A large share of the special green issue of the NYTimes Magazine was closely tied to economics. I find this encouraging. Here is one interesting bit:
…demand response has become one of the most powerful
green techniques for protecting the nation’s overtaxed power grids. When
a blackout looms, utilities call a small coterie of demand-response firms. These
firms prearrange for major users of electricity – factories, shopping
malls, skyscrapers – to shut down all nonessential electricity in exchange
for payments, often totaling tens of thousands of dollars each year. It’s
expensive, but far less so than a blackout that cascades across the country….ConsumerPowerline controls 300 huge buildings in
New York alone, where hastily brokered turnoffs by Macy’s
and major hotels prevented the spread of a 2006 blackout in Queens
– a blackout that lasted for more than a week – into Manhattan.
Extremely interesting. I have to
say.
I think it is akin to the large
electricity users selling a call
option on the aggregatae power
usage in the same grid. Considering
that this option sounds like a
digital (all or nothing) option, I
wonder how the demand response firm
prices it,i.e assume the excess load
on the grid is 100 units. But the
demand response firm has bought 300
units which are split up like 75, 50,
25×6, 10×2,5. The question is how
does the firm price these units?
differently or same per unit.
Any economic theory that is cyclic will predict “{supply response” to ultimately counter balance. The two will simple balance out.
The test is whether the balance will have a longer phase delay with or without the protocol.
The test, of course, is $5, the per capita cost of a digital readout that gives the user his exact (to the penny) immediate electricity bill.
This can work in limited circumstances but in general it is a bad idea.
The principal problem is that you are paying people not to consume power and there is no way to measure the amount of power they didn’t consume. If you are paying me $100 dollars not to consume 1 megawatt hour I’ll quite happily not consume 2 megawatt hours for $200. How do you know what I would have consumed if you didn’t pay me not to consume? In general you can’t. The circumstances where it does work is where I’m running some sort of plant whose consumption can be accurately known. The intervals when reduced consumption are required are reasonably predictable, see the live wholesale market data from NSW, Australia at http://www.nemmco.com.au/data/GRAPH_30NSW1.htm. Generally on very hot days in summer about 2.00pm when air conditioners everywhere are going flat out.
The economic incentive can be huge. In NSW the normal wholesale price is 3-4 cents per killowatt hour and it goes to as high as $10.00 per killowatt hour. Consumption is priced in half hour blocks. If you try and predict my usage from historical data and I have some flexibility in my consumption pattern e.g air conditioning or water heating, I can increase consumption during the interval you are using to estimate my consumption and then get paid for not consuming when I wouldn’t have consumed anyway. It is even profitable to burn off electricity uselessly for a few hours at my retail rate of 10 cents per killowatt hour so that I can reduce consumption when you are willing to pay me say $8.00 per hour not to consume.
I worked for a while on developing systems for demand response and it became apparent it could never work because the optimum economic outcome for the consumer required behaviour that was destructive for the grid. This is because you can’t measure power not consumed. It can only be estimated and the consumer can adjust their behaviour to increase the estimate. You could even make a business out of setting up a big heater in a paddock and occasionally getting paid more to turn it off than it cost to run.
Chris Galvin (former CEO of Motorola) has an initiative dealing with these power system issues.
http://www.galvinpower.org/
Because the demand-response groups are being charged, overall, less than others, are they being “subsidized”?
(Of course, I’m talking about discounted prices for agricultural water in California, not power.)
Pricing electricity according to demand at the retail level can reduce demand and as Quentin says the industry is moving that way. It is not easy though. The metering infrastructure is expensive and consumers, and ideally appliances themselves need to know the current price and an estimate of the future price and then trade off value of whatever the appliance is doing against price. Often the optimum strategy is increase demand now to reduce it later when the price is high. E.g use the air conditioning to make the building cold now and let it warm up a bit later on. Probably the biggest problem though is psychology. There is a lot of consumer resistance to variable pricing. The idea that my power can cost 100 times as much this hour as it did a few hours ago appalls many. Being paid not to consume is psychologically appealing.
Demand response is usually defined as paying consumers to switch off and that is what Tyler is describing above. Power is sold at the retail level for the usual price of say, 10 cents per kilowatt hour and during a high price event the retailer is purchasing it from the wholesaler at $10.00 per kilowatt hour. At first glance it makes sense to pay consumers $6.00 for every kilowatt hour they don’t consume as the supplier is $4.90 better off.
The flaw is that you can not measure power not consumed therefore there is no way to know who should be paid $6.00. It would be like a crime control scheme where people are paid not to commit murder. You get the payment by stating I would have committed murder but I will not if you pay me. A person who doesn’t intend to murder can take the money safe in the knowledge that their fraud is undetectable.
Well, I no doubt am talking to no one, but this device can even be made simpler.
We can measure voltage drop over time, for a buck. Price should vary monotonically with price, so just measuring the changes in voltage is enough to print out the relative price.
So, my device now costs of $2. It needs no communication, and you just plug it into a socket like a night lite (at about the same cost).
Even easier if you’re a business getting paid to implement a demand response system. http://www.enernoc.com
Energy management is an important issue these days. Thanks!
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