Managing Economic Uncertainty in a Smart Grid Environment

Smart grids provide an opportunity for electricity consumers to participate in the wholesale electricity market.  This can be economically advantageous if there is temporal flexibility in the consumer’s loads:  loads can be shifted from time when electricity prices are high to times when electricity is inexpensive.  However, participation in the electricity markets also brings with it risks associated with the ever-changing cost of electricity.  Periods of extreme weather, including drought, can cause marginal prices to skyrocket, while mild weather can result in consistently low prices.  Using data from the Pecan Street, Inc., a smart grid demonstration project involving 300 homes and 60 electrical vehicles in Austin, Texas, we evaluate the risk inherent in the electricity markets and provide guidance for making investment decisions in a dynamic and stochastic smart grid environment, ranging from community energy storage (CES) projects to solar thermal and photovoltaic investment.