Follow up on Smart Grid Analysis
I want to take a few minutes to address one of several excellent questions posed in response to the Smart Grid posting: How much does the nation need to even the peak demand curve? If we ever get to evening the demand curve, we can run our nukes without having to call up the expensive, price setting natural gas burners. But is this effective? Let me start with the subsidiary issue, that of nuclear power plants. The speakers seemed to believe (in agreement with most reasonable analysis I have seen) that more nuclear is not in our future. A cost benefit analysis of this issue could make an appearance on this page in the future, but for now, additional capacity from nuclear is just not a feasible, so let's take it off the table. Now to the evening of the demand curve....It seems to me to be an elasticity of demand situation with current high inelasticity that could be dramtically impacted by a better developed and advertised variable pricing scheme. What I mean is this; there is no change in energy consumption by individual consumers, or industry, during peak usage hours because it does not impact them if they do not conserve. Therefore, there is no elasticity in regards to time of day....However, if there were a clearly articulated and understood variable pricing scheme where sticks existed against usage during peak times (higher prices) and/or carrots were used to stimulate the same effect, demand would even out through the day. What would this look like? Well, people could set their air conditioning units to run during the day to cool temperatures down, with an automatic shut down from 5 to 7 p.m. Businesses could run meal breaks or shifts changes around peak times. Technologies could be updated to reduce overall usage, such as flourescent bulbs. With the technology being discussed, individuals who are producing energy could even sell windmill or solar panel energy back into the grid at variable prices, incentivizing this type of scheme even further. How is this all facilitated? Well, the smart meters, which are scheduled for a dramatic rollout in the next 5-7 years, will allow details analysis both by energy providers and users, so that each can determine what types of behaviors do or should occur during what times of day. For example, if you know your dishwasher uses more power than your vacuum cleaner, you may change when you clean your plates or your floors. I believe that this would dramatically alter the demand curve for energy, with hourly usage evening out. This was actually discussed by one of the execs at the presentation, who stated that test homes reduced consumption in the neighborhood of 30% during peak hours when better informed and when variable rates were used. Incidentally, this would allow for better management of when to turn on certain types of power plants, hopefully reducing the need to turn on nat gas plants. This would also go some way toward better management of excess energy production, and may make prices cheaper overall if consumers no longer face the all-day premium that utilities now charge to compensate for peak usage.