A simple Way to Make the ‘Smart Grid’ Brilliant

A simple Way to Make the Smart Grid Brilliant

What energy buzzword do people misuse and misunderstand?

Smart grid brings to mind a set of technologies to optimize how electricity is supplied to and consumed by households and businesses.

Many jurisdictions in the U.S. now have smart meters that provide real-time price information to consumers that could in theory enable energy conservation, reduce the need for new generation capacity, and improve system reliability. But the little-understood reality is that the smart grid will never become a reality until jurisdictions develop smart regulation.

Specifically, there remains huge resistance to passing through to residential consumers dynamic prices that reflect system supply and demand at any particular moment. (This is not the same as time-of-use pricing, in which retail prices vary by time of day but not as a function of real-time system conditions.) Only after consumers are exposed to dynamic prices as the default option will a strong market pull materialize for smart household technologies that seamlessly reduce consumption when prices are high.

Regulators claim that they want to protect consumers from volatile prices. But utility rates need to cover costs, so consumers still pay high pricesjust averaged over time so that they have no opportunity to reduce consumption (and lower their electricity bills) when the system is stressed. And dynamic pricing doesnt prevent risk-averse consumers from buying contracts that eliminate most or all of their price risk.

What may ultimately overcome the resistance to dynamic pricingand a truly smart gridis the push to obtain a high fraction of electricity from renewable energy. Without dynamic pricing, the intermittence of wind and solar can create major challenges for managing the grid. But showing high prices to consumers when the wind isnt blowing and the sun isnt shining will go a long way toward making renewable energy viable at scale. If countries with aggressive renewable ambitions like Denmark realize that they need dynamic pricing to make their dreams a reality, they can become the real leaders in smart gridand in the process show the rest of us that high renewable-energy fractions are possible.

Source: The Wall Stree Journal

Smart Grid Bulletin April 2018

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