Part 2: Real-Time Pricing and Demand Response
Real-Time Pricing and Demand Response
By Brandon Lorenz, Senior Editor November 2009 - Power & Communication
Inefficiency, poor power quality and reliability challenges: These are just a few of the problems Smart Grid is meant to solve. Along the way, there may well be cost savings for facility executives who harness the full potential of smart grid technology.
"There is a whole new world of opportunity out there for building owners to engage in Smart Grid and either reduce their costs or make some money off of it," says Delurey.
That's because one of the foundations of Smart Grid — smart meters — enables two-way communication between buildings and the utilities. And while the flavors vary (time-of-use pricing, real-time pricing, critical-peak-power pricing) it means that facility executives will start paying for electricity in real time.
"Half of what the smart grid is about is implementing time-of-use pricing," says Audin.
Under a time-of-use pricing plan, separate rates are levied for peak demand and consumption. Prices vary by time blocks. Blocks from 8 a.m. to 6 p.m. are often priced highest, the block from 6 p.m. to 10 p.m. is mid-priced, and the block from 10 p.m. to 8 a.m. is least expensive.
Smart Grid therefore represents not only a technology evolution, but a management evolution too.
"The key to the discussion is what kind of rate structure you are on," says Jack McGowan, CEO, Energy Control Inc. and chairman emeritus, DOE GridWise Architecture Council.
So in a market where the utility has time-of-use pricing, facility executives can benefit by cutting electrical loads during the most expensive times of the day. Though the facility doesn't use less electricity, it pays less by shifting demand to off peak times.
Enter demand response programs.
Some facility executives probably already participate in demand response programs. Smart Grid aims to make the practice more common, and automated. The end result is potentially reduced costs for all ratepayers.
Flattening the nation's load profile — basically chopping off the top of the peak during the busiest part of the day — means utilities have fewer power plants to build and maintain.
Whether the load profile really can be flattened is still an open question. "Call back in 20 years," says Audin. "That's a good direction to go in, but I think there is a good deal of hype and naive excess hope."
According to a study conducted by The Brattle Group, the top 1 percent of the hours account for 10 percent of peak demand. The firm's February 2009 study estimated that aggressive demand response programs could save $61.7 billion by 2050, mainly through reducing the need for new power plants.
Physics is one more reason demand response makes sense. Peak demand often occurs on hot summer days as cooling loads surge. But the ability to transmit electricity on a hot summer day is roughly 20 percent less than on a cool day, says Delurey.
Another reason demand response will grow more popular is that it is joined at the hip with the growing momentum to create more renewable energy sources and renewable portfolio standards.
Unlike fossil fuel sources, renewable energy sources like wind and photovoltaic arrays don't consistently generate power. Today, when the sun doesn't shine, the utility may ramp up a fossil fuel plant — not a very green strategy.
But, with a smart grid, if renewable power isn't available because it is overcast, the utility can call upon demand response rather than firing up a fossil fuel plant.
That capability isn't here yet, but that is a goal behind Smart Grid.
"Ultimately when we talk about smart grid technology, what we are talking about is that it becomes automated," says Matt Wakefield, program manager for smart grid demonstrations with the Electric Power Research Institute (EPRI). "The loads and the resources can respond automatically."