ORIGINAL REPORTING: Electricity Pricing Look Like In 2040

What will electricity pricing look like in 2040? Experts weigh in on their rate design predictions: Is the future complex rates and set-it, forget-it technologies or Netflix-like subscription plans?

Herman K. Trabish, Aug. 21, 2019 (Utility Dive)

Editor’s note: The advanced rate designs imagined here are already starting to become reality.

Rising renewables penetrations are increasing the need for utilities to alter rate designs. More dynamic pricing can signal customers when bill savings are possible for shifting use away from high demand periods. Automated technologies can help customers respond. And strong customer participation in these programs can turn variable renewables' threats into system benefits. But will this overburden customers?

The key is "seamlessly" integrating wholesale prices and automated home appliances, writes Brattle Group Principal Ahmad Faruqui in his Public Utilities Fortnightly article, which imagines 2040 pricing structures. Affordable automated home energy management systems with set-it, forget-it technologies could someday allow customers to preprogram use-parameters to match dynamic rates, utility rate design authorities told Utility Dive. But such automation is not yet available, and until it is, dynamic rates require interest in electricity bills few customers have. An alternative paradigm is electricity providers delivering services through subscription agreements. Tiered price contracts would allow customers to choose parameters but leave control to electricity providers.

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With over 85 million homes now equipped with advanced metering infrastructure (AMI), utilities are preparing to opt-out time of use (TOU) rates toward more dynamic rates. Voluntary dynamic rates that vary with electricity's value to the system are offered by about half of U.S. investor-owned utilities, according to a 2018 Brattle Group study. On average, 3% of customers opt-in.

New rate designs that engage customers through dynamic price signals will be vital to meeting 2040's system and customer needs, Faruqui said. If the 2040 supply mix changes to high renewables penetrations and customer behaviors do not support demand side flexibility, "we have a major disappointment coming" from system instability and costs. Today's rates fall short of the real time pricing (RTP) that would reward retail customers for responding to supply-demand dynamics. "RTP is the most extreme form of dynamic pricing and won't happen at scale until automated home energy management technologies go beyond today's smart thermostats," Faruqui said. But "the next generation of technologies and customers will take over by 2040 and allow this transformation," he said… click here for more

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