Modernize Retail Electricity Pricing, Says RMI

August 26, 2014 By Linda Hardesty

RMI energy priceThe Rocky Mountain Institute’s Electricity Innovation Lab (e-Lab) released a report, “Rate Design for the Distribution Edge: Electricity Pricing for a Distributed Resource Future,” pointing to the need for modernization of retail electricity prices to reflect a changing grid.

The report finds that traditional electricity pricing schemes are antiquated in light of the distributed energy resources (DERs) that are being connected to the grid.

“Distributed energy resources are fundamentally changing how we interact with the grid, shifting the one-way utility-customer relationship to a two-way exchange of value and services,” said RMI Electricity Principal Owen Smith. “Utilities need new rate structures that more closely align with this evolving, 21st-century grid—categorizing, charging and compensating customers and third-party providers for the values and services their DERs provide to the grid or get from it.”

The e-Lab report identified three opportunities for utilities and regulators to develop more sophisticated rate offerings:

  1. Attribute unbundling—Breaking apart a bundled kilowatt-hour into cost- and value-based components such as energy, capacity, and ancillary services.
  2. Time-based pricing—Moving to pricing structures that reflect the time-varying cost to generate and deliver electricity.
  3. Location-based pricing—Shifting to pricing that better directs the deployment of DERs to the locations on the grid where they can provide the most value.

Additionally, these more sophisticated rate structures can be coupled with utility or third-party solutions—incorporating smart devices and automated controls—to maintain or enhance the simplicity of the customer experience.

Developing and implementing new pricing structures will require effective collaboration among utilities, regulators, third-party solution providers and customers, says the report.

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