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Innovative ideas for every utility

Did you know we can make peak demand flexible?

Moiz Kapadia
Opower Product Manager

In my previous post, I talked about a great problem to have - too much renewable energy on the grid.

One way to use up all that renewable energy, based on Rocky Mountain Institute's Demand Flexibility paradigm, is to incentivize customers to use more electricity during the afternoon by making it cheaper. Examples of these various pricing structures include:

  • Time-of-use rates – electricity prices during peak hours (eg 2-7pm or 6-9am) are higher than the rest of the hours of the day
  • Demand rate – customers are charged for their rate of electricity consumption (kW) in addition to their overall electricity usage (kWh);
  • Real-time pricing – electricity prices change every hour, reflecting wholesale costs the utility pays generators

Seems logical: make electricity more expensive when you don't want customers to use it. Make it cheaper when you want customers to use it. Throw in some smart batteries and less wasted renewable energy and a flat peak demand curve. Easy, right?

Not quite. For these rates to be effective utilities need to consider how customers actually behave.

For over a decade, we've been winning the battle of making customers care about their energy. But guess what?Price doesn't always motivate customers when making energy use decisions. Even worse, customers who already have negative feelings about their utility, will likely fear that these new rates are going to increase their bills. This increases the risk of utilities seeing higher calls to their customer service center and lowers sentiment towards the utilities.

It gets worse. The Brattle Group, led by utility expert Ahmad Faruqi, found that without enabling technology TOU rates can have limited impact. Consider the chart below. The x-axis shows a range of TOU price signals. A "price signal" is the ratio of on peak to off peak electricity prices. For example, if electricity is $0.40/kWh during on peak hours and $0.10/kWh during off peak hours, the price signal is four. The y-axis shows the peak demand reduction that is brought about from that price signal.

 

What's interesting is that even when you increased the price signal from four to eight, effectively increasing the penalty on customers, there peak impact goes from ~9% to ~13%. However, if the TOU rate is introduced with an enabling technology, the peak impact goes from ~16% to ~24%.

Enabling technologies that automatically optimize end uses against TOU schedules such as batteries, smart thermostats, smart water heaters, etc., would help deliver peak reduction. But there's one more and it just happens to be our favorite: behavior change. With major utilities such as Pacific Gas & Electric, Southern California Edison, San Diego Gas & Electric, Arizona Public Service defaulting their electricity customers to time of use rates, it became clear to us that customers are going to need help understanding and benefitting from these new rates.

In my final post, I'll talk about the blood and sweat our UX, engineering, regulatory and sales teams put into building a behavioral solution that takes a big swing at delivering peak demand reduction.

 

Oracle Utilities, including Opower, partners with the world's hardest working electric, water and natural gas companies to empower, enhance and enable your every single day. From cloud-native products and better grid management tools to support for every single step of your customer's journey, we have the answer.  Learn more at oracle.com/utilities. Get specific product information as quick as clicking right here.

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