Households face power-pricing revolution
– John Kemp is a Reuters columnist. The views expressed are his own —
Households in the United States and the United Kingdom are about to experience a revolution in the way they pay for electricity.
Over the next decade, almost all homes will be fitted with “smart meters” recording the time as well as the quantity of electricity used. Most customers will face some form of dynamic pricing that relates the price they pay for each kilowatt hour (kWh) to the actual cost of generating it.
Smart meters and dynamic pricing are critical to using the generation and transmission system more efficiently while accommodating a growing share of renewables (wind, solar) on the grid without sacrificing reliability. VARIABLE DEMAND
Power cannot be stored, and the amount demanded by customers (“load”) is highly variable, so system operators hold large amounts of generating capacity in reserve to cope with demand peaks or outages when generating units become unavailable.
Many generating units must be built and maintained even though they may only be used for a few hundred hours each year. The greater the variability in load the more idle capacity has to be maintained. In general, usage is higher during the day than at night, and higher in summer than winter, owing to increased airconditioning demand.
The problem will get worse over the next decade as the share of generation from renewables such as wind and solar, which cannot be scheduled in advance, increases. Even more back-up capacity will need to be held in reserve in case renewable power is not available at peak times.
Renewables to spark U.S. grid revolution
Growing power consumption and the U.S. administration’s plan to rely more heavily on renewable generation sources will increase the demand on America’s already overloaded electricity grid and require major investment in transmission and distribution networks.
Upgrading power transmission and distribution systems is likely to cost as much as installing new generating capacity over the next 20 years.
While Congress provided an extra $4.5 billion of funding for grid improvements in the recent fiscal stimulus, federal loan guarantees and other support, far more investment will be needed if the administration’s targets for renewable generation are to be realized.
In its “Annual Energy Outlook 2009″ (AEO2009), the Energy Information Administration projects consumption will increase by 1,000 billion kilowatt hours (26 percent) between 2007 and 2030. The United States will need to install 259 gigawatts (GW) of new generating capacity to replace aging generators taken out of service (30 GW) and meet increased demand on the system (229 GW).
A report prepared for the Edison Foundation by consultants Brattle Group last year put the capital cost of capacity installation at between $500 billion and $1 trillion (depending on how much of the total is met by cheap sources such as coal and gas and how much by expensive sources such as nuclear, wind and solar). Click here for PDF.
AEO2009 projects that most of the added generating capacity will be from conventional sources such as natural gas (53 percent), coal (18 percent) and nuclear (5 percent). But a substantial proportion will come from renewables (22 percent), raising the share of renewable power in total generation from 8 percent in 2007 (much of it from hydro dams) to as much as 13 percent in 2030.
The biggest additional contribution will come from the combustion of biomass waste products left over from increased production of ethanol to meet the federal government’s ambitious targets. The other major contribution will come from wind. Solar is likely to make a marginal contribution in the timeframe owing to high cost.
One thing that will help us meet the goals presented is to conserve where possible. If you’re not using as much electricity to begin with you won’t need as much infrastructure. In my own apartment I did knock down the electrical usage by one seventh, and we’re a family of five. If the government further encouraged conservation they could lower the cost to be invested by a similar amount.
In my case, why I started on the route to conservation to the extent I have is saving myself money. It pays off big time. Our budget isn’t as stretched as it would have been otherwise. More savings have also been realized by turning down the thermostat, installing LED nitelights and other technologies. Saving money on the utilities has allowed me to further invest in even more items that save money, like NiMH batteries.
I think it is fairer to use smart metering–energy customers will pay for what they use and will be able to adjust consumption accordingly. If the cost of the smart thermostat is prohibitively expensive for some households, perhaps it should be subsidized. As for the suggestion above that customers pay the same rate, are you suggesting a fixed cost regardless of consumption? If so, that makes no sense whatsoever: Should all driver’s pay a flat fee for gasoline, regardless of how much they drive?
Yes, I think this will require some supervision of the power companies–as somebody commented earlier, utilities may be an “honesty-challenged sector.” But, the premise for smart metering makes perfect sense: charge customers the marginal cost their energy usage. If you use lots of power, yes, you will pay more; if you make an effort to conserve, you’ll pay less.