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Can Residential Customers Respond to Dynamic Pricing?. NANCY BROCKWAY Multi-Utility Sector Chief National Regulatory Research Institute A presentation to the Kansas Corporation Commission Workshop on Energy Efficiency Topeka, Kansas March 25, 2008. What I’ll cover.

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can residential customers respond to dynamic pricing
Can Residential Customers Respond to Dynamic Pricing?

NANCY BROCKWAY

Multi-Utility Sector Chief

National Regulatory Research Institute

A presentation to the

Kansas Corporation Commission Workshop on Energy Efficiency

Topeka, Kansas

March 25, 2008

what i ll cover
What I’ll cover
  • Residential customer responses
      • Load reductions - Percents or Elasticities
      • Broken down by socioeconomic variables
          • Low use
          • Low income
          • Presence of Central Air, Smart Thermostats, etc.
  • Results of major pilots of dynamic pricing
        • California Special Pricing Pilot
        • Energy Smart™ Pilot Program
        • Ontario Smart Pricing Pilot
        • See NRRI AMI Paper reading list for results of other pilots

Nancy Brockway, NRRI March 2008

what i won t cover
What I won’t cover
  • Bill impacts – At least not in detail, nor definitively
  • Costs of implementing dynamic pricing
  • System savings achieved by reducing peak demands
  • Alternative approaches to reducing peaks,
        • And their costs.
  • These are important questions,
        • on which a lot has been written.
        • See reading list Appendix to NRRI Report 08-03
        • http://nrri.org/pubs/multiutility/advanced_metering_08-03.pdf

Nancy Brockway, NRRI March 2008

overview of presentation
Overview of Presentation
  • Describe pricing options considered
  • Summarize arguments pro and con
  • For each pilot
      • Describe pilot design briefly, and
      • Discuss average results for different pricing options
  • Discuss results for low use and low-income
  • Discuss some methodological issues
  • Conclusions

Nancy Brockway, NRRI March 2008

pricing types defined
Pricing Types Defined
  • Static – Set in advance; don\'t change w/ changing system costs
      • Flat $/kWh
      • Time of Use (TOU) – Seasonal/Diurnal/other
  • Dynamic – Change to match actual system costs
      • Real Time Pricing (RTP)
          • Prices updated at least daily, typically on an hourly basis
          • Pacific NW – pilot interactive pricing
      • Critical Peak Pricing (CPP) or Critical Peak Rebates
          • Very high prices for 2-5 hours, 80-100 hrs/year
          • Days with highest system peak → highest system cost
          • Day-ahead or hours-ahead notification of customer

Nancy Brockway, NRRI March 2008

chart of cpp tou flat rate prices on a critical peak day
Chart of CPP/TOU/Flat Rate Prices on a Critical Peak Day

Cents/kWh

Hours

Nancy Brockway, NRRI March 2008

just say no
“Just say no”
  • Benefits don\'t justify costs:
      • “Most residentials cannot save”
          • Cannot shift load to off-peak hours
          • Cost of metering will eat up savings
          • Big problem for low-use and low-income customers
          • These customers will suffer
      • “Those residentials who can save, won\'t”
          • Have enough money to pay the peak prices
          • Will just buy through, so no system benefit
          • Effects will not persist, but costs will

Nancy Brockway, NRRI March 2008

just say yes
Just say “Yes”
  • Benefits claimed:
    • Reduce peaks/Reduce need for expensive, risky new capacity
    • Align customer rates with cost-causation
    • Gives customers control over their usage and bills
    • Spurs efficiency behavior, and thus lowers emissions
  • Drawbacks addressed:
    • Small and low-income customers can and will switch
    • Bills will be reduced, not increased
          • System costs will go down
          • Low use have better load profile
          • Rate design can help mitigate impact of new metering costs
    • Can address specific adverse impacts
    • Make it voluntary (opt in or opt out)

Nancy Brockway, NRRI March 2008

let s look at the facts
Let\'s look at the facts
  • Three recent pilots with controls/evaluations
      • California Special Pricing Pilot
      • Energy Smarttm Pricing Pilot – Chicago
      • Ontario Energy Board Smart Price Pilot

Nancy Brockway, NRRI March 2008

california special pricing project
California Special Pricing Project
  • July 2003 – September 2004
  • All participants given interval meters
  • 3 pricing approaches - TOU, 2 CPP groups
      • TOU – off peak, shoulder, on-peak
      • Critical peak pricing:
          • 12 summer and 3 winter Critical Peak events (+/- 75 hrs)
          • $/kWh averaged 3X normal on-peak, 6X off-peak
      • Low-Income
          • w/ and w/out community energy education
          • Urban residents – MF, little A/C

Nancy Brockway, NRRI March 2008

ca spp 2 cpp groups fixed notice and variable notice
CA SPP: 2 CPP Groups,Fixed Notice and Variable Notice
  • No PCT → CPP-F
      • 5 hour CPP events
      • Day ahead notice of CPP event
  • PCT → CPP-V
      • 5-hour CPP events and 2-hour CP events.
      • Day of (4 hour) notice of CP event
      • And PCTs signaled at beginning of CP event
  • All =
      • SFH with central A/C, and
      • Use > 600 kWh/mo.

PCT = Programmable Communicating Thermostat

Nancy Brockway, NRRI March 2008

ca spp ave cp response of cpp f by bundled temp bands source herter et al table 2
CA SPPAve. CP response of CPP-F, by bundled temp. bands*Source: Herter, et al, Table 2

Nancy Brockway, NRRI March 2008

ca spp ave cp response of cpp v by temperature bands source herter et al table 2
CA SPPAve. CP response of CPP-V by temperature bandsSource: Herter, et al., Table 2

Nancy Brockway, NRRI March 2008

energy smart tm pricing pilot
Energy SmartTM Pricing Pilot
  • Chicago, Illinois area, 2003-2006
      • Community Energy Cooperative + ComEd
  • Residential customers
      • Coop members invited; by 3rd year, 1400 joined
  • Hourly Day-ahead RTP, with “High Price” Notification
      • Advance notice of next day prices
      • Some days = ”high price” days (> 10¢/kWh energy) special notice
      • Interval meters installed
      • 2 pricing groups: RTP and RTP w/ DLC
  • Relatively low-tech
      • Smart Thermostats offered
        • 57 participants fitted with DLC on A/C from yr 2
      • Phone, email, fax notice of upcoming critical peak

Nancy Brockway, NRRI March 2008

espp results weather pcts make a difference
ESPP Results: Weather & PCTs Make a Difference
  • 2003 (cool summer)
    • Price elasticity = 4.2 on average
    • Responses “decayed” over time, but were “recharged” with time
  • 2004 (cool summer):
    • Price elasticity = 8 on average over all hours
    • But on average, no significant response to “high price” days
      • On average, increased load 8% late on one “high price” day
    • A/C w/DLC – reduced as much as 9% & 11%
  • 2005 (very hot summer):
    • Price elasticity = 4.7 on average
      • Big response to high price days
      • PCT with DLC increased price elasticity about 1/3 (to 6.9)

Nancy Brockway, NRRI March 2008

ontario smart pricing pilot
Ontario Smart Pricing Pilot
  • Ottawa, August 2006 - February 2007
    • 3 Pricing Groups and a Control
          • TOU – from 3.5 cents off-peak to 10.5 cents on peak
          • CPP – 30 cents on CPP (w/ lower off-peak price)‏
          • CPR – 30 cent rebate for below-baseline CPP usage
          • Up to $75 incentive payment if reduce load during pilot
    • Those with interval meters invited to join.
    • Participants disproportionately:
          • SFH
          • Newer housing
          • Central air
          • More education
          • Higher income

Nancy Brockway, NRRI March 2008

ospp load responses by rate and time of use
OSPP load responses by rate and time of use

Nancy Brockway, NRRI March 2008

ca spp impact of usage on cpp responses
CA SPP Impact of Usage on CPP Responses
  • Low-Use households
      • f (methodology)
        • Per Herter
        • No statistically significant response to CPP
        • regardless of income level
        • Per CRA analysis
        • low-use hhlds reduced @ CPP 9% - 12%, on average
  • High-Use households
      • Yes, statistically significant responses to CPP
        • No statistical differences between income groups
        • Per Herter analysis

Nancy Brockway, NRRI March 2008

slide19

CA SPP: CPP-F % Ave. Reduction in Peak Usageby Usage Level and End-Use **Source: CRA, SPP Evaluation, Summer 2003, Table 5-9; CRA, Final Report, Table 4-19

Nancy Brockway, NRRI March 2008

espp elasticities by housing type space conditioning devices
ESPP Elasticities by housing type, space conditioning devices

Nancy Brockway, NRRI March 2008

slide21

CA SPP Low Income load responseSource: M.Cubed and Charles River Associates, Statewide Pricing Pilot Track B: Evaluation of Community-Based Enhancement Treatment.

  • Lower income participants reduced less:
      • On average, “Track B” load response = 2.6%
        • But a small # of participants pushed up the ave. response
      • Statewide, <$40K groups reduced critical peak use by 10.9%*
      • CARE – reduced critical peak use by 2.9%*
  • Bill savingsbefore adding incremental metering costs.
    • For lowest-income/low-use group = 2.7% reduction
    • for lowest-income/high-use groups = zero

* Per Brattle Group analysis

Nancy Brockway, NRRI March 2008

ca spp vs espp
The more the people in the hhld, the less the response

SFH hhlds with CAC had the strongest % response

Hhlds w/highest incomes had strongest responses to CP events.

The more the people at home, the more the response

MF households w/out A/C had the strongest % response

Lower income hhlds had stronger response to “high price” days

CA SPP vs. ESPP

Nancy Brockway, NRRI March 2008

ospp bill impacts not counting incremental metering costs
OSPP Bill ImpactsNot counting incremental metering costs
  • CPP
    • 83% paid lower bills
      • Average savings = 4.2%
      • Greatest loss = 13.8%,
      • Greatest savings = 7.6%
  • CPR
    • 73% paid lower bills
      • Average savings = 4.2%
      • Greatest loss = 9.1%,
      • Greatest savings = 10.7%
  • Overall (including TOU)
    • 75% of participants saved $, but
    • In August, CPP participants saw higher bills
    • In January, CPP participants saw higher bills

Nancy Brockway, NRRI March 2008

ca spp mean annual change in bills by usage and income without ami costs source herter figure 5
CA SPP - Mean Annual % Change in Bills by Usage and Income (Without AMI Costs)Source – Herter, Figure 5

Nancy Brockway, NRRI March 2008

participation rate problem
Participation Rate Problem
  • Proponents claims:
      • 20% take TOU/CPP if opt-in
      • 80% take if opt-out
  • But where is data?
      • SPP – opt in – 10% by end of pilot
      • Washington State – 90% opt in BUT
        • Entire program eliminated after public outcry
      • Self-selection bias important on this issue

Nancy Brockway, NRRI March 2008

better persistence today
Better Persistence Today?
  • Peaks can be more narrowly defined
  • High prices can be limited to 80 – 100 hours
  • PCTs can automate response
  • Off-peak, non-critical peak prices are reduced
  • Cost of hedging for flat pricing effects can be eliminated
  • Renewed public interest in lowering energy costs

Nancy Brockway, NRRI March 2008

conclusions
Conclusions
  • Many residential customers can & do respond to CP/RTP pricing.
        • Benefits system greatly, by avoiding new capacity
        • CP Rebates can be attractive option
        • Can be done without full AMI, where AMI not cost-effective
  • But jury is still out on
        • Steady-state participation rates
        • Persistence
        • Bill impacts
  • Low-use customers can benefit from CPP --- better load profile
        • Even if they don’t reduce load
        • Many did reduce load in pilots
  • High-use/Low-Income customers are at risk
        • Need to identify, and direct bill and DSM assistance here
  • PCTs produce dramatic results

Nancy Brockway, NRRI March 2008

for more information
http://nrri.org/pubs/multiutility/advanced_metering_08-03.pdfhttp://nrri.org/pubs/multiutility/advanced_metering_08-03.pdf

Nancy Brockway

Chief, Multi-Utility Section

NRRI

10 Allen Street

Boston, MA 02131

617-645-4018

nbrockway@nrri.org

For more information

Nancy Brockway, NRRI March 2008

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