Time-of-use pricing: Will it undermine solar domestic hot water programs?
Smart meters and time-of-use pricing are always well-read stories because there’s true division within the general public on whether smart meters are consumer-friendly gadgets that encourage conservation or utility-friendly devices that make it easier to gouge consumers. See my story in the Toronto Star from Friday. My take is that electricity prices are going up whether we get smart meters or not, and that smart meters — and the applications they enable — offer households a way to shift and even lower their electricity use to buffer the impact of rising prices. The mistake — and again, just my view — is that smart meters have been improperly marketed to consumers as some kind of sexy wonder tool that will help them lower their bills. Instead, utilities should have downplayed the introduction and simply moved ahead with their installation as part of a less exciting grid modernization play — equivalent to a telecom company upgrading from analog to digital networks so that, down the road, new services can be offered to customers. Customers don’t care about the bandwidth, they just care about the handsets and what they can do.
By positioning smart meters as more of an infrastructure play the cost of deployment can be simply incorporated into annual capital budgets and households are more resigned to the fact that getting the new device is mandatory. Let’s face it, initially smart meters are about helping utilities manage their networks better — i.e. they can pinpoint problems and do more detailed analysis of individual household, neighbourhood, and community power consumption, improving system planning and maintenance operations and preparing utilities for increased distributed generation in their service territories.
By making this seem like some gift to consumers, as has been done, utilities open themselves up to consumers expecting certain results and wanting the option of getting or not getting the smart meter. I witness this every day in the e-mails I get and conversations I have with disgruntled Toronto Hydro customers. Later, once the smart meter infrastructure is in place, the utility can begin deploying the in-home monitors and Web applications that allow customers, on an optional basis, to better take advantage of time-of-use pricing and demand-response programs. This, of course, needs to be preceded by gradual price hikes that are blamed on the rising cost of new generation and grid renewal so that consumers more clearly see smart-meter-enabled applications as a way to offset those inevitable increases (which are simply the reality of our times, not the cause of smart meters).
So how, as my subject line hints, does time-of-use pricing potentially undermine programs that promote the uptake of domestic solar hot-water systems? I have one of these systems on my roof, and I like it. It works well. I’m not sure I use enough water every month to justify the payback (disclosure: I’m part of a pilot program, so when I say “payback” I’m referring to the typical installed cost of these systems), but it’s nice to know the hot water we use for our dishwasher, showers, and occasionally our laundry can come from the sun, not natural gas. But here’s the problem with time-of-use pricing. If I want to run the laundry or dishwasher when the hot water in my house is completely heated by the sun, I must do it during what are typically peak times under time-of-use schedules. It means I pay double for the electricity so I can save on the natural gas. Alternatively, I can do the laundry during off-peak hours when power is cheap, but the sun is down and my water tank relies more on natural gas.
So, it seems, this is a classic case of the law of unintended consequences — two programs aimed at reducing our use of non-renewable energy that end up undermining their respective objectives. This is a good argument against mandatory time-of-use pricing. At the very least, it’s a good argument for retail electricity providers such as Direct Energy, Bullfrog Power, and others who offer fixed-rate pricing. Using green-energy retailer Bullfrog Power, for example, is a nice complement to solar thermal because you pay the same rate for green electricity at any time of the day so are not penalized for running your dishwasher or laundry machine in the afternoon on a sunny day.
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