Electricity pricing

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Electricity pricing (also referred to as electricity tariffs or the price of electricity) can vary widely by country or by locality within a country. Electricity prices are dependent on many factors, such as the price of power generation, government taxes or subsidies, CO
2 taxes, [1] local weather patterns, transmission and distribution infrastructure, and multi-tiered industry regulation. The pricing or tariffs can also differ depending on the customer-base, typically by residential, commercial, and industrial connections.

Contents

According to the U.S. Energy Information Administration (EIA), "Electricity prices generally reflect the cost to build, finance, maintain, and operate power plants and the electricity grid." Where pricing forecasting is the method by which a generator, a utility company, or a large industrial consumer can predict the wholesale prices of electricity with reasonable accuracy. [2] Due to the complications of electricity generation, the cost to supply electricity varies minute by minute. [3]

Some utility companies are for-profit entities and their prices include a financial return for owners and investors. These utility companies can exercise their political power within existing legal and regulatory regimes to guarantee a financial return and reduce competition from other sources like a distributed generation. [4]

Rate structure

In standard regulated monopoly markets like the United States, there are multilevel governance structures that set electricity rates. The rates are determined through a regulatory process that is overseen by governmental organizations.

The inclusion of renewable energy distributed generation (DG) and advanced metering infrastructure (AMI or smart meter) in the modern electricity grid has introduced many alternative rate structures. [5] There are several methods that modern utilities structure residential rates:

The simple rate charges a specific dollar per kilowatt hour ($/kWh) consumed. The tiered rate is one of the more common residential rate programs. The tiered rate charges a higher rate as customer usage increases. TOU and demand rates are structured to help maintain and control a utility's peak demand. [6] The concept at its core is to discourage customers from contributing to peak-load times by charging them more money to use power at that time. Historically, rates have been minimal at night because the peak is during the day when all sectors are using electricity. Increased demand requires additional energy generation, which is traditionally provided by less efficient "peaker" plants that cost more to generate electricity than "baseload" plants. [7] However, as greater penetration from renewable energy sources, like solar, are on a grid the lower cost, electricity is shifted to midday when solar generates the most energy. Time of use (TOU) tariffs can shift electricity consumption out of peak periods, thus helping the grid cope with variable renewable energy. [8] [9]

A feed-in tariff (FIT) [10] is an energy-supply policy that supports the development of renewable power generation. FITs give financial benefits to renewable power producers. In the United States, FIT policies guarantee that eligible renewable generators will have their electricity purchased by their utility. [11] The FIT contract contains a guaranteed period of time (usually 15–20 years) that payments in dollars per kilowatt hour ($/kWh) will be made for the full output of the system.

Net metering is another billing mechanism that supports the development of renewable power generation, specifically, solar power. The mechanism credits solar energy system owners for the electricity their system adds to the grid. Residential customers with rooftop photovoltaic (PV) systems will typically generate more electricity than their home consumes during daylight hours, so net metering is particularly advantageous. During this time where generation is greater than consumption, the home's electricity meter will run backward to provide a credit on the homeowner's electricity bill. [12] The value of solar electricity is less than the retail rate, so net metering customers are actually subsidized by all other customers of the electric utility. [13]

United States: the Federal Energy Regulatory Commission (FERC) oversees the wholesale electricity market along with the interstate transmission of electricity. Public Service Commissions (PSC), which are also known as Public utilities commission (PUC), regulate utility rates within each state.

Price comparison by power source

The cost of electricity also differs by the power source. The net present value of the unit-cost of electricity over the lifetime of a generating asset is known as the levelized cost of electricity (LCOE). LCOE is the best value to compare different methods of generation on a consistent basis.[ citation needed ]

The generating source mix of a particular utility will thus have a substantial effect on their electricity pricing. Electric utilities that have a high percentage of hydroelectricity will tend to have lower prices, while those with a large amount of older coal-fired power plants will have higher electricity prices. Recently the LCOE of solar photovoltaic technology [14] has dropped substantially. [15] [16] In the United States, 70% of current coal-fired power plants run at a higher cost than new renewable energy technologies (excluding hydro) and by 2030 all of them will be uneconomic. [17] In the rest of the world 42% of coal-fired power plants were operating at a loss in 2019. [17]

Electricity price forecasting

This section is an excerpt from Electricity price forecasting.[ edit ]

Electricity price forecasting (EPF) is a branch of energy forecasting which focuses on predicting the spot and forward prices in wholesale electricity markets. Over the last 15 years electricity price forecasts have become a fundamental input to energy companies’ decision-making mechanisms at the corporate level.

Since the early 1990s, the process of deregulation and the introduction of competitive electricity markets have been reshaping the landscape of the traditionally monopolistic and government-controlled power sectors. Throughout Europe, North America and Australia, electricity is now traded under market rules using spot and derivative contracts. [18] [19] However, electricity is a very special commodity: it is economically non-storable and power system stability requires a constant balance between production and consumption. At the same time, electricity demand depends on weather (temperature, wind speed, precipitation, etc.) and the intensity of business and everyday activities (on-peak vs. off-peak hours, weekdays vs. weekends, holidays, etc.). These unique characteristics lead to price dynamics not observed in any other market, exhibiting daily, weekly and often annual seasonality and abrupt, short-lived and generally unanticipated price spikes.

Extreme price volatility, which can be up to two orders of magnitude higher than that of any other commodity or financial asset, has forced market participants to hedge not only volume but also price risk. Price forecasts from a few hours to a few months ahead have become of particular interest to power portfolio managers. A power market company able to forecast the volatile wholesale prices with a reasonable level of accuracy can adjust its bidding strategy and its own production or consumption schedule in order to reduce the risk or maximize the profits in day-ahead trading. [20] A ballpark estimate of savings from a 1% reduction in the mean absolute percentage error (MAPE) of short-term price forecasts is $300,000 per year for a utility with 1GW peak load. [21]

Electricity price forecasting is the process of using mathematical models to predict what electricity prices will be in the future.

Power quality

Excessive Total Harmonic Distortions (THD) and low power factor are costly at every level of the electricity market. The impact of THD is difficult to estimate, but it can potentially cause heat, vibrations, malfunctioning and even meltdowns. The power factor is the ratio of real to apparent power in a power system. Drawing more current results in a lower power factor. Larger currents require costlier infrastructure to minimize power loss, so consumers with low power factors get charged a higher electricity rate by their utility. [22] Power quality is typically monitored at the transmission level. A spectrum of compensation devices [23] mitigate bad outcomes, but improvements can be achieved only with real-time correction devices (old style switching type, [24] modern low-speed DSP driven [25] and near real-time [26] ). Most modern devices reduce problems, while maintaining return on investment and significant reduction of ground currents. Power quality problems can cause erroneous responses from many kinds of analog and digital equipment.

See also

Related Research Articles

Distributed generation, also distributed energy, on-site generation (OSG), or district/decentralized energy, is electrical generation and storage performed by a variety of small, grid-connected or distribution system-connected devices referred to as distributed energy resources (DER).

<span class="mw-page-title-main">Photovoltaics</span> Method to produce electricity from solar radiation

Photovoltaics (PV) is the conversion of light into electricity using semiconducting materials that exhibit the photovoltaic effect, a phenomenon studied in physics, photochemistry, and electrochemistry. The photovoltaic effect is commercially used for electricity generation and as photosensors.

<span class="mw-page-title-main">Net metering</span> Type of billing of electricity generated from renewable sources

Net metering is an electricity billing mechanism that allows consumers who generate some or all of their own electricity to use that electricity anytime, instead of when it is generated. This is particularly important with renewable energy sources like wind and solar, which are non-dispatchable. Monthly net metering allows consumers to use solar power generated during the day at night, or wind from a windy day later in the month. Annual net metering rolls over a net kilowatt-hour (kWh) credit to the following month, allowing solar power that was generated in July to be used in December, or wind power from March in August.

<span class="mw-page-title-main">Demand response</span> Techniques used to prevent power networks from being overwhelmed

Demand response is a change in the power consumption of an electric utility customer to better match the demand for power with the supply. Until the 21st century decrease in the cost of pumped storage and batteries, electric energy could not be easily stored, so utilities have traditionally matched demand and supply by throttling the production rate of their power plants, taking generating units on or off line, or importing power from other utilities. There are limits to what can be achieved on the supply side, because some generating units can take a long time to come up to full power, some units may be very expensive to operate, and demand can at times be greater than the capacity of all the available power plants put together. Demand response, a type of energy demand management, seeks to adjust in real-time the demand for power instead of adjusting the supply.

A virtual power plant (VPP) is a cloud-based distributed power plant that aggregates the capacities of heterogeneous distributed energy resources (DER) for the purposes of enhancing power generation, trading or selling power on the electricity market, and demand side options for load reduction.

<span class="mw-page-title-main">Solar power in Germany</span>

Solar power accounted for an estimated 8.2 per cent of electricity in Germany in 2019, which was almost exclusively from photovoltaics (PV). About 1.5 million photovoltaic systems were installed around the country in 2014, ranging from small rooftop systems, to medium commercial and large utility-scale solar parks. Germany's largest solar farms are located in Meuro, Neuhardenberg, and Templin with capacities over 100 MW.

Financial incentives for photovoltaics are incentives offered to electricity consumers to install and operate solar-electric generating systems, also known as photovoltaics (PV).

<span class="mw-page-title-main">Solar power in the United Kingdom</span>

Solar power represented a very small part of electricity production in the United Kingdom until the 2010s when it increased rapidly, thanks to feed-in tariff (FIT) subsidies and the falling cost of photovoltaic (PV) panels.

A feed-in tariff is a policy mechanism designed to accelerate investment in renewable energy technologies by offering long-term contracts to renewable energy producers. This means promising renewable energy producers an above-market price and providing price certainty and long-term contracts that help finance renewable energy investments. Typically, FITs award different prices to different sources of renewable energy in order to encourage the development of one technology over another. For example, technologies such as wind power and solar PV are awarded a higher price per kWh than tidal power. FITs often include a "digression": a gradual decrease of the price or tariff in order to follow and encourage technological cost reductions.

<span class="mw-page-title-main">Solar power</span> Conversion of energy from sunlight into electricity

Solar power, also known as solar electricity, is the conversion of energy from sunlight into electricity, either directly using photovoltaics (PV) or indirectly using concentrated solar power. Photovoltaic cells convert light into an electric current using the photovoltaic effect. Concentrated solar power systems use lenses or mirrors and solar tracking systems to focus a large area of sunlight to a hot spot, often to drive a steam turbine.

A photovoltaic system, also called a PV system or solar power system, is an electric power system designed to supply usable solar power by means of photovoltaics. It consists of an arrangement of several components, including solar panels to absorb and convert sunlight into electricity, a solar inverter to convert the output from direct to alternating current, as well as mounting, cabling, and other electrical accessories to set up a working system. It may also use a solar tracking system to improve the system's overall performance and include an integrated battery.

<span class="mw-page-title-main">Feed-in tariffs in Australia</span> Overview of feed-in tariffs in Australia

Feed-in tariffs in Australia are the feed-in tariffs (FITs) paid under various State schemes to non-commercial producers of electricity generated by solar photovoltaic (PV) systems using solar panels. They are a way of subsidising and encouraging uptake of renewable energy and in Australia have been enacted at the State level, in conjunction with a federal mandatory renewable energy target.

<span class="mw-page-title-main">Levelized cost of electricity</span> Measure of lifetime average net present cost of electricity generation

The levelized cost of electricity (LCOE) is a measure of the average net present cost of electricity generation for a generator over its lifetime. It is used for investment planning and to compare different methods of electricity generation on a consistent basis.

<span class="mw-page-title-main">Grid parity</span>

Grid parity occurs when an alternative energy source can generate power at a levelized cost of electricity (LCOE) that is less than or equal to the price of power from the electricity grid. The term is most commonly used when discussing renewable energy sources, notably solar power and wind power. Grid parity depends upon whether you are calculating from the point of view of a utility or of a retail consumer.

<span class="mw-page-title-main">Growth of photovoltaics</span> Worldwide growth of photovoltaics

Between 1992 and 2023, the worldwide usage of photovoltaics (PV) increased exponentially. During this period, it evolved from a niche market of small-scale applications to a mainstream electricity source. From 2016-2022 it has seen an annual capacity and production growth rate of around 26%- doubling approximately every three years.

<span class="mw-page-title-main">Solar power in California</span>

Solar power has been growing rapidly in the U.S. state of California because of high insolation, community support, declining solar costs, and a renewable portfolio standard which requires that 60% of California's electricity come from renewable resources by 2030, with 100% by 2045. Much of this is expected to come from solar power via photovoltaic facilities or concentrated solar power facilities.

Different methods of electricity generation can incur a variety of different costs, which can be divided into three general categories: 1) wholesale costs, or all costs paid by utilities associated with acquiring and distributing electricity to consumers, 2) retail costs paid by consumers, and 3) external costs, or externalities, imposed on society.

<span class="mw-page-title-main">Grid-connected photovoltaic power system</span>

A grid-connected photovoltaic system, or grid-connected PV system is an electricity generating solar PV power system that is connected to the utility grid. A grid-connected PV system consists of solar panels, one or several inverters, a power conditioning unit and grid connection equipment. They range from small residential and commercial rooftop systems to large utility-scale solar power stations. When conditions are right, the grid-connected PV system supplies the excess power, beyond consumption by the connected load, to the utility grid.

Energy forecasting includes forecasting demand (load) and price of electricity, fossil fuels and renewable energy sources. Forecasting can be both expected price value and probabilistic forecasting.

Net metering in New Mexico is a set of state public policies that govern the relationship between solar customers and electric utility companies.

References

  1. ↑ Stanley Reed (22 September 2021). "Here's What's Behind Europe's Surging Energy Prices". The New York Times . Retrieved 24 September 2021. High carbon taxes are also stoking power prices
  2. ↑ Weron, Rafał (2014). "Electricity price forecasting: A review of the state-of-the-art with a look into the future". International Journal of Forecasting. 30 (4): 1030–1081. doi: 10.1016/j.ijforecast.2014.08.008 .
  3. ↑ "Factors Affecting Electricity Prices – Energy Explained, Your Guide To Understanding Energy – Energy Information Administration". www.eia.gov. Retrieved 3 May 2018.
  4. ↑ Prehoda, Emily; Pearce, Joshua; Schelly, Chelsea (2019). "Policies to Overcome Barriers for Renewable Energy Distributed Generation: A Case Study of Utility Structure and Regulatory Regimes in Michigan". Energies. 12 (4): 674. doi: 10.3390/en12040674 .
  5. ↑ Zheng, Junjie; Lai, Chun Sing; Yuan, Haoliang; Dong, Zhao Yang; Meng, Ke; Lai, Loi Lei (July 2020). "Electricity plan recommender system with electrical instruction-based recovery". Energy. 203: 117775. doi:10.1016/j.energy.2020.117775. S2CID   219466165.
  6. ↑ Torriti, Jacopo. "Appraising the Economics of Smart Meters".
  7. ↑ Fetchen, Stephanie (12 September 2019). "Growing Renewable Generation Causing Changes In Generation Charges". RateAcuity. Retrieved 15 October 2019.
  8. ↑ "Smart time-of-use tariff shows "significant impact" on energy consumption behaviour". SMS plc. 31 October 2018. Retrieved 20 September 2021.
  9. ↑ "Electricity Retail Rate Design in a Decarbonizing Economy: An Analysis of Time-of-Use and Critical Peak Pricing -". CEEPR. Retrieved 21 September 2023.
  10. ↑ Couture, T. D.; Cory, K.; Kreycik, C.; Williams, E. (1 July 2010). "Policymaker's Guide to Feed-in Tariff Policy Design". doi: 10.2172/984987 . OSTI   984987.{{cite journal}}: Cite journal requires |journal= (help)
  11. ↑ "Feed-in Tariff Resources | Department of Energy". www.energy.gov. Archived from the original on 4 May 2018. Retrieved 3 May 2018.
  12. ↑ "Net Metering | SEIA". SEIA. Retrieved 3 May 2018.
  13. ↑ Rethinking The rationale for Net Metering: Quantifying subsidy from non-solar to solar customers. Alexander, Brown, and Faruqui. http://ipu.msu.edu/wp-content/uploads/2017/09/Rethinking-Rationale-for-Net-Metering-2016.pdf
  14. ↑ Branker, K.; Pathak, M.J.M.; Pearce, J.M. (2011). "A review of solar photovoltaic levelized cost of electricity". Renewable and Sustainable Energy Reviews. 15 (9): 4470–4482. doi:10.1016/j.rser.2011.07.104. hdl: 1974/6879 . S2CID   73523633.
  15. ↑ Lai, Chun Sing; McCulloch, Malcolm D. (2017). "Levelized cost of electricity for solar photovoltaic and electrical energy storage". Applied Energy. 190: 191–203. doi:10.1016/j.apenergy.2016.12.153. S2CID   113623853.
  16. ↑ Kang, Moon Hee; Rohatgi, Ajeet (2016). "Quantitative analysis of the levelized cost of electricity of commercial scale photovoltaics systems in the US". Solar Energy Materials and Solar Cells. 154: 71–77. doi:10.1016/j.solmat.2016.04.046.
  17. 1 2 "42% of global coal power plants run at a loss, finds world-first study". Carbon Tracker Initiative. 30 November 2018. Retrieved 14 March 2019.
  18. ↑ Weron, Rafał (2014). [Open Access]. "Electricity price forecasting: A review of the state-of-the-art with a look into the future". International Journal of Forecasting. 30 (4): 1030–1081. doi: 10.1016/j.ijforecast.2014.08.008 .
  19. ↑ Bunn, Derek W., ed. (2004). Modelling Prices in Competitive Electricity Markets. Wiley. ISBN   978-0-470-84860-9.
  20. ↑ Weron, Rafał (2006). Modeling and Forecasting Electricity Loads and Prices: A Statistical Approach. Wiley. ISBN   978-0-470-05753-7.
  21. ↑ Hong, Tao (2015). "Crystal Ball Lessons in Predictive Analytics". EnergyBiz Magazine. Spring: 35–37.
  22. ↑ "MCMA – Motion Control Online". MCMA – Motion Control Online. Retrieved 3 May 2018.
  23. ↑ "Practical Power Factor Correction : Power Factor – Electronics Textbook". All About Circuits. Retrieved 18 June 2017.
  24. ↑ "High Speed Real Time Automatic Power Factor Correction System" (PDF). Archived from the original (PDF) on 29 April 2016. Retrieved 18 June 2017.
  25. ↑ "TCI, LLC – HGA 5% Active Harmonic Filter". TransCoil. Retrieved 18 June 2017.
  26. ↑ "3DFS Software Defined Power". 3DFS. Retrieved 18 June 2017.
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