Thursday, November 12, 2009

Time of Use Power Pricing

The current power rate structures that exist provide very little options for power users. One of the reasons is that historically power meters have to be read on-site and are usually done so only once a month. The only real option that users have had are either a single rate structure where power costs the same regardless of when you use it (what most everybody does), or a time of use structure where you pay less for off-peak usage and more for on-peak usage. Here in CT, peak time is between Noon and 8:00 PM local time weekdays.

Here in Southern CT, the peak/off-peak option doesn't get one much if anything. We are somewhat deregulated here, so there are a few companies vying for retail power business. The main supplier is Connecticut Light and Power, but there are other ones now, and most of them offer rates that beat the peak/off-peak CL&P rate, so if one is interested in saving something, it seems best to just switch providers and take their single rate structure--which is what all of them only seem to offer.

The one new difference now is that CL&P offers something called Variable Peak Pricing or VPP. The VPP option involves a fixed off-peak rate and a peak rate that varies daily. The VPP option has been available for about a year. I decided to look into VPP just to see if it offered any advantage, and here is the result.

The first question was if the pricing could be reproduced. The off-peak price is just the same as the standard Time-of-use option, and it is presently about 11.5 cents/kwh which is more expensive than some of the competitors' single rate cost. For standard TOU service, the peak price is about 14.5 cents generation rate. To get the billing price, you have to add $.0545/KWH, the transmission and taxes portion of the price.

The VPP history is posted on the CL&P website, and it is shown below. Included is my attempt to model the price, and I can get the variation, but there is also an offset of between 2 and 5 cents that seems to reset every quarter or so. Exactly how this offset is determined, I don't know, and I have a call into CLP and hopefully will get an explanation. At any rate, to within an offset, I can reproduce how they get their price just by taking the Day-ahead New England price and averaging over the peak demand hours (Noon-8:00 PM).

The first item of note is that the peak price is in fact lower than the set off-peak price and has been for about a year now. At present, then, it makes sense to shift load to peak times as opposed to off-peak times! That is a characteristic of how CLP currently structures their program as well as lower natural gas prices this year as compared to past years and frankly doesn't make any sense. I'm guessing it is a result of CLP hedging their off-peak price when power prices were higher.

Given the historical day-ahead pricing data from the New England ISO, we can now estimate how the price would have varied back to 2003 and that is in the above figure in blue. I've assumed an average additional $.035/KWH as the average offset fixed over the period. In the more distant past, it is possible that that figure is too high, but it is probably reasonable going forward. The black line is the actual single-rate price from our electric power bill. Only the generation rate is shown, and transmission, taxes, etc would have to be added to get the true cost. The off-peak price would probably be at a discount to the single-rate price, probably on the order of a penny or so.

The question still remains as to whether or not to shift to VPP. It seems that it makes sense in a market where the power prices are falling, and to stay with fixed pricing when power prices are rising, which is the standard result of hedging--it works in rising markets, but you pay for it in falling markets.

For most people, I think it would make sense just to shift to a different provider for now to save money. However, with some load shifting capability (and with generation capability), VPP may even make sense. One needs historical off-peak prices to answer that question, and I have that call into CL&P for that too.

I was also hoping VPP offered the ability to do daily-net metering. With generation capacity (both solar and co-gen), there are time where I could crank up the amount going back to the grid. Unfortunately, net metering occurs only over the course of the year, and so there is no advantage to generating more than would be used on a daily basis. For instance, in early January, 2004, the price was over $.4/KWH. This cost is large enough that I could run the Ecopower at full throttle and still make money if CL&P was in fact paying $0.4/KWH for power sold back. However, under the VPP program, the most economical thing I could do would be to run enough to offset any purchases made that day so that the net grid power purchase was in fact zero.

The question of whether or not it is advantageous to switch to VPP remains and to better answer it, I need a daily load model for our house. With some data I've collected, it is possible to generate that, but it is going to take more work.


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