smart metering final revised
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8/8/2019 Smart Metering FINAL Revised
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art metering
In the next decade every home and small
business in Britain will have smart gas and
electricity meters installed. The plan is
the result of a business case produced by
the Department of Energy and Climate Change
(Decc) which forecasts that over the next 20 years
the project will cost in excess of 9 billion, and
deliver benefits of more than 17 billion.
This seems to be exactly the kind of invest-
ment Britain needs right now an economically
advantageous long-term investment in critical
infrastructure, helping the country move to a more
sustainable low-carbon future. But is the business
case convincing enough? Are the proposed costs
and benefits consistent with experiences else-
where in the world? Who should foot the up-front
bill? And is it possible to make the business case
for smart metering even more compelling?
It is widely accepted that installing smart
meters will be expensive. Government estimates
are that this will cost 9.2 billion over the next 20
years, and two-thirds of this relates to the very vis-
ible components of the deployment the purchas-
ing and installation of meters and communications
infrastructure. The remainder covers new operat-
ing costs, the cost of the change programme, and
inefficiencies from operating smart and traditional
meters 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 meters
have been or are currently being installed. IBMs
analysis of 27 smart metering projects in North
America shows that the up-front costs for deploy-
ments delivering a similar scope to that proposed
for Britain range from 102 to 242 per meter.
This covers the purchase and installation of the
meter and communication assets, IT changes and
project management. The estimate for Britain is
139 per meter.
This appears sensible. Britain has complexi-
ties such as indoor metering, which will increase
costs, but also opportunities to be more efficient
such as deploying smart gas and electricity meters
simultaneously. Britain should also reap the ben-
efits of expected decreases in smart meter compo-
nent costs, which IBM analysis shows as falling
by 5-10 per cent each year.
In a similar manner it is possible to compare
the detailed cost assumptions made. For exam-
ple, Decc has assumed a purchase cost of 56
per smart gas meter. This is a conservative esti-
mate compared with the 43 per meter Italy has
assumed for its planned deployment of smart gas
meters with similar functionality, due to com-
mence in 2012. Further comparisons reveal simi-
lar answers Deccs assumptions appear robust,
with a slight overall tendency towards being
conservative.
These analyses show that both the overall and
detailed cost estimates for Britain appear reason-
able and are consistent with other global deploy-
ments. Therefore the key question should no
longer be, are the cost estimates correct? but
instead, are there sufficient benefits to justify
the cost?
The government has identified 17.4 billion
of expected benefits from smart metering over
the coming two decades, the lions share of which
comes from operational efficiency improvements
for suppliers, consumer energy reductions, and
carbon savings.
Smart meters enable consumption to be read
remotely and with much greater accuracy. For
suppliers this should mean reduced manual meter
reading costs, and reduced costs associated with
having fewer estimated and inaccurate bills. It
should also no longer ever be necessary to replace
the meter when a customer changes supplier or
moves on to a prepayment tariff.
Hard efficiency benefits such as these are
estimated at more than 5 billion. Experience
from elsewhere is that these benefits are achiev-
able. Enel in Italy has publicly stated that it has
seen a dramatic reduction in cash-cost per cus-
tomer, with operational savings of 49 per cus-
tomer per year more than four times the forecast
British savings.
Integral to the smart metering benefits case is
the premise that providing customers with more
accurate and timely information will result in
behaviour change: consumers using less energy
and shifting consumption to times when power
is cheaper and greener. This should help save
money in the short term and reduce the level of
generation and network asset investment required
in the future. The British business case assumes a
reduction in domestic energy consumption of 2.8
per cent. This is consistent, even slightly conserv-
ative, when compared with publicly available datasuch as analysis by the US Pacific North West
National Laboratory (PNNL). This estimates a 6
per cent reduction.
There is, however, a question mark about the
longevity of changes in consumer behaviour, so
provision of better information must be seen as a
first step. To ensure that the full potential benefits
are realised, effective consumer incentivisation
through cost-reflective tariffs and smart devices
which consume energy in a more intelligent way
are necessary future steps.
When such changes are put in place, the ben-
efits can increase significantly. A pilot project run
by PNNL integrating smart meters with smart
devices and smart grids delivered reductions of 15
per cent in peak power demand and 10 per cent in
consumer energy bills.
So it would seem that the expected benefits
are achievable; conservative when compared with
other deployments; and sufficient to justify the
costs of introducing smart metering in Britain.
Perhaps the subject that has attracted the most
column inches is who should pay for smart meter-ing. Really, this is not the right question, because
while the benefits to energy suppliers will cover
some costs, ultimately most costs will be borne
by the consumer. The right questions to ask are:
who should finance the programme, and how and
when should any costs not paid for by supplier
benefits be passed on to consumers?
Again, this is an area where Britain can learn
from other markets, such as Ontario. Here, the
regulator considered three payment options
general taxation, up-front consumer payment,
and financing with tariff-based recovery from
consumers. They chose a tariff recovery model.
utility week 18 June 2010 19lity week 18 June 2010 www.utilityweek.co.ukwww.utilityweek.co.uk
The subject
that has
attracted the
most column
inches
is whoshould pay
for smart
metering
continued overleaf
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International
comparisons and
research back
up government
gures suggesting
the benefits of
smart meters faroutweigh their
costs, says Will
Siddall
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For Britain, payment through taxation is incon-
sistent with a competitive utilities market, and
asking consumers for up-front payment would
be unpalatable and hard to enforce. It is therefore
reasonable to assume a similar solution in Britain
industry paying the bill with recovery over time
from consumers.
N
ine billion pounds is a hefty bill for
industry to foot, especially at a time
of huge investment in areas such
as nuclear power and renewables.
This raises the likelihood of new investors being
required. Attracting this investment should be
achievable, but key to attracting finance at reason-
able rates will be ensuring that the investment is
seen as low risk. This will require a clear long-
term industry plan, a stable and agreed functional
specification, commercial meter interoperability
and regulatory stability.
Of course, even a great business case does not
always translate into a successful project that ena-
bles the benefits originally envisaged. Success isdependent on recognising and acting now in key
areas to minimise cost and risk, and maximise
benefits.
One of the most significant assumptions made
is the timing of deployment. Any delay to the
expected 2013 start date will significantly reduce
the benefits achieved. This requires an efficient
and effective change programme with a strong
central industry design function. Actions can also
be taken to accelerate the deployment start date
for example, defining the meter specification now.
Once rollout has commenced, targets must be
set that ensure suppliers do not delay deployment.
Furthermore, Britain should be more aggressive
in its deployment timescales. IBM analysis of 48
global deployments shows a typical duration of
four to six years, and that additional net benefits
of more than 1 billion could be achieved if the
British deployment was delivered in five years, not
eight as proposed. Achieving this would require
delivery excellence from suppliers, and appropri-
ate incentives (and penalties) for them to install in
those timeframes but again, this is nothing that
has not already been achieved elsewhere.
Imperative to efficient deployment and achiev-
ing enduring energy and carbon savings is effec-
tive consumer engagement. Government rightly
identifies the value of consumer awareness cam-
paigns and real-time energy displays in achieving
this, but more is needed. Crucially, there must begreater awareness of the differences in behaviour
among consumers. For example, IBM research
shows that 27 per cent of consumers say that nei-
ther money nor environmental concerns will make
them change their consumption of energy. Would
installing a real-time energy display in these cus-
tomers homes deliver any benefit? Conversely,
22 per cent of consumers want to take actions to
change their energy usage, but are constrained
by their available income. Should smart meter
deployment target these customers first?
If energy retailers in Britain are to see engage-
ment with all consumer segments, they will need
a range of approaches, from providing real-time
consumption information to those who want to
become engaged, to embedding energy man-
agement intelligence in the consumer goods of
those who have neither the time nor inclination to
change their consumption behaviour.
Finally, the opportunity for smart metering to
act as a catalyst for improvements in the structure
and processes of the utilities industry must not be
overlooked. Changes such as harmonising gas andelectricity processes and data flows, improving
the time it takes for a customer to change suppli-
er, and ensuring infrastructure is able to support
future smart water meters, are all changes that
should be recognised now, even if they are deliv-
ered in a later phase of work.
So, does this business case for smart metering
stack up? The answer has to be yes. The respon-
sibility on government and the utilities industry
now is to deliver, and deliver quickly.l
Will Siddall is advanced analytics & optimisation
leader, energy & utilities industry, IBM Global
Business Services
Email: [email protected]
20 utility week 18 June 2010
Smart metering
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