The dynamic price system in the electricity industry

The retail electricity industry is currently researching Increasingly dynamic pricing. It is a demand-side management technique that can effectively reduce peak load by charging different rates at different times depending on the demand for electricity. Huge investments in about billions of dollars are trapped to install peak load capacities that can handle higher loads. Such situations arise due to unregulated demand and a lot of capacity addition is required to manage these. Now, these capacities are not in use when the demand is low and this results in system inefficiency and loss of opportunity cost.

With the introduction of dynamic Plano Energy Plans , the demand can be regulated large scale capital investments can be avoided which are not even used all the time. The pricing currently offered by the retail electricity markets is flat pricing or block pricing. In this, the cost does not change with variation in demand. But dynamic pricing will change that and the cost will vary depending upon the demand and the rate will increase and decrease according to the increase and decrease in demand respectively.

This will be beneficial because the cost to generate electricity at the peak is much higher compared to that at off-peak conditions. It only leads to the addition of costly investments to deal with peak conditions. Dynamic pricing will not only reduce the chances of peak arising but will also allow the consumers to reduce their electricity bill even at a constant consumption level by simply changing their pattern of consuming electricity.

This can prove to be a very effective method both economically and technically. This has been implemented successfully in various industries like travel and leisure, online retail, and telecommunications. It is required that this should also be implemented in the retail electricity sector.

But the suppliers, regulators, and customers have their own doubts regarding this concept so they have stayed away from the deployment of this method on a large scale notwithstanding the opinion of the academicians and researchers. The doubts are regarding the scope of gaining benefits after the implementation of this method and the customers are worried about excessively high bill values due to their presumptive inflexibility regarding their consumption hours.

But this method will definitely allow the customers to increase their monetary savings. The suppliers will also like this change because they will now have to invest less in peak capacity management.

Application of this method simply requires efficient technology which will even be cheap, support from customers and regulators who will also need to be necessarily educated about this method, the pricing scheme will have to be designed well in advance after properly identifying the market segments. This is necessary to implement this method successfully.

So, We need to prove the benefits of dynamic pricing to each stakeholder to achieve market acceptance. Dynamic pricing will definitely elicit a response from the customers that will lead to a direct reduction in the value of their bill. Around 35% of further reduction can be achieved by using renewable energy but there is still inflexibility regarding the demand hours.