Demand Response or “Smart Metering”
A little known provision of the 2005 federal energy bill could help you save significantly on your electric bill. This provision, which deals with demand-response, speaks to a crucial component of the Galvin Electricity Initiative’s vision for a Perfect Power System because it offers consumers choice and transparency and in doing so promotes efficiency.
Demand response goes by numerous names including smart metering, dynamic pricing, time-of-use pricing, real-time pricing and hourly pricing.
Here’s how it works
The price your utility company pays for power on the wholesale market varies depending on supply and demand. When utilities are competing for a limited amount of available power the price rises accordingly. In fact, wholesale electricity prices fluctuate every hour. For example, your utility company pays more for the power it buys on a hot August afternoon when everyone is running their air conditioners at full blast than it does at 2 a.m. on a temperate spring morning when few people are using any appliances. Some utilities offer their customers the option to do the same, meaning they pay more for energy used at peak times than at other times. This allows consumers to control their electricity bill by understanding exactly what they are paying for and when. This system is generally known as time-of-use or dynamic pricing. But most utilities simply lump all the costs together and charge customers based on an average of what they pay wholesale.
Now, thanks to the Energy Policy Act, all utilities have to offer customers both the option to pay for exactly what they use and the equipment to make this possible. Utilities were supposed to have the program available within a year after the bill’s enactment in August 2005. The catch is, you have to ask. While states are required by the new law to study the feasibility of changing all their customers over to time-of-use pricing, they are currently only required to provide this rate structure upon customer request.
There are a number of reasons why you should consider making that request.
- Several studies estimate that widespread adoption and use of demand response could save businesses and our economy between $10 and $19 billion a year.
- That’s in part because utilities often build new power plants and lines solely to have enough capacity to meet the demand for power when it is at its very highest — only a few days, or even hours, per year. The cost of building this capacity is passed on to the consumer in the form of higher rates. Widespread use of demand-response systems or time-of-use pricing would encourage consumers to cut their energy use at peak times and therefore make it unnecessary to build new infrastructures.
- Additional savings would come from a reduction in prices in wholesale power markets. Wholesale prices rise when supplies are short because of heavy demand at peak times a few days every year. A reduction in demand would eliminate the shortage and therefore reduce wholesale prices for everyone.
- Most electricity rates for businesses include some iteration of a “demand charge.” This is a charge based on the amount of capacity a utility will have to have available in order to meet your business’ peak demand. Cutting your peak demand by, for example, spreading out electricity-intensive functions over time rather than doing them all at once, could help you win a lower rate overall or at least a reduction in this charge.
- A rural textile mill participating in Georgia Power’s real-time pricing program cut its utility purchases by increasing the output of its on-site generator during periods of high prices for a savings of nearly $1 million a year.
- A three-building commercial office complex in California reduced its total electricity costs by 17 percent in 2003 through a demand response program.