n the next decade every home and smallbusiness in Britain will have smart gas andelectricity meters installed. The plan isthe result of a business case produced bythe Department of Energy and Climate Change(Decc) which forecasts that over the next 20 yearsthe project will cost in excess of £9 billion, anddeliver benefits of more than £17 billion.This seems to be exactly the kind of invest-ment Britain needs right now – an economicallyadvantageous long-term investment in criticalinfrastructure, helping the country move to a moresustainable low-carbon future. But is the businesscase convincing enough? Are the proposed costsand benefits consistent with experiences else-where in the world? Who should foot the up-frontbill? And is it possible to make the business casefor smart metering even more compelling?It is widely accepted that installing smartmeters will be expensive. Government estimatesare that this will cost £9.2 billion over the next 20years, and two-thirds of this relates to the very vis-ible components of the deployment – the purchas-ing and installation of meters and communicationsinfrastructure. The remainder covers new operat-ing costs, the cost of the change programme, andinefficiencies from operating smart and traditionalmeters in parallel during deployment.To consider whether these estimates are rea-sonable, Britain can draw on the experiences of other markets, where millions of smart metershave been or are currently being installed. IBM’sanalysis of 27 smart metering projects in NorthAmerica shows that the up-front costs for deploy-ments delivering a similar scope to that proposedfor Britain range from £102 to £242 per meter.This covers the purchase and installation of themeter and communication assets, IT changes andproject management. The estimate for Britain is£139 per meter.This appears sensible. Britain has complexi-ties such as indoor metering, which will increasecosts, but also opportunities to be more efficient –such as deploying smart gas and electricity meterssimultaneously. Britain should also reap the ben-efits of expected decreases in smart meter compo-nent costs, which IBM analysis shows as fallingby 5-10 per cent each year.In a similar manner it is possible to comparethe detailed cost assumptions made. For exam-ple, Decc has assumed a purchase cost of £56per smart gas meter. This is a conservative esti-mate compared with the £43 per meter Italy hasassumed for its planned deployment of smart gasmeters with similar functionality, due to com-mence in 2012. Further comparisons reveal simi-lar answers – Decc’s assumptions appear robust,with a slight overall tendency towards beingconservative.These analyses show that both the overall anddetailed cost estimates for Britain appear reason-able and are consistent with other global deploy-ments. Therefore the key question should nolonger be, “are the cost estimates correct?” butinstead, “are there sufficient benefits to justifythe cost?”The government has identified £17.4 billionof expected benefits from smart metering overthe coming two decades, the lion’s share of whichcomes from operational efficiency improvementsfor suppliers, consumer energy reductions, andcarbon savings.Smart meters enable consumption to be readremotely and with much greater accuracy. Forsuppliers this should mean reduced manual meterreading costs, and reduced costs associated withhaving fewer estimated and inaccurate bills. Itshould also no longer ever be necessary to replacethe meter when a customer changes supplier ormoves on to a prepayment tariff.Hard efficiency benefits such as these areestimated at more than £5 billion. Experiencefrom elsewhere is that these benefits are achiev-able. Enel in Italy has publicly stated that it hasseen a “dramatic reduction in cash-cost per cus-tomer”, with operational savings of €49 per cus-tomer per year – more than four times the forecastBritish savings.Integral to the smart metering benefits case isthe premise that providing customers with moreaccurate and timely information will result inbehaviour change: consumers using less energyand shifting consumption to times when poweris cheaper and greener. This should help savemoney in the short term and reduce the level of generation and network asset investment requiredin the future. The British business case assumes areduction in domestic energy consumption of 2.8per cent. This is consistent, even slightly conserv-ative, when compared with publicly available datasuch as analysis by the US Pacific North WestNational Laboratory (PNNL). This estimates a 6per cent reduction.There is, however, a question mark about thelongevity of changes in consumer behaviour, soprovision of better information must be seen as afirst step. To ensure that the full potential benefitsare realised, effective consumer incentivisationthrough cost-reflective tariffs and smart deviceswhich consume energy in a more intelligent wayare necessary future steps.When such changes are put in place, the ben-efits can increase significantly. A pilot project runby PNNL integrating smart meters with smartdevices and smart grids delivered reductions of 15per cent in peak power demand and 10 per cent inconsumer energy bills.So it would seem that the expected benefitsare achievable; conservative when compared withother deployments; and sufficient to justify thecosts of introducing smart metering in Britain.Perhaps the subject that has attracted the mostcolumn inches is who should pay for smart meter-ing. Really, this is not the right question, becausewhile the benefits to energy suppliers will coversome costs, ultimately most costs will be borneby the consumer. The right questions to ask are:who should finance the programme, and how andwhen should any costs not paid for by supplierbenefits be passed on to consumers?Again, this is an area where Britain can learnfrom other markets, such as Ontario. Here, theregulator considered three payment options –general taxation, up-front consumer payment,and financing with tariff-based recovery fromconsumers. They chose a tariff recovery model.
utility week 18 June 2010
utility week 18 June 2010
The subjectthat hasattracted themost columninchesis whoshould payfor smartmetering
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Internationalcomparisons andresearch backup governmentfigures suggestingthe benefits of smart meters faroutweigh theircosts, says WillSiddall