How to Be Your Own Electricity Company
For the last hundred years, retail electricity consumers have largely been isolated from the decisions of the broader market. People who wanted electricity service could only get it from one source: a monopoly utility, whose rates were subject to regulatory approval. The rates tended to be simple — mostly a flat rate per kilowatt-hour used, with perhaps a higher rate for electricity use beyond a certain amount.
In Texas, customers gained more freedom around the turn of the century, with major reforms of the electricity system allowing competition throughout most of the state. For most customers, though, rates have remained as simple as before. That simplicity obscures a central truth of the electricity market: Not all electrons are created equal.
While retail electricity rates remain constant throughout the day, at the wholesale level behind the scenes, electricity prices can vary wildly based on changes in demand, availability of time-dependent resources like renewables, and other factors. From an economic point of view, this disjoint between retail and wholesale prices can be inefficient, leading to people using more electricity when it is expensive to produce and less when it is cheap and raising costs for the system overall. This issue is exacerbated as individuals start to generate their own power through technologies like rooftop solar panels — they may even be able to store extra power with batteries.
Until now, these inefficiencies have been an unavoidable part of the system. While some large commercial and industrial consumers have been open to a more varied rate structure, the typical homeowner lacks the ability to calculate how best to optimize their electricity bill, and residential customers have resisted complicated and variable rates. Who wants to have to check the spot market before deciding to run their dishwasher?
Now, however, technological advances are making it possible for consumers to take advantage of variable rates without needing a math Ph.D. Smart meters let homeowners track energy use, while special apps allow them to remotely turn down the A/C or set rules for when to curtail usage.
Companies are also stepping in to help customers optimize their energy choices. Recently, a company called Evolve Energy launched as a new electricity provider with a unique payment model. Evolve charges a low, set monthly fee, beyond which customers pay wholesale electric rates. Customers can choose a mix of cost, comfort and low-carbon energy, and the company will then help the customer achieve the mix most efficiently by showing them how to best time their electricity use to meet their goals. That might mean pre-cooling or pre-heating their home, running dishwashers at night, or storing extra electricity when it is cheap for use during periods where prices are higher.
I have no special insight into whether the Evolve model will be a success or not. Ultimately, that will be determined by how it fares in the market test. But it is an example of the sort of changes we are likely to see on the grid in the coming years and decades.
From telecom to taxicabs, we have witnessed centralized systems give way to more decentralized and individualized markets. If Texas continues to prioritize competition and the protection of private property when it comes to energy, there is every reason to believe that electricity will follow the same course.