Perfect Utility Rate Design

The Ins and Outs of Electricity Rate Design

Electricity rate design has the power to completely alter the energy sector, for better or worse. The world of electricity rate design can be a confusing one, so before we get into which rate design would be most beneficial for you and the energy sector (that’s for a later blog post!), let us first define and explore three of the main types of rate designs.

Fixed Charges and Consumption Charges – The current system for billing electricity for most utilities across the country, this rate design charges fixed fees in tandem with a usage bill and is most common with residential consumers. Fixed charges never change from month to month (as the name implies), as they are there as a result of your connection to the grid. Recently, utility companies across the country have been advocating for significant fixed charge increases. In theory, a fixed charge is there to compensate the utility for the fixed portion of their costs as a result of having you as a customer (for instance, the cost to bill you and read your meter).

Related: Are fixed utility charges bad for consumers?

Time of Use – This system is decidedly more complicated than the previous one, and would require some work on the part of you, the consumer. The idea is simple: the cost of using electricity would change according to the time of day (for instance, customers would be charged higher rates for using electricity during specified peak demand times).

Figure 1: An example of a suggested TOU rate for summer months. Source: www.pge.com

The execution of Time of Use (TOU) rates (such as advocacy and ensuring customer understanding) is where the system becomes more complicated. States such as California and Massachusetts have already adopted a TOU rate design, and our own Tennessee Valley Authority has also proposed making the transition to TOU rates. Additionally, TOU rates are already available in most states on a voluntary basis. At its most basic, TOU rates provide price signals to customers to encourage them to use when rates are low and conserve when rates are high.

Related: 6 Reasons Why Time of Use Rates Are the Best Option

Peak Demand Charges – In many states and especially for commercial customers, electricity use is billed in two ways by the utility: based on consumption, that is, how much electricity you actually used in a given period, and peak demand, or the highest capacity required during that billing period. A simple way to think about this is with an analogy: the odometer in your car would represent the “consumption,” and the fastest speed you traveled during that period would be the “peak demand.” Your car needs to be able to last for a long time (high mileage) but also may need to go fast from time to time (of course, if you drive a Tesla Model S, that’s all the time! But we digress…). In the case of this electricity rate design, you would be charged for both consumption and peak demand, and oftentimes these two charges appear as one combined charge.

The main idea behind peak demand charges is that they provide customers with price signals to encourage them not to make large, instantaneous demands on the systems but instead to spread their usage out over the day more smoothly. Depending on the rate structure in a given area, and your habits, demand charges can constitute up to 30% of an electricity bill.

Related: Probing Residential Demand Charges

 

Energy vs Power

Understanding What Demand Response Can Do for You

So what is demand response? It is a change in USAGE of energy of an electric utility customer to better match the demand for power with the supply. It can also be thought of as a method of how electric companies compensate for the extra energy used during a “peak time”. When you hear “peak time”, think of a hot Alabama summer day when everyone is running their air conditioners at 2 PM.

What is demand?

Electric energy cannot be easily stored, so utilities have traditionally matched demand and supply by throttling the production rate of their power plants, taking generating units on or off line, or importing power from other utilities. But there are limits to what can be achieved on the supply side, as some generating units can take a long time to come up to full power, some may be very expensive to operate, and demand can be greater than the capacity of all the available power plants put together. Demand response is one of the solutions to these limits and seeks to adjust the demand for power instead of adjusting the supply.

At the consumer level, demand response is a way for certain areas to maintain adequate power during busier peak times and can save them money in the process. One example of this was in 2016, when the New York City grid “shed load” by reducing power at a number of public services, including the Metropolitan Transportation Authority; and utility ConEdison activated a voluntary program to adjust consumers’ air-conditioner thermostats at peak hours. In exchange for participating in these voluntary programs, electricity customers received a rebate varying in amount based on participation.

To help visualize what this looks like, think about the traffic on an interstate. Everyone suffers if the traffic is at a standstill; but once portions of traffic begins taking proper detour routes or delaying their trip, it allows everyone to get to their destination faster. Similarly, if some consumers participate in demand response by lessening their own energy use, or when they use it, then everyone on the grid can maintain their energy usage during peak hours at cheaper prices.

While the main goal of demand response is to maintain energy availability through all times of the year, consumers can earn financial rewards by participating. In many states, regulators create incentives for utilities to use less energy, especially during peak hours of the day. Demand response programs were originally put in place to avoid having to turn on “peaker plants,” or auxiliary power plants that may be used only 10 days a year to meet the traffic of high demand days. You can imagine how expensive these “peaker plants” are to operate by thinking about if we added lanes to our highways just to accommodate Black Friday traffic.

Instead of building new power plants to meet demand, utilities instead can rely on demand response. For example, in New York, 543 megawatts of demand reduction are available just from commercial and industrial customers participating in demand response, which is about the same capacity as a medium size power plant. Keeping these plants idle also helps keep the price of power down, which saves money for the entire customer base. Instead of having to call on very expensive power generators to meet high demand in the late afternoon, grid operators can reduce the load in the system and avoid paying peak-time pricing.

Much like consumers, demand response saves the system money, sometimes on the upper end of millions a week, but the program also creates a better and safer grid in doing so. The grid benefits from not needing to build any extra power plants to supply power during those “peaker times”, which are only about 10 days out of the year, which in turn would require extra power to operate and build. Furthermore, if consumers are using the demand response program, the grid will be less taxed for power output on a daily basis. By conserving energy, grid alterations can be delayed or significantly reduced. In an electricity grid, electricity consumption and production must balance at all times; any significant imbalance could cause grid instability or severe voltage fluctuations, and cause failures within the grid. Don’t forget that demand response can ALSO be used to INCREASE demand during periods of high supply and/or low demand, which, unchecked, could cause an imbalance.

Overall, demand response is beneficial to everyone involved. It saves consumers, businesses, and utilities, money and helps the grid run more efficiently. If given the opportunity, everyone should opt-in to this program for themselves, the grid, and the environmental benefits from using less energy. And if you don’t currently have the opportunity, ask your utility and your Public Service Commission about starting demand response programs to save you money.

Related: Probing Residential Demand Charges

Battery Storage and Ancillary Services

Ancillary services by definition are services that support the transmission of electricity from its generation site to the customer or helps maintain its usability throughout the system. Many people may not know that the standard 120 volts we are used to receiving from the wall actually varies a tiny amount from second to second. If you were to monitor the power from the wall, the voltage may swing from 118-122 volts. We do not typically think about the mechanisms that take place to keep our power useful and ready for when we flip the switch.

On a larger scale, ancillary services are generators or other service providers that are synchronized to the grid and are able to rapidly increase output in three major categories: contingency, regulation, and flexibility reserves. The contingency reserve requirement is assumed to be constant for all hours of the year and corresponds to a spinning reserve equal to about 3% of peak load and about 4.5% of the average load. Another way to think of “spinning reserves” are the backup or redundancy built into the grid. Basically, we slightly overbuild the total generation needed so the grid can be provided with ancillary services making good quality power possible.

Additionally, regulation and flexibility reserve requirements vary by hour based on the net load and impact of variability and uncertainty of wind and solar. The availability and constraints of individual generators to provide reserves are a major source of the cost of providing reserves. Not all generators are capable of providing certain regulation reserves based on operational practice or lack of necessary equipment to follow a regulation signal.

So, what does the future of ancillary services hold and how can they be more beneficial?

At a residential level, a combination of solar and storage is only worthwhile when specific conditions are met that make the value of storage greater than the cost of installing It. For example, when the renewable energy creates an excess, the extra energy can be stored for later consumption. This would allow the customer to buy less power from the grid and enable them to cut their costs.

However, some customers are now being charged for using power during peak times, which is known as a demand charge. Energy storage can be used to lower peak time energy consumption, or the highest amount of power a customer draws from the grid; therefore, reducing the amount customers spend on demand charges. In North America, the break-even point for most demand charges is $9 per kilowatt. Energy storage can lower that cost to $4 or $5 per kilowatt by as early as 2020. As storage costs decrease, more customers will begin to see economic benefits and existing storage users will see the optimum size of energy storage increase.

Lastly, energy storage will impact electricity grids as a whole because it provides more function than just power on demand. Batteries can provide the grid with ancillary services like frequency regulation and should be compensated to do so. All this is to say, if utilities provide appropriate price signals to the market, customers will respond by installing battery storage where and how they can be compensated.

Currently, grids experience a continuous imbalance between the power they produce and its consumption because of the millions of devices that are turned on and off in an unrelated way. The imbalance can cause frequencies to deviate, which can affect equipment and potentially hurt the stability of the grid. Energy storage is well suited for frequency regulation because of its rapid response time and its ability to charge and discharge efficiently. This storage could significantly reduce the amount and cost of the reserves currently needed to provide such services to the grid.

One reason for the optimistic outlook on battery storage’s role with providing ancillary services is the progress lithium ion batteries have made in recent years. In 2015, lithium-ion batteries were responsible for 95 percent of energy storage at both the residential and grid levels. The reason for the increase in popularity is due to the price dropping, safety improving, and better performance characteristics. All of these qualities are leading to lithium-ion batteries being suitable for stationary energy storage across the grid; ranging from large-scale installations and transmission infrastructure to individual and residential use, even without being appropriately compensated for ancillary services.

The most important aspect is the large-scale deployment of energy storage that could overturn the status quo for many electricity markets. In developed countries, central or bulk generation traditionally has been used to satisfy instantaneous demand, with ancillary services helping to smooth out discrepancies between generation and load; and energy storage is well suited to provide such ancillary services. Eventually, as costs fall, it could move beyond that role, providing more and more power to the grid, displacing plants; however, that time has not yet come although approaching quickly. It is important to recognize that energy storage has the potential to upend the industry structures, both physical and economic, that have defined power markets for the last century or more.

Join Energy Alabama: Be a Friend of Sustainability

You love sustainable energy. We love sustainable energy. Hey, don’t you think it’s about time we teamed up?

 

If you’ve been on the Energy Alabama website lately, you’ve probably noticed that we’ve started a membership program. So what’s the deal? Well, basically we’re looking to team up with a whole bunch of sustainable energy superstars from all across Alabama. We’re hoping that includes you.

 

Here’s the idea. You sign up for a membership and contribute a small amount of money every month. In return, we give you a bunch of cool perks. Ta-da, everybody wins.

 

Join Energy Alabama, Skip the Gas

So, you might be wondering: How small is that “small contribution?” Well, memberships begin at just $2 a month. Over a full year, that adds up to $24, or less than the cost of a single tank of gas. Of course, with this transaction, you’re not even putting out any emissions. (Except for all those good vibes you’ll feel once you sign up.)

 

In return for that $2 monthly contribution, you’ll get all of this:

 

  • Recognition as a Friend of Sustainable Energy
  • Zero emissions (except for all the good vibes)
  • 100% guarantee that all contributions go to sustainable energy
  • Opportunity to decide how to use your contribution
  • Energy Alabama sticker and magnet
  • Potential to influence energy legislation and policy
  • Ability to make a difference in your community!

 

Not bad, huh? And the more you contribute, the better the perks. So for, say, $10 a month, you’ll get all of the above, plus an Energy Alabama t-shirt AND free entry into the first annual BrewNewable Fest.

 

Yeah, we know. Score.

 

Keeping Energy Alabama Strong

 

Most importantly, your contribution will also help keep Energy Alabama strong. Here at Energy Alabama, we know that changing the world won’t be easy — or cheap. But we also know this: When we all work together, we’re all stronger, and better.

 

That’s why we’re happy to offer memberships at all financial levels. Whether it’s with $2 a month or $200, you really can make a difference for our movement. Give what you can, and we promise we’ll use 100% of your contribution for the mission of accelerating Alabama’s transition to sustainable energy.

 

For more information, be sure to visit our membership page, or email CEO Daniel Tait.

Energy Efficient Gadgets: Recommendations from Energy Alabama

Here at Energy Alabama, we’re always on the lookout for new and innovative, energy-efficient gadgets that further progress us towards a future of 100% sustainable energy. But we also love the idea of offering ideas to help you better manage the energy and resources you have now, because, you know, we’re just cool like that. So we’ve put together a list of gadgets that we believe will be of great benefit to you.

4 New Energy Efficient Gadgets For Your Home

#1: Sense Home Energy Monitor

 

The first gadget on our list is a cool little device called the Sense Home Energy Monitor. This device is great because it monitors any and every electrical appliance in your home. Every light, every T.V., and even the hair dryer in the bathroom is able to be read by Sense.

Every appliance has its own electrical signature, kind of like its own voice. Sense is able to pick up on all of those signatures and provide specific feedback about each appliance directly to your smartphone. It can tell you how long a T.V. has been on, how much power the refrigerator is consuming. It can even tell if an appliance is running on an unusual amount of energy, which could mean that that device may be faulty.

It works by using complex algorithms to recognize the different signature of every electrical appliance, such as a toaster or a washing machine. And not only that, but it monitors how much energy each device uses and provides helpful hints on how to save on energy. And who doesn’t like saving some extra money?

So, how do you install the Sense? Well, its simpler than you might think. Simply connect the device directly to the electric panel of your house, download the sense app to any smartphone, and connect the monitor to your home Wi-Fi to start “listening” to what your house has to say!

One of the drawbacks of the Sense is that it’s really best suited for buildings with only one electrical panel. Another gadget that is much like the sense, but is better fitted for more than one electrical panel, is known as Neurio. However, the interface and installation are a bit more complicated than that of the Sense, and could be a bit confusing.

Click here to learn more about Sense!

 

 
#2: Evolve Roadrunner 2 Water-Saving Shower-Head

 

The next item on our list is called the Roadrunner II Water-Saving Shower-Head. This shower-head is great for people who want to save money and water without sacrificing water pressure and temperature. The Roadrunner II comes with ShowerStart technology that allows cold water to run freely, while it restricts the flow to a slight trickle when hot water starts running through it. Simply pull on the cord when you want to resume the full flow and begin showering.

The Roadrunner II also fits the industry standard 1/2-inch fittings and offers a sleek chrome polish. Pressure compensating technology promises high pressure and coverage even in low pressure homes.

The Roadrunner II claims that it can save the average household approximately $246 in utility bills and around 8212 gallons of water annually. That’s a lot of money and water!

Click here to learn more about the Evolve Roadrunner II shower-head!

#3: Solar Powered Christmas Lights

 

Next on our list are solar-powered Christmas lights. That’s right! Gone are the days of running overbearing extension cords to Christmas lights, all while trying to find an outside outlet to run them to. These solar-powered lights provide a simple solution to the struggle of powering those beautiful lights. Simply hang up the lights like you would any other, then plant the included solar panel into the ground where lots of sunlight will hit it, and that’s it!

Since they run off of their own renewable energy source, you don’t have to worry about your bill going up around the holiday season.

Check them out by clicking here!

 

#4: The Kill-A-Watt Monitor

 

The last gadget on our list is the P3 P4400 Kill A Watt Electricity Usage Monitor. This device is pretty straightforward and simple with its execution and user experience. The Kill A Watt monitor can tell you the power consumption of any appliance in your home by the kilowatt-hour, the same as the electrical company. It can also give electrical expenses by the day, week, or even year. It also tests for power quality by measuring different factors such as voltage, line frequency, and the power factor. A large LCD screen shows all of the feedback in a clear and simple fashion. Simply plug the monitor into any outlet, then plug any electrical appliance into the outlet build into the monitor, and you’ll be able to choose what you want to know about the appliance. 

The U.S Department of Energy states that 20% of our electrical bills come from appliances that are left plugged in, even if those appliances are turned off. The Kill A Watt monitor can tell you which appliances in your house are steadily consuming power, which gives you the ability to save more money and power.

If you wish to learn more about the Kill A Watt monitor, click here!