Dynamic Pricing

RIA PROJECT: This paper discusses results of a two-year collaborative research project between the authors and the Demand Response Research Center focused on behavioral response to a voluntary time-of-use pilot rate offered by the Sacramento Municipal Utilities District (SMUD) under the PowerChoice label. The project had two purposes: one was to assess the potential for increasing demand response through the introduction of enhanced information and real-time consumption feedback; the second was to better understand behavioral response to a TOU rate.

Three successive waves of telephone surveys collected details about reasons for participation, actions taken, capacities and constraints to altering behavior, and a range of salient conditions, such as demographics and dwelling characteristics. Pre- and post-program interval meter data for participants and a comparison sample of households were also collected and analyzed to consider initial and season-change price effects of the rate and the effect of supplemental information treatments on response.

Over half of surveyed participating households reported that they had made a great deal of effort to adjust their electricity consumption to the rate. Despite this, load data analysis revealed only minimal price effects; and, though households subjected to information treatments seemed to have learned from these treatments, load data analysis again detected only minimal effects on load. Given the currently high hopes for behavioral intervention and residential TOU rates, these unexpected results require explanation. We suggest a number of possibilities and discuss some implications for TOU programs, and for understanding demand response behavior and approaches to experiments with TOU rates.

HMG PROJECT: This report documents a field study of 78 small commercial customers in the Sacramento Municipal Utility District service territory who volunteered for an integrated energy-efficiency/ demand-response (EE-DR) program in the summer of 2008. The original objective for the pilot was to provide a better understanding of demand response issues in the small commercial sector. Early findings justified a focus on offering small businesses (1) help with the energy efficiency of their buildings in exchange for occasional load shed, and (2) a portfolio of options to meet the needs of a diverse customer sector.

To meet these expressed needs, the research pilot provided on-site energy efficiency advice and offered participants several program options, including the choice of either a dynamic rate or monthly payment for air-conditioning setpoint control. An analysis of hourly load data indicates that the offices and retail stores in our sample provided significant demand response, while the restaurants did not. Thermostat data provides further evidence that restaurants attempted to precool and reduce AC service during event hours, but were unable to because their air-conditioning units were undersized.

On a 100°F reference day, load impacts of all participants during events averaged 14%, while load impacts of office and retail buildings (excluding restaurants) reached 20%. Overall, pilot participants including restaurants had 2007-2008 summer energy savings of 20% and bill savings of 30%. About 80% of participants said that the program met or surpassed their expectations, and three quarters said they would probably or definitely participate again without the $120 participation incentive.

These results provide evidence that energy efficiency programs, dynamic rates and load control programs can be used concurrently and effectively in the small business sector, and that communicating thermostats are a reliable tool for providing air-conditioning load shed and enhancing the ability of customers on dynamic rates to respond to intermittent price events.

The objective of these two research projects, conducted under the DRRC’s “ RON 01 – Establish the Value of Demand Response” was to develop a “comprehensive DR conceptual evaluation framework.” The Energy and Environmental Economics, Inc. (E3) team reviewed approaches for demand response (DR) valuation applied in California and other states, and recommended an approach for developing a comprehensive DR valuation methodology. The review identified no complete DR valuation framework that can be applied directly in California, and recommended the current standard practice for cost/benefit analysis of energy efficiency be modified to capture the attributes of DR. The team identified a minimum of six gaps in the existing standard practice that need to be addressed to appropriately value demand response. The Summit Blue team developed a framework for developing and describing approaches, processes, and procedures for making good decisions regarding the role of DR in regional California electric markets. The framework that was developed uses as its organizing focus the investment decision in DR, i.e., what information is needed to make good decisions regarding the appropriate investment in DR to lower overall system costs and achieve market-wide objectives. This method is also designed to be able to address different stakeholder objectives. The project report develops a “problem statement” for the valuation of DR, and an assessment of needs and objectives that should be met by a comprehensive valuation framework. The report presents an approach to developing a comprehensive valuation framework that consists of four Task Work Areas: 1) Price effects from DR portfolios; 2) Transmission investment avoided/deferred costs; 3) Distribution investment deferred costs; and 4) Market effects focusing on hard to quantify benefits.

The focus of this research evaluated lessons learned from DR programs and experiences with dynamic tariffs to inform policy and technology programs in California.