Time-of-use pricing by Sacramento Municipal Utility District proved effective in reducing peak electricity demand, especially on high-temperature days.
Time-of-use (TOU) pricing can significantly reduce peak electricity usage, particularly on days of high demand, according to recent research from the Energy Institute at UC Berkeley.
In an extensive outreach campaign during 2018 and 2019, the Sacramento Municipal Utility District (SMUD) communicated changes in electricity pricing, transitioning to a TOU structure. This approach introduced tiered pricing where customers faced a higher rate of 28 cents per kilowatt-hour (kWh) between 5 PM and 8 PM on non-holiday weekdays, compared to lower rates during other times. Specifically, the pricing was set at 16 cents per kWh for afternoon and late evening hours, and 12 cents during overnight periods. Importantly, this model maintained flat rates for weekends and holidays.
The intention behind increasing costs during peak hours aligns with the natural dip in solar energy production and a surge in electricity consumption, largely driven by air conditioning (AC) use. The strategy aims to mitigate peak demand, which necessitates the use of expensive peaker plants—resources that are not only more costly to operate but also contribute significantly to greenhouse gas emissions. By encouraging consumers to limit their energy usage during these high-demand periods, SMUD hopes to manage grid capacity more efficiently.
Research Findings on AC Usage
A recent working paper co-authored by Aaron Smith and Kevin Novan, alongside UC Davis PhD graduate Zheng Fu, evaluated the impact of SMUD's TOU pricing on residential air conditioning through data from Ecobee smart thermostats. This dataset encompassed anonymized usage data including the operational status of AC units and thermostat settings.
The study compared AC usage during peak hours before and after the TOU pricing implementation, using control data from Ecobee users outside SMUD's jurisdiction. It revealed no significant change in peak hour AC usage within the SMUD area, although a shift was observed in off-peak usage where it increased post-TOU introduction. In a comparative analysis, it was deduced that TOU pricing facilitated a reduction of approximately 3.5 minutes of AC usage per hour during peak times, totaling a 15% decrease.
Adjustment in Thermostat Settings
In conjunction with observing usage patterns, the researchers noted thermostat settings among SMUD customers. After the TOU pricing was adopted, users raised their peak-hour thermostat settings by about 1.1 degrees Fahrenheit, shifting from an average of 77.6°F to approximately 78.4°F. In contrast, non-SMUD customers showed a trend of lowering their peak-hour settings during the same period.
This data suggests that while savings appear plausible under TOU pricing, a cautious interpretation is warranted. One concern is whether the thermostat behavior of Ecobee users reflects broader consumer patterns, given that they may be more engaged with energy use than the average individual. Additionally, a significant factor to consider is how consumer behavior adapts on the hottest days compared to average conditions.
Impact Assessment Beyond the Thermostat
To strengthen the analysis, a broader assessment of total electricity load in SMUD’s service territory reached a significant finding. The researchers estimated a notable decline in average hourly peak load—by 187 megawatt-hours (MWh) or roughly 10%—on summer weekdays of 2019 compared to 2018. The figures further demonstrate minimal fluctuations during weekends, reinforcing the effect of TOU pricing during high-demand weekdays.
This estimated reduction translates effectively to an average of 134 MW less demand when accounting for approximately 575,000 residential customers, each with an estimated 4 kW AC unit consuming 3.5 fewer minutes of operational time per hour. This number mirrors efforts taken on extreme heat days, such as September 6, 2022, when California witnessed unprecedented demand peaks. Actions encouraged by utility providers to conserve energy on such days were pivotal in preventing rolling blackouts during that intense heat event.
Challenges and Future Considerations
Despite these encouraging outcomes, a persistent concern with TOU pricing remains its inability to sufficiently incentivize consumption reduction during extreme heat conditions. As climate-related challenges intensify, enhancing pricing strategies that correlate with the marginal costs of electricity during extreme demand periods may be necessary for achieving deeper reductions in energy usage.
However, the current results offer a substantial indication that even fixed TOU pricing can substantially influence consumer behavior concerning energy consumption. This capability is especially critical amid growing climate concerns and the increasing prevalence of extreme heat events. Significant emphasis on better aligning pricing signals with peak demand scenarios is essential for fostering energy conservation efforts as climate patterns shift.
The study reinforces that TOU pricing schemes may serve as a valuable tool for energy utilities to implement behavioral demand management strategies effectively. Future research and policy debates could benefit from exploring nuanced pricing mechanisms that reflect real-time demand pressures or varying from one day to another, to further enhance conservation efforts and adapt to our changing climate.
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