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.
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 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.