By John Kemp
LONDON Aug 1 Centrica, which supplies
electricity in the United Kingdom through its British Gas
subsidiary, has said it could offer free power to residential
consumers on Saturdays from next year, provided they have a
smart meter installed.
"Free power Saturdays" are a masterful piece of marketing
and illustrate how quickly smart metering will transform the way
residential customers use and pay for electricity in Britain and
around the world.
Unlike traditional accumulation meters, which measure the
total power used over a quarter, smart meters record both the
time and the amount of use in half-hourly periods. Centrica has
already installed over 1 million of them in Britain, and the
government wants every home to have a smart meter by 2020.
For smart meters to encourage customers to use electricity
more efficiently there must be a sharp price differential
between the cost of power during peak periods, when it is
expensive to provide, and off-peak times, when generation and
transmission costs are much lower.
Many smart-metering advocates have focused on achieving this
differential by raising peak power prices to encourage customers
to cut their peak use as much as possible. Under dynamic and
critical peak pricing schemes, peak power could cost up to ten
times as much as off-peak prices.
But the prospect of swingeing price increases at peak times
has run into fierce resistance from customers accustomed to
paying a flat rate for unlimited power any time of day or night.
In particular, critical peak pricing has conjured up the
nightmare of customers sweltering at home because they cannot
afford to run the air-conditioning, and consumers dependant on
home-dialysis machines being bankrupted by the utility.
U.S. utilities have had greater success in winning customer
acceptance by offering rebates to building owners who volunteer
to turn their air-conditioning down and reduce electrical
consumption during power emergencies.
Centrica has extended this idea by offering heavily
discounted or in some instances zero-price power at weekends to
some customers in the Northeast United States and Texas.
Like critical peak pricing and rebates for cutting peak-time
power use, free weekend power sharpens price differentials and
encourages homeowners to shift as much consumption as possible
to off-peak times.
Discounts will always be more popular than surcharges. By
focusing on the potential for cheaper power at weekends,
Centrica aims to reframe smart metering and pricing reform as a
benefit to customers rather than a restriction on their right to
use as much power as they want at any time for the same price.
COLD WINTER EVENINGS
In the United States, power demand peaks on summer
afternoons, driven by air-conditioning in homes and offices. On
July 19, as temperatures soared and power consumption hit record
levels, suppliers in New York called on customers to conserve
power and activated demand response programmes.
Participants in demand response are compensated for reducing
electricity use, and could be penalized for not doing so, by
raising air-conditioner thermostats and turning off unnecessary
lights and other equipment, and operating on-site generators to
cut the amount of power needed from the grid.
In Britain, air-conditioning is far less common, and more
electricity is used for winter heating. Demand peaks between
November and February on weekday evenings at around 1730 GMT,
when most offices and factories are still open, but many
residential customers have returned home, switched on the
heating and lighting, and started to cook the evening meal.
So Britain's power suppliers need to persuade customers to
curtail power use between 1600 and 2000 GMT in winter, and shift
some of it to other periods, either later in the evening or at
weekends, for example by postponing their use of power-hungry
washing machines and clothes driers.
EFFICIENT NETWORK USE
It is extraordinary inefficient and expensive to supply the
current heavily peaked profile of power consumption.
Generators and transmission operators must keep huge amounts
of capacity on hand to meet peak demand that occurs on just a
few hours each year. The rest of the time, generators and
transmission lines are underused or idle.
Adding even more cost, generators and transmission operators
maintain large amounts of spare capacity to provide a safety
margin in case a major power station or transmission line is
unavailable to meet peak demand.
Grid operators aim to keep the lights on even if the largest
power plant on the network or the biggest single power line
suddenly goes down (known as the n-1 criterion). In some areas,
grid operators plan for the loss of the two largest generating
or transmission assets (n-2).
The more peaked the consumption profile is, the more
capacity is needed and n-1 or n-2 spare capacity must be held in
reserve, all of which has to be paid for by consumers. The
system could be operated much more efficiently and cheaply if
the demand profile were less peaked and more even.
Variable pricing and load-shifting in electricity are based
on the same principle as the load-management programmes and
variable pricing employed by airlines as well as many railroads
and metro systems.
WORKING WITH THE WIND
Smart meters and tariffs aim to flatten the demand profile
as much as possible without compromising the quality of service
offered to customers.
Smart tariffs should be cost-neutral for customers. Higher
prices in peak periods should be offset by lower prices at other
times. Centrica's chief executive did not say so, but "free
power Saturdays" will be paid for by higher charges on weekdays.
Customers could even end up better off overall if smart
pricing means fewer power plants and transmission lines need to
Smart tariffs could also be greener tariffs. Wind turbines
are expensive to install but cheap to run. The marginal cost of
wind power is close to zero. By contrast, coal- and gas-fired
power plants are much cheaper to build but costlier to run
because the fuel must be paid for.
Grid operators call on generation in order of marginal cost.
Wind farms are usually called ahead of gas- and coal-fired power
In peak periods, even the most expensive generators come
online, and the last to be called will be a fossil fuel plant.
The more peak demand can be curbed, the more emissions can be
COMPLEX LOAD SHIFTING
Free or cheap power at weekends, offset by more expensive
power during the week, is just one way in which utilities will
try to encourage more load-shifting in future.
In an ideal world, utilities and grid operators want to be
able to encourage load-shifting over a variety of timescales -
from weekdays to weekends, from daytime to overnight, and even
from one half-hour period to the next in response to a power
emergency or a sudden drop in wind farm output.
In principle, smart meters can provide the price incentives
and record-keeping to facilitate load-shifting over all these
timescales, though they are most likely to be used to encourage
weekday/weekend and day/night shifting.
Britain and the United States are also trialling a variety
of other techniques to encourage customers to help balance the
market and cope with power emergencies by curtailing demand at
In North America, PJM Interconnection has pioneered a
capacity market that pays customers to help balance supply and
demand. Britain's National Grid recently proposed a Demand-Side
Balancing Reserve (DSBR) that will pay customers who cut
consumption at peak periods during the winters of 2014/15 and
No one expects to pay a flat rate for a plane ticket any
more. In ten years' time, the idea of charging for electricity
at a flat rate will be seen as similarly old-fashioned.