The importance of marginal cost electricity pricing to the success of greenhouse gas reduction programs

The efficient reduction of GHG emissions requires appropriate retail pricing of off-peak electricity. However, off-peak electricity for residential consumers is priced at 331% above its marginal cost in the United States as a whole (June 2009). Even for the 1% of residences that are on some form of time-of-use (TOU) rate schedule, the off-peak rate is almost three times higher than the marginal cost. A barrier to marginal-cost based TOU rates is that less than 9% of U.S. households have the “smart” meters in place that can measure and record the time of consumption. Policies should be put in place to achieve full deployment. Another important barrier is consumer concern about TOU rate design. Two TOU rate designs (baseline and two-part tariff) are described that utilize marginal-cost based rates, ensure appropriate cost recovery, and minimize bill changes from current rate structures. A final barrier is to get residences on to these rates. Should a marginal-cost based TOU rate design remain an alternative for which residences could “opt-in,” or become the default choice, or become mandatory? Time-invariant rates are a historical anachronism that subsidize very costly peak-period consumption and penalize off-peak usage to our environmental detriment. They should be phased out.     

The marginal cost of solar backup

The long-run marginal cost of providing electricity for solar heating and hot water systems is estimated for three utilities and compared with the cost of providing electricity to electric-only systems. All investment, fuel, and operating costs are accounted for. Hot water systems and combined heating and hot water systems are analyzed separately. It is found that the marginal cost for solar backup is no more than the marginal cost of electricity used for purely electric heating and hot water devices and also no more than the incremental cost of normal load growth. For the three utilities studied, there appears to be little basis for rate distinctions between solar devices using electric backup and electric-only heating and hot water devices. “Off-peak storage” heating and hot water devices have a much lower marginal cost than the standard systems; again, there appears to be no basis for distinguishing between solar and electric off-peak devices. Compared with average cost pricing, marginal cost pricing offers benefits to customers using solar and electric heat and hot water, especially if a separate lower rate is adopted for off-peak storage devices; these benefits can amount to several hundred dollars a year. Substantial savings in the use of oil and gas fuels can be achieved if residences using these fuels convert to solar systems, savings not necessarily achievable by a shift, instead, to electric systems.     

Distributional impacts of carbon pricing: A general equilibrium approach with micro-data for households

Many policies to limit greenhouse gas emissions have at their core efforts to put a price on carbon emissions. Carbon pricing impacts households both by raising the cost of carbon intensive products and by changing factor prices. A complete analysis requires taking both effects into account. The impact of carbon pricing is determined by heterogeneity in household spending patterns across income groups as well as heterogeneity in factor income patterns across income groups. It is also affected by precise formulation of the policy (how is the revenue from carbon pricing distributed) as well as the treatment of other government policies (e.g. the treatment of transfer payments). What is often neglected in analyses of policy is the heterogeneity of impacts across households even within income or regional groups. In this paper, we incorporate 15,588 households from the U.S. Consumer and Expenditure Survey data as individual agents in a comparative-static general equilibrium framework. These households are represented within the MIT USREP model, a detailed general equilibrium model of the U.S. economy. In particular, we categorize households by full household income (factor income as well as transfer income) and apply various measures of lifetime income to distinguish households that are temporarily low-income (e.g., retired households drawing down their financial assets) from permanently low-income households. We also provide detailed within-group distributional measures of burden impacts from various policy scenarios.     

The effect of current and prospective policies on photovoltaic system economics: An application to the US Midwest

This study models fundamental features of current and prospective policies encouraging adoption of residential photovoltaic (PV) systems. A key finding is that time-of-day (ToD) pricing can enhance or worsen the economics of PV systems. Moreover, increased responsiveness of electricity demand to its price diminishes the effectiveness of ToD pricing in the absence of net metering, but does not affect it otherwise. An application to plausible conditions in the State of Indiana, USA, shows that current policies are unlikely to trigger adoption by a risk-neutral forward-looking residential customer. However, adoption of PV systems can be induced if the Federal Tax Credit is increased to cover 48% of capital cost (instead of the current 30%), which could imply a cost to the Federal Government of about $0.95/kW of installed capacity depending on the panel’s size. We demonstrate that implementation of ToD pricing can trigger adoption under a range of on- and off-peak price combinations. But our analysis also shows that the cost-effectiveness of ToD pricing is enhanced at higher ratios of on-peak to off-peak prices.     

A new approach to congestion pricing in electricity markets: Improving user pays pricing incentives

Electricity pricing has traditionally been based on average cost pricing where consumers pay a ‘flat’ tariff based upon the average cost of production and transportation of electricity. The introduction of new ‘smart’ meters allows electricity providers to differentiate tariffs on the basis of time. Utilising congestion pricing theory, the energy industry has embraced ‘time-of-use’ (ToU) tariffs with a view to more efficiently pricing electricity. This paper demonstrates that pricing as a function of demand variability (reflecting capacity utilisation) is a more appropriate alternative to existing ToU tariffs for more efficiently allocating costs to end users. We call this new alternative pricing model ‘first derivative ratio’ FDR pricing. This new approach to congestion pricing could be applied to markets other than electricity, such as road transportation.     

Life cycle assessment of hydrogen and diesel dual-fuel class 8 heavy duty trucks

Heavy-duty trucks, in particular class 8 tractor-trailer combinations for freight, are a major contributor to the total greenhouse gas (GHG) emissions in transportation systems worldwide. Diesel fuel vastly dominates this market due to its relatively low operating cost. However, both GHG and air pollutant emissions from diesel combustion are significant, which raises doubts about the long-term sustainability of this mode of transportation. A possible short-term opportunity to address this problem is to blend diesel with hydrogen by retrofitting existing fuel injection systems and fuel storage onboard the trucks. Thus, a life cycle assessment is conducted to evaluate the overall environmental and economic impacts of implementing hydrogen and diesel dual-fuel solutions in heavy-duty trucks. The results show a significant reduction in emissions, proportionally to the diesel displacement ratio. Importantly, the use of hydrogen fuel is also shown to provide potential cost savings in this highly cost-sensitive application for hydrogen pricing below C$4/kg. Hence, waste hydrogen available at low cost can facilitate immediate emission reduction and operational cost savings for existing truck fleets, and act as an economical bridge solution for sustainable heavy-duty freight.     

Priority and delay constrained demand side management in real‐time price environment with renewable energy source

In smart grid, integration of renewable energy sources such as solar and wind is a challenging task because of their intermittent nature. Most of the existing demand side management techniques are based on day‐ahead pricing or time of use pricing that deviate from real‐time pricing because of unpredictable energy consumption trends and electricity prices. This paper presents opportunistic scheduling algorithms in a real‐time pricing environment based on optimal stopping rule. We classify different users and assign priorities based on energy demand. In order to minimize the electricity bill and appliance waiting time cost, we modify the first come first serve scheduling algorithm. Regarding comfort maximization, priority enable early deadline first scheduling algorithm is proposed, which schedules the appliances based on minimum length of operation time and priority constraints. Simulation results validate the effectiveness of the proposed algorithms in terms of electricity cost reduction and user comfort maximization. Copyright © 2016 John Wiley & Sons, Ltd.     

Customer-economics of residential photovoltaic systems (Part 1): The impact of high renewable energy penetrations on electricity bill savings with net metering

Residential photovoltaic (PV) systems in the US are often compensated at the customer's underlying retail electricity rate through net metering. Given the uncertainty in future retail rates and the inherent links between rates and the customer–economics of behind-the-meter PV, there is growing interest in understanding how potential changes in rates may impact the value of bill savings from PV. In this article, we first use a production cost and capacity expansion model to project California hourly wholesale electricity market prices under two potential electricity market scenarios, including a reference and a 33% renewables scenario. Second, based on the wholesale electricity market prices generated by the model, we develop retail rates (i.e., flat, time-of-use, and real-time pricing) for each future scenario based on standard retail rate design principles. Finally, based on these retail rates, the bill savings from PV is estimated for 226 California residential customers under two types of net metering, for each scenario. We find that high renewable penetrations can drive substantial changes in residential retail rates and that these changes, together with variations in retail rate structures and PV compensation mechanisms, interact to place substantial uncertainty on the future value of bill savings from residential PV.     

Mixed Integer Social Welfare Maximization (MI-SWM) and implicationsin optimal electricity pricing

In microeconomics, social welfare maximization (SWM) is formulated as a continuous problem, with the conclusion that marginal cost (MC) pricing is optimal in that it maximizes the total social welfare for consumers and producers. This is based on assumptions such as free entry/exit, no transaction costs, no externalities, etc. However, this paper reports that when the SWM problem is formulated as a mixed integer programming problem considering the constants of cost functions, start-up costs, and minimum production levels, the optimal prices can depart from marginal costs. The paper does not try to negate marginal cost pricing, but rather serves as a supplement to power economics     

Short- and long-run marginal cost pricing: On their alleged equivalence

The equivalence between short-run marginal cost (SRMC) and long-run marginal cost (LRMC) in a fully adjusted equilibrium has been proved over and over again. In the literature dealing with public utility pricing, this basic result has been taken to imply that it is optimal to set prices at LRMC. Important contributions to this literature are reviewed in this paper. The equivalence, however, is valid only under the very restrictive assumption that the capacity can be varied continuously. This means that indivisibilities, irreversibilities and durability of investments are ignored. Where such phenomena exist, as in electricity production and distribution, pricing according to LRMC is neither theoretically valid nor applicable. It is not surprising that it has been difficult for public utilities to define the LRMC concept operationally; average cost concepts are used as ‘approximations’. Under these circumstances we find it advisable to dispense with the LRMC concept altogether and rely on pricing based on SRMC.     

Fuel price determination in transportation sector using predicted energy and transport demand

This study determines fuel price based on estimated sectoral energy and transport demand using pumping prices. Three approaches are first used for estimating energy and transportation demand based on linear time series, polynomial time series and genetic algorithm based (GATEDE and GATDETR), as multi-parameter, models. Then, future fuel prices and marginal costs of the energy consumption are obtained. Transport demand-based energy efficiency methods are also developed. The fuel prices (FP) are analyzed under two scenarios: Linear and exponential price scenarios. Results showed that if the FP increases linearly, the marginal cost will slightly decreases from current trend, but will increases if demand increases exponentially. Results also showed that the demand-based pricing policy would help to develop a new pricing policy for fuel use in order to control fast growing demand on this sector. The exponential price increase would also help to locate financial sources to create environmentally friendly transportation systems.     

南海岛屿配网工程计价体系研究初探

目的 弥补目前南海岛屿配网工程费用构成和计价标准空白,以及为配网工程未来造价管理工作的进一步规范化、标准化提供借鉴。 方法 针对南海岛屿地区自然条件、气候特点和地理环境等因素,结合配网工程建设的实际情况,以现行的行业计价标准为依据,开展具有南海岛屿特色的工程计价体系研究。 结果 提出了基于南海岛屿配网建设特殊性的计价体系研究思路和方法。 结论 给出了完善符合南海岛屿特殊性的工程计价体系、编制补充定额以及建立南海岛屿工程造价信息系统等建议。     

Review of the performance of residential PV systems in France

The main objective of this paper is to review the state of the art of residential PV systems in France. This is done analyzing the operational data of 6868 installations. Three main questions are posed. How much energy do they produce? What level of performance is associated to their production? Which are the key parameters that most influence their quality? During the year 2010, the PV systems in France have produced a mean annual energy of 1163 kWh/kW_p. As a whole, the orientation of PV generators causes energy productions to be some 7% inferior to optimally oriented PV systems. The mean Performance Ratio is 76% and the mean Performance Index is 85%. That is to say, the energy produced by a typical PV system in France is 15% inferior to the energy produced by a very high quality PV system. On average, the real power of the PV modules falls 4.9% below its corresponding nominal power announced on the manufacturer's datasheet. A brief analysis by PV modules technology has led to relevant observations about two technologies in particular. On the one hand, the PV systems equipped with heterojunction with intrinsic thin layer (HIT) modules show performances higher than average. On the other hand, the systems equipped with the copper indium (di)selenide (CIS) modules show a real power that is 16% lower than their nominal value.     

A marginalist approach to pricing US natural gas

The current method of retail pricing for natural gas in the USA introduces serious distortions in the allocation of this scarce commodity. The cost to the consumer is, in some instances, less than half of the marginal cost of producing the gas. In this paper the author presents an alternative to the antiquated gas pricing system in use in nearly every utility in the USA. Basing rates on marginal costs would be difficult, and these difficulties are explored. The analysis results in a recommendation that there should be a gradual move from average embedded cost pricing to marginal cost pricing.     

Catching the hydrogen train: economics-driven green hydrogen adoption potential in the United Arab Emirates

The establishment of a hydrogen economy for domestic use and energy exports is increasingly attractive to fossil fuel exporting countries. This paper quantifies the potential of green hydrogen in the United Arab Emirates, using an integrated adoption model based on global technoeconomic trends and local costs. We consider the impact of varying hydrogen, oil, natural gas, and carbon prices on the economics of green H₂ adoption. In our Business-As-Usual (BAU) scenario, we observe economic viability in UAE industries between 2032 and 2038 at H₂ prices between $0.95/kg and $1.35/kg based on electrolyzer cost assumptions, solar forecasts and learning rates. We also note rapid scale-up to large export-oriented production capacities across our scenarios. However, if cost reductions slow or gas prices return to historical lows, additional interventions such as carbon pricing would be required to fully decarbonize in alignment with the 2050 net-zero target.     

Automated demand response system in lighting for optimization of electricity cost

Daylighting is an important factor in improving visual comfort and energy efficiency. Lighting control using daylighting can reduce energy consumption in buildings. This thesis proposes an automatic demand response system for lighting based on wireless sensor networks (WSN) in order to reduce the peak electricity demand according to the stage of electricity rate with real-time pricing (RTP), time of use pricing (TOUP), and critical peak pricing (CPP). The proposed system automatically controls the slat angle of the venetian blind with a cut-off angle according to the altitude of the sun, automatically executing light dimming according to measured current luminance to remove an unpleasant glare caused by daylighting. The target illuminance of area at this time is set at a minimum illuminance required for the work execution in the office during the time zone where the electricity load is high to save the lighting energy cost, while a maximum illuminance is set during the time zone where the electricity load is low according to the real-time electricity pricing stages obtained through the advanced metering infrastructure (AMI) in order to improve the work efficiency of the occupants. In this study, two testbeds having the same environments, as well as a control system targeting a fixed illuminance per price system, were established. The illuminance energy consumption and cost were then measured and the effect of the proposed illuminance system was evaluated.     

Spatial monopoly and the U.S. electrical energy industry

We examine the effectiveness of regulation in the electrical energy industry in the U.S. On the whole, the industry is not allowed to act as a spatial monopolist. It is not justifiable, however, to conclude that monopolistic tendencies are absent. In particular, the pricing structure departs from the competitive criterion, which requires price to equal the marginal cost of supplying electrical energy to a given consumer.     

Retail electricity tariff and mechanism design to incentivize distributed renewable generation

This paper examines the question of how to incentivize the adoption and use of renewable energy resources, with particular attention on distributed renewable energy (DRE). Prior experience suggests that price and quantity-based programs, such as feed-in tariffs, provide more efficient renewable adoption and use and lower program costs than programs that set quantity targets only. We also examine some cost-allocation issues raised by the use of DRE systems and fixed time-invariant retail pricing. This combination can result in customers with DRE systems paying a disproportionately small portion of system capacity costs. We suggest two retail-pricing schemes, real-time pricing and a two-part tariff with demand charges, to address these issues.     

适合国情的两部制电力市场研究

从电力生产特点分析入手,论述了建立两部制电力市场的必要性;阐述了电力市场出清价由两部制成本形成;基于发电可靠性分析,提出了两部制电力市场价格的模型及实现方式;最后,通过一个实例模拟,验证了两部制电力市场的可行性。