Problem Context:
The price of residential electricity in the U.S. has begun to increase and curbing its consumption has become necessary for reasons including the following:
- There is a desire to save money in difficult economic times.
- The unhindered growth in consumption of electricity contributes to the increase in greenhouse gases in the atmosphere. In 2009, the residential market consumed 38% of the electricity produced in the U.S. (U.S. Energy Information Administration, Annual Energy Review 2009)
- Our increasing use of electricity is impeding our ability to break from the foreign sources of oil and gas that come from countries that do not have America's best interest at heart.
Demand continues to rise and generating costs (see graph 1) are trending upwards with our current generation methods. Delivery costs and risks also rise as the nation keeps postponing infrastructure upgrades. However, no significant changes are being made to make our homes more efficient. Justification for investment in efficiency improvement efforts is being ignored for lack of new financing models and difficulty in affecting change.
Graph 1 - The cost to produce electricity from various fuels.
Behavior over Time:
For the past 50 years electricity has been treated as a commodity and the expectation has been that of a never-ending supply. We have used what we wanted and at the end of the month, paid the bill. Generally, rates have been set by Public Service Commissions based upon business plans provided by the utility companies with no link to market economies. A rise in prices in the last 8 years (see graph 2) after a long decline has led to a desire to address the problem. To implement efficiency plans, only wealthy homeowners have been able to install new technology while others have chosen to do without normal conveniences such as refrigeration or air conditioning. Most homeowners have only special interest groups to help them reduce their consumption. The Fluorescent bulb manufacturers are an example of a group that promotes its product but does very little to promote holistic changes to a home.
Policies now in Place or Under Consideration:
There are no effective policies in place at the present time except those self-imposed by early adopters to reduce electrical consumption. The market forces under some control by Public Service Commissions have driven the supply and demand dynamics. Utilities project demand growth and build capacity to meet those projections. The current policies of tax credits and rebate programs that try to incentivize energy efficiency and other changes do not seem to be working. For example, California implemented a goal oriented policy to have solar power on 1 million rooftops by 2018 but so far only about 60,000 have systems installed after 3 years. This slow growth rate is attributable to the homeowner being unable to afford the out of pocket expenses even with the incentives and the slow payback based upon electricity buy back rates. On top of this, the state will spend over $3 billion for the program in hopes of reducing overall energy consumption which has not occurred so far due to the rise in consumption by corporations and institutions. Also, homeowners use the savings to increase consumption, not reduce their bills so changes in consumption behavior seem to be necessary.
There are no practical incentives to help our nation take advantage of the more than 50% reduction in traditional electrical consumption available through improved efficiency and alternative sources.
A proposed policy would be a ‘hybrid’ model. This policy would have three components. The first is a government policy component which would put in place a useful Feed-In Tariff. A Feed-in Tariff, which is used successfully throughout Europe to spur innovation and grow alternative energy production, is a mechanism that allows smaller energy producers guaranteed access to the grid and requires regional utilities to provide for long term contracts for the purchase of the small producer’s power. These small producers could be neighborhoods of rooftop photovoltaics (PV) or a remote wind farm.
The second component promotes the expansion of the Time of Use (TOU) rate offered but not fully utilized by most utilities. Most homeowners are not aware that using TOU rates allows them to pay much lower electricity prices (more than 65% savings usually) by shifting their consumption to off-peak hours. Some states have implemented these rates but very little study has been done concerning how they can be successfully used.
The third component concentrates on the homeowners behavior. This component would provide a system to not only monitor but control energy production from alternate sources (AltE), storage of excess capacity of AltE and off-peak electricity, and the actual consumption by electrical loads in the home such as unused lighting and zoned HVAC systems. By giving the homeowner timely information concerning their consumption habits, behavior scientists anticipate that homeowners will indeed change their consumption patterns. Also, this system would help level out the demand seen by the utility thus reducing peak load requirements and perhaps reduce power factor losses from spike loads from large motors like AC compressors. This component would require upfront investment in these new systems which could be financed by the utilities or new ventures through direct loans or through profit-sharing agreements.
Issues and Concerns:
The problem is extremely complex. We can not buy more windmills or photovoltaic arrays and have our energy problems go away. The issues that we face include
1. Building homes that are too big for our needs while we fill them with devices that use even more electricity;
2. The difficulty in proving the practicality of efficiency improvements in older homes; the reluctance of the consumer to implement any kind of change;
3. Balancing a failing infrastructure with increased demand.
3. Balancing a failing infrastructure with increased demand.
Also, power utilities are slow to change their business model. They cannot imagine and adapt to new ways of doing business.
Where do we start?
Where do we start?
The government must find a way to help all decision makers (utilities, homeowners, efficiency service providers) decide to change.
Energy Efficiency needs to become a stand-alone Resource Strategy that can withstand independent assessment and comparison to the Strategy of increasing energy supply.
By using Amory Lovins’ of the Rocky Mountain Institute term, Nega-watts, instead of the term Energy Efficiency, our society can then look at our energy future and its security in a whole new way. Instead of finding the next big source of environmentally friendly, cheap electricity, we can make better use of what we have and implement in better ways the AltE sources as they come to market.
Study purpose and questions to be addressed:
The purpose of this study is to model the dynamic system of delivery and consumption of electricity in residences in the U.S. in order to investigate the interactions between policy and the decision makers and how these feedbacks affect residential electrical consumption. From this study, it is hoped that different types of incentives and policies can be modeled to take advantage of available methods to lower power bills, reduce overall electricity consumption, and limit the need for increase in electrical production in the future. Specifically, this study will investigate the viability of the proposed ‘hybrid’ policy discussed above.
The current system contains two mental models that help describe the differences between two of the decision making groups, the homeowners and the utilities.
The Utilities model, as shown in the Causal Loop Diagram (CLD) in Figure 1 below, only has three feedback mechanisms. The first (B1) is the Revenue, Profit, Marketing Effort, Demand loop and shows the Utility behavior to promote the use of more electricity through equipment sales and explaining the benefits of more electrical consumption which increases Total Electricity Demand. The Demand in this diagram includes Industrial, Commercial, and Residential Sectors although this discussion only concerns Residential and will be broken out in the the final CLD. The increased Total Electricity Demand feeds the Utility Profit. The second loop (B2) show another typical behavior of the Utility. Under normal circumstances, Utilities have an Excess Electricity Capacity to allow for Total Electricity Demand changes during the day or during the season. When the Utility has a shortfall of production or the excess is too low, it must either buy or increase its own production. The short term response is to purchase more power and the long term response would be to increase production capacity. If the Utility has an increase in Excess Capacity, it must idle production or sell its excess power.
Figure 1- Utility Mental Model
The third loop in Figure 1 (R1), is a reinforcing loop that seems to describe the behavior of some of the larger Utility companies. As they continue to build or buy capacity, the Utilities’ Profit shrinks which drives larger Market Promotion Efforts to increase Total Demand which lowers Excess Capacity and drives the Production Requirements higher thus starting the upward spiral of always needing more Production Capacity. The difficulty over time occurs from increasing construction costs, growing regulatory issues because of pollution concerns, and the delays between starting construction and bringing the new Production online.
This model indicates that the normal supply/ demand dynamics do not apply because of the inelastic nature of electrical demand as indicated in Graph 2. Most Homeowners pay for what they want and don’t consume less if the price goes up or necessarily consume more if the price declines. There may be limits to this inelasticity that are beginning to show up in the current economic environment and will be explored in this study.
The second mental model (see Figure 2 below) concerns the Homeowner. The first feedback loop, B1, is the loop that starts with the Homeowner’s Desire for More Stuff that uses electricity and also more comfort like a cooler house in the summer or warmer house in the winter. As that desire increases then the amount of Stuff that Uses Electricity increases which increases Consumption which increases the power bill. As the power bill increases then the desire to conserve will increase and will lower the Desire for more Stuff and Comfort thus completing the Balancing feedback loop.
The second loop, B2, is a simpler mental process for the homeowner. As the Power bill increases the Desire to Conserve increases which causes an increase in Conservation Behavior such as turning off the lights or lowering the HVAC requirements. This effort will lower Electrical Consumption which will lower the Power Bill thus completing the balancing feedback loop.
The problem with these two mental models shown is that they have very little overlap in motivation and goals. The Utilities want to increase profits but because of their limitations with pricing that normal supply/ demand markets enjoy, they must promote increased consumption. They could make their production more efficient but that process also involves regulation and great cost. This behavior is indicated by the delays shown in B2 of Figure 1. The Homeowners buy items they want and use the electricity they need until the level of their Desire to Conserve reaches some level to convince them to take action. Homeowners are susceptible to the Utility marketing efforts and to some conflicting effect, the marketing efforts of the Green movement.
Figure 2 - Homeowner Mental Model
However the homeowner has little understanding of how to make significant changes in their Conservation Behavior and has little input in changing the rates charged by the Utility. The homeowner is beginning to have motivation to change as Power Bills increase and society increases the Marketing Effort to be Green due to the growing concerns over imported fossil fuels, the struggling economy, and the threat of Global Climate change.
This behavior change is in direct conflict to the Utilities’ desire to increase consumption in order to improve their bottom line. There is little forward thinking related to new ideas about Distributed Generation, TOU implementation, and Feed-In Tariff possibilities. Public and private Utilities have long track records of not being very innovative.
The proposed ‘hybrid’ policy can be explored by combining the two mental models shown above (Figures 1 & 2). By adding new variables and tying the two models together in a more meaningful way, a new model will be formed that can explore other ways to reduce the homeowner’s Electrical Consumption and to also improve the Utilities’ Profit.
Figure 3 - Proposed ‘Hybrid’ Model
The Causal Loop Diagram shown in Figure 3 is produced by combining the previous two CLD’s and adding a few variables to allow for a new mental model. The new variables are policies or actions that are already in use in some part of the world so they are not new inventions. They are simply combined in a new combination in order to make a reduction in total Electrical Consumption a more realistic goal given the decision makers involved and their normal cross purposes as discussed above.
The first component to discuss is the homeowner’s change in action and behavior. The loops labeled B1 through B5 and are shown in green, are all things that a homeowner can implement to lower the Homeowner Power Bill. By increasing the Desire To Conserve through Government Policy such as tax credits, rebates, the proposed Feed-In Tariff, and from the rise in the Homeowner Power Bill, the homeowner has several new options under this Model. They are:
- Increasing Alternative Energy Production- B1
- Decreasing the amount of load that occurs during Peak Power Rates by increasing Time Shifted Consumption - B5
- Increasing the amount of onsite Electrical Storage so Alt E sources can be better utilized - B4
- Increasing Other Conservation Efforts such as installing better windows, more insulation, improving HVAC efficiency - B3
Feedback Loop B2 shows the interaction between the Electrical Storage and Electrical Consumption and has other details embedded that are not shown for the purpose of simplification.
The next component is a slight change in Government Policy. Presently, the government has strong control over electrical pricing through the Public Service Commissions. However, there are not strong mechanisms in place that increase the Desire to Conserve other than some tax credits and rebates for installation of costly alternative energy sources and weatherization programs. The new model proposes the use of Feed-In Tariffs to force Utilities to purchase power at contracted prices and time periods from small producers. These small producers could be homeowners or groups of homeowners that produce enough excess capacity to sell back to the Utility. The Feed-In Tariff has been used successfully in Europe and has been shown to actually change the behavior of the homeowner by providing strong incentive to generate more and consume less which would enhance the loops B1 through B5.
The final component of the ‘Hybrid’ Mental Model proposed is the change in profit incentive for the Utility. Currently, there is little incentive to promote conservation because it directly affects the Utility Profit as indicated in loop B7. The new model suggests a Profit Sharing program that can be implemented between the Utility and the Homeowner. The Utility would promote, pay for and perhaps install new equipment that would allow Homeowners to take advantage of these new technologies that reduce Electrical Consumption and increase Alt E Production. In return, the Utility would share in the reduction of the Homeowner’s Power Bill. There could also be some financing charges that would help the Utility recoup its costs or pay for raising capital. This equipment could include the following:
- Photovoltaics
- Wind Turbines
- Insulation, Improved Windows
- Control and Monitoring Equipment
- Battery Storage Systems
The new program would create a feedback loop B6 that would give the Utility another method for controlling Total Utility Costs by reducing Total Electricity Production by lowering Production Requirements. By lowering overall demand through conservation and lowering Peak Demand through Time shifting, the Utility should be able to reduce Peak Load Capacity and make more efficient use of existing capacity during the entire 24 hour day and leveling its total loads.
The suggested Mental Model needs all three components to work because of the inter-dependency of the decision makers (Homeowners, Utilities, Government Policy makers) in this discussion. The Homeowners need better incentives, Utilities need a different business model, and the Government needs to reduce infrastructure costs buy employing Nega-watts or the better use of efficiency and lowered consumption. All three groups need the others’ changes to provide incentive for their own.
