Editorial: Free Electricity
A curious situation has recently arisen in electricity grids around the world: The wholesale price of electricity has occasionally gone negative. This means that the market will pay customers to use electricity. The grid in Texas experienced negative prices last September. Soon afterward, a Texan retail electricity provider—not to be confused with a utility—began offering residential consumers “free” electricity during nights and weekends.
How can this be? Doesn’t this violate everything we learned about economics? Has electricity finally become too cheap to meter? Has the dream of nuclear power advocates finally been realized?
To be sure, negative wholesale electricity spot prices are rare. They occur only when there is an unusual confluence of circumstances on both the generation and the consumption side of the grid. Negative prices typically appear when demand falls quickly and generators cannot ramp down quickly enough. Some generators may find it cheaper to pay consumers to use more electricity than to switch off their power plants. Many people blame the unpredictable and growing output of wind farms and PV sites—whose electricity production is first in the loading order—for forcing coal, gas, and nuclear generators to quickly switch on and off. Others, however, blame these generators for being technologically inflexible. Still others blame the regulators and grid operators.
Perhaps free electricity is simply a transition problem. This surplus electricity will quickly disappear when large industries figure out how to exploit that cheap electricity, or when a few million electric vehicles learn to top off their “tanks” whenever there is a surplus, or when the generators become a little more flexible. The appearance of free electricity could also complicate a rising national controversy over the appropriate size of fixed monthly charges. This is a hugely complicated issue, affecting consumers who are generating some of their own power and consumers who are simply using energy efficiently. (We’ll be writing about that in the future.) But suppose free electricity becomes a permanent part of the energy landscape: How will this affect residential consumers? Whatever the long-term situation, free electricity is something the energy efficiency industry must confront.
Arguably, free electricity is just an eye-catching form of time-of-use pricing. But consumers act strangely when something is free, not just very cheap. With free electricity, consumers will want appliances that enable them to make hay while the sun shines. Consumers don’t have many options today. The free electricity can be stored in batteries (including the batteries of electric vehicles), but this is still very expensive. Furthermore, only a few kWh can be stored that way (though the stored electricity might power an efficiently operated home for a few days). Electrical energy can also be converted and then stored as heat or “coolth.” The most popular option is to heat water. It’s cheap and simple and involves nothing more than installing a larger water heater. But every other storage option is more difficult to install or retrofit.
Alternatively, consumers can reschedule. There are obvious benefits of postponing electricity-intensive activities, such as clothes drying and dishwashing, until periods when electricity is free. Free electricity may encourage consumers to upsize their appliances, to accomplish as much as possible during those periods. Consumers might even buy a second dryer or dishwasher to maximize free use of electricity.
Finally, some homes will be able to precool and preheat their homes. Pools with multispeed pumps might be able to produce overclean water, to reduce filter pumping during pricier periods. These strategies are low-tech applications of energy storage, but they take careful planning to avoid homeowner inconvenience and discomfort. Internet-connected thermostats and other kinds of cloud-based management systems should make planning easier.
So there’s nothing glamorous involved in taking advantage of free electricity. The greatest hazard arises from controls that are incorrectly set, accidentally leading to consumption during the nonfree (and often high-tariff) periods. Those will be expensive mistakes.
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