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Energy Efficiency through Timing

July 30, 2012 By Ben Schweigert, Fellow

When we think of energy efficiency, we usually think about reducing total energy consumption. But energy efficiency isn’t just about how much energy we use -- it’s also about when we use it. Innovation in both technology and the way energy is priced is beginning to improve this kind of efficiency in our energy system.

Electricity is not like other commodities. It can’t be effectively stored and therefore has to be consumed immediately when it’s produced. As a result, utilities must constantly adjust the supply of electricity to meet demand.

When demand is low, utilities use their cheapest, most constant sources of energy. But when everyone in town turns on their air conditioning at once, the utilities need to quickly fire up additional power plants to meet that demand. These spikes drive energy costs, because utilities need to maintain enough ready energy sources to meet demand during peak hours, even if those sources sit idle much of the time.

Reducing energy spikes would therefore increase the efficiency of the whole system, even if people used the same amount of electricity overall. If I, and a whole bunch of other people, wait to do our laundry until demand is low, the power company will be able to get by with fewer power plants. This change will create savings that we can pass back to the consumers.

But this won’t happen unless consumers have an incentive to spread their energy use to low-demand times. One possibility is for utilities to charge more for energy used at peak times than for energy used at other times. This change would allow consumers to decide for themselves whether it’s worth it to them to use an appliance at a certain time, or whether they can wait. For example, I would pay almost any price to use my coffeepot in the morning, but I’m generally pretty agnostic about when I run the clothes dryer. Instead of imposing the cost of consumer choices on the whole system, consumers can bear the cost of their own choices.

In theory, such a system can be set up in a few different ways. Perhaps the simplest method is for utilities to charge less every day during the hours when electricity demand is generally low, and to tell consumers which hours are discounted through direct mail or public information campaigns. But utilities and consumers can also set up systems for real-time dynamic pricing, where a consumer has a device in his or her home or business stating the current price of electricity, which changes minute-by-minute as demand shifts.

In practice, however, implementing such systems is complicated. Recently Peter Narog, Xcel Energy’s Manager of Demand Side Management and Renewable Marketing Strategy, explained that Xcel has realized some success with real-time pricing for large commercial energy consumers, which stand to realize significant savings, but things have played out differently for residential consumers.

In the last decade, Xcel launched two demand-response pricing pilot programs for residential consumers in Colorado. The first, called Time of Use pricing, established different energy prices at different times of the day. The second, Critical Peak pricing, charged consumers steeply higher prices for those particular hours on particular days when energy use was expected to reach particularly high levels, in exchange for lower prices overall; consumers received notice of the peak pricing a day in advance, so they could plan accordingly. Neither program changed consumer behavior enough to create large savings, and Xcel has no plans to expand them. It seems that monitoring changing energy costs throughout the day may be more than most consumers want to deal with.

The challenge, then, is how to make it easier for consumers to adjust their usage in response to demand. Here, technology is providing part of the answer. Xcel’s most successful demand peak management program, Saver’s Switch, requires no consumer action at all other than signing up. In this program, Xcel installs a device on a participating consumer's outside air conditioning units that allows the utility to remotely control the unit.

Xcel can then cycle all of the participating units on and off in such a way that it can reduce summer peak demand with minimal impact on the temperature inside consumers’ homes. Doing so allows Xcel to reduce system load by about 240 megawatts in Minnesota, approximately the amount of energy produced by a medium-sized power plant. In exchange, consumers receive a discount of 15% off their energy bills during the summer months. Xcel estimates that, right now, approximately 50% of eligible Minnesota residential consumers are enrolled in the program.

Other devices are similarly making it easier to manage energy use in response to changes in demand. Nearly all of Xcel’s consumers in Minnesota already have some form of so-called “smart meter,” energy meters that communicate with the utility and allow it to record real-time energy usage—information that can be then passed back to the consumer.

Xcel has also launched a pilot program in Colorado where customers receive so-called “In Home Devices” that allow consumers to program their thermostats and other appliances, while allowing Xcel similarly to adjust home energy use, for example by changing thermostat settings in response to demand peaks. In addition, manufacturers have begun producing a new generation of “smart appliances,” from thermostats to water heaters to dishwashers, which can communicate with smart meters and other devices to maximize efficiency and lower demand peaks.

The development and adoption of these pricing structures and technology are still at early stages. But the potential for increased efficiency is significant. It’s up to utilities, product developers, and regulators to continuing working together to help us realize this promise.

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