the Senate energy committee in March. “A pilot program must be structured in such a way that creates a buzz and excitement, not a ratepayer revolt,” he said.

In one such program, in Boulder, Colo., Xcel Energy and its partners have started converting some of the city’s roughly 50,000 electric meters to smart meters. The companies plan to convert about half of the meters, and make other changes, at a cost of about $100 million.

Dennis L. Arfmann, a lawyer at the Boulder office of Hogan & Hartson who specializes in environmental law, said he had no idea how much electricity he and his wife, Dr. Julie Brown, had used before he filled his roof with solar panels producing 4.5 kilowatts of power. During the day he sells power to Xcel and at night he buys it back; his goal is to cut his use so his net sales rise. He also helped arrange for a smart meter for his office.

At home, a smart meter installed by GridPoint, one of the Xcel partners, tells him how much electricity he uses in each 15-minute period, and an e-mail every Sunday tells him how much he used in the preceding week. He bought a meter he could use on individual appliances to tell how much each is using.

Xcel does not have time-of-day pricing, but it tells customers that nighttime power is often cheaper for customers over all, and better for the environment. Mr. Arfmann and Dr. Brown do a substantial amount of laundry; she bikes to her dental practice and then changes into the clothes she works in. But they have not shifted their clothes drying to off-peak periods because they have already unplugged the dryer and switched to a clothesline, as part of Mr. Arfmann’s campaign to cut his use to below 4,000 kilowatt-hours a year.

“I got into negotiating with my wife for the clothes dryer and the freezer,” he said. They unplugged the 35-year-old freezer, and now she washes the clothes and he hangs them, he said. “It’s worked out really, really well,” he said.

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