ORIGINAL REPORTING: Are Electricity Rates The Key To New Energy?

Beyond TOU: Is more dynamic pricing the future of rate design? Analysts say sending stronger price signals to residential ratepayers could help reduce peak demand, but consumer advocates are leery

Herman K. Trabish, July 17, 2017 (Utility Dive)

Editor’s note: The brilliant wonks who work on rates are taking this crucial debate deeper into the weeds in the states leading the New Energy charge.

Innovative ratemaking is the new frontier in the fight for New Energy. Trials of time-of-use rates, demand charges and time varying pricing are playing a growing role in the transformation of the electric power sector. California will deploy default residential time-of-use (TOU) rates in 2019 at an unprecedented scale. Landmark regulatory debates across the country have been resolved in recent months by stakeholder agreements to explore new ways to use rates to control spiking peaks. And research is beginning to point toward what works and what doesn’t. A Brattle study of 300 TOU pilots and trials has concluded that TOU rates solve yesterday’s problem and California’s move to TOU rates will produce peak demand changes that will be too small to drive important system changes, according to Brattle Group Principal Ahmad Faruqui, the paper’s lead author.

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The magnitude of the impact of TOU rates on peak demand is consistent with the size of the ratio between off-peak and on-peak rates, Faruqui told Utility Dive. California should instead move to dynamic pricing, which involves alerting customers to steeper increases in per-kWh rates in advance of specific peak demand events. Instead of a small differential every day, the larger gap between peak and off-peak pricing is meant to drive more significant reductions during the highest demand days. Jayant Kairam, Environmental Defense Fund (EDF) California Clean Energy Director, sees TOU rates as a way the state can reliably and cost-effectively deploy DER. He argued TOU rates can support demand response that could help save 0up to $700 billion annually by 2025. But Faruqui wrote recently that deployment of advanced metering infrastructure (AMI) has made possible more complex rate designs that incorporate time-varying pricing that would lead to greater savings… click here for more

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