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Customers Slow to Adopt Smart Pricing

June 24, 2015 By Josh Kessler

Smart grid technology has seen widespread deployment. Seven states and the District of Columbia achieved adoption rates of greater than 70 percent by the end of 2013, according to data from the Energy Information Administration – including California and Texas, the two largest states.

The top 10 states for smart grid deployment, also known as advanced metering infrastructure (AMI), based on data from year-end 2013, are:

State Rank AMI
ME 1 98%
DC 2 97%
NV 3 95%
GA 4 85%
CA 5 84%
VT 6 80%
AZ 7 72%
DE 8 72%
TX 9 69%
ID 10 69%

In spite of this, a blog post on The Energy Collective earlier this week suggested that customers have been slow to leverage the types of energy management strategies enabled by smart grids.

In particular, the article focuses on the fact that customers have been slow to adopt time-of-use (TOU) pricing plans, which charge higher prices during periods of high electricity demand and lower prices during periods of lower demand. The goal of these programs is to help the grid run more efficiently by sending price signals to customers that better reflect the actual costs of the energy they are consuming. In theory, this should encourage them to shift their consumption from peak to off-peak hours – or simply to use less energy during peak hours.

A new Department of Energy (DOE) study of customer adoption and behavior related to time-based rates highlighted some key findings around four common types of TOU pricing:

  • TOU – pricing scheme offering higher rates during “peak” demand; prices and peak hours are both set in advance.
  • Critical peak pricing (CPP) – higher pricing offered during critical peak events, often in exchange for a payment for participating in the program.
  • Critical peak rebate (CPR) – similar to critical peak pricing, but offering incentives for load reduction during critical peaks instead of higher prices during those hours.
  • Variable peak pricing (VPP) – hybrid of TOU and CPP where peak hours are defined in advance, but prices vary based on market conditions.

The chart below from the DOE report shows the differences between CPP, VPP, and TOU pricing.

Time-Based Pricing Chart

It should be noted that while most articles and research on time-based rates focus on utility rate plans, retail providers often offer these plans as well. One finding of note for retail buyers: Automated controls helped expand peak demand reductions from a baseline of 21 percent for CPP and 11 percent for CPR to 30 and 29 percent, respectively. Although there is an initial up-front cost associated with these technologies – incurred by either the customer or the utility – the expense can pay for itself through the improved savings it enables.

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