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Could the Smart Grid Finally Do Some Good for Consumers?

One small but important study shows that we could save money — and our behavior could change — if we were just given the right information.

Americans shop for viciously for bargains, whether it’s getting plane tickets from discount web sites or driving across town to save 30 cents on a tank of gas. But when it comes to electricity, we’ve been simply writing checks for the bills we receive at the end of the month. Few of us know how much we pay for a kilowatt hour, or how many kilowatt hours we use—or what a kilowatt hour actually is.

Since the 1920s, Americans have paid flat regulated prices per hour for electricity. But de-regulated wholesale electricity prices now gyrate extravagantly from nearly zero at night to as high as $3,000 per megawatt hour during a late-afternoon Texas heat wave.

A new study from two UC Davis economists—Katrina Jessoe and David Rapson—suggests that if we had the right information, we could become enlightened shoppers, saving money buying cheap low-pollution hydro or wind power in the middle of the night while turning off the expensive stuff made with fossil fuels in the late afternoon.

In 2009, the American Recovery and Reinvestment Act stimulus provided $3.4 billion to move the US towards a "smart grid." Establishing that grid involves a long list of behind-the-scenes upgrades but for consumers largely involved the installation of smart meters that record not just the quantity of electricity a home uses, but when it is used. The hope was that consumers who changed their behavior would save money, utilities could avoid building power plants, and we’d all produce fewer greenhouse gas emissions.

To fill all of these roles, though, consumers accustomed to being passive purchasers would have to become active shoppers.

Instead, the smart meter roll out has alienated consumers. Some have received higher bills while others fear the devices. I’ve reported elsewhere on how the smart grid enables utilities to see what appliances we’re using inside our homes, challenging traditional American ideas about the sanctity and privacy of the home.

And as far as empowering consumers, the evidence has been discouraging: the most promising technology—a glowing orb called Opower (written about by Pacific Standardhere) that changes colors to let people know when prices were high or low—seems to help consumers cut their consumption by 1 to 3.5 percent. (Click the chart labeled Cost Effectiveness here.) That’s hardly the transformation we hoped for.

In a study of a few hundred homes in Connecticut, the Davis researchers found that when they gave consumers Home Area Network digital devices with real-time information about electrical prices and electricity use, and then raised the price of their electricity during hot days by 200 to 600 percent, consumers cut back on their usage by 8 to 21 percent. Homes that were only given information on the price of the power, and no information about their own usage, only cut back during peak times by 1 to 7 percent. Offering more than just a price tag on electricity, it appears, yields way better results. Overall, the homes with the information devices cut back their power consumption by 4 to 6 percent during the few summer months of the study, which is considerably higher than the Opower estimates.

This is a small study, but it has big implications. “The prevailing wisdom has been that price is not an effective policy tool to get people to conserve,” explains study author David Rapson. “But there are other features of the [power purchase] setting that prevent people from making choices. Giving them more information about their real power use resurrects price as a powerful tool.”

Spurring consumers out of their passivity could have a very big impact on the business of utilities and the cleanliness of the air. The study authors note that reducing “peak” power usage could save utilities $200 million to $250 million a year, mostly from fees for “peaker” power plants. And that 6 percent cutback? If, for the sake of demonstration, you apply that to all residential power use in the U.S., Rapson estimates we could phase out seven nuclear power plants or about 20 coal-fired plants.

What’s interesting about this study is how reasonable it is. The researchers gave the Home Area Network devices to households two to four months before the study started. Residents were able to use that time to play with the devices, and with their appliances. They tried unplugging the refrigerator, or the air conditioner, or running the toaster. They taught themselves about power use in their houses, and then they applied that knowledge when prices went up.

“There’s so much stimulus in our lives it’s difficult to be assessing our relationship to power prices on an ongoing basis,” Rapson says, “Instead people [used the information] to develop habits, and they act based on heuristics.” With more information, people took more control. Rapson estimates that an average household could save $5 or $10 a month on their utility bills.

Obviously I’d like to get one of these devices and have the option to reduce my bills (or raise them) through my behavior. But a look at the Department of Energy’s report on the smart grid rollout  shows that consumer empowerment is low on the agency’s goals. One of the achievements they list is a utility in Florida that is saving half a million dollars a year by avoiding the cost of disconnecting non-paying and late-paying customers by hand, a savings of “13,000 truck rolls.” Smart meters are allowing utilities to more easily cut off people’s power when consumers haven’t paid the bills. That is fair, but not a very lofty achievement with taxpayer money. The roll-out of the smart grid has been complex and confusing, but consumers are at the bottom of the shuffle.

There are now nearly 11 million smart meters installed, but only 265,000 consumers in the whole country are able to participate in “time-based rate systems.” Of those consumers, most are enrolled in programs that automatically change their power usage. Only 7,000 of them have in-home displays. It’s hard to imagine how the greatest re-writing of the contract between consumers and utilities in the last century can take place without consumers. The Department of Energy, Federal Energy Regulatory Commission, and regional public utility commissions must mobilize utilities to bring consumers into the great marketplace of electricity and ideas.