Money for Nothing: Bad conservation programs

Severin Borenstein on a pricing scheme he refers to as "Peak-Time Rebates" (PTR)

Borenstein notes the programs are popular - and poor. Ontario's Class A Global Adjustment program - a.k.a. the Industrial Conservation Initiative (ICI) - may be considered a cousin to the PTR programs in the United States.

Money for Nothing? | Energy Economics Exchange:

If PTRs are so bad, why are they so popular? Because they hide the cost. Rather than a higher price on the hottest days of the year — reflecting the truly higher cost of providing electricity on those days – PTR pays out for conservation (real or imaginary) on those hot days and raises the price a bit on all other days to cover the cost. Thus, customers who consume a higher share of their electricity on non-peak days (e.g., those who use less, or no, air conditioning) subsidize heavy peak-time users who manage to be slightly less heavy users on a specific peak day.

Some defenders of PTR say it is the way to transition to time-varying electricity pricing. I’m very skeptical. Once a customer gets used to being paid for reducing consumption on peak days, it is very difficult to change to a system that just charges higher prices on those days. There may be a utility that has managed to move from fully-implemented PTR to time-varying pricing, but I’m not aware of any example.

To integrate intermittent renewable energy sources, we really need to start taking demand-side participation seriously. PTR is an inefficient route to that end that will end up paying for a lot of faux “demand reduction.” Time-varying pricing is the direct route to the goal. Sacramento Municipal Utility has recently had a very successful rollout of critical-peak pricing, one form of time-varying pricing, which the real Catherine has blogged about. My own research suggests that time-varying pricing would reduce bills for the majority ofresidential and industrial customers, and that it would raise bills by more than 20% for only a few percent of customers. Those are the customers who consume the most at peak times and impose the most cost on the system. Prices that reflect the cost of electricity would be a more effective way to integrate renewables and a fairer way to allocate the costs.

Read the entire article at the Energy Economics Exchange .

Borenstein is polite not to note another reason the programs are popular - the narrative that conservation is the cheapest supply is well established, while numeracy is not.

The Ontario government recently announced the expansion of the ICI program, which one professional estimate has tagged at a cost of $225,000/MWyear in 2011 moving up to $274,000 in 2012: in Ontario the incentive for very large consumers to cut-back during the 5 highest daily peak hours each year is far more expensive supply than a simply cycle gas turbine (SCGT) - and that was quite obvious before the ICI program was expanded.