Dynamic electricity pricing: breaking down the barriers

Dynamic electricity pricing: breaking down the barriers

On August 28th, Frontier’s Abbas Hussain and María Paula Torres were invited to present their recent work on dynamic electricity pricing at the 16th International Association for Energy Economics (IAEE) European Conference held in Ljubljana, Slovenia.  

The conference was titled, Energy Challenges for the Next Decade. Abbas spoke about key aspects of the ongoing transition of the energy system. High penetration of renewable electricity generation, electrification of the heat and transport sectors, and increasing digitalization are unlocking the potential of higher demand flexibility, which can in turn facilitate the energy transition.

To that end, the European Union is promoting dynamic power pricing as a form of implicit demand response. The European Commission’s Clean Energy for All Europeans Package requires Member States to ensure that their regulatory frameworks enable all large suppliers to provide consumers with a dynamic electricity pricing contract.

Drawing from the experience of implementing similar initiatives in various international jurisdictions, Abbas spoke about the role that smart technology and regulation can play to help overcome current barriers to, and facilitate the adoption of, dynamic electricity pricing.

Key points of discussion included:

  • Offering dynamic pricing as the default option that users opt out from (as in Spain), instead of opt into, to address the lack of consumer engagement (low switching rates) and increase enrolment;
  • Automated appliances and advanced consumer technology being deployed to respond to hourly price signals on behalf of consumers;
  • Improved savings potential of adopting dynamic pricing with higher hourly price variation and as consumption levels increase with adoption of low carbon technologies (e.g. electric vehicles);
  • Measures (cap on unit prices or ex-post rebates) deployed to protect consumers from extreme surges in wholesale prices; and
  • Strategies to facilitate the roll-out of smart meters, which are required to realise the full potential of dynamic electricity pricing.

Frontier regularly advises public and private sector clients on a range of regulation and consumer issues in the energy and environment sectors.

For more information please contact media@frontier-economics.com, or call +44 (0)20 7031 7000.