Spring 2011 Seminar Series

DATE: March 10th
LOCATION: E62-550
TIME: 4:15pm
Reception immediately following in the same room

SPEAKER:
Hung-Po Chao

TITLE
Smart Pricing via Consumer Subscription

ABSTRACT
In 2000, the National Academy Engineering ranked “electrification” as the greatest engineering achievement of the 20th century. The engineering innovation of electricity network has been so successful that the industry has changed relatively little since it was pioneered over a century ago by Thomas Edison. Combining the vast electricity network with smart meters, digital communications systems and enabling technologies to better control appliances and devices in factories, offices and homes, smart grid promises to transform the electricity network into the modern information age, in ways that will rival any other engineering achievement for the 21st century.

 

Smart pricing with price-responsive demand is essential for the electric industry to move to a smart grid future. However, the opportunity does not lie so much in whether smart pricing will yield sufficient societal benefits but in whether consumers will be empowered in a risk management process to share the benefits. Consumer subscription is a simple, yet sophisticated, rate design concept that could foster consumer engagement in price-responsive demand by forging a much needed connection between the wholesale and retail markets. Consumer subscription service allows a consumer to choose from a menu of priority service contracts with fixed levels of electricity consumption at prices set in advance. Consumer subscription service entails a two-settlement transaction system. Each priority service contract is settled as a forward transaction, allowing consumers to manage risks with access to differentiated service options. It is supplemented with a pay-as-you-go real-time service, allowing consumers to adjust their procurement in real-time at the wholesale market price. We discuss the theoretical and practical aspects of consumer subscription service and show how it could help remove a major obstacle to a smart pricing future.