Policy and Economic Issues in Dynamic Electricity Pricing

April 11, 2007
Advances in metering, sensors, and automated response continue to lower the costs and raise the potential benefits of dynamic retail electricity pricing. Political opposition, however, has slowed the transition to these more efficient pricing policies. I will present analyses of the potential benefits from dynamic pricing and the concerns about wealth transfers and risk to customers and utilities.

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[energyexecs]

Althouth I agree with the concept of Dynamic Pricing and Real Time Price, I am not sure if the "cold movie theater" analogy is accurate. What may happen is that the movie theater may simply charge more per ticket price and say there is a surcharge for the dynamic price signal. The movie theater owner may be price inelastic and more concerned about brining in customers let say on a holiday day.

[rjamesgoebel]

One more thing - That last 'percent' of consumers who do not procure power in advance, that you mention paying 400 dollars for their power. Your argument is that they were wrong to do so, but see below. If every consumer of power actually procured/hedged in advance, then what you would find is that you'd be exactly where you started, because power is not stored (not on a large scale anyways). I know you know more on this than me but I have to disagree, respectfully.

[rjamesgoebel]

But another thing - all of this stuff about hedging you get into, that is great and all, but remember the technical limitations of generating and consuming energy - at any given time, the consumption of energy has to match the production of energy!!! Which if you extend hedging all the way to every customer and producer, this will not work because the consumption is going to be variable, and not everyone can enter contract to sell fixed future energy. A few can but not all.

[rjamesgoebel]

I am an engineer in the industry. We deal quite a bit with design for large industrial customers and utilities for peak shaving. In the ideal technical solution, utilities would have access to WHO is using the energy in real-time, when in fact, currently there is no ability to do this, and what are called smart meters are more expensive. Why the utilities don't get in the habit of modernizing their substations.. This might be the role of policy but again, smart meters are more expensive.