What does ‘beating the peak’ actually accomplish?
On June 7, with temperatures in the 90s, New Hampshire utilities and some universities started sending out notices urging people to conserve electricity. (Getty Images)
The summer heat waves have already begun, and so have the utility campaigns urging customers to “beat the peak.”
Utilities often bill this as both a cost-saving measure and a way to reduce emissions. But some grid experts say this is a zero-sum game played by utilities that comes down to money. They point to cost shifting – which means some utilities win big, while others lose.
The first such peak of the summer came this month on June 7, according to ISO New England, the grid operator. With temperatures in the 90s around the region, New Hampshire utilities as well as some universities started sending out notices urging people to turn down air conditioning or turn it off entirely, and to turn off lights and appliances, such as coffee makers and printers, not in use.
“For this afternoon, the electrical power demand could exceed the New England electrical peak demand for this year,” said an email from Dartmouth’s Facilities Operations and Management. The university asked students and faculty to conserve energy to “reduce the strain on the electrical grid” and save money.
Unitil issued a summer safety alert in conjunction with the American Red Cross to “provide seasonal weather guidance.”
The alert asks customers to “be cautious of ‘peak load’ days,” citing air conditioners that are working overtime causing “the market price for electricity to spike for hours at a time.” This means electricity also costs more.
On the hottest days of the summer, the demand for electricity is the highest, reaching what is called “peak” demand, especially during the work week when people have the air conditioning turned up both in offices and homes. This is also when electricity is at its most expensive.
“If you can curtail usage at those moments, it can have an impact on the cost of electricity,” said Alec O’Meara, a spokesperson for Unitil, one of the four electric utilities serving New Hampshire residents.
While peak demand can influence electricity prices, those increases aren’t passed along to consumers until future prices for energy are set in an energy auction that happens twice a year: once for the summer months and once for winter months.
“When electricity is purchased, it’s purchased in a six-month range based on the average cost,” O’Meara said. During peak times, cost is an order of magnitude greater than usual. That can bring the average up pretty drastically, but it wouldn’t actually affect the rate a consumer is paying until the following summer.
“On peak load days of the year you can have more of an impact (on electricity rates) than you can the rest of the year,” O’Meara said. “And even small changes can have an outsized impact on the rest of the year.”
Winners and losers
But utilities are also fighting to pay for a smaller chunk of system costs – and some grid experts say the way utilities represent this to their customers is misleading at best. Utilities have to pay the grid operator, ISO New England, to maintain the transmission system: everything that goes into getting power from where it’s generated to where it’s needed. How much a given utility owes of that total is based on how much power they use during the peak hour. That’s a big monetary incentive to keep usage low during the small window of time that represents the peak.
This is when beating the peak becomes a competition among utilities, with winners and losers in what Meredith Angwin, a grid expert and author of “Shorting the Grid,” calls the game of peaks.
“If everybody turns off their AC then there’s less energy used, so that’s good. But it isn’t what’s saving the money,” said Angwin
“What’s saving the money is that now my group used less energy and so somebody else is going to have to pay a higher percentage of grid transmission costs, so we won,” she said. The overall cost of maintaining the system remains the same. What changes is how that cost is divvied up among utilities, based on who uses more energy and who uses less.
A utility that uses more energy during the peak hour of the year would also pay a larger share of charges for the capacity market – which ensures there are enough resources to meet future demand.
“How we determine who owes what is based on that peak hour,” said Matt Kakley, a spokesperson for the grid operator, ISO New England.
In some cases, this can lead to extremely high costs for utilities that are on the losing end of this equation, which is what happened to Vermont Electric Cooperative a few years ago when it didn’t guess the right time of the peak. That shift often moves cost from large utilities to smaller utilities and cooperatives.
“It’s a matter of allocating the cost, and then it gets wrapped in green because you’re beating the peak, which supposedly is a very valuable thing to do for the environment, but it really isn’t,” Angwin said. “It’s just a cost shift.”
Kakley said that if many utilities were participating in a beat the peak program, it could lower demand for the region.
“We at the regional level might be purchasing less capacity, so that might lower the price for everybody,” he said. But quantifying that impact – figuring how much decreased demand led to lower cost – would be difficult, if not impossible.
Wrapped in green?
Conserving energy is always a good thing from an environmental perspective. But there are times when conserving can have a great environmental impact, depending on how clean or dirty energy generation is at a given time of the year.
“In terms of emissions, there’s no particular reason to conserve in the summer instead of conserving at some other time,” Angwin writes. In fact, she argues, conserving energy during a winter cold snap saves more money and leads to greater reductions in carbon dioxide pollution. Being thrifty in the summer, according to Angwin, will mostly help your utility’s bottom line.
That’s because the mix of energy generators that are deployed during the winter tend to be dirtier than in the summer. Angwin compares the grid in the summer of 2018 – a mix of natural gas, nuclear, hydro, and renewables, including solar, wind, and biomass – to the winter when coal and oil were a significant part of the mix.
Natural gas isn’t readily available in the winter since it’s used as a heating fuel.
So using less energy in the winter is a greater environmental gain than beating the peak in the summer when the grid is relatively clean. ISO New England tracks price peaks over the years, and the most expensive times correspond to cold winter months. Peaks during the summer months also occur, but they are significantly lower.
Still, Kakley said that forecasters for the regional grid are at work throughout the year, 24 hours a day, seven days a week, monitoring supply and demand, an electricity equation that has to be balanced in real time.
“They’re constantly watching what’s happening in terms of demand, but also what’s happening in terms of weather,” he said.
“It’s a lot of forecasting and a lot of planning,” he added. “And, in real time, a lot of adjusting.”
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