The Smart Grid Needs Real Time Pricing of the Distribution Grid

When I read the January-February edition of IEEE Power & Energy Magazine earlier this week, I got hung up on figure 1 on page 53, “The price of energy in the PJM market.”  Figure 1 shows 6 hours of prices every 5 minutes.  There appears to be five prices for each time point which would represent 5 locations on the PJM system.  There is the obligatory price spike to $210/MWH and a price suppression to minus $40/MWH.

Curiously, the prices for the 5 locations seem always to fall almost on top of each other, even during the price spike.  Except during the price suppression period.  There, two of the prices actually went up slightly and were not suppressed, one dropped to the previously stated minus $40/MWH and the other two dropped significantly though not to minus $40/MWH, though one did go slightly negative.

My analysis is that the price spike was a generation related issue while the price suppression was a transmission related issue.

This edition of IEEE Power & Energy Magazine focuses exclusively on the smart grid.  Since the related article was about demand response in Chicago, I thought that there should be more about using demand response to handle constraints on the distribution grid, the section of the wires that most people discuss in regard to the smart grid.  Thus, the geographic price differentials should be on the distribution grid, which would be a issue for Exelon’s Commonwealth Edison instead of a transmission issue for PJM.

Using demand response to address generation issues is old hat, the load management programs of a few decades ago.  And though figure 1 shows some geographic dispersion of prices and thus, perhaps, demand response being worthwhile for the transmission portion of the wires associated with the smart grid concept, my experience with PJM suggests that the price suppression was probably most severe in the Chicago area, suggesting that there was too little load in that area instead of the need for demand response.

I believe we need more demand response, not just to handle the G&T issues associated with figure 1, but more especially to handle overloads on the distribution grid.  Electric vehicles (according to EPRI) will overload the majority of the transformers that EPRI studied. 

  • The presence of figure 1 in the IEEE P&E Magazine suggests that many people believe that we can use real time prices to get more demand response.
  • The EPRI study tells me we need demand response to handle distribution issues. 

Putting it together, we need a way to price the use of the distribution grid on a real time basis, just as PJM has put into place a way to price the G&T on a real time basis.

I came to this distribution pricing conclusion last January while speaking at the IEEE/NIST smart grid conference.  My paper on the subject is “Dynamic Pricing: Using Smart Meters to Solve Electric Vehicles Related Distribution Overloads,” Metering International, Issue 3, 2010, which came out last Fall.

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Mark Lively earned a BS in Electrical Engineering from MIT in 1969 and a MS in Management from MIT Sloan School in 1971. He worked for American Electric Power Service Corporation in New York City from 1971 to 1976 and at Ernst & Ernst, Ernst & Whinney, Ernst & Young in its Washington Utility Group from 1976 to 1991.

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