Today’s Economist is talking energy economics – in the Tech section no less. Their correspondent has been to Demo 09, an emerging technologies conference in California that some of you may have seen Simon Bisson tweeting from. The ideas that are getting our man excited revolve around something called the Smart Gird, which is basically applying computer technology to electricity distribution so that we can better understand how we use the stuff.
In general, people don’t like wasting money. But with electricity we generally have no idea how much our appliances are using. We may have a vague idea that we should do laundry in the evening or at weekends, in order to cut peak usage, but even then our utility companies may not give us any credit for that. One of the primary ideas behind the Smart Gird is that if we only knew how much money we were pouring down the electrical socket then we would be less wasteful. The expectation is that, armed with such data, the average American would cut electricity usage by 10%-20%. And that’s mostly peak usage as well, which is when the dirtiest, most expensive power plants tend to be running. (Don’t ask me how I know – you don’t want a lecture on my day job.)
I firmly believe that this sort of thing is essential if we are going to do something about global warming. Human beings tend not to act without feedback. Getting an electricity bill once a month is not good feedback. Give us data and we can act on it. And it will save us money too. And create new tech jobs. Which is pretty much a win all round.
YES!
(Don’t ask me how I know – you don’t want a lecture on my day job.)
Actually, although I may need you to repeat things if my ADD kicks in, I would, at some point.
That’s interesting. So do, say, peaker gas plants actually pollute more than base-load coal plants? Nukes & hydro pollute less, of course, but isn’t coal a big enough part of the base-load that adding marginal gas-fired output produces less marginal pollution (per MWh)? I’m just curious. I suppose the real comparison is between regular gas plants and peaker gas plants anyway.
Given some sort of long-term averaging so that a number of high $/MWh days due to outages don’t send the monthly bill spiking way up, the smart grid is an attractive idea. Instead of phrasing it as an environmental thing, the best marketing approach might be to pitch it as ‘don’t pay for your neighbor’s wasteful use’. . .
Tom:
Gas is generally preferable to coal, but many CCGTs are designed to run baseload and peaking plant isn’t always gas. Some of it is oil-fired. I’ve even encountered some peaking power plants that use jet turbines. Very flexible, and very easy to set up, but expensive and dirty.
A proper smart grid would let consumers know about high price days and warn then to reduce consumption. The point is that you don’t get an average monthly bill any more – you only pay for what you use, when you use it.
A good point. I guess I just had the image of the gas peaker fixed in my mind.
I agree that high price days should be reflected. . . hmm, something that confuses me, though, is how baseload hedging as done by the utility would be passed on to the consumer. Would utilities still hedge their baseload while requiring consumers to pay real-time prices? That would be a mismatch. Or would, say, businesses small and large now have to go through the trouble of figuring out and hedging their own base electricity requirement? Would even retail consumers have access to the day-ahead, next week, etc markets? Surely not.
But otherwise, if they can’t hedge, wouldn’t you expose a small-to-medium sized business to full risk that, say, NE Mass in particular might have a plant trip and/or transmission outage and you get a massive spike in pricing for ten minutes, half an hour, an hour – risk not just on their variable consumption, but on their base consumption? For a retail consumer, that may mean a dollar or two more, but for a business presumably this could be costly.
It seems like you would still want a system where a consumer with a significant base requirement can buy fixed price for at least the fixed part of their requirement. Or I guess instead of linking the bill to the ‘real time’ price you would link it to a weighted average – fixed price as hedged by utility for a conservative baseload + variable price in the real time market. Which would of course reduce the environmental impact (and make for a fairly messy system).
Just trying to think this through – I don’t work in the electricity market, so forgive me if I’m getting things backwards. Interesting problem.
Tom:
You are not getting things backwards, you are showing considerably more intelligence that the government of California. One of the many things that went badly wrong with the CA market was that they got it into their heads that hedging was bad, and that all consumers should be exposed to the full variability of real-time prices.
A much more sensible attitude is to say that hedging is a service that a retailer can provide, and probably should provide to ordinary households, but which large businesses may decide they can do for themselves. The price that the consumer sees through their smart meters is therefore not the wholesale price in the market, but an adjusted version that their retailer is offering (or maybe several prices from different retailers). It is also worth noting that not all wholesale markets have a vibrant spot market – in the UK there is no credible wholesale reference price.
Another issue you may like to think about is cross-subsidization. In the UK prior to restructuring the state energy company heavily subsidized certain industries at the expense of ordinary consumers by charging the industrial clients mainly for baseload power and the the residential consumers much higher rates. Industrial customers still think they should be allowed to get those prices, but these days government tends to be more pro-consumer.
Huh, that’s interesting about the cross-subsidization. I guess they must have argued the individual consumer doesn’t have much of a baseload, although of course cumulatively they do and that can/should be hedged fairly reliably.
I can see the very biggest companies doing their own hedging, but I suspect staying on top of the market would be tough for most mid-to-large companies, especially if they wanted to play in the spot or day-ahead markets. The amount of real-time information about plants, transmission, etc, you need seems to be quite intimidating, and the expertise is not cheap. But I suppose we’ll get more experts if this kind of liberalization actually materializes.
Anyhow, thanks – good food for thought.