Smart meters: Controlling your energy bill?

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With smart meters gradually being rolled out across Europe, households are expected to gain full control over their electricity consumption, helping the fight against global warming and putting more renewable energy onto the electricity grid.
 

Background

There is no standard definition of smart metering, but it usually refers to using advanced meters in conjunction with communication systems to allow customers to monitor their energy consumption in real time.

In its simplest form, a smart meter electronically measures how much energy is being used and how much it costs, and then communicates it to the energy supplier and the customer.

Most current experience centres around using smart meters for electricity, but they can also be used to measure natural gas consumption. Manufacturing smart gas meters is, however, more complicated and expensive.

The foundations for rolling out smart meters in Europe were laid down in a 2006 EU directive on energy end-use efficiency and energy services (ESD; see EURACTIV LinksDossier). The directive required member states to ensure that consumers of energy and water are provided with individual meters and accurate billing, including time-of-use information.

The gas and electricity directives of the third energy package, adopted in 2009, require member states to prepare a timetable for the introduction of intelligent metering systems. In the case of electricity, at least 80% of customers should be equipped with smart meters by 2020, pending a cost-assessment study.

EU legislation on buildings has also sought to pave the way for the introduction of smart meters. In April 2009, the European Parliament voted to add a provision to the Energy Performance of Buildings Directive that would have required the installation of smart meters by default in all new buildings as well as when renovating older ones.

The final text agreed in November 2009 did not go as far, but it required member states to "encourage the introduction of intelligent metering systems" when a building is constructed or undergoes major renovation.

Issues

The ability to provide real-time electricity measurements is the main rationale behind the drive for smart meters. They are expected to lead to electricity savings, because they allow consumers to monitor their energy use in real time rather than looking at their electricity bill months later. They should also improve the accuracy of bills.

Moreover, smart metering is expected to steer price-conscious customers away from peak consumption periods, when electricity prices soar. This would alleviate pressure on the transmission network and eventually reduce the need to invest in extra generation and transmission capacity.

Managing meters remotely is also expected to bring down operational costs for energy utilities and retailers. It will eliminate the need to employ staff to physically visit locations and manually read meters. Connecting and disconnecting remotely, and detecting outages, is expected to lead to cost savings.

Real-time electricity measurement will enable a broader range of tariffs and pricing options. This would allow them to offer their customers new services and more flexible billing cycles.

Paving the way for smart grids

Smart meters are often thought of as the first step toward 'smart grids'. These are digitised electricity grids that enable two-way communication between suppliers and consumers, and feature an intelligent monitoring system to track electricity flows in all directions.

Smart meters do not in themselves constitute smart grids, but they have an important enabling role by providing bi-directional communication. They connect individual households to what is available on the network, while encouraging consumers to reduce energy consumption when power supply quality is at risk.

Policymakers are seeking to harness smart grids to contribute to fighting climate change. Not only will they help to reduce network losses, they will also allow a large amount of intermittent renewable power to be connected to the grid.

Smart grids allow consumers to play an active role in balancing the electricity system, as they will be able to sell energy back to the grid. Moreover, the system can switch appliances on and off according to the level of energy demand, saving money and keeping peak periods under control.

Finally, the anticipated large-scale uptake of electric vehicles could provide substantial electricity storage capacity as parked cars can feed electricity back into the network to offset fluctuations in renewable power or peaks in demand. It has been estimated that connecting 200,000 vehicles to the grid would be enough to cushion against consumption peaks in Germany.

State of play in Europe

Most Western European countries have already set up regulatory frameworks to roll out smart meters.

Italy was the first European country to deploy smart meters on a large scale. However, Sweden was the first to install smart meters for all its customers by end of June 2009, mandated by government regulation.

The Netherlands, Ireland, Norway, France and Spain have followed in their footsteps. Finland and the UK are the latest countries to announce roll-outs of regulated smart meters (EURACTIV 12/05/09).

In other countries, a nationwide process is being led by publicly-owned utilities, as is the case in Portugal and Malta. Despite uncertain markets, experts are expecting major projects to be developed in Central and Eastern European countries in the coming year or so.

Who pays?

Smart meters will not come free for consumers, as power companies will eventually transfer the cost onto their electricity and gas bills. However, the political rationale is that in the long run they will pay themselves back in energy savings. 

In the UK, for example, the government estimated that fitting 26 million homes with smart meters by 2020 would cost over £8 billion. But the cost would be more than compensated for by £14.5bn of savings in the operational costs of power companies and lower bills for customers, the Department of Energy and Climate Change (DECC) said.

At local level, distribution system operators (DSOs) operate the ICT systems required to manage the distribution of energy to consumers. Responsibility for investing in grid smartening therefore usually falls on them, but the benefits of the service might not.

Indeed, European DSOs have repeatedly demanded financial incentives from regulators to kick-start the process. They are worried that they might end up footing the bill while households and transmission system operators (TSOs) reap the benefits of energy savings.

In Spain, where the government has introduced an obligation to roll out smart meters by 2018, the industry says consumers will contribute around 70% of the required €1bn investment through the rental price of meters. The rest will be investment in managing the system (EURACTIV 30/11/09).

Standardisation

Standardisation of smart meters is a major issue if different metering systems are to become interoperable in the future. EU-wide standards should, for example, help to avoid a situation where customers would have to buy a new type of meter when switching energy supplier.

The European Commission issued a mandate in March 2009 for the development of European standards that allow interoperability of utility meters and allow secure data exchange. The idea is not to impose a common model in all member states but to ensure that an array of common standards is available, it said.

Data protection issues

One of the main concerns surrounding smart meters concerns the security of data. Criminals hacking into the system could use customer profiles to determine when properties are empty, for example, and burgle houses without the risk of being caught.

As well as unsolicited use of data, consumer groups have identified other privacy issues arising from the compulsory introduction of smart meters. They argue that consumers would be forced to give a lot of information about their way of life to DSOs and suppliers, who would be able to see detailed accounts of their energy use.

Moreover, not all customers can be expected to automatically cut their energy use and benefit from lower bills, which is the main selling point of intelligent meters.

While real-time meter reading is meant to spell an end to incomprehensible electricity bills, a range of new tariff options could create more confusion as households attempt to navigate between time-of-use and seasonal tariffs.

If consumers are not given comparable information about different suppliers’ tariff options, switching will remain difficult.

Positions

The European Commission has estimated that household energy bills could drop by a tenth thanks to smart metering devices.

"We must seize the chance to lead the way in energy-efficient technologies – not only because it is the best way to achieve sustainable cuts in CO2 emissions, but because the ecological potential of these technologies can open up new business opportunities for European ICT companies," said Viviane Reding, EU information society and media commissioner.

The UK government said its massive overhaul of both electricity and gas meters would empower consumers and bring to an end inaccurate billing.

"The meters most of us have in our homes were designed for a different age, before climate change. Now we need to get smarter with our energy," said Ed Miliband, the UK's energy and climate change secretary.

The European Smart Metering Industry Group (ESMIG) said that smart metering would gain increased momentum in Europe thanks to the mandatory roll-out across the EU.

"The 3rd EU Energy Package is a good start. But it is only a start. If we are going to get anywhere close to realising the smart grid in the foreseeable future, let alone to achieve the EU's 20-20-20 goals [20% increase in energy efficiency, 20% reduction of CO2 emissions, and 20% increase in renewables by 2020], we must start building the foundation right now," said Andreas Umbach, president of ESMIG.

Eurelectric, the European electricity industry association, stressed the importance of smart grids in integrating renewable energy into the grid. Although smart technology is already available, the question of how to finance a large-scale roll-out remains.

"DSOs are central in the drive towards smart retail markets, and they must therefore be financially incentivised by regulators to make their networks smarter," said Eurelectric Networks Committee Chairman Peter Birkner.

The Energy Retail Association (ERA), which represents British electricity and gas suppliers, said that the UK government's plan to roll out smart electricity and gas meters in every home kick-started preparations for smart meters, as it created a positive business case for doing so.

"The EU, the British government and the energy industry are looking for better and greener ways to produce and use energy. An important aspect in any attempt to tackle climate change is to promote energy efficiency in the home and smart meters are a key part of enabling consumers to use less energy," it said.

Enel, an Italian electricity utility, estimates that the introduction of smart meters can reduce consumption peaks by 5% as customers become more aware of their energy use.

"Moreover, following the introduction of smart meters [in Italy], the average number of minutes of service interruption per customer per year dropped from 128 minutes to 49 minutes, and the related costs for DSOs decreased significantly from 80 euros per customer to the current 49 euros per customer per year," said Livio Gallo, director of Enel's infrastructures and networks division.

Google, General Electric, the Climate Group and the NRDC, backed by a group of other companies and organisations, called on governments worldwide to give their citizens access to real-time information on home energy use.

"By empowering citizens with information and tools for managing energy, governments and businesses around the world can harness the power of hundreds of millions of people to fight climate change – and save consumers hundreds of billions of dollars in the process," they said.

Microsoft called on governments to subsidise broad deployment of smart meters "necessary for many IT-enabled solutions" that can help reduce carbon emissions through energy efficiency and the use of renewable energy sources.

"One challenge to relying on renewable energy sources such as solar and wind power is their intermittent availability. IT-enabled electrical appliances equipped with smart meters can help smooth these energy fluctuations by shifting consumer demand from periods when energy is scarce and expensive to times when it is more available and cheaper," it said.

The Climate Group's Smart 2020 report found in 2008 that smart grid technologies could reduce global CO2 emissions by 2.03 gigatonnes of CO2 equivalent in 2020.

"Homes and offices with smart meters are the first step to a smart home and a smart grid," it said.

Timeline

  • April 2006: EU directive on energy end-use efficiency and energy services lays down foundations for smart meters.
  • 13 July 2009: Third energy package requires member states to adopt timetable for rolling out smart meters (EURACTIV 25/03/09).
  • 9 Oct. 2009: Commission adopts recommendations on mobilising ICT technologies for transition to low-carbon economy (EURACTIV 12/10/09).
  • 17 Nov. 2009: Agreement on the Energy Performance of Buildings Directive requires member states to develop national plans to install smart meters (EURACTIV 18/11/09).
  • 2020: At least 80% of EU consumers to have intelligent metering systems.

Further Reading

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