Nicolas Charton : Smart Tariffs, price as a tool for managing flexibility

Consumers are billed using tariffs that consist of energy charges and fixed charges. This is the way that the CHF 9 billion necessary to operate the Swiss electricity system is collected from end customers.

Author

Nicolas Charton
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Smart Tariffs
Consumers are billed using tariffs that consist of energy charges and fixed charges. This is the way that the CHF 9 billion[1] necessary to operate the Swiss electricity system is collected from end customers.

This makes pricing potentially a major instrument for sending economic signals to consumers and prosumers. Historically, there has been little difference between these tariffs: they distinguish between different customer segments (domestic or business, small or large customer) and usually consist of a simple structure with a fixed portion (charge per customer per year) and a variable portion (charge per kWh). There are also some tariffs where there is a time-based price difference (peak and off-peak), combined with remote control (for water heaters, for example). With the development of smart meters, for which provision is made in Switzerland’s Energy Strategy 2050, plus the growth of the internet of things, the increasing need for flexibility in electricity networks, and the challenges related to integrating new sources of renewable energy, the issue of using the full potential of the pricing lever arises. Several interesting approaches can be identified, which illustrate this potential:

  • Time-of-use” tariffs, which vary according to the season and the time of day, with time slots as short as 15 minutes. Since 2017, with the rollout of smart meters in the UK, suppliers have been offering tariffs with prices that vary by as much as 500% depending on the time of year and day. This is not about turning each consumer into an energy trader, but rather about sending economic signals that can be used by smart installations such as energy management systems.
  • “Virtual storage” tariffs, to link decentralised photovoltaic energy production to centralised storage facilities (hydroelectric plants, pumped storage, and possibly, in future, local storage batteries or electrolysers). Several offers of this type are beginning to appear in Switzerland and the rest of Europe (e.g. E.ON SolarCloud).
  • Tariffs intended for electric vehicles to avoid their being connected to the network at peak consumption periods, or to control their vehicle-to-grid capacity. In France, EDF recently launched its “Vert Électrique Auto” (Green Electric Car) tariff for owners of electric vehicles who have a Linky smart meter, offering a saving of 40% if the vehicles are charged during off-peak periods.
  • Demand response tariffs to reflect the cost of peak periods on the network. They are intended to create a reduction in demand by reflecting the actual cost of consumption during peak periods. In France, tariffs of this kind (EJP and Tempo) have historically been used to reduce the impact of electric heating, and they are now back in favour, for instance in California, with the development of smart thermostats.

The current rules and regulations do not allow, or rather, they do not make provision for, the full use of this flexible pricing. This means that the exploitation of this potential will continue to be a grey area until the framework is adapted. Beyond the short-term constraints, the use of flexible pricing may herald a more fundamental development in exchanges across the electricity system: transactive energy. This term denotes a model in which consumers, producers and prosumers perform transactions without any intermediary, in real time, in accordance with network constraints and at wholesale market prices. Blockchain technology could become the preferred means for these exchanges, through smart contracts. Approximately $300m has been raised by energy companies that use blockchain technology to offer users access to wholesale market prices. These include WePower ($40m raised via an ICO[2]) and Grid+ ($38.5m raised via an ICO).

[1] With taxes

[2] Initial Coin Offering

About the author

Nicolas Charton is managing director of the Lausanne office of E-CUBE Strategy Consultants, which specialises in the energy and mobility sectors. An engineer with expertise in industrial organisation, he advises the management of major Swiss and European energy companies, and public bodies such as cantons.