the future of electricity demand - electricity policy research group

www.eprg.group.cam.ac.uk

The Future of Electricity Demand

Michael Pollitt8th Energy Economics Policy Seminar on

Distribution networks, regulation and consumers: How to enhance end-user participation?

The Hague

15 November, 2011

www.electricitypolicy.org.uk

Background

• Acknowledgments:

– EPSRC Flexnet Project and Tooraj Jamasb

– Future of Electricity Demand book

• Focus on households…

• Outline:

– Economics

– Technology

– Social Dimensions

– Policy and Regulation


Some terms• Demand Reduction

• Demand Side Management (DSM)

– Links between two.

• Time of Use (TOU) tariffs

• Critical Peak Pricing (CPP)

• Real Time Pricing (RTP)

– Smart meters as enabler of above.

• Energy Services and Energy service companies

(ESCos)


THE ECONOMICS


Energy demand is related to income…

1972-2008. Source: Platchkov and Pollitt, in J&P, 2011, p.20.


Lower demand needs higher prices…

Source: Platchkov and Pollitt, in J&P, 2011, p.20


Similar relationship for just electricity…

Source: Platchkov and Pollitt,

in J&P 2011, p.21


Variation by energy services…

Source: Platchkov and Pollitt, in J&P 2011, p.35.


Scope for household TOU tariffs?

0.00

100.00

200.00

300.00

400.00

500.00

600.00

700.00

800.00

900.00

£/M

Wh

peak day

off peak day

median day

2009 data. Source: APX (2010), Platchkov and Pollitt, in J&P, 2011 p.39.


Household demand at the evening peak

37.60%

16.50%

15.70%

9%

6%

5%

10.20%

cooking appliances (8750 MW)

electric water heaters (3833 MW)

lighting (3667 MW)

cold appliances (2083 MW)

wet appliances (1417 MW)

stand-by/on mode TVs, videos andstereos (1083 MW)

others

Example: Total UK Demand 52 GWHousehold demand: 45% of total.

Source: adapted from Lampaditou, E. and M. Leach (2005), Platchkov and Pollitt, in J&P, 2011, p. 40.


Wide range of futures possible

Source: Ault et al. , in J&P, 2011, p.59 and p.79.


Smart meters and participation low…

Source: Torriti et al. , in J&P, 2011, p.95.

Thus enabling technology not widely

deployed or utilised where deployed.


Four channels affect demand…• Input substitution (between non-energy factors

and different energy sources)

– difficult to model elasticities, different time

frame for different inputs, non-linear,

aggregate data imprecise.

• Energy efficiency

– irreversible and rebound small.

• Changes in industrial structure

– matters for industrialised countries.

• Technological change

– unclear whether this is exogenous to price.

Source: Steinbuks , in J&P 2011, p.121-22.


TECHNOLOGY


Lots of technical potential for DSM…

Source: Hong et al., in J&P, 2011, p.138.


Local supply/demand matching…

Source: Hong et al. , in J&P, 2011, p.158.

PV supply being dynamically matched

to fridge demand via internal control IT

architecture.


Some evidence from DSM trials…

In reality uptake an issue and average response lower…

Source: Brophy Haney et al. , in J&P, 2011, p.180.


Simulating UK appliance demand…

Source: Silva et al. , in J&P, 2011, p.189.


Potential market for DSM…

Source: Silva et al. , in J&P, 2011, p.204.

2008 figures. Typical bill in 2008 is £435. Dynamic demand saves marginal

fuel costs, at high wind penetration it saves wind curtailment.


Appliance energy services…

Source: Silva et al., in J&P, 2011, p.205.


Cost benefit analysis currently marginal…

Investment costs currently high compared with savings.



Congestion management benefits...


Note this is a diminishing value proposition.


Electric vehicles not an energy issue…

‘‘dash’ to electric looks more like a ‘brisk stroll’’ (Marsden and Hess, in

J&P, 2011, p.225)


SOCIAL DIMENSIONS


Trust for energy services…

Source: Platchkov et al, 2011, EPRG WP1122.


The social acceptability of DSM…

Source: Platchkov et al, 2011, EPRG WP1122.


Barriers to local solutions…

• Upfront capital costs

• Long payback periods

• Increased risk

• Hidden transaction

costs

• Complex subsidy

system

• Political lock in

• Insufficient ‘know

how’

• Policy restrictions

• Principal-agent

problems

• Consumer preference

problems

• Local environmental

opposition

Source: Kelly and Pollitt, in J&P 2011, p.273-274.


Scale appropriate public engagement …

• Centralised engagement

– better information and device enabling

• Centralised disengagement

– more ‘out of sight and out of mind’

• Decentralised engagement

– energy more visible in everyday life.

• Decentralised disengagement

– small scale but company controlled.

Source: Watson and Devine-Wright, in J&P, 2011, p.291.


Fuel poverty is problem for pricing policy…

Source: Waddams Price, in J&P, 2011, p.307.

Vulnerable household = any household with a child, an older person or

someone receiving state benefits (75% of households)

.


Characteristics of fuel poor…

Source: Jamasb and Meier, in J&P, 2011, p.329.


POLICY AND REGULATION


National DSM strategies…

• Normative:

– Appliance controls

– Building codes

– Energy efficiency obligations

• Informative:

– Mandatory labels and certification

– Mandatory audits

• Economic instruments:

– Energy performance contracting

• Financial and incentive based measures

– Taxation, subsidies and grants

– Public benefit charges

– Utility based programmes

• Voluntary agreements and partnerships:

– Labelling and certification

– Negotiated agreements

• Information and capacity building:

– Awareness raising

– Detailed billing and disclosure

Source: Brophy Haney et al., in J&P, 2011, p.357-358.


Regulation needs to anticipate demand…

Source: Jamasb and Marantes, in J&P, 2011, p.396-397.


Higher building standards can help…

Source: Clarke et al., in J&P 2011, p.418.


Commercial architecture…

• Need for aggregation of active demand

• Need for market outlets for demand side products and services

• Need for benefit and acceptance across the supply chain, especially for consumers.

• Active demand business models challenging to make work…

Source: Bouffard et al., in J&P 2011, p.443.


Pareto improvements exist…

GMT+1 in autumn: peak demand down 4.3%, energy -0.32% in

November, total annual demand -450 GWh, annual CO2 -0.375mt.Source: Chong et al., in J&P, 2011, p.454-455.


Conclusions

• Innovation needed on the demand side.

• New business models not clear.

• Liberalised market a premise for DSM.

• Social factors important: both in terms of acceptability and energy poverty.

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