Load demand pricing - Case studies in residential buildings
Pyrko, Jurek
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Load demand pricing - Case studies in residential buildings
Jurek Pyrko
EEDAL ’06 is organised by:
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Load demand pricing - Case studies in residential buildings
Jurek Pyrko
Department of Energy Sciences, Lund University
Abstract
Since the liberalisation of the Swedish electricity market in 1996, the competition between utilities has
increased, and the generation capacity has gradually been adjusted to suit the demand.
Consequently, the earlier excessive electricity production capacity has been reduced. However, if the
gap between the generation capacity and demand will be too narrow, this may result in notable power
shortages in the electricity market. In order to achieve lower load demand, to avoid load peaks and to
reduce electricity cost, a Swedish electrical utility - Skånska Energi Nät AB (SENAB), is planning to
include a load demand component in its electricity tariff to make customers more aware of their
energy consumption pattern and (possible) load demand problems. This study investigates the impact
of the new tariff from the viewpoint of the utility as well as its customers, compared to the existing
tariff. The project was carried out by the Efficient Energy Use in Buildings Research Group at the
Department of Energy Sciences, Lund University.
The results of the investigation show that if a load demand component were to be introduced into
SENAB’s network tariff, primarily customers with a 16-ampere fuse would incur higher network
charges whereas customers with a higher fuse level would incur lower charges. With the existing
network tariff, customers with high fuse levels pay relatively high standing charges in relation to their
exploitation of the grid and as such they are subsidising customers with lower fuse levels. The study
also shows that it is important that the new load demand pricing strategy (tariff) is communicated to
customers in a comprehensive manner, so that they understand it and furthermore realise that they
can save money by changing their energy consumption patterns without lowering their standard of
living or comfort.
Introduction
Sweden has a relatively high electricity consumption per-capita, about 17 000 kWh per inhabitant
annually, more than twice as high as the European Union average. In the year 2005, Sweden was in
fourth place in the world, in terms of electricity consumption, after Norway, Iceland and Canada. The
high electricity consumption in Sweden is due to electricity-intensive industries and the high demand
for space heating caused by the cold climate. Over the past thirty years, the electricity consumption in
Sweden has increased at the rate of almost 3 % annually [1].
The Swedish electricity market was reformed in 1996 and then again in 1999 for household users. As
a result of the electricity market reforms, consumers may now choose their electricity supplier and all
trading must be competitive. However, the grid operator can not be chosen by the consumer, and is
still regulated. A corporation that pursues network operations may not pursue trading in or generation
of electricity. Therefore, there must be a clear distinction between generation of and trading in
electricity and network operations.
Electricity consumption varies between different hours of the day, between days of the week and
between seasons of the year. The highest power demand occurs only during a few hours when the
outdoor temperature drops. In recent years, the power demand has reached new peak levels but due
to predominantly economic and political reasons the load reserves have dwindled. The reliability of
supply criteria that determined the required peak load generation capacity before the market reform
was abandoned in conjunction with the liberalisation. The problem of load capacity has become more
and more obvious during the last years. According to the law (in force until March 2008) the Swedish
national grid operator is obliged to ensure reliability of electricity supply by purchasing reserve
capacity.
One possible solution to the load problem may be the introduction of a new pricing strategy with a
load demand component, which means that consumers pay for load demand instead of electricity
consumption only. In this way, the customers would be more aware of their energy consumption
pattern and may be incited to lower the load demand, which could help the utility to avoid high load
peaks.
The objective of this study was to investigate how such a tariff would affect one of the Swedish
electricity utilities and its more than 16 000 electricity customers.
Electricity price at user level
The total electricity price charged to the Swedish customers consists today typically of three parts:
electricity fee, network fee and taxes.
Figure 1: Residential electricity price structure [4].
The only part of the electricity bill that the customers themselves are able to influence is the electricity
fee. All customers have the opportunity to switch their electricity supplier or renegotiate their existing
contract, and, in this way, get a lower price.
The second part of the total electricity price, the network fee, is paid to the network owner in the area.
The network owner provides the physical transmission of electricity from the generation plants to the
end-user. Customers cannot choose their network provider so the network fee must be reasonable
and non-discriminatory. Network tariffs are supervised and published by the Swedish Energy Agency.
The third part of the electricity charge is taxes. In Sweden, like in all the other Nordic countries, the
consumption of electricity is taxed. Swedish customers have to pay two different types of taxes, an
energy tax and a value added tax (VAT). The energy tax for domestic customers depends on the
region. Industries pay no taxes at all at user level. The VAT is applied to the total price of electricity,
including the energy tax.
About 40 % of the total electricity price to a domestic customer is the price of electrical energy, 20 %
is the share of the network tariff and taxes account for 40 % [2].
Residential electricity customers can often receive two bills: one from the electricity supplier and
another one from the electricity grid company in the area. Both bills divide the fees into variable
(depending on the amount of electricity used) and standing subscription fees (see Figure 1). The
variable fee on the network bill is the charge for transmission and network services. The fixed part is
based on the main fuse used in the household and includes also governmental charges (as green
certificates etc) [3].
Previous experience from load demand tariffs
The main purpose of implementing a load demand component into electricity pricing is to draw the
customer’s attention to load demand (kW) rather than energy demand (kWh). In this way, customers
will hopefully become more conscious of their energy consumption pattern and possible load demand
problems.
st
As of January 1 2001, Sollentuna Energi became the first Swedish energy utility to have
incorporated a load component into their grid tariff. Their experience is therefore of great interest
when other utilities are investigating the possibility of implementing load based electricity pricing
strategies.
Sollentuna Energi’s load charge depends on the customer’s average load value of three daily 1-hour
load peaks during one month. This means that through achieving more even electricity use pattern,
customers can lower their network bill. The utility introduced the new tariff in a broad campaign
explaining “load demand” terms and giving many advices about different ways to lower load demand
in residential buildings, with and without electrical heating.
Sollentuna Energi’s new tariff showed that customers living in flats with a 16 ampere fuse level had
paid, with the old tariff, a lower grid fee than other customers. Some customers in flats had a
surprisingly high load demand and relatively large electricity use. Generally speaking, customers
living in flats with a 16 ampere fuse level incurred small increase in their grid fee while customers with
higher fuse levels (25 – 63 ampere) got a significant price reduction [5]. According to the evaluation
made by the utility itself it was possible to lower load demand about 5 % thanks to this new load
based tariff.
The experience from Sollentuna Energi also shows the importance of customers’ understanding the
difference between “power/load” and “energy” terms. In a study made on 1020 of Sollentuna Energi’s
customers in October 2002 [6], 78 % preferred the old tariff (where customers only paid for their
electricity consumption) to the new one. Some argued that it was bothersome to have one more thing
to think about concerning the electricity bills. Others argued that the new tariff created higher and
unfair electricity costs.
Case study - Skånska Energi Nät AB
Skånska Energi AB (SEAB) is an electric utility that operates in the southern-most county of Sweden,
Scania, supplying electricity to about 17 000 customers. The vast majority of these customers, about
75%, are residential customers, but there are also schools, agricultural properties and industrial
companies in the customer base [7]. SEAB is divided into a retail company - Skånska Energi Marknad
AB (SEMAB) and a grid company which owns the grid in the area - Skånska Energi Nät AB (SENAB).
SENAB is buying electricity from the high voltage grid owner within this area - E.On. The contract
states the highest hourly load demand, so called subscribed load, which was at the time of this
investigation 78 MW. If this level is exceeded, the utility pays fine per each kW, depending on the
terms of the contract with E.On. Over the past 5 years, the subscribed load capacity has been
exceeded twice (by 2 MW) - once on the morning of January 21st, 2004 and once on New Years Eve,
2001. The morning peak on January 21st, 2004 cost the company about half a million SEK (54 000
EUR). In order to avoid penalty charges from the supplier and to reduce load demand, and in the long
term decrease the subscribed load level, SENAB is interested in incorporating a load component into
the grid tariff. In 1998, SEAB invested in an advanced remote metering/billing system, CustCom. This
system, which is based on 1-hour measurements for all customers, makes it possible for the utility to
introduce such a tariff.
A specialised Internet module makes it possible for SEAB’s customers to enter a website and to
monitor their electricity use statistics (in kWh/h) whenever they wish, which may help them to verify
their network bill and to give more attention to their electricity use and load peaks.
Load demand tariff simulations
With a view to analyse how a grid tariff with a load demand charge could affect the utility and its
customers, a new pricing strategy (tariff) was constructed and price simulations, with varying load
tariff component values, were carried out [9].
The simulations were conducted as cost comparisons between the cost that the customers would
have with the new load demand tariff and the cost that they have currently, with the existing tariff.
The structure of the load demand tariff can be seen in Equation (1).
Φ = Pav a + s
(1)
Pav [kW] denotes the average value of the customer’s three highest hourly load peaks from three
separate days during each month. a [SEK/kW] is a constant load price that takes two different values
- one from April to October and another from November to March. s [SEK] is the fuse level fee of the
network tariff (standing charge). Taxes and governmental fees are excluded from the analysed
pricing.
The structure of the existing tariff can be seen in Equation (2).
Φ = 0,149 E + S
(2)
E [kWh] is the electricity consumption during one month. 0,149 [SEK/kWh] is the energy unit price of
the network and S [SEK] is the standing charge of the network tariff. Taxes and governmental fees
are not included.
The price simulations were run for all of SENAB’s customers with fuse levels between 16A and 200A.
Customers were divided into groups depending on their fuse level. Customers with a 16-ampere fuse
were separated into tree subgroups: customers living in flats 16L, electric heated houses 16V and
houses with other heat source 16A.
In all four simulations, the condition that SENAB’s total revenue would be close to zero, seen over the
whole year, was applied. Component a was adjusted in order to achieve this.
In order to get a distinct difference between low and high demand periods, the component a in the
load demand tariff was almost doubled during the high demand period November - March, compared
to the low demand period April - October.
Simulation results
SEK
In the first price simulation the following premises were given: (1 SEK = 0.11 EUR)
s = S/2
a = 73 SEK/kW November-March
a = 35.5 SEK/kW April-October.
Figure 2 shows the difference in SENAB’s income (load demand tariff – existing tariff) for each fuse
group. Figure 3 shows the average cost increase for customers in each fuse group, when using the
new load tariff compared to the existing tariff.
1200000
1000000
800000
600000
400000
200000
0
-200000
-400000
-600000
s=S/2
16L
16A
16V
20A
25A
35A
50A
63A
80A
100A
125A
160A
200A
Figure 2 Difference in SENAB’s income for each fuse level group (load tariff – existing tariff).
a = 73 SEK/kW November-March, a = 35.5 SEK/kW April-October, s = S/2.
2000
1000
0
SEK/year
-1000
16L
16A
16V
20A
25A
35A
50A
63A
80A
100A
125A
160A
200A
-2000
-3000
s=S/2
-4000
-5000
-6000
-7000
-8000
Figure 3 The average cost increase for customers in each fuse group with the new load tariff
compared to the existing tariff.
a = 73 SEK/kW November-March, a = 35.5 SEK/kW April-October, s = S/2. (1 SEK = 0.11 EUR)
Negative values in Figure 3 imply that the average customer would be charged less with the new load
tariff. The results show that customers with low fuse levels would generally be charged more,
whereas customers with higher fuse levels would be charged less.
The second price simulation was preformed for s = S/3, a = 80 SEK/kW November-March, and a =
39.5 SEK/kW April-October. The findings from the second simulation were similar to that of the first
one. 16L, 16A and 16V customers would incur higher charges with the load tariff, whereas the other
groups would be charged less (see Figure 4 and 5).
1200000
1000000
800000
SEK
600000
400000
s=S/3
200000
0
-200000
16L
16A
16V
20A
25A
35A
50A
63A
80A
100A
125A
160A
200A
-400000
Figure 4 Difference in SENAB’s income for each fuse level group (load tariff – existing tariff).
a = 80 SEK/kW November-March, a = 39,5 SEK/kW April-October, s = S/3. (1 SEK = 0.11 EUR)
2000
SEK/year
1000
0
-1000
-2000
-3000
-4000
16L
16A
16V
20A
25A
35A
50A
63A
80A
100A
125A
160A
200A
s=S/3
-5000
-6000
-7000
-8000
Figure 5 The average cost increase for customers in each fuse group with the new load tariff
compared to the existing tariff.
a = 80 SEK/kW November-March, a = 39,5 SEK/kW April-October, s = S/3. (1 SEK = 0.11 EUR)
In order to compare how a tariff based only on a load demand component would turn out, s was set to
zero (s = 0) in the third simulation. a = 95 SEK/kW November-March, a = 46.6 SEK/kW April-October.
In this case, 16A customers would be charged less with the load tariff and 20A-group would be
charged more, thus achieving the opposite result to the previous two cases. The other fuse groups
however were still following the trend achieved in the first two simulations (higher charges for 16L and
16V and lower charges for the others groups). The results can be seen in Figure 6 and 7.
1000000
800000
SEK
600000
400000
s=0
200000
0
-200000
16L
16A
16V
20A
25A
35A
50A
63A
80A
100A
125A
160A
200A
-400000
Figure 6 Difference in SENAB’s income for each fuse level group (load tariff – existing tariff).
a = 95 SEK/kW November-March, a = 46,6 SEK/kW April-October, s = 0. (1 SEK = 0.11 EUR)
2000
SEK/year
0
-2000
16L
16A
16V
20A
25A
35A
50A
63A
80A
100A
125A
160A
200A
s=0
-4000
-6000
-8000
Figure 7 The average cost increase for customers in each fuse group with the new load tariff
compared to the existing tariff.
a = 95 SEK/kW November-March, a = 46.6 SEK/kW April-October, s = 0. (1 SEK = 0.11 EUR)
In the fourth and final simulation, the aim was for SENAB’s total revenue change, for each fuse level
group, to be as close to zero as possible. In this case, s was the component that was adjusted. a was
given the value of 70 SEK/kW from November to March and 35 SEK/kW during April-October. Table 1
shows the existing fuse fee and predicted fee for the new load tariff, if the goal was the one
mentioned above. Customers with higher fuse levels would in general incur a higher fuse fee
compared to customers with low fuse level. This means that with the existing tariff, customers with a
higher fuse level pay a relatively high standing charge in relation to their load demand. It is worth
noting that 125A customers would get a higher standing charge with the load tariff. This confirms the
conclusion that with the existing tariff, higher fuse level customers are subsidising customers with
lower fuse levels.
Table 1 Comparison between existing tariff’s and load tariff’s fuse fee
Fuse level
Existing tariff’s fuse fee
Load tariff’s fuse fee
Ratio: load tariff /
SEK/year
SEK/year
existing tariff
(Ampere)
(without VAT)
(without VAT)
(%)
16L
696
50
7,2 %
16A
1462
606
41,5 %
16V
1800
966
53,7 %
20A
2238
1333
59,6 %
25A
2792
1820
65,2 %
35A
3861
2500
64,8 %
50A
5438
3804
70 %
63A
6758
5162
76,4 %
80A
100A
125A
160A
200A
8568
10700
13344
17072
21007
7415
8567
14570
15670
18000
86,5 %
80,1 %
109,2%
91,8 %
85,7 %
Conclusions and recommendations
Conclusions from this study and recommendations that can be relevant for energy utilities when
planning load based pricing, have been gathered under some selected headings:
Existing tariff with load component
The main purpose of including load demand components into the network tariff is to achieve a lower
load demand and avoid load peaks. The analysis has shown that:
•
•
•
•
•
•
Load based tariff adjusts pricing between fuse groups,
Totally, load based tariff together with remote meter reading is profitable for utilities,
The difference between “energy” and “power” must be explained in a comprehensive manner,
To reach tariff’s goals, it is very important that customers understand the structure of load
tariff and its aim,
Customers have to understand that they can save money by changing their energy
consumption patterns without the deterioration of comfort or standard of living,
According to the utility’s own evaluation, it was possible to lower load demand about 5 %
thanks to the new load based tariff.
Tariff simulations
The results of this study show that:
•
•
•
•
If a load demand component were to be introduced into SENAB’s network tariff, primarily
customers with a 16-ampere fuse would incur higher network charges compared to customers
with higher fuse levels, who would be charged less.
With the existing network tariff, based on electricity use, customers with high fuse levels pay
today relatively high standing charges in relation to their exploitation of the grid.
Several households would lower their fuse level (and the costs),
It is not clear what would the introduction of load based tariff mean for total load demand level
within the simulated area.
Some important issues when introducing load based tariff
Electricity pricing should reflect real marginal costs of electricity production and the utilities’ costs.
Load based price could achieve higher price elasticity and thus limit the needs for expensive peak
load production. Many utilities have already invested in modern Automatic Meter Reading systems
(AMR) which facilitate implementation of load based tariffs. Customers are in such a case both an
exposed target and a vital potential - in many situations they really want to “help” society, and even
“their” utility, to avoid problems and shortages. Therefore, promotion of a new tariff with load based
price signal requires a solid and carefully prepared information campaign. It is of great importance for
the result that the purpose of such a tariff is clearly introduced to the customers from the very
beginning. The difference between “load demand” and “energy use” is not easy to understand and
keep after for the majority of customers. They need help to gain a better insight into how their
electricity costs will depend on their habits and usage of appliances and installations at home.
Load tariff structure
Load demand tariff should, as any tariff, be simple end easy to understand. The structure and price
levels are of decisive importance when trying to influence and change the patterns of energy use. The
tariff can always be adjusted afterwards but a comprehensive knowledge about consequences for
both customers and utility will help to avoid unnecessary sources of irritation and complaints.
Construction of a new tariff should start with an analysis of load characteristics for a grid company in
question - load curves for different customer groups, load factors and superposition factors as well as
load aggregation on selected levels in the grid should be investigated.
It is also essential to update the customer register regarding heating system, load guards etc. The
new tariff should be tested on some limited groups of customers.
A conceivable solution for a utility, when implementing a new load demand tariff, could also be to offer
its customers installation of diverse electronic devices (displays, load guards, soft heating systems)
helping them to “keep an eye” on load demand. Together with the new tariff, these investments
should be paid back in a relatively short time, helping at the same time to lower load demand in the
grid- a win-win solution for both partners.
Customer feed-back
Several investigations and studies have indicated that a continuous feed-back to energy customers is
of great significance while different energy related measures and changes are in progress. Possibility
to compare the results “before” and “after” or “own” with “others” can intensify and establish more long
lasting behavioural changes. Introduction of load demand tariff should therefore be supported by
continuous customer focused information. Market segmentation could give a hint how different
customer groups should be reached and influenced, depending on their energy related behaviour,
lifestyle, information sources and frame of reference.
Extra values
Introduction of load demand tariff needs, or is made possible by, a remote meter system (AMR) with
hourly readings. This means that this new tariff should be seen as a part of a development of products
and services connected to the AMR system. A number of applications can for example improve
customer service and save needs of administration. Extra value-added services related to billing,
energy statistics, monitoring, energy guidance, grid optimisation etc, can create new possibilities and
values for the company and its customers.
Acknowledgements
This work was financed by the ELAN programme - a joint research programme on electricity utilisation
and behaviour in a deregulated market. The ELAN programme is financed by the Swedish Energy
Agency, the Swedish research council Formas and Swedish utilities through Elforsk.
The simulations described in this paper were performed by MSc Mattias von Knorring. The author
would also like to express his gratitude to the staff at the electric utility Skånska Energi AB who made
this research project possible.
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