By: Dick Munson |
Over the past few years, Illinois has taken great strides to not only modernize its electric grid, but also to provide people and businesses with access to energy data.
In February, the Illinois Commerce Commission (ICC)approved the release of anonymous, aggregate energy-use data on a large scale, broken out in half-hour increments, 24 hours a day. Sensing an opportunity to unlock innovation, Environmental Defense Fund (EDF) and the Citizens Utility Board (CUB), Illinois’ utility watchdog, dove into that treasure trove of granular data.
Specifically, we wanted to see how the customers of Illinois’ largest electric utility, ComEd, would have fared under a “real-time pricing” program in which power prices change hourly. Anonymous data from over 300,000 homes revealed several interesting tidbits that we’re sharing in our new whitepaper, The Costs and Benefits of Real-Time Pricing.
Most importantly, the study shows that real-time prices would have saved 97 percent of customers money in 2016 – even if the customers made no changes to how they use electricity.
In 2007, ComEd began offering its customers an “Hourly Pricing” program, an optional way to pay for electricity in which the wholesale market price fluctuates by the hour (kind of like airline tickets). Elevate Energy, which manages ComEd’s program, says participants have saved more than 15 percent off the supply portions of their bill since Hourly Pricing was launched.
A relatively small number of ComEd customers have enrolled – about 17,500 out of over 3 million. Everyone else is still on traditional billing, and we wanted to find out how their bills would have changed with dynamic pricing.
Using 12 months of energy-use data from smart meters, anonymized by zip code, EDF and CUB calculated what the 2016 electricity bills of 300,000 ComEd residential customers would have been under the Hourly Pricing program. The study found:
- 97 percent of the households studied would have saved money, comprising total savings of $29.8 million.
- The average ComEd customer would have saved $86.63 for the year, or 13.2 percent less than they paid under traditional billing.
- The top 5 percent of savers would have cut their bills by an average of $104 a year, or 31 percent.
- Of the customers who would have lost money (roughly 3 percent of the sample), the median increase in bills was an estimated total of $6.23 for the year.
- There are no significant differences between the effects of real-time pricing on the bills of customers who have low-incomes and other customers.
In sum, the vast majority of ComEd customers would have financially benefitted in 2016 from participating in the Hourly Pricing program. Again, they would have saved while using electricity exactly as they have been.
Programs like Hourly Pricing are designed to reward people who use energy when market prices are cheapest, typically when electricity demand is low. Customers pay a different price for electricity depending on when they use it, and could be motivated by cheaper prices to use power during times when demand is low.
Since our study shows that real-time prices save customers money without changing their behavior, even greater savings are possible for those who choose to change their energy use. For example, a customer could take advantage of the Hourly Pricing program by shifting their appliance-use to when power is cheaper.
Furthermore, for the small percentage of customers who wouldn’t have saved in 2016, the same tactics could be used to ensure their electricity bills do not go up.
Dynamic pricing benefits
The Hourly Pricing program also helps ComEd avoid the high costs associated with running expensive and dirty power plants, often known as “peaker plants,” when energy demand is high. During this time, ComEd will send higher prices to customers’ smart meters, and some may choose to wait to run the dishwasher or washing machine until electricity is cheaper. This leads to the more efficient use of power plant resources and energy.
Moreover, environmentally-minded prices could encourage people to use energy when it’s cleanest. For example, wind blows strongly at night in Texas, and some Texas utilities offer free power between 9 p.m. and 6 a.m. so that customers will take advantage of the low-carbon power source. So, real-time pricing not only saves customers money and prevents utility waste, it can also lower pollution.
More research needed
This whitepaper is the nation’s most comprehensive analysis of dynamic-pricing from smart meter data so far, but more studies – with multiple utilities and during different years – are essential to informing smart pricing design. For example, flat-rate utility prices in 2016 were elevated due to the lingering effects of “polar vortex” price spikes two years earlier, which may have influenced the level of savings found in our paper. Examining data from other years can help ensure we get an accurate and well-rounded picture of the effect of dynamic pricing.
Toward this end, our new data analysis is an exciting step toward better understanding how well-designed electricity pricing can help people save money and create a more efficient, cleaner electricity system. In the meantime, Illinois policymakers should investigate the costs and benefits of providing real-time pricing for customers on an opt-out basis (as California is introducing with time-of-use prices), rather than through its current form – a passive “opt-in” choice.