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New global research points to importance and pre-requisites of smart meters

By Howard Porter
International Alliances Director, ESMIG

For more than a decade, the argument has raged: “Are smart meters good for consumers and the environment?”, an argument often based on partial facts or vested interests in either direction.

Over the past five years, VaasaETT has conducted the most extensive international studies of their kind, analysing Demand Response programmes across four continents. The most recent of these has been a 2011-2012 research comprising a quantitative analysis report of 100 programmes (Empower Demand 1) and an in-depth qualitative analysis report of seven of the most successful pilots (Empower Demand 2), together building the best understanding yet of the potential and determinants of success of Demand Response programmes. Both research projects were funded by the European Smart Metering Industry Group (ESMIG).

So what can we conclude from all of this research about the value of Smart Meters within the context of Demand Response and indeed energy efficiency and consumer value?

Firstly, Demand Response programmes hold massive proven potential to achieve both energy savings and peak shifting. VaasaETT’s research findings suggest average Demand Response savings of between 5-31% for smart pricing studies depending on the type of approach implemented; and average energy efficiency savings from in-home display based feedback (which is often combined with Demand Response programmes) of around 9%.

Secondly, while there is no doubt that Demand Response can take place without Smart Meters, the most effective Demand Response is achieved though dynamic pricing (advanced time-based pricing) based on Smart Meter consumption readings. Alternative solutions are simply not precise or ratifiable enough to facilitate the most effective dynamic pricing.

Naturally, the above benefits come at a cost and it is not surprising that consumers fear excessive investment costs. Privacy, health concerns and security issues may also play a role. After all, utilities have not fundamentally changed their offerings to consumers in over a century and the untransparent price rises and profits, patronising service styles, missed promises and dubious justifications of the post-privatisation and liberalisation period, have all contrived to festering trust levels between consumers and utilities companies within electricity and gas markets around the globe.

‘Empower Demand 2’ indicates however, that the main factor preventing the progress of Demand Response and indeed energy efficiency programmes is not the opposition from some consumers, but rather the lack of appropriate and effective education, communication and feedback of information to consumers, in the face of negative consumer pre-dispositions resulting from the issues mentioned above. Consumers were confronted with discussions of Smart Meter (and smart grid) infrastructure technologies, the prospect of associated costs and a plethora of related utility promises thrown in their faces in recent years, without sufficient understanding of how that technology might assist them to reduce or improve the predictability of their household costs, contribute to improved environmental consciousness, enhance their way of life or re-balance the fairness of their relationship with the utilities industry.

The research has identified new approaches to preparing the public for the smart future in ways that enable consumers to make more informed decisions and better use of smart energy demand infrastructure when it arrives. A key finding for instance is that expert public sources should initially communicate, and play a larger role in designing Demand Response programmes. Technology should be introduced to consumers gradually and the bulk of the technology should be promoted only after consumers are sufficiently educated and savvy about the relationship between their behaviour and the benefits of Demand Response. More specifically Demand Response and energy efficiency should be introduced and developed in accordance with the following stages of evolution.

Typically technology, including Smart Meters and Demand Response, has been introduced following an inverted evolution whereby technology and utility based communication has been at the fore-front, with consumer education and feedback as well as public communication being introduced as a next-step or reaction to negative publicity.

These findings do not mean however, that Smart Meter roll-out should be delayed, nor that consumers should be able to opt-in to Smart Meters. Whereas Demand Response has been shown to be more effective following opt-in, Smart Meters should be seen as a facilitating infrastructure. As with all public infrastructure, from trains to airports, roads to busses and energy transmission lines, not all who paid initially benefited equally, if at all, but the benefit to society is seen as great enough to justify the investment. 

From the early days of competition in electricity markets, it was shown that switching rates were much lower when the installation of a new meter was a pre-requisite, for reasons of both cost and hassle. For the same reasons and because marketing of Demand Response offerings will be so much simpler when the supporting infrastructure is already in place (as supported by additional empirical evidence from markets such as The Netherlands and Germany), it would perhaps be a false economy to allow opt-in for Smart Meter installation (as opposed to opt-in for personal data exchange for which opt-in may make sense) if they are deemed necessary for the future of Demand Response.

Of course not all consumers would voluntarily participate in Demand Response (our estimate is around 30-50% during the first five years or so following the availability and effective mass marketing Demand Response), but the uptake of Demand Response services would undoubtedly be far less without the mandating of Smart Meters. Consumers could though be provided with the option to upgrade or reconfigure their Smart Meters and allow the exchange of personal data if they so wish, in order to facilitate more advanced offerings.

Whichever approach is taken, crucially consumers must have access to their own consumption data, past and present, for free and any data transfer and usage must require their prior consent.

Regardless of the other benefits or costs of Smart Meters, if we want effective Demand Response, it would seem to make sense to have Smart Meters in the name of the environment.

 Figure 1. Stages of Optimal Consumer Experience Development



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