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Will smart meters benefit consumers?

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The Conversation

Smart meters are in the news again with much discussion about what Prime Minister Julia Gillard is expected to propose to the COAG meeting on Friday.

Smart meters can perform various functions, from remote meter-reading to facilitating time-of-use tariffs to the consumer. Some of the main smart-meter capabilities are to:

  • measure electricity consumed – how much and when (on a time interval basis)
  • help the customer and their supplier communicate with one another
  • store interval-data and transfer it remotely to a data collector or utility
  • display consumption, tariff and other information.

Smart meters are not an end in themselves. But they can be a way to develop a more effective “demand side” in the electricity system; right now, most of the control of electricity delivery comes from the “supply side”.

At the moment, most power users get a flat tariff, whatever time they’re using power and however much demand there is for it. Smart meters can be used by power companies to introduce time-of-use tariffs – that is, to charge based on how much demand there is for power at a particular time. If accompanied by good feedback (such as an in-home display), they can allow consumers to control when they use their power, thus controlling what they spend.

Smart meters can also improve billing systems and bring other benefits.

Costs in the electricity system (and hence impacts on customers’ electricity bills) are driven both by overall demand (the total amount of electricity consumed) and peak demand (the maximum amount consumed at any one time).

Peak demand is a particularly important driver of costs. Energy companies have to build power stations and networks to serve demand for only a small number of hours of peak demand each year, which means that this infrastructure is effectively unused for much of the time. Yet the companies who have built it will still need to recover the high fixed costs. The Australian government estimates that 25 per cent of retail electricity costs are derived from peak events – such as hot weather – that occur over a period of less than 40 hours per year.

The rapid growth of peak demand relative to overall (or average) demand has been a major factor influencing costs in the Australian electricity system. Between 2005 and 2011, peak demand increased at a rate of approximately 1.8 per cent a year, while total electricity usage grew at 0.5 per cent a year.

Although peak demand has fallen more recently this may just be due to cooler summers (and hence less use of air-conditioning). It is rather soon to say whether this drop off is a trend.

Tackling peak demand could help reduce the growth in costs. However, that there are many factors to consider in assessing whether reducing peak demand will in fact reduce costs – notably whether there is scope to defer or avoid investment. In some areas, where much investment has been made in recent years, the scope for savings may be limited.

Smart meters can deliver information, technology solutions and price signals, such as time-of-use and critical peak tariffs or rebates. They could therefore enable consumers to provide demand response in the electricity market. They could do this by electing to use less power when power is expensive.

Many time of use trials have found that the biggest reduction in peak demand comes from a combination of price signals, automated control (so consumers don’t have to do all the work to benefit from reducing demand at peak times) and clear, simple information.

Some sources say the Prime Minister is likely to propose the AEMC recommendation that smaller consumers be allowed to stay on a flat tariff when they get a smart meter, rather than being charged based on the time they are using power. This would help protect low income and vulnerable consumers from the risk of a bill shock.

It would be good practice for consumers to have a smart meter for some time before being offered a time-of-use tariff, so that they can build up a picture of their consumption (load) profile and then work out whether a time-of-use tariff would be the right choice for them.

Consumers also need ways of accessing information on their usage. A meter on its own will not do this; customers also need in home displays or web portals and these should be provided at the same time or soon after the meter has been installed. In the UK, the government requires the energy retailers (who are responsible for the roll-out) to provide every consumer with a free in-home display at the same time as their smart meter is installed – and the installer will also show the consumer how to use it.

Smart meter roll-outs can be costly however and costs may escalate beyond original estimates – as was the experience in Victoria. It certainly makes sense to undertake robust cost and benefit assessments for any major change in energy markets – including smart meter roll-outs.

There are pros and cons of all forms of roll-outs. Network led geographic roll-outs may offer economies of scale but retailer led roll-outs may allow for more effective targeting of smart meters (for example, large users could get meters first).

Whoever rolls out smart meters however, it is the consumer who will pay the costs. Consumers, therefore, should see some benefits.

Gill Owen is Research Program Leader, Monash Sustainability Institute at Monash University

This article was originally published on The Conversation. Reproduced with permission.

 

 

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  • http://thisnessofathat.blogspot.com.au/ Gillian

    We were given a smart meter when we got our solar panels in 2010. Has it shaped our usage patterns?

    Yes, somewhat. I’m now keenly aware that 2.00-8.00pm is very expensive at something like 54c/KWh.

    There’s been a stepped process in our adaptation. The first thing I did was shift discretionary use outside the 2.00-8.00 timeframe – that meant dishwasher, clothes washer and oven. Our Friday night pizza routine was scrapped immediately. Now, I think twice before planning a dinner that needs the oven. Baking, or pre-cooking food happens before 2.00pm, if I am home.

    With those changes under my belt, I recently bought a timer and put it on the fridge so it turns off between 7.00-8.00pm. That saves me an hour during peak period. And I have taken to turning off the small electric water heater under the kitchen sink. Instead of being on 24 hours a day, it’s now on for just half an hour in the early morning. The 30 litres of hot water lasts the day.

    This all seems like pretty small beer, and I haven’t particularly noticed my bills reduce, so I don’t know that smart meters will actually cause householders to reduce consumption. I guess that across hundreds of thousands of households, the small things add up.

    Nevertheless, I’m in favour of smart meters. I like the capacity they have to turn off some appliances during peak demand periods to reduce load on the network.

    Whoever is running the system in 2016 when my FIT expires will have to make it worth my while to stay on the grid. If they are going to charge me a premium for power used between 2.00-8.00, they should pay me a premium for the power I generate in that time.

    If they don’t get it right, I’ll look closely at the cost-effectiveness of batteries and management systems that will allow me to go off grid.

  • Sean

    like the article says, it needs ways for it to be easy for customers to set rules for their appliances, aircon set lower when price reaches $x
    it also needs to be transparent. not locked in for 30 mins, but set to 5min intervals like the NEM

    this could get very complex as the choke point may not be the generation capacity, rather at the zone substation or at the local transformer. having a price mechanism to the local transformer seems a more sensible idea, where a customer can buy a lower rate for so many amps of capacity 24/7 with a spot price for any excess.

    • suthnsun

      The sense I get is that peaks that are of concern are quite infrequent and that the actual aggregated demand for the peak period is probably less than 2kwh per customer , perhaps for heavy peaks it may be less than 1kwh, so it may make more sense to just add storage at the local transformer or substation level, under the control of the supplier, and excercise demand management from there. This would cost less than providing and installing every customer a smart meter and fussing about individually with demand management, it would be really easy to automate and scale and could be applied on a genuine needs basis. Modern storage such as PbC and lithium systems easily operate indefinitely at partial state of charge, respond within milliseconds and can cycle in these conditions perhaps hundreds of thousands times.

  • Paul

    This well written pragmatic article makes perfect sense, but the comments posted highlight a couple gaps and issues with smart meters and smart grid technologies delivered by utilities, and government.
    Perhaps by design the article avoids discussing costs, split incentives, and flexibility for industry as well as the user. First up there’s really only one benefit for consumers, and that’s a capability in real time – at extra cost – to see what the energy consumption is at any time.
    Sure, most retailers through the distributor or meter data manager will provide a “free” portal of some sort however, this will be aged data 4 to 6 hours old and in a fairly lumpy 30 minute block. Not very useful if you want to see what’s happening now, or checking up on what the kids are up to while you’re out at dinner or a show. The ability to associate usage cost with appliance/behavior is not apparent. Nor is disaggregation through interaction possible – without considerable extra cost.
    If the Victorian smart meter roll-out AIMRO is anything to go by then the fully implemented cost per household is an additional $120 a year – for miniscule benefit – even before real-time portals, displays and controls are added.
    The second more interesting point is the passive or non-interactive actions mentioned by one of the commentor’s, who took actions not so much because of smart meters, more so in-spite of smart meters and artificially high peak tariffs.
    Lastly, who owns the incentivisation and where is the ‘profit’ made? To my mind the evidence again shows that customers carry all the risk, receive minimal gain, while incumbent utilities are positioned to extract most of the value for a price-construct paradigm they are in control of.
    With average consumption falling, peak load growth slowing the justification for extremely high peak prices just isnt there like it used to be only a few years ago.
    Let’s get with the times. The solution is better delivered by private industry players independent of traditional utilities.
    Government needs to help facilitate that and bust the greedy status quo of utilities and their owners.

    • suthnsun

      “The solution is better delivered by private industry players independent of traditional utilities.”

      Paul , would you care to flesh out succinctly what that means?

      • Paul

        Suthnsun – In succinct terms, and not naming names, there exists in Oz a broad range of what are often called ESCO’s or energy services companies that know how to use energy demand, shift it around and reward participants on a commercial basis with far greater merit and transparency than any of the utilities can be trusted with.
        I’d rather do business with them than a multinational utility whose agenda carries a (demonstrated) prerogative that is completely self serving.

  • Mike Reeves

    Part of the problem with ‘smart meters’ is that people simply don’t believe that they are put there for their benefit. Some I have talked to are extremely alarmed at the idea of having their power disconnected remotely!
    When the heat is on, people don’t care how much it costs, they just want relief, and regard the supply of electricity as a right.
    As for supplying displays etc, with real-time prices, I just can’t see that many people taking much notice, except for some very aware ones, and how much extra do you pay for that?
    And let’s face it, some retailers are battling just to actually bill you correctly every quarter, let alone doing something as complicated as variable tariffs. Are they really up to it?