Differential tariff is an example of
demand side management
Energy demand management, also known as demand-side management (DSM) or demand-side response (DSR), is the modification of consumer demand for energy through various methods such as financial incentives and behavioral change through education.
Us ...
where the price per unit of energy varies with the consumption. If a power utility uses differential tariff, it may change the rate per kWH of energy used during different times, such as raising the price during times of high energy consumption and lowering the price during times of low energy consumption. This helps balance the rate at which power is used and the rate at which power is created.
Background
A differential tariff creates a balance in production and consumption of power by utilizing customer demand. For instance, if there is time where energy is being used faster than can be supplied, a differential tariff can be used: raising the price at that specific time to balance load on the system.
Differential Tariff
To implement the above-mentioned method of flattening the
load curve
In electrical engineering, a load profile is a graph of the variation in the electrical load versus time. A load profile will vary according to customer type (typical examples include residential, commercial and industrial), temperature and hol ...
, this technique is employed. As the load decreases and increases, the supplier must install his equipment in a way which will be capable of supplying the peak consumer load. During low periods, the equipment will be underutilized, thereby decreasing the
energy efficiency
Energy efficiency may refer to:
* Energy efficiency (physics), the ratio between the useful output and input of an energy conversion process
** Electrical efficiency, useful power output per electrical power consumed
** Mechanical efficiency, a ra ...
of the equipment. Therefore, the supplier will try to ensure that the equipment is used at its rated capacity so as not to waste resources, which cost money. With this type of tariff, the consumer will try to consume more energy during the low periods and avoid energy consumption during peak hours because they are more expensive.
Examples
United Kingdom
Since the 1970s, tariffs such as
Economy 7
Economy 7 is the name of a differential tariff provided by United Kingdom electricity suppliers that uses base load generation to provide cheap off-peak electricity during the night.
Houses using the Economy 7 tariff require a special electricity ...
and 'White Meter' have offered domestic consumers cheaper electricity in off-peak hours, usually for a fixed, continuous period of between 7 and 8.5 hours overnight. Typically such tariffs are used in conjunction with
storage heater
A storage heater or heat bank (Australia) is an electrical heater which thermal energy storage, stores thermal energy during the evening, or at night when electricity is available at lower cost, and releases the heat during the day as required. ...
s, which charge up cheaply overnight and release heat slowly during the following day.
While many such installations use a simple timeswitch, households may also be fitted with a
radio teleswitch
A radio teleswitch is a device used in the United Kingdom primarily to allow electricity suppliers to switch large numbers of electricity meters between different tariff rates, by broadcasting an embedded signal in broadcast radio signals. Radio ...
which allows more dynamic switching. For example, the supplier EDF advertises its Economy 7 service in the London area as offering 7 hours of off-peak electricity between midnight and 8.00am; the precise start and finish times can be varied to smooth out peak demand.
Bespoke local off-peak tariffs have also been created to help manage demand. For example, the electricity company
MANWEB
SP Manweb is the regional electricity distribution network operator (DNO) for Merseyside, North Wales and parts of Cheshire. It is now part of SP Energy Networks, itself a subsidiary of the Spanish energy company Iberdrola.
Nationalised in ...
found its supply network in Mid Wales overstretched in the early 1990s due to high peak demand for electric heating overnight. In response, it created a bespoke tariff and used radio teleswitches to stagger off-peak heating times and better distribute loads across the day. Now known as TwinHeat, the tariff saved the company over a million pounds in network reinforcement costs.
[http://manweb-remembered.co.uk/May%2094.pdf ]
References
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* P. Ravi Babu, et al. "Water heater Demand Side Management through Fuzzy Logic", CISCON' National Conference, Manipal Institute of Technology, Manipal 2-3 Oct-2006.
Energy economics