RESEARCH: Most plausible scenarios of dynamic pricing of residential electricity is likely to lead to households reducing electricity usage along with their monthly bill. In view of the timing of the reduction in demand, Dynamic pricing could play a role in integration of intermittent energy sources. CERE member Chandra Kiran explains findings in the new working paper. Click on headline to read more
Electricity markets are undergoing remarkable changes, driven by the intermittency in renewable generation. Intermittency makes it difficult to balance demand and supply of electricity at any point in time (since generation from wind depends largely on how windy it is at any exact point in time), leading to increased costs of balancing the electric grid. Dynamic pricing of electricity consumed by households, where electricity prices vary hourly based upon the Nord pool spot price, has been promoted by Swedish policy makers as one possible way to help integrate renewables. The argument involved is this: households will respond to increased prices in a desirable way—spot price variation e.g., higher prices at peak, will induce households to consume less at peak and more at off-peak (off-peak prices with more wind energy are expected to be lower than at present). This means that the system balancing costs (i.e. the costs involved in providing back-up capacity in one form or another) are expected to be lower with households responding to dynamic pricing.
In addition, Swedish policy has focused on promoting roof top solar panels, including providing subsidies. These panels, by reducing demand at certain times in the winter, will affect household response to dynamic pricing. Depending upon many factors, including when it is sunny in the winter and when it is beneficial for households to reduce demand, the overall effect upon the shifts envisaged by policy makers may not materialise. The interplay between the timing of the household demand peak, timing of micro-generation, and household demand response is what we explore in our work, using data from more than 200 swedish households who were metered at the ten-minute interval.
We find, in most plausible scenarios for household price responsiveness, that households reduce peak load and off-peak load under dynamic pricing, with off-peak load reductions being far larger with solar generation (since it is sunny precisely when households do not consume much, 10-15 hrs). In view of the common reason for dynamic pricing, shifting peak load and reducing the peak-off peak disparity, these results may be viewed as not yielding the desired benefits. However, households not only reduce load but also save on electricity costs. This, along with the fact that such load reductions occur at periods where system load is high, implies that overall, both households and the electric grid can benefit from dynamic pricing. To summarise, we find that dynamic pricing of electricity may play a role in helping integrate intermittent energy sources.
Read the report: Benefits of real-time pricing and rooftop solar PV generation: Explorations using Swedish micro-data. CERE WP#2018-4