Sioshansi F.P. Smart Grid: Integrating Renewable, Distributed & Efficient Energy

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• One energy app (carbon footprint calculator).

Consumers are willing to spend on products that enhance

their entertainment and convenience. That provides a good

roadmap for home automation positioning: dynamic pricing,

demand response, and energy efficiency folded into home

automation scenarios will allow consumers to enjoy relatively

sophisticated automation for less cost.

The energy industry has not traditionally marketed products

to consumers because it didn't have to—almost every

household is a utility customer. In contrast, appliance vendors

have been marketing to consumers since the invention of the

electric coffee percolator in 1865 by James Nason.

Consumer Appliance Timeline [9].

Consider a purchase of a new washing machine and dryer

today. One way to assess what features of new washers and

dryers are important to consumers is to look at how vendors

are marketing them. In almost every ad, styling is either

mentioned directly or highlighted by showing matched

machines in bright colors against a neutral background.

Another highly touted feature is steam, which consumers are

told will remove stains and odors, and reduce wrinkles. Some

ads, but not all, mention energy efficiency and reduced water

use, but more often, ads dwell on larger load capacity.

Early adopters of front-loader washers and dryers may have

been strongly influenced by energy efficiency, along with

how well the machines clean clothes. But for consumers

coming after early adopters, energy efficiency likely plays a

smaller role. Consumers are willing to accept energy

efficiency as a benefit, but this is partly because the machines

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also clean clothes better than the older, less efficient designs.

Consumers are not forced to choose between energy

efficiency and the coolest washing machines on the

market—they can have both.

What does this tell us about consumer adoption of home

automation and smart appliances? We need to make smart

grid technology appealing to early adopters, and the appeal

needs to extend beyond practical considerations. While the

front loaders offer convenience (more laundry in each load)

and clothes are treated more gently (saving money on

clothes), they also offer a new stylish design, clothes are

tumbled differently (new feature), and they offer some degree

of entertainment. Laundry is more fun when you are using

colorful appliances that play soft musical tones when you are

selecting your cycles and when the cycle is done.

We are fortunate that home automation companies and

appliance vendors have experience marketing to consumers

and will find ways to make their product offers exciting to

consumers, not just practical. Many consumers purchased the

new iPad™ without having a real clear idea on how they were

going to use it; but they knew they wanted it.

In less than three months, Apple sold three million iPads (Apple press

release on June 22, 2010.) See http://www.apple.com/pr/library/2010/06/

22ipad html.

However, the smart grid and home automation are not seen as

a positive development by all consumers. Scenarios that

provide convenience and security can simultaneously

introduce threats to consumer privacy or safety. If doors can

be locked using a smart phone app, can they be unlocked by

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someone with ill intent? Will others be able to analyze energy

usage data to tell if someone is home, or home alone?

Clearly, home automation has to provide security along with

convenience. Consumers may want to lock doors using

automation but they won't want strangers unlocking their

doors by hacking into their system. This will be the challenge

for home automation vendors—sell the benefits and manage

the risks. Utilities and authorized third-party providers,

including energy suppliers, home automation vendors, and so

on, also have to plan for and then protect consumer privacy.

From a marketing perspective, there will always be some

consumers who prefer the way things are and won't adopt new

products in the short or medium run even if they would

benefit from adoption. However, consumers who object to the

smart grid now may find that some of the benefits are

appealing after all, such as tracking their energy spending on

a daily basis and being alerted when their energy use

suddenly increases.

Consumer activists now opposing smart metering

implementations may find that the vast majority of customers

appreciate having assistance in managing their energy usage

and that the industry has managed security issues to the

satisfaction of consumers. After all, security breaches are

frequently reported about the Internet, but how many have

stopped using it? As a society, online purchases are increasing

rather than decreasing, and this is occurring despite the

persistent threat of fraud.

“According to a recent global survey conducted by the Nielsen

Company, over 85% of the world's online population has used the

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Internet to make a purchase, up 40% from two years ago, and more than

half of Internet users are regular online shoppers, making online

purchases at least once a month [10].

The Internet offers benefits to consumers, and these benefits

are highly valued. If our industry can position home

automation with embedded smart grid features in a similar

manner—providing high value—then consumer adoption

should follow the pattern of other new technologies. The key

is providing high value to consumers and to utilities.

Policy Makers' Burden

Policy makers—including utility executives, regulators,

consumer advocates, industry pundits, and lawmakers—set

policies that try to blend the needs of today with the promises

and potential threats of tomorrow. For consumers, the needs

of today often loom larger than what may come later.

However, some future needs are so great that they must be

planned for now. This is the case with planning for future

energy needs and capacity. The burden for policy makers is to

make the case of why investment needs to be made today and

to respond appropriately to those who may prefer the status

quo.

For example, many policy makers are overseeing the rollout

of smart meters that enable the offering of dynamic pricing.

These rollouts are seen by policy makers as essential elements

of modernizing the electric grid going forward, such that

demand for electricity is more closely linked to the market

price of electricity and consumers can respond accordingly. In

addition, the smart meter rollouts can help the grid more

easily adapt to growing renewable energy supplies, additional

penetration of demand response capability, and electric car

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charging to reduce reliance on the use of gasoline-powered

engines, and ultimately, reduce carbon footprints.

See Chapter 4 for more details on issues facing regulators in smart

metering rollouts.

A small percentage of consumers are resisting the rollout of

smart meters because they perceive no benefit from smart

metering, only higher costs, loss of privacy, health effects,

outside entities controlling their appliances, and a change in

how they are charged for electricity.

These concerns need

to be addressed directly by utilities and policy makers

because while some of the concerns are real (privacy and

opening the door for dynamic pricing, for example), others

appear to be based on misinformation. The news industry has

been dramatically changed by new technology in how, what,

and when news is reported, and by whom. Instead of a few

deciding what news stories will be published for many to

read, the model has changed to “many providing for many.”

Major news organizations are often in the position of catching

up with news that has been widely disseminated by bloggers,

Twitter™ and texting, and as a result, stories are often

published and checked for accuracy later. For utilities, this

allows consumers who are concerned about smart meter

rollouts for a variety of reasons to more easily organize and

make their concerns heard to lawmakers, consumer

advocates, and regulators. Utilities need to consider the

perception and perspective of consumers early in their

planning and implementation process or be faced with

regulatory or legislative roadblocks to their plans.

See the following ongoing dockets in California and Maine:

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• California Proceeding A1103014 at http://docs.cpuc.ca.gov/

published/proceedings/A1103014 htm#top

• Maine: Docket 2010-345 at http://mpuc.informe.org/easyfile/

easyweb.php?func=easyweb_query

Another complaint often raised about the smart grid is that

some consumers are adamant that they don't want electric

utilities controlling when and how they use their electrical

devices in their home. The key response to these concerns is

that not everyone needs to participate to achieve industry

goals, only some. For those who are adamantly opposed to

changes in the utility industry, they can decline some or all

aspects of home automation, and it won't interfere with the

vast majority of consumers who will benefit from going

forward.

In fact, all customers whether they participate or

not will benefit greatly through greater demand response,

which will mitigate high energy prices, avoid or defer the

need for new infrastructure, and maintain or improve the

reliability of supply. Policy makers have made it a best

practice that participating in dynamic pricing is either an

opt-in or opt-out process for residential consumers, not

mandatory. Anyone who doesn't want to be on a pricing plan

with incentives to reduce peak energy can find a pricing plan,

perhaps with a different supplier, where pricing is not based

on when the energy is used. While some fear utilities want to

control when consumers use energy, the plans are for

voluntary participation in demand response programs, with

consumers compensated for their participation.

At the time of this writing, the California Public Utilities Commission is

considering allowing consumers to even opt out of smart metering in a

rate setting proceeding. The Maine Public Utilities Commission has

already ordered Public Service Company of Maine to allow individual

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customers to opt out of smart metering, but did not allow communities to

opt out.

Policy makers are considering the best method to pay for

smart grid investments. In Texas, customers of distribution

utilities that are rolling out smart metering are paying a

monthly surcharge to cover the costs of smart metering. In

Maryland, for example, the investment will be treated as a

normal, long-term utility investment, meaning that utilities

will not collect any monies from customers until the asset

costs are included in the rate base, which will not happen

immediately. Many policy makers are supportive of making

smart grid investments, but setting policy on how to pay for

the investment is challenging. Adding to the cost of utility

bills is about as popular as raising taxes.

Dynamic pricing is a price structure change rather than a

pricing level change. It introduces a number of new concepts

and price signals in the selling of electricity. With these plans,

when customers use energy, not just how much, influences

the amount of the energy portion of the bill, even if the

dynamic pricing tariff under consideration is a rebate-only

program.

After years of debate in the electric industry, it is

now clear that for residential customers, dynamic pricing in

some jurisdictions will be optional, but in others will be

applied on a default basis. This means that residential

customers will have a choice in whether to take service under

a dynamic pricing rate.

Chapter 3 addresses these issues in more detail.

Policy makers can rely on numerous studies that have

demonstrated that virtually all residential customers who

agree to participate in dynamic pricing programs prefer

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dynamic pricing to traditional pricing plans. For

PowerCentsDC, a dynamic pricing pilot program in the

District of Columbia, Figure 15.3 shows that 93% of

participants in the program preferred dynamic pricing rates

compared to the regular tariff.

Figure 15.3

PowerCentsDC customers preferred dynamic pricing.

Source: Smart Meter Pilot Program, Inc. [2]

Customers with higher and lower incomes, with and without

pools, with and without central air conditioning—no matter

which way the data have been sliced and diced—reduced

peak energy use, as shown in Figure 15.4.

Readers should

note that this study occurred seven years ago and has been

replicated many times since then—simply reconfirming what

all of us know: prices affect consumer behavior.

Levy Roger, “California Statewide Pricing Pilot: Lessons Learned,”

2006, Slide 10 (Source: Statewide Pricing Pilot, Summer 2003 Impact

Analysis, CRA, August 9, 2004, Table 5–9, p. 90).

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Figure 15.4

California pricing pilot results consistent across customer segments.

Source: Roger Levy, August 9, 2004

Providing even more support for the smart home, automation

of response—mostly accomplished by smart thermostats or

smart switches to date—has increased peak load reduction,

and load reduction was greater on the hottest days compared

to days with more temperate weather. In Figure 15.5,

PowerCentsDC participants on the critical-peak pricing rate

using smart thermostats reduced their critical peak energy

kWh use by 49% compared to 29% for participants not

provided with smart thermostats.

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Figure 15.5

PowerCentsDC customer load reductions by weather and smart thermostats.

Source: CSC, April 2011

The results show that policy makers are basing their decisions

on reasonable expectations that dynamic pricing will bring

benefits to virtually all consumers who participate directly

and to others indirectly. Chapter 3 covers the direct and

indirect benefits resulting from the application of dynamic

pricing in detail.

What remains to be seen is whether home automation

vendors, which at this point would also include demand

response vendors, can convince consumers that investing in

home automation will bring monetary rewards through their

electric and gas bills and along the way, enhance their lives in

meaningful and tangible ways. These services may be

coupled with other services in the future, such as home

security systems, Internet connections, and/or cable television

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Sioshansi F.P. Smart Grid: Integrating Renewable, Distributed &amp; Efficient Energy

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Sioshansi F.P. Smart Grid: Integrating Renewable, Distributed & Efficient Energy