For more than a hundred years, the electric power industry worked exclusively on the supply side. When demand grew, they simply built more power plants. But electricity demand is subject to severe peaks (think of a hot summer day where everybody's air conditioner is going full blast). As a result, many of those expensive power plants sat idle 90% of the time, just waiting for a peak event.
Now utilities are working on the demand side too. Through "demand-response" programs they are trying to reduce peak demand to reduce the need for those expensive standby plants. The goal is to get people to shift their consumption — to wait until non-peak hours to turn on their appliances, for instance.
What kind of incentives are they giving? As you'll read below, at least two utilities are even resorting to free electricity. If you are trying to avoid more fossil-fuel plants in your city, you may want to propose a similar scheme to your utility. — Jesse Berst
If you want people to conserve electricity, it doesn’t seem to follow that you would succeed by giving it away. But one Texas utility is trying that. It and other utilities around the world are finding they can avoid costly energy demand spikes by providing customers strong incentives to better time their consumption.
Creative pricing models have worked for decades in South Korea. Now more utilities are looking to them to stretch their capacity at a time when usage is exploding.
An effort to shift consumption
TXU Energy in Texas has been experimenting with a variety of free power periods for several years now. The state has an abundance of wind power and the free periods are designed to get customers to shift their energy consumption to the nighttime when the winds are strongest and away from peak daytime periods when it has to buy electricity.
Customers can sign up for free power all night, similar to the old off-peak calling periods for cell phones, or free mornings and evenings. It promotes the nighttime plan as being perfect for people who can run their appliances or charge electric cars while they sleep. The mornings and evenings plan is for people who want to time their peak usage for when they’re getting ready for work or winding down after coming home.
“You can party after 9”
The New York Times profiled some of the people who signed up for the free nights program and found they gladly made lifestyle changes. A teacher sets an alarm for 9 p.m. — the time when her free period begins — which prompts her to start her dishwasher and washing machine. Another leaves a note in her guest room, telling her friends they can “party after 9.”
In exchange for the free nights or evenings, the utility charges a higher rate for power at peak times. Reviews from customers have been mixed. Some, especially those who run air conditioners at night, have cut their bills in half. People who can’t or aren’t willing to make the lifestyle changes complain they’re paying a lot more.
Incentives in Italy
Council Lead Partner Enel which also featured in the New York Times article for its innovative pricing strategies. Enel is a leader among utilities, the first to replace traditional electromechanical meters with smart meters, a switch that makes time-of-use pricing possible.
In Italy, Enel provides incentives for customers to cut their electric use during times of peak demand. Enel is dealing with rapid population growth — and strong demand for energy — throughout large parts of its service area, Latin and South America in particular, so it’s important for it to even out some of the peaks and valleys in demand.
Change takes time
While some research indicates that people may pay relatively little attention to energy prices, time-of-day pricing does seem to make a difference the longer it’s in place. South Korea has tried a variety of peak-pricing models — starting at the wholesale level in the 1970s and moving to residential customers in the 1990s — to good result.
Its pricing may seem dizzying at first. There are three different rate periods during the day. And that’s on top of several different tiers of customers in a wide range of customer groups. But customers have clearly gotten used to it and it says the incentives have helped it smoothly manage growth.