February 3, 2020
New technologies are changing the relationship that electricity consumers have with their utility providers. What began as a one-way interaction of providing power to consumers is increasingly a two-directional relationship. Digital technologies like smart thermostats and energy meters give consumers more control over how they consume electricity by providing information on total electricity use and even breaking down usage by each appliance in the home. Energy generation and storage technologies like electric vehicle batteries and rooftop solar installations allow consumers to produce as well as consume electricity within their homes.
Consumers are adopting these technologies because they are becoming cheaper and because this shift represents an opportunity to move toward a lower-carbon, automated, and decentralized energy future.
Digital technologies facilitate the coordination of energy sales between consumers in vastly different ways than in the past. In these new transactive energy systems, digital devices like smart energy meters are programmed to buy and sell electricity from other households or traditional electricity providers. This is a dramatically different system than the current utility-based model where there is one supplier of electricity that all consumers purchase from.
This research first examines the potential for digital technologies to provide new services to consumers. The paper then discusses how current utility regulations prevent the use and growth of digital technologies. Finally, it suggests policy changes to encourage the use of digital energy technologies.
Moving toward a transactive energy system on a broader scale will take time. Several policy changes, however, could clear the way for continued innovation in decentralized energy markets. Policymakers should consider the following changes as first steps:
- Allowing electricity rates to vary dynamically over the day based on overall demand.
- Directing utilities away from cost-based rate setting and towards a consumer protection model that provides information on electricity suppliers.
- Implementing performance-based rates that compensate utilities for providing the electrical grid infrastructure that households use to buy and sell electricity.
Regulators should embrace those changes to encourage continued innovation in how consumers both produce and consume the electricity that powers their homes and lives. If regulators do so, then innovative digital technologies can improve people’s lives by making electricity more affordable and cleaner.