‘Time of use’ tariffs in the spotlight

SOUTH AFRICA: Charging a premium for peak-time electricity could be an effective way of getting city consumers to spread their power use more evenly throughout the day, helping the national utility to manage the country’s grid more effectively.

This is according to energy analyst Kevin Kotzen, with local non-profit organisation GreenCape, who says the potential for this sort of pricing structure to help even out the daily demand fluctuations on the grid is largely underestimated. He was speaking at the University of Cape Town Environmental Policy Research Unit’s (EPRU’s) annual policy workshop, an event organised this year to tackle demand-side management issues for city utilities.

The amount of energy flowing into the grid fluctuates throughout the day to meet the ever changing demand, explains Kotzen. Similarly, the cost of generating that power varies, depending on whether it comes from base load capacity, pumped storage, or ‘peaker' plants. This calls for different pricing tiers.

‘However, cities charge residential customers a flat tariff throughout the day. Customers don’t get a signal that there are differences in the cost of supplying energy. If people felt the pinch during peak times, they’d potentially switch off some of their appliances, reducing energy consumption at that time.’

Up to 60 percent of a residential electricity consumers’ energy needs can be moved to outside of peak time, according to Kotzen. Some of the most common appliances which could be switched to out of peak times include hot water geysers, pool pumps, heaters, washing machines and dish washers, and even fridges and freezers that are designed for this.

However, few municipalities implement this sort of pricing structure for residential customers. Kotzen’s research shows that many misconceptions underpin why cities don’t use these to even out energy demand. Some maintain that time-of-use pricing doesn’t work because it shifts consumers to other energy sources, such as to gas or paraffin, or that consumers don’t respond because they simply don’t understand how the pricing works.

‘But one example from Sacramento in California, where they used time-sensitive electricity pricing, showed very good results. Up to 25 percent of their load was shifted.’

If customers get clear pricing feedback, they respond, he maintains.

Avoiding rolling blackouts and grid failure  

A city’s energy demand varies throughout the day, depending on the economy of the city, the season, or the time of day. Eskom, the national utility, tries to forecast these ebbs and flows, and generate power accordingly. It needs to ensure there is always a bit more energy available to the grid, than demand is drawing off it.

‘If they get it wrong, there are rolling blackouts, or the grid goes down,’ explains Kotzen.

Evening out the fluctuations in demand, through using mechanisms such as a time-of-use (ToU) tariff, could help alleviate some of the peak time grid pressure.

‘But almost no cities implement time-of-use tariffs for residential users in South Africa,’ he says.

However, getting residential users to respond to ToU tariffs, or to switch their energy use patterns, isn’t something that should be done manually. Smart meters, timed appliances and similar interventions can simplify a system that allows for this sort of response in user behaviour.

‘The potential positive impact of residential ToU tariffs is generally underestimated.’

What needs to change most, in order to harness the benefits of this sort of market mechanism?

‘Most importantly, is to inform cities in order to shift these perceptions. We need to develop policies that promote a shift of the load, remembering that it cities need to make it worthwhile for customers,’ Kotzen concludes. 

News | 1 April 2016