Can residential customers respond to dynamic pricing
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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?

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

  • 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

    • 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

    • 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

    • 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

    Cents/kWh

    Hours

    Nancy Brockway, NRRI March 2008


    “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”

    • 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

    • 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

    • 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

    • 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 SPPAve. CP response of CPP-F, by bundled temp. bands*Source: Herter, et al, Table 2

    Nancy Brockway, NRRI March 2008


    CA SPPAve. CP response of CPP-V by temperature bandsSource: Herter, et al., Table 2

    Nancy Brockway, NRRI March 2008


    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

    • 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

    • 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

    Nancy Brockway, NRRI March 2008


    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


    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

    Nancy Brockway, NRRI March 2008


    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


    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 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

    Nancy Brockway, NRRI March 2008


    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?

    • 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

    • 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


    http://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

    [email protected]

    For more information

    Nancy Brockway, NRRI March 2008


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