Smart meters, Smart devices and dynamic pricing

Utilities are beginning to pair smart meters with other new technologies, pricing incentives and social “nudges” to encourage electricity conservation.

For example, companies are now designing smart thermostats that are pre-programmed to meet individual customer preferences. As the temperature changes throughout the day, the thermostats take action autonomously, such as precooling the home when power demand is lower. It has been estimated that smart thermostats can reduce energy consumption by 10% to 15%.

It’s possible to further manage energy use by introducing dynamic pricing – real-time price shifts that are directly reflected in consumers’ electricity bills.

In the simplest version of dynamic pricing, all electricity consumers would face a higher real-time price for electricity when bad weather reduces the supply of power. For an electric utility that has deployed smart meters, the meters would signal to customers – perhaps via text message – that the price of power will increase over the next six hours. This would alert consumers to shut down computers and reduce discretionary power use.

Pricing experiments in United States have demonstrated that consumers reduce their electricity consumption when they face price spikes during peak electricity demand periods. If enough people and firms participated, aggregate demand for power would decline, reducing the system wide risk of blackouts.

This strategy is also good for the environment. Utilities often resort to high-polluting power plants that run on fossil fuels when demand exceeds supply. These plants contribute to local air pollution and global greenhouse gas emissions.

Introducing critical peak pricing for electricity reduces this need for dirty power. Averting power blackouts also will reduce reliance on home generators, which often emit harmful particulate air pollution.