• Home Energy Management
  • Utility Networks
  • Demand Response
  • Smart Meter

Home Energy Management Advances Open Electricity Ratemaking Opportunities

Daniel Talero
Jul 28, 2020

Guidehouse Insights

Utilities have long sought subscription rates for electricity as revenue stabilizers; however, they have faced implementation challenges in the area of generating cost and energy savings. Home energy management (HEM) technologies are greatly improving the capabilities of residential demand response (DR) and energy efficiency programs utilities would use to generate these savings. HEM vendors’ current value proposition creates a new opportunity to partner with utilities on ratemaking innovations.

Flat Rates Face Challenges

Subscriptions or flat rates are generating interest due to new conditions on the grid. For the increasing number of utilities that own their deployed renewables, fixed costs are displacing variable (fuel) costs on customer bills. This has left them vulnerable to under-recovering those costs from variable usage charges. A subscription model could improve cost recovery in many regulatory jurisdictions. Given the success of subscription-based companies like Netflix and Amazon, the model could also spur adoption among consumers.

As with any rate design, a subscription has downsides, with critics highlighting the potential for regressive effects on low income ratepayers and possibly encouraging overconsumption. In some instances, only a multiyear, locked-in subscription rate would create a real efficiency incentive for an utility. Even under such a scheme, utilities would also need high opt-in and reliable capacity and savings from DR and energy efficiency programs.

HEM Technologies Open New Possibilities

The solution here is pairing flat rates with high quality, high participation DR/energy efficiency programs enabled by new HEM technology. While HEM solutions are driving toward fully automated, set-and-forget smart appliances and meters, today’s energy monitors and software are capable of collecting millisecond-level data, significantly improving home appliance aggregation and analytics. Real-time customer usage change and savings notifications dynamically cost-optimize entire home energy profiles, creating a more reliable capacity resource for utilities. For example, the Smappee Infinity device offers a single solution for voltage monitoring and dynamic load balancing between solar, EV, and other appliances in the home through a cloud-based application interface. New phase measurement capabilities allow the Infinity meters and gateway to aggregate more data, reducing costs for multifamily and enterprise systems.

Customer opt-in to DR and energy efficiency programs remains a significant challenge. An average of 3% of customers use voluntary dynamic rates such as time-of-use, which are offered by about half of US investor-owned utilities. Alongside the possible appeal of a simplified bill, new digital engagement approaches are improving this metric. Oracle Utilities Opower Energy Efficiency division says its online home energy assessments have surpassed onsite completion by sixfold in one utility pilot and tailored high bill notifications have shown fourfold year-over-year growth. Moreover, Itron distributed energy management offers guaranteed savings to utilities that pay for residential capacity delivered. This model allows utilities to combat risk in a subscription-rate environment and increase the value of advanced metering infrastructure and non-wire assets.

While subscription rates remain a long-term possibility with many design challenges, the main barriers are in regulatory implementation. The technology to enable improved DR and energy efficiency outcomes is already present. Vendors have a significant opportunity to develop pilots and expand the HEM market by engaging with utilities not only on programs, but also on ratemaking.