Last week, Environmental Defense Fund (EDF) co-hosted a successful forum on residential time-variant electricity pricing – which allows customers to pay different prices for electricity depending on when it is used – within the context of New York’s ‘Reforming the Energy Vision’ (REV) proceeding.’
Co-hosted with the New York Department of Public Service and New York University’s Institute for Policy Integrity, the full-day forum, “On the REV Agenda: The Role of Time-Variant Pricing,” brought together more than 150 regulators, utility executives, academics, and other stakeholders to explore how residential time-variant pricing works, what it can accomplish, and how best to implement it. Below is a recap of some of the high-level takeaways from the forum.
How time-variant pricing (TVP) works
One of EDF’s objectives has been to improve the efficiency of the electricity industry by pursuing a market-based approach to electricity pricing. In most well-functioning markets, the cost of making a product and its relative scarcity is reflected in the price. For example, a door is more expensive than the wood with which it is made in order to reflect the labor costs involved. Similarly, strawberries are more expensive during the winter because they are less abundant during that time. Customers understand that prices vary with production costs and over time, yet neither of these elements gets reflected in how residential customers currently pay for electricity.
In the U.S., the electricity sector accounts for over a third of the country’s yearly greenhouse gas emissions, contributing more to climate change than any other sector, including transportation.
Furthermore, electricity costs have increased dramatically over the years, and are projected to continue their upward trend. Utilities and regulators have made great strides in promoting renewable energy, increasing the efficiency of the power grid, and reducing harmful pollution. However, customers, too, can be part of the solution by better managing their use of electricity – especially during those times when it is most expensive and dirty to produce.
Electricity is more expensive during ‘critical peaks’
The cost of producing electricity – and the carbon emissions associated with it – varies significantly throughout the day, depending on electricity demand at any point in time. For example, when a heat wave occurs and many customers begin cooling their homes after work, demand skyrockets and creates what is known as a ‘critical peak.’ Read More
As we’ve mentioned before, New York is changing how it evaluates and compensates electric utilities. One goal of this change is increased consumer engagement, which makes customers allies in the development of a more reliable, resilient, and ‘smart’ electric grid.
Many customers have begun taking advantage of new energy technologies and their falling prices by turning to community microgrids, installing on-site distributed generation, like rooftop solar, or investing in more efficient appliances, among other actions. Advances in telecommunications and information systems have also created new opportunities for energy services we could not have imagined just a few years ago. For example, innovative tools like demand response allow third parties or utilities to turn off pre-approved appliances – like swimming pool pumps and air conditioners – remotely when the power grid is stressed and needs a quick reduction in energy demand. Read More
Source: Johannes Rössel, wikimedia commons
It would be logical to assume that we make decisions based on our needs, desires, and values regardless of how the choice is presented. For instance, we wouldn’t expect the choice to become an organ donor to depend on whether you must check a box to accept or decline donation. But we would be wrong: our decisions depend a great deal on how the choice is presented.
Choice architecture gets to the heart of the debate on whether it’s preferable to offer people the opportunity to opt-in or to opt-out, and this question has become crucial to the discussion about time-variant electricity pricing throughout the country.
Opt-out vs opt-in time-variant pricing
Currently, most electricity customers pay for electricity at a single flat rate (i.e., one price per kWh consumed). Such pricing is simple but doesn’t reflect actual system costs, which are higher during times of the day when overall energy demand peaks. Time-variant pricing instead allows utilities to charge more for electricity during periods of peak demand, and less during periods of lower demand. Read More