Drift’s Fair Price For Energy

Drift’s Fair Price For Energy

January 22, 2019

By Maria Mendieta, Drift product manager

Last year, William Nordhaus was awarded the Nobel Prize in Economics for his work in carbon pricing. His research shows that raising prices through a carbon tax is a far more effective and efficient way to lower carbon emissions than direct government controls. He suggests that unless the global costs of climate change are built into the price, there is no incentive for individual carbon users to reduce their consumption, and all humanity may suffer the consequences.

Unfortunately, given the current political landscape, particularly in the United States, it’s hard to foresee the full implementation of a carbon tax in the near future. And while politicians fight with one another about how to reduce greenhouse gas emissions, climate change takes an increasing toll on lives and economic resources every year. We’re running out of time. 

So what’s the alternative? I joined Drift because Drift is determined to do more than just wait for politicians to act. Drift is committed to ensuring that new renewable energy generation is added to the grid where and when it’s needed. To achieve this goal, Drift created the Fair Price for Energy. Just like a price on carbon, the Fair Price for Energy aims to be an incentive to increase the supply of renewable power by recognizing its environmental value and building it into the price. Instead of punishing fossil fuel generators for being dirty (like with a carbon price), the Fair Price for Energy rewards renewable power for being clean. 

Why do I believe in the Fair Price for Energy?

Nothing would make me happier than Drift being able to deliver green power to all our customers cheaper than what it would be for them to buy non-renewable power. However, the reality is that if we did that today, we would not be driving new renewable energy coming into the grid, and therefore our impact would be very limited. Drift’s technology has helped us eliminate unnecessary costs that have no impact other than hurting our customers and yet, depending on the market conditions, we’re not always cheaper.

According to the National Renewable Energy Laboratory (NREL), there is no technical obstacle to a 100% renewable energy grid; the problem lies in the economics. Under the current market and technology landscape, at a certain point, the cost of adding additional renewable energy to a given grid system is higher than the benefits. Specifically, Jenkins and Trembath argue that due to the current economics of power markets, “It is increasingly difficult for the market share of variable renewable energy sources at the system-wide level to exceed the capacity factor of the energy source.” So if wind capacity factor was around 35% and solar was 25%, together they would cover a maximum of 60% of total electricity demand.

An important market paradox identified by Jenkins and Trembath is that the more renewable energy there is on the grid, the less money the next renewable energy generator can expect to make. Most utilities proceed to deploy electricity resources from the cheapest sources to the most expensive. Once built, the marginal cost of renewable energy is close to zero, which means they always come in at the top of the deployment order, bringing the prices down at the hours their production peaks. 

As renewable energy penetration increases, the power it supplies can swing between zero (solar at night) to more than 100% of the demand (solar at noon). When renewable energy generation exceeds demand, assuming it cannot be stored, it needs to be curtailed. Currently, power markets curtail clean power well below 100% for technical and economic reasons. On the technical side, the grid needs to maintain a level of conventional generation as operating reserves in case of unexpected equipment failure. On the economic side, it turns out that some conventional dirty power plants are expensive to turn off and turn back on, so curtailing clean energy is a more economic alternative. 

In summary, power markets punish new renewable energy for its virtues: zero marginal costs and how inexpensive it is to curtail their power flow. Drift’s Fair Price for Energy aims to fix these market imperfections by compensating renewable energy generation fairly so that more renewable energy can enter the grid. 

Characteristics of the Fair Price for Energy 

1. Hourly-real-time pricing

It’s costlier and harder to bring renewable energies into the grid at certain times of the day. That is why Drift prices renewable energy higher at the times when it is more scarce. In other words, our algorithms applies the basic rule of supply and demand: The less the supply with respect to demand, the higher the price for renewable energy generation. This matters because if we want to maximize our impact, we need to bring new generation when it’s more needed rather than when it’s more available. Our pricing can serve as an incentive for innovation or for the use of batteries to store clean power for when it’s more needed. 

2. One grid, one price

When we hear the word local, many of us think about within our city or even within our state. But in the case of electrons, the best measure of local is within the grid. Every user of electricity in one grid is, physically speaking, consuming the same mix of energy. This means that to clean the electricity I use, I need to clean my grid, not my city or my state. That is why Drift’s Fair Price of Energy is unique at a grid level. 

Drift’s mission is to maximize the impact our customers have on the environment, and that means getting to a 100% renewable energy world. That is why we have a team of economists, electrical engineers, software engineers, data scientists and energy experts developing advanced algorithms to continuously improve our 24/7 Fair Price for Energy so that we can guarantee our customers the highest impact at the lowest price possible. We sell electricity with a positive impact, not just electricity.

Let’s build a 100% renewable energy future together.
Take action today.