Understanding Electricity Rates: Demand Response & Tariffs - Report Sample

Introduction

Most electricity consumers lack the underst6anding of electricity rates as they vary over time in relation to demand factors and supply factors. Demand response can be defined as tariffs imposed on electricity charges based on the changes in the usage of electricity by end-users for a specific period or as a way of reflecting the benefits of efficiencies in production or the management of power companies to the end-users. Also, the tariffs can be implemented to reduce the electricity costs when the economy is going through a particular set of challenges or when the grid's integrity is jeopardized. A lot can be achieved on the consumer side of the electric meter in response to certain conditions in the system, such as the PPN (peak period network) congestion or peak prices that occur within designated times.

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Demand response can neither be price based or incentive-based. Examples of prices-based responses include Real-Time Pricing (RTP), Critical Peak Pricing (CPP), and time of use (TOU) tariffs [18]. These tariffs are changed to show the changes in the cost of electricity through different periods. Such prices inform the decision of the consumers to optimize their usage of electricity. When the grid is jeopardized or when the cost of producing electricity is high, the management of power companies may opt to incentivize the participating customers through targeted offers. The main reason why electricity companies in both developed and developing countries adopt demand response approaches is to encourage the consumers to optimize/manage their electricity usage in response to price signals set by the electricity generating/distribution companies [9]. This paper analyses the influences of electricity companies on the consumption behavior of their customers by exploring the cases of Bangladesh, Kenya, UK and China.

The Case of Bangladesh

Because Bangladesh is a densely populated developing country that lacks electricity supply in many rural areas due to limitations on the supply side, it has become necessary for the country to explore methods of managing and controlling the behavior of consumers to avoid exerting stress on the national electricity grid. In this case, the method is the implementation of power generation using solar photovoltaic (PV) technology that is not connected to the national grid. This will reduce the stress exerted on the grid by the excess demand for power. PV technology is a kind of smart technology that is being implemented by both governmental and non-governmental organizations to increase access to energy in rural areas of the country while at the same time avoiding jeopardizing the performance of the already stressed national electricity grid.

The national government has been able to manage and control consumers' behavior about power generation and consumption over the years. Previous studies show that solar electricity usage as an alternative source of energy has increased at a rapid rate from 513218 users in 2010 to 1655201 users in 2015. This corresponds to the increased usage of alternative renewable energy sources such as solar cookers, water heating systems, biomass systems, etc. there are many potential areas that Bangladesh can turn to reduce the stress on the electric grid and increase the access to power. These include wind energy and tidal energy. Bangladesh boasts a 710km coastal line that offers the perfect conditions for harnessing wind energy and tidal energy. The power generated from these sources can either be connected to the electric grid or distribu8tred parallel to the grid.

When the electricity demand exceeds the supply, especially during peak hours, the only way that the stress on the grid can be solved is through load shedding. This is a process that involves disconnecting the power to certain regions of the country. This has negative impacts both on a commercial, industrial, and domestic scale. Therefore commercial and household consumers must change their electricity consumption behavior to cope with the situation. Most consumers are left with the option of putting in place alternative sources of energy for their use. The power distribution company has continually encouraged most commercial users to adopt renewable and cost-effective alternative energy sources and optimize their energy uses. This will reduce the need for shutting down the system for load shedding.

The Case of the UK

The electricity system of the UK is well placed to meet the peak demand. Although this occurs rarely, there is a need to encourage consumer behavior that shifts the consumption of power to times when the demand is low. Most of the power in the UK's electricity grid is underutilized, probably due to the industrial impacts of the financial crisis of 2008, and the economic impacts of Brexit. However, to ensure the reliability of the system, various measures have been proposed. For instance, economy 7 tariffs target household consumers, especially those that use electricity for heating. The tariffs lower the price of electricity overnight when the demand for electric power in the kingdom is lower. This influences the consumption behavior of domestic consumers as they shift the usage of electric heating systems to night time when the costs are more favorable.

Besides this incentive-based demand-side Response (DSR), the Uk aims to use demand other demand response measures to transform the electricity market and the power generation paradigm through the application of technology. Automated timers, building systems capable of managing power usage, use of direct or dynamic demand control devices, and encouraging the efficient utilization of energy in the industrial and commercial level, are some of the new technologies that have been highlighted to have a higher impact on the optimization of the efficiency of the British national grid.

The Case of China

China uses a combination of several smart demand response (SDR) initiatives to reduce the stress exerted on the electricity grid by the increased supply-demand deficit and consumer power utilization behaviors. The SDR strategy of china plays a crucial role in the integration of renewable energy into the grid, load shedding, peak shaving, reduction of the emissions from the use of fossil energies, and enhances the reliability of the electricity grid. The government of China has put measures meant to ensure that the challenges of implementing the SDR are overcome.

China leverages the advances it has made in technology to implement a smart system that offers two-way communication meters. These devices inform the consumers of the pricing signals, tools that inform the users of the usage efficiencies, and potential load alerts. One of the reasons why SDR is an important issue for China is that despite being the global leader in renewable energy production, it faces a lot of challenges in integrating the new energy into the electric grid. Successful integration of the massive reserves of renewable energy into the national grid will eliminate the need for load shedding, which affects the productivity of industrial and commercial users due to the disruptions that occur during peak hours. Also, implementing a demand response system that will enhance the grid's reliability will reduce the need for sources of power that are responsible for the emission of greenhouse gases.

The potential benefits of implementing an SDR strategy in china is that it will reduce market efficiency. Stakeholders in the wholesale electricity market hoard power and fail to distribute it to meet the demand. This has the effect of increasing the cost of power, especially during peak hours, when the demand is high. This puts unnecessary stress on the grid, leading to further inconveniences in the market caused by the need to switch off the power for load shedding.

The Case of Kenya

The main challenge that deters the efforts to balance supply and demand of electricity in Kenya is the rapid growth of the economy and the emergence of new household and commercial users. This exerts more pressure on the national grid that is dominated by two major government corporations. Kenya Power (KP), on the transmission side, and KenGen on the generation side work under the supervision of the energy regulatory commission to ensure that they meet the supply needs of the Kenyan population. The increasing demand has led to the implementation of demand response measures such as the one that saw the compensation of commercial users that used alternative sources of energy such as backup generators, solar energy, or wind energy. This was done in 2000 when the supply of power was heavily affected by the drought that negatively the highly hydroelectric power reliant national grid.

Besides encouraging the use of alternative sources of energy to reduce the stress on the national grid, the government has leveraged the advances made in ICT to implement an electricity metering strategy that has greatly influenced consumers' behavior with regard to efficient power consumption. The prepaid metering system rolled out in 2011, saw the installation of over 118,698 prepaid meters across major regions of the country. This in conjunction with the 66% ownership of private power sources (Enterprise Surveys by The World Bank, 2007), offers a demand response strategy that can be used to ensure the demand and supply of electricity are balanced to avoid load shedding that requires disconnection of specific regions. Shutting down the national grid for a short period has detrimental effects on a commercial, industrial, and domestic scale.

Conclusion

There is a need to ensure that the understanding of electricity rates in the global population is changed to ensure that users change their consumption behavior according to changes in the price indicators. Demand response on a price based or incentive-based dimension has proven that a balance between supply and demand can be achieved, especially during peak consumption hours. What necessitates the implementation of operational and management strategies that can achieve demand-side response goals is the need to reduce the stress and strain on the electric grid systems of respective countries, the need to shift to renewable energy sources, the need to improve market efficiency, and the general need to change the consumer behavior to one that is based on market price indicators. Developing countries such as Kenya and Bangladesh implement demand-side response strategies to strike a balance between supply and demand of electricity while the driving factor behind the implementation of demand-side responses in developed countries such as China and the UK is to shift to a more reliable electric system that encourages the use of renewable energy while leveraging technological development. All in all, an effective demand-side response strategy will improve the efficiency of the national grids, while et the same time improving market efficiency.

References

P. Grünewald and J. Torriti, "Demand response from the non-domestic sector: Early UK experiences and future opportunities", Energy Policy, vol. 61, pp. 423-429, 2013. Available: https://www.sciencedirect.com/science/article/pii/S0301421513005363.

J. Entwistle, K. Nielsen and T. Wubale, "Designing a Market Solution for Rapid Demand Response in Kenya", Alexandra.dk. [Online].