Dynamic pricing adoption will be very low without action from utilities

Dynamic pricing for utility customers, based on rate structures that include changes in rates in response to changes in power grid conditions, has long been viewed as a means of reducing energy costs and improving the use of power generation and delivery assets.

Such systems still face considerable barriers to adoption, however, and are likely to remain elusive to most customers in the U.S. over the near term. According to a new report from Navigant Research, by 2020, less than 1 percent of residential customers in the U.S. will be on dynamic pricing plans unless the industry acts aggressively to counter these barriers.

“Much of the promise of the smart grid relies on the widespread use of dynamic pricing plans,” says Eric Woods, research director with Navigant Research. “If dynamic rates are to become widely available, there will need to be a significant shift in regulatory momentum and customer acceptance. If that happens, the level of adoption could reach 5 percent, or 7.7 million customers.”

There is currently a continuum of rate structures that feature dynamic and time-based components. These include time-of-use rates, demand response programs, and other event-based incentive structures.

An important distinction between dynamic pricing and event-based programs, according to the report, is how they are implemented with regard to daily versus occasional consumer behavior patterns. Compared to episodic incentives that arise irregularly, dynamic rates will have a larger impact on the daily activities within a household (or by an energy management system).

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