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- Utility Transformations
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- Dynamic Pricing
What the Reaction to Toll Road Congestion Pricing Means for the Future of Energy Dynamic Pricing
In my home state, the Massachusetts Turnpike is moving from manned toll booths to open-road tolling, known as gantries. While this change in itself has the potential to disrupt the status quo, local news investigators discovered some hidden ideas that could be rolled out in the future. These disclosures caused such an uproar that the governor publicly announced that the ideas are not being considered now but may be in the distant future.
One of those ideas, congestion pricing, is that toll prices would be higher during rush hour to encourage people to avoid those times, thereby reducing traffic. Sound familiar to those in the energy industry? Terms like dynamic pricing, time-of-use rates, and critical peak pricing are used to describe such mechanisms. There has been a lot of interest in these concepts since advanced metering infrastructure has made them possible. More people are installing smart thermostats, solar, and energy storage, which give customers a greater ability to respond and take advantage of such rates.
A Cautionary Tale
The reaction to the congestion pricing revelation should prove a somewhat cautionary tale for enthusiasts of dynamic pricing for electricity. In general, people were outraged that the government would consider enacting this type of scheme and assumed there was some ulterior motive. Some people felt that tolls should be lower during rush hour since those drivers are the most frequent travelers and a lot of workers can’t control their work schedules to avoid those times. Other people were just concerned about the government knowing that much about their travel habits and how that type of data could be used.
The point is, despite all the logic that can be used to explain the benefits and economic purity of such designs, human nature is the biggest obstacle to be overcome to ensure mass adoption. Many people will always mistrust the government or utilities trying to enact new structures, assuming that said structures must have some kind of advantage for those entities. Others will feel that it is unfair to charge the biggest users of a resource (electricity, roads) more, since for many other goods and services there are cheaper prices for more consumption. The concern for those who cannot control when they use the resource (those with 9-5 jobs, the elderly, or low-income residents for energy) must be successfully countered, particularly for the political establishment to get onboard. Finally, data privacy concerns must be addressed, although 100% of the users will never be satisfied with solutions in that regard.
Of course, the cases of electric dynamic pricing and automotive congestion pricing aren’t an exact comparison, but energy industry dynamic pricing proponents may face the same fate if they fail to consider the human side of the equation.