Rate design could help the grid handle the electrification of everything

The transition to cleaner energy will mean a lot more electricity consumption.

From growing electric-vehicle sales to wider use of tech like heat pumps that produce fewer greenhouse-gas emissions, people will need to use more wattage day-to-day.

In addition to bolstering the grid’s resiliency as electricity demand rises, utilities companies and policy makers are exploring new ways to design rates by testing dynamic-pricing mechanisms that could help manage the load at different times, maximizing the use of renewable energy.

Dynamic rates fluctuate in response to energy demand. While these programs can be used broadly to incentivize energy reduction during high-demand periods, they can also be applied to specific, electricity-intensive tech—like electric vehicles. Ultimately, one goal of this pricing strategy is to guide EV owners toward charging behavior that doesn’t strain the power supply by providing them with cost savings or even compensation for discharging EV batteries onto the grid.

“Rate design is a powerful tool,” Kiel Pratt, supervisor of the transportation planning and analysis unit at the California Energy Commission, told Emerging Tech Brew. “[The utilities are] seeing this incentive to move toward dynamic, time-of-use rates, which promise to more accurately communicate the grid conditions and economic signals to drivers.”

There were more than 150 rate-design policy initiatives across the US last year, and California is one state where the need to improve grid reliability and the push to use more renewable energy has led utilities to explore innovative pricing mechanisms.

Most of California today already has time-of-use pricing, which incentivizes customers and fleet managers to be intentional about when to charge EVs. Half of Pacific Gas & Electric’s (PG&E) residential customers are currently on time-of-use rates, according to the company.

Rather than a fixed rate, some utility companies are offering time-of-use plans that price electricity based on peak periods of energy consumption.

“It’s expensive to charge at this time, [but] it’s cheaper at this time, and we’ll plan to charge and optimize the depot charging based on that,” Sarah Woogen, head of US operations and analytics at charge management company The Mobility House, told us.

Customers who are able to manage the timing of their electricity use see cost savings, and some of the demand on the grid shifts to off-peak hours, like nights and weekends.

Pilot programs

The California Public Utilities Commission (CPUC) is currently considering applications for dynamic rate programs that will test whether customers change behaviors—such as when they charge their EVs—when they have more information about energy prices based on demand levels. It’s a strategy that has proven effective for encouraging households in California to shift their energy consumption to times when more solar power is available.

Unlike time-of-use rates, which are different throughout the day but remain static during each season, dynamic rates can vary from day to day and hour to hour based on energy demands.

California utilities are exploring these pricing tools in part to keep up with the rapid growth of EV adoption in the state.

• San Diego Gas & Electric (SDG&E) has been testing vehicle-grid integration (VGI) rates at EV charging stations through its Power Your Drive pilot program since 2016.
• In December, the CPUC awarded $2.5 million for Southern California Edison (SCE) to run a three-year pilot program testing dynamic rates that will include EV charging set to begin no later than May 1. SCE says one in seven EVs in the US are located within its service area.
• PG&E and SCE are seeking approval from the CPUC for nearly $29 million in funding for VGI pilot programs that would include real-time rates.

“Those real-time rates are just adding a little more complexity to it. And they’re calling it real time, but, for example, the one that PG&E is going to put out is going to be a day-ahead pricing,” Woogen said. “It’s going to kind of shadow, in a way, the current wholesale market prices, and it’ll be hourly pricing that is [from] a day before.”

But offering more detailed pricing information ahead of time could provide a significant financial incentive.

“That is sort of a cutting-edge development, and not just for EVs, but for grid services in general, whether you have a water heater that can respond to signals and save a few bucks, or some kind of industrial-process load where you could shift the time and there’s a big payoff for that,” Pratt said.

Getting granular: While real-time rates can help balance the use of the grid throughout the day, another important element is local energy demand.

“[The CPUC is] developing what’s called a unified, universal, dynamic economic signal, or UNIDE, which is a rate-design framework that is more fine-grained, almost real time, and also local,” Pratt said. “For the most part, current rates are not as local.”

In addition to time-based pricing tools, visibility into the load in one area of the grid can help shift energy demand—whether it be from EV charging or powering buildings—to renewable energy sources to avoid straining the local transformer, he said.