Enabling Distributed Energy Storage by Incentivizing Small Load Shifts

Abstract

Reducing peak demands and achieving a high penetration of renewable energy sources are important goals in achieving a smarter grid. To reduce peak demand, utilities are introducing variable rate electricity prices to incentivize consumers to manually shift their demand to low-price periods. Consumers may also use energy storage to automatically shift their demand by storing energy during low-price periods for use during high-price periods. Unfortunately, variable rate pricing provides only a weak incentive for distributed energy storage and does not promote its adoption at large scales. In this article, we present the storage adoption dilemma to capture the problems with incentivizing energy storage using variable rate prices. To address the problem, we propose a simple pricing scheme, called flat-power pricing , which incentivizes consumers to shift small amounts of load to flatten their demand rather than shift as much of their power usage as possible to low-price, off-peak periods. We show that compared to variable rate pricing, flat-power pricing (i) reduces consumers’ upfront capital costs, as it requires significantly less storage capacity per consumer; (ii) increases energy storage’s return on investment, as it mitigates free riding and maintains the incentive to use energy storage at large scales; and (iii) uses aggregate storage capacity within 31% of an optimal centralized approach. In addition, unlike variable rate pricing, we also show that flat-power pricing incentivizes the scheduling of elastic background loads, such as air conditioners and heaters, to reduce peak demand. We evaluate our approach using real smart meter data from 14,000 homes in a small town.