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From kWh to kW

Rafael Herzberg's picture
Consultant energy affairs Self employed

Rafael Herzberg- is an independent energy consultant, self-employed (since 2018) based in São Paulo, Brazil* Focus on C level, VPs and upper managers associated to energy related info, analysis...

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  • Aug 25, 2022

From kWh to kW

The community around the globe, formed by the electricity sector, is realizing that the great challenge is to focus efforts on the ability to serve the market.

In other words: ensure the required capacity in kW.

Our tradition has always been to focus on kWh. It is so true that the largest portion of the collection of electricity bills from all customers, whether business, institutional or residential, is the kWh. And from afar!

In order to align this finding with a realistic posture of seeking efficiency and robustness in serving the market, it will be imperative to change the pricing system. So that it aligns with reality.

The way out is to center the charge in $/kW of capacity for each customer. Then, the tariff signal will reflect the cost of service for each customer. And, in the same vein, it will encourage the customer to demand less (which does not happen today because the measurement is primarily by kWh).

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Michael Keller's picture
Michael Keller on Aug 30, 2022

Not so sure focusing on capacity will achieve a reasonable proposition for the average customer, although it will probably be a huge money maker for utilities (just like time-of-day rates).

Perhaps average capacity over say a year could be used as some form of multiplier. That would yield a result where large scale users would pay a lot more. I suspect industrial users would scream bloody murder, as their KWhr rates are much lower than residential rates.

In my view, abandon the government contrived market rate structures favored in a number of states (e.g. Texas, California). Simply acknowledge that electricity supply is inherently monopolistic and regulate the production and distribution of electricity. Bills would be a lot less volatile, although those financial firms betting on the markets would be unhappy.

Rafael Herzberg's picture
Rafael Herzberg on Aug 30, 2022

Hi Michael,

The concept of charging capacity derives from the ongoing inconsistencies which end up penalizing the efficient consumers. 

Let me give you a real life example. Two right next door neighbors that consume the same amount of kWh/month every month. The difference is the way they heat water. One uses 2 x 6 kW instant electric heaters and the other a 2 kW tank boiler. Both have the same number of showers and the family size is the same.

But, given their loads, one home demands a lot higher kW capacity than the other. And yet both pay the same monthly utility bill. 

It means that the instant heaters home demand a higher capacity and accordingly a higher capital expenditure (from the power supply chain) that the tank boiler. 

The way the regulator "copes" with this situation is creating an "average" kWh tariff which at the end pays for the "whole package of clients".

Bottom line: the efficient energy user (tank boiler) pay the same as the non-efficient one. And that is bad because the rate signal should stimulate efficiency and not otherwise.

In my opinion we should explore this concept by setting a pilot program in one community and see what really happens if the rate signal is aligned with the actual capex costs. It seems to me that there is ample chance for a win-win situation. The utility would be in a position to better meet the market's load and home owners would have a solid chance to reduce their costs if they go for more efficient solutions.

Shouldn't we give it a try?

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