3. Business Case
6. Real Life Example
- Since the 1960s, EDF, France’s monopoly electricity supplier has been moving towards real-time pricing of electricity linked to marginal costs of supply. Consequently, electricity customers in France have been motivated to reduce their consumption when the generation costs are high and during congestion on the electricity network.
- In France, 10 million electric water heaters are storing electricity over night that is generated by nuclear reactors. The system is very simple, even using electromechanical meters and panels and has been working for 30 years.
- There are basically three options for buying your electricity in France:
- Flat Rate - Self explanatory and carries a slightly lower standing charge
- Reduced Rate Off Peak - Normally fixed at between 10pm and 6am. The standing charge is slightly higher but you benefit from an off peak rate that is reduced by about 40%.
- Tempo - The year is split up into 300 blue days when the price is advantageous. Then there are 43 white days when the price is increased. And then the most expensive days are termed red days and there are 22 of these in a year. In addition to the three color bands, the Tempo system also has the Off-Peak tariff as well, giving total of six possible charging rates. Sunday is always a blue day; - red days cannot fall on a holiday, weekend or more than 5 weekdays in a row.
The standing charge is slightly higher with the Tempo tariff. The price on a white day is broadly similar to the charges for standard and off peak rates. The good news is that the tariff for blue days which cover 82% of the year are about half that of the standard rate. The bad news is that on red days the tariff is about five times higher than the standard rate!
- Automatic Circuit Breakers – When you start to pull more power than you have subscribed for then the automatic circuit breaker is triggered. There is no way for the consumer to override it, so the only thing to do is to switch off or unplug appliances and then try again. French consumers have been used to this for 40 years. Maximum energy use is part of the culture and the people are okay with the fact that you cannot override the breaker.
- CCP – Critical Peak Pricing – Programs offers lower electricity rates in return for setting a rate 3 to 5 times higher than the regular rate on up to twelve "Critical Peak" afternoons during the summer. Generally, the declaration is made one day in advance, but in some cases it is made just an hour before the higher rate goes into effect. Generally, the retail provider is limited – either by regulation or contract – in the number of peak days it can call in a year. At all other times, CPP customers are charged a non-dynamic rate, which may be time-invariant or may be time-of-use (TOU) based. Some CPP programs have multiple levels of critical peaks and associated retail prices, such as “peak” days and “super-peak” days, with the expectation that the higher-price days would be called less frequently.(See my Blog Article - Dynamic Pricing)
- Standardized Switch Panels - Europe has standardized switch panel controls for electric circuits. In France’s cool climate, the most important electric circuits in the house are electric heating and electric water heaters. When you have a lot of appliances in the house and you want to subscribe to the lowest amps, then you very often get in trouble. Many consumers have been implementing a second level of load control, direct load control, which is a box that prioritizes the appliances. Consumers can override this box, but you always have to sacrifice something.
- Ripple Control System – A one-way communication technique for sending tariff signal using the electric power lines.
- Tempo Tariff – French Critical Peak Pricing Program - Always day-ahead alert for up to 22 days where energy is eight time more expensive.
- The Tempo Tariff critical peak pricing program, was implemented in 1993. The idea was an all winners, no loser plan.
- The red days are kept for between November 1 and March 31 and occur between Monday and Friday, never at a weekend or on public holidays. The system is designed to encourage people to think about when they use dishwashers, dryers and other electrical equipment.
- The color of each day is determined mostly by EDF based on the forecast of electricity demand for that day - the level of demand is mainly influenced by the weather. RTE, the French transmission network operator (formerly a division of EDF), also has the ability to determine the day color if there is significant congestion on the electricity network.
- Customers who choose Option Tempo are informed each night about the color for the next day. At 8 pm a signal is sent down power lines using a ripple control system. Most Tempo customers have a display unit that plugs into any power socket and picks up the signal. The display unit shows the day color with lights, both for the current day and (from 8pm) for the next day. An (optional) beep informs the consumer if the following day will be a red day. The display unit also shows whether or not the current electricity price is at the off-peak rate. Alternatively, you can visit the EDF website to see what color the next day is going to be and you can even elect to receive a daily email which includes (non contractual) predictions for the following two days.
- Prices for electricity purchased under Option Tempo in June 2005
- Blue days off-peak: 2.99 euro cents
- Blue days normal: 3.81 euro cents
- White days off-peak: 6.51 euro cents
- White days normal: 7.79 euro cents
- Red days off-peak: 12.42 euro cents
- Red days normal: 35.46 euro cents
- There are four different versions of Option Tempo, depending on the metering, communications and load control equipment installed at the customer's premises:
- Standard Tempo - The customer has only an electronic interval meter
- Dual Energy Tempo - The customer's space-heating boiler can be switched from one energy source to another
- Thermostat Tempo - The customer has load control equipment which is able to adjust space heating and water heating loads according to the electricity price.
- Comfort Tempo - The customer has a sophisticated energy controller.
- Customer Savings - Tempo customers have saved 10% on average on their electricity bill and 90% of the customers are satisfied with the tariff.
- Flattened Load – Peak load reduction is 450 MW. Compared with blue days, the Tempo tariff has led to a reduction in electricity consumption of 15% on white days and 45% on red days, on average 1 kW per customer. EDF studies have shown that there's a potential of 7 million customers that would significantly benefit from the Tempo tariff. Subscription of those 7 million customers could lower the load by 6 gigawatts in red days and about the same in white days. Consumption would actually increase by 2 gigawatts during the blue days. ht
- Customer Satisfaction – There are 400,000 customers on the Tempo Tariff. EDF has been a lot of studies and data on behavior, on understanding of the people, on what they've been doing with this and has found a very high satisfaction, over 90 percent. However, customers do not appreciate red days occurring consecutively.
- Customer Education - A lot of time was needed with each customer to introduce the Tempo Tariff and get the customers started. EDF spent a lot on actually advising prices before signing of the people including home visits to help people understand what it is about, what they can do, answer all their question, and giving them in confidence. EDF also organized commercial follow up after three month and after one year.
- Materiality of Customer Savings - While the Tempo tariff has been successful, less than 20% of electricity customers in France have chosen Tempo. Tempo customers have very particular customer profiles and are interested in managing their energy use. They are prepared to constrain their lifestyles to make comparatively small financial savings relative to their incomes. Even though no Tempo customers were paying more for electricity than with the other rate, EDF still have about 3 percent of people who, after the first season, winter season, wanted to drop off the program. Despite the fact that they have been getting some savings, they thought it was not worth the hassle. There is a kind of threshold under which the people don't want to bother, even if they don't have much to do. According to EDF, the threshold is about $150 for the annual bill.
- Cold Customers - If you can avoid using electricity on red days you should be onto a winner – but these are usually the coldest days of the year and can extend for up to five days.
- No Automatic Circuit Breakers in US – Unlike Europe, we don’t have circuit breakers calibrated to provide a maximum amount of power in the United States. Maximum energy use is not part of the culture and the U.S. consumers would not be okay with the fact that you cannot override the breaker.
- Open Market - The Tempo tariff was designed specifically for the situation where EDF is a monopolistic generator and retail supplier of electricity. However, it is not adapted to an open market situation. In the French open electricity market the network use of system charge does not vary between seasons and the value of peak load reduction is not reflected in spot prices for energy which are less volatile than the marginal costs of supply.
EDF needs to manage its global load curve in an open electricity market. It will probably have to develop other types of dynamic pricing for mass market customers. The feedback from Tempo customers will be very useful in developing new products which include electricity supply and services.
- This family has been running for over a year with the Tempo system, which gives some actual figures to look back on and compare what the cost of electricity would have been under the different tariffs.
- There are two adults and two children in the house and the main electricity consumers are: hot water heater, dish washer, ceramic hob, electric oven, washing machine and tumble dryer – apart from the lights that the children tend to leave on. The house is heating by a wood burning stove and oil fired central heating. On white days, we try to avoid washing and drying clothes. On red days, they additionally switch over the oil fired boiler to heat the water instead of using electricity. They also cook as far as possible using the wood burner. Surprisingly there are no volunteers for manually washing dishes!
- Despite keeping consumption on red days to a minimum such that it accounted for only 3% of our useage, it still accounted for 20% of the annual bill!
- If they had been using the flat rate system throughout the year, their annual bill would have been 30% higher - so it does make sense to Tempo.
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