April 06, 2010
Connecticut Peak Electric Power Pricing
Pricing electric power dynamically in respond to demand would incentivize users to shift their demand toward off hours. This would reduce the amount of less efficient peaking electric generation plants used and should overall lower the cost of electricity. But at least in Connecticut the highest price for electric power would be quite steep.
The proposal, based on their Plan-it Wise Energy pilot program, calls for a 10 to one ratio in off-peak to critical peak pricing. In the pilot, participants were paying up to $1.60 per kilowatt hour (kwh) during critical peak time, which totaled 40 hours over 10 different days.
40 hours over 10 days is 40 out of 240 hours or about one sixth of the time. Anyone would could avoid much electric power usage during peak times would save a lot of money on their electric bill.
Customers would be able to opt in to either peak-time pricing or four-hour time of use rates. Rebates will be provided for low-income customers who reduce their energy during peak hours.
Pricing electricity based on demand makes economic sense. But $1.60 per kilowatt hour is a shockingly high price. By contrast the US retail residential average cost for 2009 is 11.55 cents per kilowatt-hour . Though Connecticut also already has some of the most expensive electricity in the United States (why?) at about 19-20 cents per kwh.
Many of us are going to face dynamic electric power pricing in coming years. If you are looking at a big remodeling or new home construction think about how to store heat or cold in sold masses in your house so that you can avoid running the air conditioner or electrically driven heater during peak demand afternoons. Also, appliances that can take instructions from a home network to power up and down at different times of the day could save a lot of money once dynamic pricing is implemented. Becoming a night owl and working when rates are low will also save money on electric bills.
Is there actually a 10 to 1 ratio in cost of peak to off peak power? I found a story about a high price of $42/MWh which should be 42 cents / kWH. I can see the advantage of simplifying the ratio, but not picking an artificial ratio that largely distorts the market price.
Prices for peak power at the California-Oregon border hit a high of $42/MWh this week, down 75 cents over last week's high mark. North of Path 15 daytime electricity was also lower this week with a high mark of $41.25, down $2.50 from the high point last week. http://www.newsdata.com/wps/index.html
"Becoming a night owl and working when rates are low will also save money on electric bills."
It will be good to be an astronomer :) .
Can't vouch for it, but here's a report on Connecticut's high electric rates.
"We are aware of no empirical analysis of why Connecticut's rates are so high. However, it appears that several factors are the primary causes of our high rates. These include policy choices made by the state and federal governments, rising fuel prices (notably for natural gas), Connecticut's lack of indigenous energy resources and the resulting fuel transportation costs, and congestion on the transmission system. Several of these factors interact. One example of this interaction is that: (1) the legislature effectively required the electric companies to sell their power plants and buy power on the wholesale market; (2) wholesale market rules approved by the federal government tend to tie the wholesale price of electricity to the wholesale price of natural gas, whether or not the power is generated from a plant that uses gas; and (3) gas has become more expensive over time due to market forces and policy decisions and is more expensive in Connecticut than elsewhere because it must be shipped here from regions with gas resources. "
Connecticut's electricity prices are high for several basic reasons: overdependence on natural gas; lack of sufficient power generators; lack of sufficient transmission capacity; no lack of people. This is true for quite a few other densely populated areas in the eastern U.S. Where there is inadequate supply capacity to meet demand, prices are driven up. Not so mysterious eh? Connecticut has been especially good at deterring construction of transmission lines and power plants, the usual NIMBY situation. There have been some improvements over the last few years, but it took high prices to provide the incentives for those recent transmission and generation improvements.
Prices generally are higher in high-population areas that oppose new power plants and power lines, like Conn., New York City, Long Island, New Jersey, California. High consumer power demand and NIMBY are surely not the only reasons for high electricity prices in various places, but they are the most consistent reasons.
The peak demand period drives costs way above non-peak periods partly because many power plants (often called "peakers") actually sit there idle until the peak arrives, then they are switched on. Some of them may only run during 5% or 10% of the year. So the whole costs of such plants are caused by the peak demand. Other plants, with multiple turbines, start up some turbines only when the peak arrives, so it is not the whole power plant but it is those turbines whose costs are caused by the peak. Some surplus power must be acquired from outside the state and imported to meet the peak, another cost adder, often occurring on congested transmission lines, where transmission cost is higher because of peak congestion. There are other reasons but I am running long I suppose.
One last thought: the utility's rate proposal in Conn. may be a bit of a negotiating position. It is very common for a state regulator to give a utility only half or less of what the utility asks. And some utility proposals are turned down entirely.