Coffee Hour: Carrots, Sticks, and Other “Smart” Tricks

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Time: 
Friday, October 12, 2012 - 3:30pm to 5:00pm
Place: 
Refreshments are offered at 3:30 p.m. in the E. Willard Miller seminar room, 319 Walker Building The lecture begins at 4:00 p.m. in the John J. Cahir Auditorium, 112 Walker Building

Carrots, Sticks and Other “Smart” Tricks: Changing Consumer Behaviors in Electric Power Use

 

Seth Blumsack, Leone Family Department of Energy and Mineral Engineering, Penn State

 

About the talk

For a period of over a century, residential consumers of electric power have faced flat rates that did not change with the season or time of day, despite large differences in the cost of meeting electricity demand during the daytime versus the nighttime. While dependable electricity prices are in some ways good for consumers, they do result in economically inefficient consumption patterns that wind up increasing costs and environmental impacts, and sometimes even causing blackouts. Recent technological advances in electricity delivery and metering (the “smart grid”) have made it possible to charge time-differentiated prices for electricity, or to provide reward-based mechanisms for reducing household electricity usage. This technology can also be utilized to increase consumer awareness of their own patterns of electricity consumption and the associated economic and environmental costs. A large number of electric utilities have begun running pilot programs that leverage technology and novel pricing structures to induce changes in electricity consumption patterns. While economic theory would suggest some symmetry between these approaches, in practice charging high prices during peak hours has yielded different behavioral shifts than rewarding consumers for measured reductions in electricity use. In addition to providing some perspective on the results of these pilot projects to date, I will present some preliminary work from a large-scale pilot project in Vermont, suggesting that consumers have different preferences for incentive mechanisms themselves, not just price-based preferences for electricity consumption at one time versus another.

 


Seth BlumsackSeth Blumsack is an assistant professor of energy policy and economics in the John and Willie Leone Family Department of Energy and Mineral Engineering at Penn State; co-director of the Penn State Energy and Environmental Economics and Policy Initiative; and is the John T. Ryan Faculty Fellow in the College of Earth and Mineral Sciences.  He also holds a position as an adjunct research professor with the Carnegie Mellon Electricity Industry Center and the Centre for Energy and Mineral Economics at the Curtin University of Technology in Australia.  He earned a B.A. in mathematics and economics from Reed College in 1998, an M.S. in economics from Carnegie Mellon in 2003, and a Ph.D. in engineering and public policy from Carnegie Mellon in 2006.  Prior to returning to academia, Blumsack worked for Economic Insight, Inc., in Portland, Oregon, where he served as a consultant and contributing editor for the Energy Market Report, a daily newsletter covering wholesale electricity and natural gas markets in North America.  He was also the editor of Pacific West Oil Data, a monthly compendium of information on the west coast crude-oil and petroleum product industries.

 

Blumsack’s research centers on engineering-economic studies of energy and electric power systems; regulation and deregulation in network industries; network science; risk analysis; and managing complex infrastructure systems.  He has authored or co-authored more than twenty scientific articles and book chapters. He has consulted with the American Public Power Association, Bayer Materials, the Consortium for Risk Assessment and Stakeholder Participation, the National Renewable Energy Laboratory, the U.S. Department of Energy, and numerous State Public Utility Commissions.  His work on restructured electricity markets has been cited in The New York Times and the Pittsburgh Post-Gazette, and his writing for the Energy Market Report on California’s energy crisis has been cited in the Los Angeles Times as well as in The Smartest Guys in the Room.