Wednesday, March 31, 2010

Is Microsoft "Over-Selling" its Hohm System? What are the Real Energy Efficiency Gains from the Smart Grid Enabling Smart Consumers?

Information is power but will households use less power with more information? Microsoft's hohm system claims that the answer is yes but how do the smart guys up in Redmond, WA know this? Did they bother to partner with an electric utility to run a field experiment with real people and a kosher randomized treatment group and control group?

Today's breathless NY Times article (at first blush) made me think that a Ford electric vehicle that is armed with Hohm technology can recharge without cables (like a Blackberry downloading email). While I am not a physicist, it crossed my mind that this can't be right.

Now, I do agree that a world with lots of electric vehicles could overwhelm the electricity grid. Smart technologies can put at your fingertips the knowledge of when is the right time to recharge your vehicle.

"Electric vehicles will require consumers to change the way they think about personal transportation and energy use. With Hohm, Ford and Microsoft are aiming to help customers avoid unnecessary expenses by providing insight into their energy usage patterns and the ability to determine the optimal time to charge their vehicle - for example, between midnight and 6 a.m. when electricity rates are less expensive."

Do you really need a fancy Microsoft device to tell you this? My dumb blog just told you this! Such real time clues are only useful if the Obama Administration and regulators allow energy prices to fluctuate through deregulation.

Real time pricing of electricity would sharply increase demand and interest in these "smart energy software" that google and microsoft will want us to use. To invest our scarce time in optimizing home electricity use we must face serious scarcity signals. There is a fundamental complementarity here. For this "smart grid" stuff to really make an impact we need more electricity price volatility. In this case, consumers (regardless of their green politics) will demand more control over their electricity consumption.

Implicit in all of this discussion is that people do respond to information. As an economist I believe this but don't forget heterogeneous treatment effects. Some households (the more educated) are more nimble in responding than others. Information access does reduce the likelihood that you will miss out on a great deal.

Rob Jensen, my UCLA colleague, has done some of the best work on this topic. read his paper examining how households and markets are affected by information technology.