Comments Off on Timing Is Everything: How Smart Rate Design Helps Make Electrification Beneficial
In talking about beneficial electrification, we have emphasized the benefits of various kinds of flexibility. For example, loads that can be scheduled at different times of day without too much inconvenience to the user can be beneficial, because they can help the power grid run more efficiently and use more clean renewable energy.
Owners of electric vehicles would ideally charge their new cars when surplus clean energy is available. In California, with its solar panels and sunny afternoons, that could mean charging cars in the office parking lot. In Texas, where wind power reigns, it may mean charging at home overnight instead. But to get EV owners to do this, we need to send them the right signals. That’s where smart rate design comes in.
It is no surprise that consumers respond to changes in prices—we see it all the time. Moviegoers choose matinees over Friday night screenings so they can pay less (and beat the crowds). Would-be vacationers watch for hotel and airline prices to fall during lower-demand months. And grocery shoppers take advantage of coupons for things they don’t need right away.
The principle is the same in the electricity sector: Changes in prices can lead customers to nimbly shift their energy use throughout the day. Research shows, for example, that many customers are willing to shift when they do laundry or use appliances, when exposed to prices that change over the course of the day.
The logic of smart rate design is straightforward: set the structure of electricity prices to send the signals necessary to encourage flexible behavior. This includes signals for behavior on a day-to-day basis, such shifting car charging or clothes washing toward certain hours and away from others, as well as minute-by-minute forms of flexibility that can be automated and can help with grid management. It also includes signals for long-term decisions, such as investment in appliances or chargers that can operate automatically at favorable times.
The figure below shows a residential summer TOU example from the Sacramento Municipal Utility District. Although there’s room to debate the price levels and timing of the periods, the basic logic is clear: the fluctuation of prices throughout the day reflects both demand patterns and the availability of solar energy. In the noon-5 p.m. period of the Sacramento summer, demand for air conditioning and other uses tends to be quite high—but the output from rooftop PV is also strong, so prices are set at a moderate level. During the late afternoon and early evening period, demand from lighting and other home uses is high, business use has not yet abated for the day, and the sun is setting—underpinning the peak price period. Finally, it makes sense to keep prices low overnight when both residential and commercial demand are very low.
In places where TOU pricing is not yet in place, it is useful to think carefully about designing a TOU rate to encourage beneficial electrification. Utilities and regulators could assess local conditions, resources, and the potential contribution to the system of newly electrified loads, and shape TOU rates to encourage customers to schedule those loads to optimize and capture system benefits.
Rethinking Demand Charges
Another important step toward smart rate design is reexamining the “demand charges” that utilities often apply to larger customers, such as hotels, schools, retail stores, or factories. Demand charges are usually assessed for each large customer based on that customer’s peak demand during the month. Typically, this is simply measured as the customer’s highest hour (or highest 15 minutes) of consumption during the month, regardless of whether or not the customer’s peak occurs at a time when the overall grid is stressed by short supply. We recommend limiting these “non-coincident peak” demand charges because they encourage customers to spread out their usage to reduce their own peak demand, but they usually do not provide good incentives for customers to adjust their usage in a way that is helpful for managing system peaks. (More specifically, as we explain in this report, we recommend limiting non-coincident peak demand charges to a level adequate to cover the cost of the proximate transformer most directly affected by the usage of the customer, along with any dedicated facilities installed specifically to accommodate the customer in question.)
Putting It All Together
Smart rate design can help utilities and grid operators shape the load created by electrification—and do so in a way that creates benefits to the grid and society as a whole. This can include reducing system peaks, enabling the grid to accommodate greater amounts of cleaner resources, and allowing utilities to defer or permanently avoid generation, transmission, and distribution system upgrades.
Comments Off on Elektromobilität – ein Mehrwert für die Stromnetze
Die Stromverteilnetze in Europa arbeiten weit unter ihrem vollen Potenzial. Das Laden von Elektrofahrzeugen kann deshalb weitestgehend ohne zusätzlichen Netzausbau erfolgen, hat das Regulatory Assistance Project (RAP) in einer Kurzanalyse festgestellt. „Intelligente Preisgestaltung und smarte Technologien sind die Schlüssel dafür“, schreiben Mike Hogan und Andreas Jahn vom RAP.
„Meine Mittel will ich so verwalten, dass wenig weit soll reichen“, schrieb schon William Shakespeare. Airbnb und Uber haben nach diesem Prinzip gehandelt und ungenutzte Kapazitäten vorhandener Gebäude und Autos erschlossen. Dabei haben sie Unternehmen aufgebaut, die in weniger als zehn Jahren einen Wert von zusammen über 100 Milliarden US-Dollar erreicht haben. Warum sollten wir nicht dasselbe Prinzip für die Stromnetze anwenden?
Die bestehenden Stromnetze haben ungenutzte Kapazitäten—Freiräume, die insbesondere für das Laden von Elektrofahrzeugen gut geeignet sind. Eine Kombination aus angemessener Preisgestaltung und Bereitstellung intelligenter Technologien könnte dazu beitragen, die vorhandenen Ressourcen besser zu nutzen und demzufolge die Kosten für alle Nutzer des Stromsystems zu minimieren.
Die Akzeptanz für Elektrofahrzeuge könnte jedoch sinken, wenn der Infrastrukturbedarf anhand von Worst-Case-Szenarien für die Stromnachfrage und den Netzbetrieb beurteilt wird. Die EV-Gleichung ist kompliziert: Elektrofahrzeuge und verwandte Technologien wie Ladegeräte werden ständig verbessert. Neue Entwicklungen verändern den Straßenverkehr, einschließlich eines Trends zum Teilen, der auch für Fahrzeuge gilt. Welche Investitionen zur Elektrifizierung des Verkehrs erforderlich sind, hängen von diesen und anderen Entwicklungen ab.
Elektromobile sind flexibel
Die gute Nachricht ist, dass Elektrofahrzeuge den Strom speichern und daher bei der Beladung zeitlich flexibel sind. Eine Aufladung der Elektrofahrzeuge in Zeiten, in denen Kapazitäten frei sind, beschränkt die Netz- und Erzeugungsinvestitionen auf ein Minimum. Alle Verbraucher, nicht nur diejenigen mit Elektrofahrzeugen, würden davon profitieren. Denn die Kosten der bestehenden Infrastruktur würden auf eine höhere Stromlast und damit auf mehr Schultern verteilt.
In unserem Bericht Treasure Hiding in Plain Sight haben wir einige Verteilnetze analysiert und festgestellt, dass bestehende Netze im Allgemeinen weit unter ihrem vollen Potenzial betrieben werden. Hierfür haben wir die Netzwerkauslastungsrate betrachtet, das heißt den tatsächlichen Durchsatz als Prozentsatz des maximal möglichen Durchsatzes in einem bestimmten Zeitraum: in Deutschland beim innogy-Westnetz und dem Edis-Netz (nördlich von Berlin) sowie dem französischen Verteilernetz. Wir haben hierfür verschiedene Zeiträume betrachtet, beispielsweise den Tag der Nachfragespitze oder auch einen typischen Sommertag. Die Ergebnisse zeigen, dass diese Verteilnetzsysteme zu maximal 50 bis 70 Prozent ausgelastet sind. Dabei überschätzen wir wahrscheinlich die hier ermittelten Auslastungen, da dies eine konservative Annahme ist und die Spitzennachfrage kaum der maximalen Kapazität des Systems entspricht. (Zu beachten ist, dass dies eine verteilnetzbezogene Abschätzung darstellt und nicht ausschließt, dass lokale Verstärkungen erforderlich sind.)
Unsere Analyse zeigt, dass ausreichend Netzwerkkapazität verfügbar ist, um neue Lasten der Elektromobilität aufzunehmen. Selbst an Spitzenlasttagen kann noch eine wesentliche Last außerhalb der Spitzenzeiten hinzugefügt werden, wenn auch nur für eine begrenzte Dauer.
Wie können wir das nutzen?
Es ist eine Politik erforderlich, die die Nutzung dieser bestehenden Netzkapazität für die Elektrifizierung des Verkehrs fördert, entweder direkt durch die EV-Eigentümer oder durch innovative neue Geschäftsmodelle.
Eine zeitabhängige, volumetrische (oder dynamische) Preisgestaltung für Energie und Netz bildet hierfür die Ausgangslage. Solche Tarife ermöglichen es den Verbrauchern, Maßnahmen zu ergreifen, die ihre Stromrechnung reduzieren und dem System als Ganzes dienen. Während die dynamische Preisgestaltung für Energie in den letzten Jahren zunehmend an Aufmerksamkeit gewinnt, hat die dynamische Preisgestaltung für Netze bisher wenig Beachtung gefunden. Im Gegensatz dazu stehen die jüngsten Trends zu kapazitätsbasierten Netzentgelten oder Grundpreisen in einigen europäischen Staaten.
Kurz- bis mittelfristig sind zeitabhängige Bepreisungen und Spitzenlastpreise praktikable Optionen, um die Netze besser zu nutzen. Für solche Tarife existiert schon eine Fülle an Erfahrungen. Trotzdem bleibt es schwierig, das Potenzial dieser Maßnahmen und ihre Wirksamkeit zu bewerten, da die Verteilnetzbetreiber und die Regulierungsbehörden die Verteilnetzauslastung kaum überwachen beziehungsweise dokumentieren und veröffentlichen. Ein positives Beispiel findet sich in Schweden, wo die Regulierungsbehörden ein regelmäßiges Monitoring in Verbindung mit einer ergebnisorientierten Regulierung eingeführt haben. Eine solche ergebnisorientierte Regulierung ist von grundlegender Bedeutung, um die Rechenschaftspflicht zu gewährleisten, geeignete Anreize zu bieten und erforderliche Anpassungen der rechtlichen Rahmenbedingungen zu ermitteln.
Längerfristig sind über Digitalisierung und Echtzeitdatenaustausch weitere Verbesserungen bei der Nutzung der Ressourcen zu erreichen. Pilotprojekte für dynamische Preisgestaltung haben gezeigt, dass die Vorteile solcher Bepreisungen steigen, wenn sie von intelligenter Technologie begleitet werden, und umgekehrt. Verbraucher behalten neue Verhaltensweisen länger bei, wenn automatisierte Kontrollen verfügbar sind, entweder durch einzelne Anwender oder durch Aggregatoren. Die politischen Entscheidungsträger und Regulierungsbehörden sollten entsprechend Investitionen in intelligente Technologien fördern, die sowohl zur Erreichung öffentlicher, politischer Ziele beitragen als auch alle Hindernisse für die aktive Teilnahme von Aggregatoren beseitigen.
Also, worauf warten wir?
Es ist recht einfach, die vorhandenen Kapazitäten besser zu nutzen, um die Elektromobilität mit den geringsten Kosten und den minimalsten Risiken für die Verbraucher zu integrieren. Dies erfordert jedoch, dass politische Entscheidungsträger und Regulierungsbehörden jetzt handeln. Die Netzentgelte sollten die EV-Besitzer belohnen, wenn damit ein Ladeverhalten erzielt wird, das der Gesamtsystemeffizienz zugutekommt. Die Einführung des dynamischen Ladens kann innovative Geschäftsmodelle vorantreiben und gleichzeitig eine faire Kostendeckung im Stromnetz sicherstellen. Die politische Unterstützung für den Einsatz geeigneter Technologien wird gewährleisten, dass intelligente Tarife maximale und nachhaltige Vorteile bringen. Die politischen Entscheidungsträger haben die Chance, die nächsten großen Erfolgsgeschichten der „Sharing Economy“ voranzubringen.
Comments Off on Keys to integrating electric vehicles already in hand
Electricity distribution networks in Europe run at well below their full potential, finds a new study from the Regulatory Assistance Project (RAP). The findings show that the unused network capacity could be utilised for charging electric vehicles with little or no need for additional capacity. Smart pricing and smart grid technologies will be the keys.
“Waste not, want not,” goes the old saying. Airbnb and Uber have leveraged that principle—exploiting unused capacity in existing homes and cars—to build businesses that, in less than ten years, are together worth over $100 billion. So why not apply the same principle to electricity networks?
A lot of unused capacity is available on existing networks, capacity that is especially well suited to accommodating electric vehicle charging. A combination of appropriate pricing and smart technology deployment could help drive the best use of existing assets, helping to minimise the costs of the energy transition.
Shape of e-mobility uncertain
Transport and energy stakeholders and policymakers alike have identified the electrification of road transport as a key route to achieving decarbonisation of mobility. The combined effect of rapidly declining battery and electric vehicle (BEV, or simply EV) costs and improvement in their performance makes them a promising option.
Shifting EV charging to periods when existing resources are readily available would keep incremental investment in infrastructure to a minimum.
EV adoption rates could stall, however, if infrastructure needs are gauged based on worst-case assumptions about impacts on electricity demand. Many variables factor into the EV equation. EVs and related technologies, such as chargers, keep improving; fuel-cell electric vehicles will compete to play a role; and new developments are reshaping road transportation, including a trend toward vehicle sharing. The investments needed to electrify transport will depend on how these and other trends play out.
The good news is that EVs are a flexible load that can be charged at any hour when the vehicle is not in use. Shifting EV charging to periods when existing resources are readily available would keep incremental investment in infrastructure to a minimum. All consumers, not just those with EVs, would benefit from spreading the costs of existing infrastructure over more load and minimising risky new investment.
We looked at the “network utilisation rate”—that is, actual throughput as a percentage of maximum possible throughput over a given period—for three areas in Europe: the Westnetz and Edis networks in Germany, and the French distribution network. The results are estimates because, surprisingly, few distribution system operators (DSOs) monitor the utilisation rate of their networks.
Our analysis demonstrates that ample network capacity is available to take up new loads such as EVs.
The graph below presents the results for three different timeframes: the annual utilisation rate, the rate for the peak demand day, and the rate for a typical summer day. The results suggest that these systems are operating at 50-70% of their potential. To place this in perspective, all current light-duty vehicles could be electrified with little or no need for additional network capacity. Furthermore, because we employed the conservative assumption that peak demand on the system is equal to the maximum capacity of the system, the rates presented here likely overestimate actual rates of utilisation. (This was a system-wide estimate and does not preclude the likely need for specific localized reinforcement.)
Our analysis demonstrates that ample network capacity is available to take up new loads such as EVs. Even on peak demand days, significant load can still be added outside peak hours, which are of relatively short duration, as shown in the next two figures. So how can we take advantage of this?
Both pricing and technology essential
Policy will be needed to drive exploitation of this existing network capacity for transport electrification, either directly by EV owners or by enabling innovative new business models. Two equally critical policy levers are available.
Time-differentiated, usage-based (or dynamic) pricing for both energy and delivery is one key. It empowers consumers to take action and save on their electricity bills, while benefiting the system as a whole. While dynamic pricing for energy has garnered increased attention in recent years, dynamic pricing for networks has gained little attention. On the contrary, recent trends are toward capacity-based, fixed network charges in several places in Europe.
In the short to medium term, time-of-use and critical peak pricing are feasible options to extract as much value as possible from network assets; a wealth of experience exists for such tariffs. In the longer term, as our power system becomes “smarter,” more sophisticated pricing, including real-time pricing, provides a more sustainable solution.
It will be difficult to assess the potential for these measures and gauge their effectiveness unless DSOs and their regulators better monitor network utilisation.
The other key is timely deployment of enabling network technology. Pilot projects for dynamic pricing have demonstrated that the benefits of smart prices increase when accompanied by smart technology, and vice versa. Consumers also sustain new behaviours longer when automated controls are available, through either individual adopters or demand aggregators. Policymakers and regulators should consider financial incentives and other measures to spur investment in smart technologies that help deliver public policy objectives, and they should remove all barriers to the active participation of aggregators in all markets.
Regulators and relevant authorities should not overlook consumer education. Educational programmes will be necessary to ensure consumers are aware of and can take full advantage of the opportunities smart pricing and technology provide.
Monitoring the utilisation of network investments key
It will be difficult to assess the potential for these measures and gauge their effectiveness unless DSOs and their regulators better monitor network utilisation. Examples of best practices can be found in markets like Sweden, where regulators have implemented regular monitoring coupled with outcomes-based regulation. Outcomes-based regulation is essential to ensure accountability, provide appropriate incentives, and identify any needed adjustments to regulatory frameworks.
So, what are we waiting for?
Exploiting unused existing capacity to integrate new electric transport at least cost and least risk to consumers is a no-brainer. Doing so, however, requires policymakers and regulators to act now. Network tariff design should reward rather than punish EV owners for charging behaviour that benefits overall system efficiency.
Adopting proven models for dynamic network charging can spur innovative new service business models whilst also ensuring fair network cost recovery. Policy support for deployment of appropriate technology will ensure that smart tariffs deliver maximum and sustainable benefits. Policymakers have an opportunity to set the table for the next great “sharing economy” success stories.
A version of this blog originally appeared in Energy Post.
Rate design is the regulatory term used to describe the pricing structure reflected in customer bills and used by electric utilities in the United States. Rate design is not only the itemized prices set forth in tariffs; it is also the underlying theory and process used to derive those prices. Rate design is important because the structure of prices—that is, the form and periodicity of prices for the various services offered by a regulated company—has a profound impact on the choices made by customers, utilities, and other electric market participants.
The structure of rate designs and the prices set by these designs can either encourage or discourage usage at certain times of the day, for example, which in turn affects resource development and utilization choices. It can also affect the amount of electricity customers consume and their attention to conservation. These choices then have indirect consequences in terms of total costs and benefits to society, environmental and health impacts, and the overall economy.
Despite its critical importance, rate design is poorly understood by the general public and often lacks transparency. The difference between a progressive and regressive design can have a large effect—15 percent by one estimate, but it could be more—on customer usage. Traditional rate designs, which charge a single rate per unit of consumption (or worse, lower that rate as consumption increases) may not serve consumers or society best. As advancements in technology and customer preferences evolve, the industry must adapt to change or risk the fate of landline telephone companies, which have lost 60 percent of their access lines since the advent of telecommunications competition.
Rates can be designed to meet or, in the case of poor rate design, frustrate public policy objectives to use electricity more efficiently, meet environmental goals, and minimize adverse social impacts, including public health, among others. They are also pivotal in providing utilities the opportunity to recover their authorized revenue requirement. Revenue adequacy is a core objective of rate design, but the more constructive design ideal for rates is forward-looking, so that future investment decisions by the utility and by customers can be harmonized.
Based on these historical works, and looking forward to a world with high levels of energy efficiency, distributed generation, and customer options for onsite backup supply, the following three fundamental principles should be considered for modern rate design:
Principle 1: A customer should be able to connect to the grid for no more than the cost of connecting to the grid.
Principle 2: Customers should pay for grid services and power supply in proportion to how much they use these services and how much power they consume.
Principle 3: Customers who supply power to the grid should be fairly compensated for the full value of the power they supply.
These principles and priorities should be reflected in smarter rates designed to maximize the value of technology innovations, open up new markets, and accommodate the distribution and diversification of customer-sited generation resources. This necessarily includes consideration of what those future technologies and policies could look like, with a focus on metering and billing, market structure, and pricing. In particular, rate design should provide a “price signal” to customers, utilities, and other market participants to inform their consumption and investment decisions regarding energy efficiency, demand response, and distribute generation, collectively referred to as distributed energy resources. Bidirectional, time-sensitive prices that more accurately reflect costs most closely align with the principles of modern rate design.
For additional information, see the following RAP publications:
Comments Off on Finding the Sweet Spot for Natural Gas Investment
Natural gas is an important part of our low-carbon future, but finding the “sweet spot” for gas investment is not easy. Too much investment in gas pipeline infrastructure and gas generation is risky. Gas pipeline and generation investments are long lived—30 to 50 years, or even more—so when we invest in gas, we are making a long-term bet that our investment will generate benefits for decades to come. Too little gas investment could prolong our dependence on higher carbon resources and thus defer the day when we meet our carbon reduction goals.
The sweet spot for gas investment is one where renewable energy, distributed energy resource, and gas resource investments work together through smart market and operations reforms to achieve our carbon reduction goals and ensure reliability and resiliency without imposing unnecessary costs and risks on electricity ratepayers and U.S. taxpayers.
It appears to me that we are outside of the sweet spot in our public discourse and we are in danger of committing too much public money to gas investment. Some regions (e.g., New England, Florida, New Jersey, and Pennsylvania) are discussing billions of dollars in ratepayer and taxpayer funds to support gas infrastructure. Now is the time to remind ourselves of the dangers of committing to too much gas.
I would not be as concerned if these costs were absorbed by companies who put their own capital at risk and bet on their ability to compete in natural gas and electric power markets to recover their investment. In this case, customers like you and I are insulated from the risk of bad long-term investments. Unfortunately, some of these projects are seeking funds that would be guaranteed with electricity ratepayer and taxpayer funds, so we are being asked or directed to underwrite some of these investments. I presume you are also concerned that your money be invested wisely, so let’s talk for a moment about the risk you are being asked to bear.
Bloomberg New Energy Finance recently revised their levelized cost of energy estimates for all electric generating resources, and the cost of wind ($80/MWh on average) is competitive with gas generation ($82/MWh on average) today! Plus, solar PV ($107/MWh on average) is closing fast. Solar costs are dropping exponentially and wind costs have a long-term declining trajectory that reflects continued technology improvement. On the other hand, the fundamentals behind the future cost of gas generation are not as rosy. Increases in the cost of carbon presage increases in the levelized cost of gas generation, and any progress to globalize natural gas markets offer the prospect of U.S. gas commodity prices rising toward those of Europe and Asia. We should be asking ourselves if it is wise to irreversibly commit our money to infrastructure for gas generation with increasing costs at a time when competing clean energy technologies are experiencing decreasing costs.
Furthermore, the price of gas has a recurring history of price volatility, so gas prices being low today is a poor predictor of what they will be in the future. In fact, gas prices are likely to go up and down and spike to quite high prices at times. For example, many companies who invested in natural gas generation in the 1990s lost a lot of money and some went bankrupt when the price of natural gas rose dramatically—companies take risk like this, but ordinarily ratepayers would not.
Even with ample gas reserves, the annual cycle of storage and consumption in some parts of the U.S. expose ultimate consumers of natural gas and electricity to price spikes if storage strategies leave the winter market with a shortage. When ratepayers and taxpayers are forced to underwrite these investments, you and I are accepting the risk that these assets will have value for decades to come and we are agreeing to accept the risk associated with gas price volatility.
The large up front capital commitment to long-lived gas infrastructure is a significant risk in and of itself, but the risk becomes magnified when one considers that the obligation brings with it a commitment to pay for gas and absorb any carbon cost. Falling out of the sweet spot of gas investment brings real costs and risks to all of us, especially if we are being asked as ratepayers and taxpayers to underwrite the risk of these investments.
The good news is that we can find our way back to the sweet spot. Gas consumption, in moderation, can result in a reliable, affordable, and clean energy supply, and there are concrete steps we can take to ensure we are not over-investing in gas.
Make electricity system needs more transparent to all players, and consider performance compensation to utilities for achieving public interest outcomes, including improved clarity and granularity;
Prioritize and dispatch clean resources first, including distributed energy resources (efficiency, demand response, distributed generation, and storage) and grid-scale renewable energy, because we need to attend to building the clean infrastructure and meeting the carbon goals ASAP; and