Dynamic Electricity Billing

The nature of a power grid is such that the more power you have to generate at once, the more expensive every bit of power is.

There are a few good reasons for this:

1. As the demand rises, the power companies have to generate more power from older, dirtier, and less efficient power plants. These plants take produce less power for each dollar it takes to run them.

2. As a seasonal effect - fuel becomes more expensive when demand rises. Coal and gas are most susceptible to fuel prices. (Solar power is actually cheaper at peak times because peak times are hot sunny afternoons, when solar cells are most effective.)

Thus, it might cost $1,000 to produce the first megawatt of electricity, but $1,500 to generate a second megawatt.

When Demand Rises

The demand for electricity rises to its highest during the day between noon and six on summer days as homes and businesses are all running air conditioners. At night demand falls because outside temperatures drop and air conditioners don’t have to work as hard.

The other limiting factor of the power grid is that enough power plants need to be built to supply people at the maximum load time. This means that the power grid is frequently operating well below capacity. It also means that the limiting factor on how many power plants we need is strongly associate to the number of air conditioners running on the hottest summer days.

That’s not to say other things don’t require electricity too – but overall, its air conditioning that causes significant fluctuations in demand.

(Lighting doesn’t cause as much of a difference as you might imagine – mostly because businesses run their lights during the day while homes tend to run their lights at night.)

How Pricing Will Change

One change the electric suppliers have learned from the telephone industry is basing their rates on time of day. In the future, you’ll get billed a higher rate in the afternoon than at night. As a homeowner this is good news, since you can just push up your thermostat when you’re away from work, and overall your bills will drop. Businesses on the other hand will have to start thinking about more efficient electricity usage if they want to keep electrical costs down.

But maybe that’s a good thing.

As rates rise, demand will fall. A certain portion of people will turn up their thermostats knowing that it will cost them extra otherwise.

This will allow more old power plants to run at lower capacity on peak summer days. It’ll decrease the amount of coal and oil power companies need to buy to run their plants, which will lower the rate overall. In turn, the best plants will be providing the most power which will also moderate prices. This might even also quicken the speed for the oldest plants to get decommissioned in place of newer supplemental power plants, such as solar, which run best on peak days. Wind is also an option in many areas.

We’d be trading our most expensive and polluting plants for renewable energy. Or at least much cleaner coal plants.

Though I’d personally prefer a power plant that didn’t emit greenhouse gasses.