The Barriers to Real-Time Pricing: Separating Fact From Fiction

 

Real-time pricing has been hindered by the misperception that a shift to RTP will create new types of risks, without creating benefits for utilities or customers.

During the past two decades, real-time pricing (RTP) has spawned a cottage industry of experts who continue to wax eloquent on its benefits. RTP can indeed provide substantial benefits to energy customers and utilities. However, only a handful of utilities offer such programs, and only a few thousand customers receive RTP service. This paradox resolves itself once we realize that there are significant barriers to RTP, many of them having to do with perceptions and not reality.

The overarching barrier to widespread application of RTP is a misperception that a shift to RTP will create new types of risks for utilities and regulators, without creating commensurate benefits for either utilities or customers. Both utilities and regulators have become risk averse in experimentation with new policies, having been burned first in California and then in the Enron crisis. The challenge is to convince them that no such failures await them with implementing RTP.

Another barrier is a misperception that a prerequisite for RTP is competition between retail energy service providers. However, as the examples of California and Georgia illustrate, retail competition is neither sufficient nor necessary for RTP.