With the rise of a number of industry challenges -- such as distributed generation, flattening electricity demand, new regulations, aging grid infrastructure, and low levels of customer engagement -- things can certainly seem bleak for utilities.
However, a new in-depth study discusses a solution that may offer an important opportunity for utilities to more effectively navigate some of these trends: dynamic pricing rates. The report from Rocky Mountain Institute -- Rate Design for the Distribution Edge: Electricity Pricing for a Distributed Resource Future -- explores how utilities can increase rate sophistication and, in turn, address a number of their pressing business challenges. Traditionally, utility energy bills have not adequately reflected variables like time of day, peak demand conditions, or other factors that have important implications for grid management. By beginning to account for some of these variables with the help of dynamic pricing rates (e.g. electricity prices that correspond to different grid conditions), utilities can start to make headway in areas such as managing peak demand and giving customers more energy management options.
The graphic below from the Rocky Mountain Institute displays the conceptual difference between standard pricing ("flat volumetric retail") and examples of dynamic pricing regimes.
This chart depicts two of the many dynamic pricing structures presented in the RMI report (Source: Rocky Mountain Institute).
It's important to note, however, that none of this is new to the utility industry; innovative utilities have already begun adopting dynamic pricing structures to better engage their customers and help manage peak demand. One example of dynamic pricing that has recently received considerable attention concerns the growing adoption of electric vehicles -- a trend that we highlighted earlier this summer on our data blog. Around 25 utilities have already begun to offer dynamic pricing plans that offer discounted electricity at night to EV owners, as a way to prevent power-hungry electric cars from overtaxing the electric grid during the day.
Dynamic pricing is also being used in the form of "peak-time rebates." Baltimore Gas & Electric's Smart Energy Rewards program is one of the first utility programs in the nation to offer a peak-time rebate -- an incentive for using less energy at the times of highest demand -- to all residential customers with smart meters. To provide valuable, real-time energy analysis to their customers, BGE launched a groundbreaking Behavioral Demand Response program last summer. As part of the program, BGE -- in partnership with Opower -- sent over 3.2 million communications with energy savings guidance, tips, and feedback to customers through email, text message, and paper reports.
These communications provide customers with personalized analysis and information about their energy usage during peak energy events. By taking simple steps on designated “Energy Savings Days”-- such as delaying the use of energy-intensive appliances like the dishwasher, washer, and dryer until after 7 PM, and raising the thermostat by 3-4 degrees -- customers can trim their peak demand and earn rebates. The result of last summer's program were astounding: BGE communicated with 315,000 consumers before and after peak events, saving BGE customers more than $7 million. This year's Smart Energy Rewards program is likewise making a broad-based impact and receiving rave reviews from customers. Of course, customer engagement is a critical part of any utility's initiative to implementing dynamic rate plan offerings -- whether they be tailored to EV owners, small businesses, or the general residential population. Often a key part of this engagement effort includes personalized tools that educate consumers about the details, pros, and cons of different rate plan offerings. One such tool is the Opower rate portal, which models customer usage under different rate plans to demonstrate how their electricity rates would change. It also allows customers to consider a series of "what-if" scenarios to understand how behavior changes would impact their rates.
With Opower's rate portal, customers can learn about dynamic rate plans, receive personalized bill estimates, and more.
Opower's research has shown that well-designed rate education materials are well-received by customers and can even outperform standard utility mailings in terms of appeal and clarity. Early user feedback reveals that rate education tools have earned a customer likability rating 19% higher than that of standard utility mailings.
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