Previously, I had mentioned how digital devices in Turkey connected citizens with Energy Corporation so that data sent from the company would enable people adopt appropriate consumption patterns with regard to their wealth. Now, I would like to focus on USA market and how ICT has been useful for US citizens to adopt certain consumption patterns in order to avoid peak price hours.
In US market, demand for electricity energy is similar to that is shown in the figure:
Some of the factors affecting such a pattern can be classified as; using HVAC (air conditioners) during noon period in the summer, opening heater after coming back home from work, and taking shower in the morning. The black line shows continuous usage of electricity consistently and is about 65% of all generated electrical power. Such demand load at peak hours during different seasons cause troubles both for consumers and power generating companies. In the US, price of electricity is determined by demand, that is to say price increases when demand increases and declines when demand declines during the day. Since customers will not have access to information about other users, their cash can flow to air in an hour unconsciously. On the production side, power generator company will have trouble caused by increased risk. Normally, enterprises consumes coal to produce electricity. However, during the peak hours, they switch to Natural Gas, which is costly, to meet the demand. Furthermore, enterprises buy Natural Gas from future markets. The risk here is, even if they estimate demand for the summer depending on statistics, if demand is less than expected, then they will have to keep it as inventory. On the other hand, if demand peaks more than expected, then they will turn to spot markets and will rush for cash. Both factors will lead to risk and the industry becomes more a risk management business such as insurance sector.
Constellation Energy Co. is also one of those companies that has problem with peak demand hours and what all they want, as other power generating companies, is to flatten the demand curve so that they will be able to stable their power generation. To accomplish such a difficult task, Peter Kelly-Detwiler came up with a solution that will make customers willingly change their energy consumption patterns. The solution was pretty simple; create a digital platform that customers can see the pricing information for electricity and their own consumption levels. As VirtuWatt directly connects your electricity metering device with ISO (Independent Service Provider), you can bid energy 1 week ahead and thus create your energy reduction strategy by automating your load control. The following figure shows how such a platform works on your i-Phone or computer:
By creating such a digital marketplace of electricity, where customers are remote and asynchronous, Constellation Energy has been able to give its commercial customers the opportunity to bid auctions depending on their valuation of electricity. That is to say, Constellation Energy also makes use of Price Discrimination tool by applying dynamic pricing model and revealing the information to the buyers. When load is low, customers with low assessment of electricity will buy; on the other hand, when prices peak, customers that values energy highly will stay in. In terms of assessing with regard to group buying behavior that we see at many online auction markets such as auction for Compaq iPaq 3650 that Compaq announces discounts for increased demand to entice buyers, price of electricity increases as customer base increases in electricity market.
This marketplace also serves like an auction market; when price is low, it is similar to English type Ascending-Open bidding auction that, there is a base of customers already owning the product and paying through usage. Some customers will enter the market by bidding higher than the current customers to take share in the market. As new customers enter, price increases and those who are willing to pay low will be out and those who pay more will be winner of the auction through peak hours. After peak is reached, it will turn to Dutch type Descending-Open bidding auction; as some customers have satisfied their energy usage, they will step out and as customer base declines, new period's electricity price will start to decline. As price declines, other customers decides when to step in. Again, such an electronic auction will serve as price discrimination for Constellation Energy Co.
Eventually, what Constellation aims is to separate customers with regard to their valuation of energy and spread them throughout the daytime.This enables Constellation to flatten the demand curve so that stress on infrastructure decreases, money will be made by selling abundant supply of energy at low hours to customers, and customers will better manage their energy bills by shifting their energy consumption. One more benefit is that, Constellation Energy Co. will better manage its Energy production pattern by decreasing its demand in Natural Gas future and spot markets, and stabling the production processes.
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