Episode 181: What are variable electricity prices?

Electricity

Nathaniel Horner, a researcher for Carnegie Mellon University’s Engineering and Public Policy Department, discusses variable prices of electricity.

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Learn More

An Introduction to Electricity Markets by Scientific American

Time Based Rate Programs by SmartGrid.gov

Electricity Pricing that Reflects its Real-Time Cost by The National Bureau of Economic Research

Transcript

HOST: Most of us pay a flat rate for our electricity. On this week’s Energy Bite, Nathaniel Horner, a researcher at Carnegie Mellon University, explains why the cost of electricity actually changes over the course of the day.

NATHANIEL: The electricity powering your coffee maker at 6 a.m. might come mostly from nuclear plants, which tend to run all the time and produce power cheaply. As we go to work and school and start to need more energy, more power plants need to brought online, so by noon, the microwave warming your lunch might use higher-cost electricity from plants running on natural gas or coal.

HOST: How might this affect my electricity bill?

NATHANIEL: If you’re a typical residential customer, it doesn’t: these variations get smoothed out on your bill into a single average rate. However, variable-price electricity has been available in some places since the 1980s. If you paid a price that changed from hour to hour, you would start to pay attention to when you used electricity. You would probably try to avoid using lots of energy when demand and prices are the highest, such as a hot summer day. In this way, passing variable prices on to customers can also help relieve stress on the electric grid.

HOST: Would you consider using a variable-price electricity rate schedule if your utility company offered it? Take our poll, see the results, and ask your energy questions at Energy Bite dot org.

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