It now is easy to argue that U.S. electricity pricing might have to evolve in ways similar to the change in retail pricing of communications services changed in the shift from analog to digital formats.
Significantly, retail pricing might change from “consumption” or “usage” to “capabilities” or “access.” In other words, commercial power customers might eventually be charged based on “how much” power is available; where it is available or when it is available.
Consider the earlier change in connectivity service pricing.
For the most part, connectivity providers (telcos, mobile operators) no longer price their services on “usage” (minutes, calls, texts, bytes consumed), preferring “capability” and “access” as the key pricing elements.
For internet access services, consumption does not typically matter. Instead, prices are based on “potential speed.” So a 100-Mbps connection costs the least; a 500-Mbps connection costs more while a gigabit-per-second costs the most.
Electricity still is mostly priced based on consumption (usage). But the economics of paying for the common costs of generation and transmission remain, even as more customers reduce consumption using self generation (solar panels, local generation by businesses).
Electric grid support therefore will become more challenging as user consumption drops, based on substitution of local generation for network-delivered power.
The basic business problem is that this forces a smaller number of customers to bear a larger portion of shared cost recovery, to the extent that common costs are recovered from usage charges.
Electricity service providers have some tools to reinvent their business models. Load management becomes more important, for example.
A shift to “access” charges also would help, creating a different model not based on actual account energy consumption but a fee based on ability to use the network. That mirrors the flat monthly fee approach now used by mobile service providers, where prices are not dictated by the number or length of phone calls, the number of text messages sent and received, or the amount of internet access data consumed.
Instead, one fee, providing access to the network and its services, dominates.
As with communications companies, customers who want “bigger pipes” would pay more, as do customers who want gigabit internet access service, compared to those who only want to pay for 100-Mbps speeds.
That is important in an era where local generation is going to reduce grid-delivered power consumption.
Electricity is ceasing to be an “energy sales business” and becoming an infrastructure access business, exactly like telecom. Where “amount of electricity consumed” used to drive the revenue model, the telecom approach would substitute “ability to use the network and its features.”
Consumer solar users without extensive battery assets then would pay for the ability to use grid power at night, for example, in the same way that a mobile device user “pays for” the ability to use the mobile operator network, rather than the specific amount of consumption of network resources.
The alternative is continued cross-subsidy collapse, where costs keep rising for customers unable to switch to some form of self generation.
Common costs (generation and transmission) must be recovered. Self generation threatens the present model. As with communication networks, electrical grids must be designed to support peak demand, not average demand.
Network revenue models must assume universal service and recovery of all common costs, not simply marginal costs related to actual consumption.
Traditional pricing assumes energy consumption is equal to grid usage. But distributed generation breaks that assumption.
Essentially, customers remove themselves, at least partially, from the system, but retain the optionality of using the grid for reliability, backup, and peak load balancing.
But fixed costs stay embedded in the price of per-kiloWatt hour charges, so rates will rise as sales fall.
At the same time, new demand driven by high-performance computing and associated data centers increases the need for new investments in transmission infrastructure as well as generation, increasing the fixed costs.
The business model will break, if not revamped.
