ee case study smart meters

8/3/2019 Ee Case Study Smart Meters

1/77

July 2010 - VaasaETT GETT

Evaluation of residential smart meterpolicies

WEC-ADEME Case studies

on Energy Efficiency Measures and Policies

Prepared by Jessica Stromback and Christophe Dromacque,

VaasaETT Global Energy Think Tank

July 2010


2/77

2

Table of Contents

Executive Summary 3

Synthesis Report ....................................................................................................... 5

Victoria (Australia) ................................................................................................... 16

South Korea ............................................................................................................. 32

California (USA) ....................................................................................................... 40

Sweden ..................................................................................................................... 55

Brazil ......................................................................................................................... 62

Glossary of Terms ................................................................................................... 71


3/77

3

Executive Summary

This report studies Smart Meter Policy for residential consumers and its influence

on the environmental benefits they can provide. Five example markets were used,placed in different geographical regions: California USA, Victoria Australia, SouthKorea, Brazil and Sweden. The study looks at challenges within the marketstructures causing an interest in Smart Meters, the problems they aim to solve, thepolicy framework put in place and the results. If a policy framework was notdesigned to bring environmental benefits, this was taken into consideration duringanalysis.

Smart Meters do not necessarily bring environmental benefits. Like many newtechnologies, their rollout requires replacing an entire, fully functional, existingsystem. Their lifespan is expected to be short, at only 15 to 20 years (rather thanover 30 years for traditional meters) and they use electricity to run which requiresextra generation to supply. The overreaching conclusion of the study is that the

policies governing smart meters, are decisive in limiting or maximizing the positiveimpacts of this technology.

Smart Meters (AMI) are measuring devices which send consumption information tothe utility using communication technology at pre-programmed intervals. They willalso include more advanced features such as outage information, two-waycommunication capabilities, a remote on/off switch etc. A fully functional AMImeter, such as those being rolled out in Australia and California, will haveapproximately 30 separate functionalities. Most of these functionalities willprimarily benefit the utility unless expressly employed toward end-consumerprogrammes with the support of regulation and supportive market structures.

Smart Meters are often marketed according to the programmes they can enable

with sufficient investment and regulatory support rather than the functionalities theyactually bring on their own. This can sometimes cause confusion and mean thatthe meters alone are seen as an answer to a wide variety of efficiency challenges.This is not the case, Smart Meter infrastructure creates a platform on which avariety of highly effective energy efficiency programmes can be built but they onlyform one partof this infrastructure, the rest is made up of regulatory structures,financial market structures, enabling communication technology, marketing andactive consumer participation. The central required element is always supportivepolicy and regulation.

Main Conclusions of the Report

1) As a technology, (without appropriate regulation) smart meters providemore benefits to the utilities than to the end consumers.

2) Smart Meters do not benefit the environment without proper regulation.

3) Smart Meter enabled programmes can provide substantial, long termsocietal and environmental benefits if they are placed in their correctposition; namely as a platform for efficiency programmes supportedthrough appropriate regulation and market structures.

4) There are basic conflicts of interest caused when a utility which earns offof electricity sales, is asked to lower those sales through helpingconsumers lower consumption. Regulation and polity can overcome this

barrier if it takes it into consideration.

5) If the correct structures are in place, and efficiency measures arerewarded, utilities and private companies tend to exceed the minimal


4/77

4

requirements set by regulators in their drive to maximize the benefits of thenew market structures.

6) Smart Meters and the communication technology required for energyefficiency programmes are expensiveat least 200 per household. Theyare therefore not necessarily appropriate tools for developing nations, orthose were household consumption is low.

7) Regulators should calculate the impact of smart meter rollout, dynamicpricing structures and new tariffs on vulnerable consumers.

8) Regulators and utilities should take into account that an increase in costsfor consumers should be included only with a method for controlling thosecosts, through easily accessible feedback information. Accurate monthlybilling has not been found satisfactory enough by residential consumers orconsumer interest groups.

The electricity market is highly regulated even when it is free. If regulatory

requirements for a successful Smart Meter rollout include environmentalbenefits, such as increased systems efficiency and lowered consumption, thenSmart Meters can and will be used to create these benefits. If regulators andpolicy makers do not make this part of their definition of success and do notsupport it with constructive policy measures, Smart Meters will not bringsubstantial environmental benefits. Policy decides the uses to which this tool canbe put.


5/77

5

Synthesis Report

Study content andmain findings

This report studies Smart Meter Policy for residential consumers and its influenceon the societal and environmental benefits they can provide. Five examplemarkets were used, placed in different geographical regions: California USA,Victoria Australia, South Korea, Brazil and Sweden. South Korea and Brazil havediscussed national rollout but have not as yet finalized their plans. The study looksat challenges within the market structures causing an interest in smart meters, theproblems they aim to solve, the policy framework put in place and the results. If apolicy framework was not designed to use the meters to lower consumption orimprove systems efficiency, this was taken into consideration during analysis.

The overreaching conclusion of the study is the policies governing smart meters,are decisive in limiting or maximizing the positive impacts of the new technology.Smart meters do not necessarily bring environmental benefits. Like many new

technologies, their rollout requires replacing an entire, fully functional, existingsystem. Their lifespan is expected to be shorter at only 15 to 20 years (rather than30 +) and they use electricity to run which requires extra generation to supply.

Smart Meters (AMI) are measuring devices which send consumption information tothe utility using communication technology at pre-programmed intervals, fromhourly to every 15 minutes. They will also include more advanced features suchas outage information, two-way communication capabilities, a remote on/off switchetc. A fully functional AMI meter, such as those being rolled out in Australia andCalifornia will have approximately 30 separate functionalities all of which willprimarily benefit the utility, unless expressly employed toward end-consumerprogrammes.

Smart meters are often marketed according to the programmes they can enablewith sufficient investment and regulatory support rather than the functionalitiesthey actually bring on their own. This can sometimes cause confusion and meanthat the meters alone are seen as an answer to a wide variety of efficiencychallenges. This is not the case, Smart meter infrastructure creates a platform onwhich a variety of highly effective energy efficiency programmes can be built butthey only form one part of this infrastructure, the rest is made up of regulatorystructures, financial market structures, enabling communication technology,marketing and active consumer participation. The central required element isalways supportive policy and regulation.

There is a basic conflict of interest for the utilities when increasing systemsefficiency and when helping end consumers to lower overall consumption. Utilities

often earn money from the volume of electricity sold. To lower can be seen aslowering profits. Unless smart meter regulation therefore requires improvedefficiency measures, utilities will have only weak incentives to use their new smartmeter technologies to help lower consumption. Sweden provides a good examplehere. If regulation requires lowered consumption and rewards success, theeffect can be the opposite, utilities and private businesses will join forces tomaximize their benefits from the regulatory structure. The results will be that theutilities will sometimes exceed the minimal regulatory requirements for efficiency.In this best-case scenario the regulation has provided the protective umbrellaunder which private business and utilities can securely create environmentallybeneficial business opportunities for themselves and the public. Californiaprovides a good example of this.

Regulation as a protection for investment

A concrete example of the influence of regulation in encouraging investment inefficiency can be seen in the Federal Energy Regulatory Commissions (FER C)


6/77

6

protective umbrella regulation for demand response, one of the main systemsefficiency programmes which smart meters enable. Demand response is definedby FERC as: Demand response is a tariff or programme established to motivatechanges in electric use by end-use customers in response to changes in the priceof electricity over time, or to give incentive payments designed to induce lowerelectricity use at times of high market prices or when grid reliability is jeopardized.(US Department of Energy) People consume more electricity at some times ofday than at others, causing daily consumption peaks. On days with extremeweather conditions these peaks can increase, causing critical peaks, which areexpensive to supply. Entire power plants must be built to supply these peaks inenergy for only a few hours a year. If these peaks in consumption can be loweredthe power plants are no longer necessary increasing systems efficiency andlowering costs.

In 2005 FERC made the decision to support the implementation of demandresponse (DR) throughout the USA. It is the policy of the United States that time-based pricing and other forms of demand responseshall be encouraged, thedeployment of such technology and devices shall be facilitated and unnecessarybarriers to demand response participation in energy, capacity and ancillary servicemarkets shall be eliminated1. (US Energy Policy Act 2005. Sec. 1252) The policy

is not specific on exactly how demand response is to be encouraged but it createsa protective framework. The impact is reflected in the increase of investment indemand response.

Figure 1: PJM Demand Side Response Estimated Revenue - The influence ofFERC regulation on the PJM market in the USA

Source: Peak Load Management Alliance

Figure 1 shows an example of the positive influence of policy. By letting theindustry know that demand response would be protected long term, there wasreason to invest in the programmes. This investment in smart meter enabledprogrammes benefit consumers through lowered energy prices and theenvironment by lowering the number of power plants.

In some market however such as in the European technology market, where theelectricity utilities are deregulated and divided into generation, transmission,distribution and retail, the perception of managers is that regulation is a greater

hindrance to energy efficiency measures than it is a benefit. Figure 2 provides theresults of a survey of 86 utility managers or market experts all of whom work with

1 US Energy Policy Act 2005. Sec. 1252


7/77

7

demand response, carried out by VaasaETT in 2009. Only 33% of respondentsspontaneously named regulation as a driver for demand response in their countrywhile 62% spontaneously named at least one regulatory factor as a barrier todemand response in their market.

Figure 2: Spontaneous responses of industry managers covering regulatorydrivers and barriers to demand response

Source: VaasaETT Global Energy Think Tank, 2009

It is also interesting to note that managers from Sweden and Italy, who alreadyhave full smart meter rollout, did not name their own smart meter regulation as adriver for demand response. This mirrors the findings of this study, that Swedishmetering regulation has not encouraged the full potential of smart meter enabledenergy efficiency or systems efficiency programmes.

Main Conclusions of the Report

1) As a technology, (without appropriate regulation) smart meters providemore benefits to the utilities than to the end consumers.

2) Smart Meters do not benefit the environment without proper regulation.

3) Smart Meter enabled programmes can provide substantial, long termsocietal and environmental benefits if they are placed in their correctposition; namely as a platform for efficiency programmes supportedthrough appropriate regulation and market structures.

4) There are basic conflicts of interest caused when a utility which earns offof electricity sales, is asked to lower those sales through helpingconsumers lower consumption. Regulation and polity can overcome this

barrier if it takes it into consideration.

5) If the correct structures are in place, and efficiency measures arerewarded, utilities and private companies tend to exceed the minimalrequirements set by regulators in their drive to maximize the benefits of thenew market structures.

6) Smart Meters and the communication technology required for energyefficiency programmes are expensiveat least 200 per household. Theyare therefore not necessarily appropriate tools for developing nations, orthose were household consumption is low.

7) Regulators should calculate the impact of smart meter rollout, dynamic

pricing structures and new tariffs on vulnerable consumers.

8) Regulators and utilities should take into account that an increase in costsfor consumers should be included only with a method for controlling those


8/77

8

costs, through easily accessible feedback information. Accurate monthlybilling has not been found satisfactory enough by residential consumers orconsumer interest groups.

Smart Meterenabledprogrammes

Smart meters can enable a variety of effective programmes. These can be dividedinto two categories. The first is systems efficiency programmes, which include all

programmes using smart metering technology to improve the overall efficiency ofthe electricity system. These are: demand response, integration of microgeneration, coordination of consumption with the availability of clean energy andthe integration of electric vehicles. All of the above are enabled by smart metersand are part of a Smart Grid future. However, most of them, such as thoseintegrating micro generation and electric vehicles, are only in the testing phase andhave not been deployed on national levels as yet. Therefore, for the purposes ofthis study, only policy supporting demand response programmes has been lookedfor in national smart meter regulation.

Systems efficiency programmes help end consumer by enabling them to lowertheir costs and also decreasing the overall costs of electricity by lowering thenumber of power plants which must be constructed and maintained.

The second type of smart meter enabled programmes encourages energyefficiency meaning that they encourage end consumers to lower their overalllevels of energy consumption. This is usually done through using the informationgathered by the meters to enable various forms of information technology, such asin-house displays, in order to raise the consumers awareness of the implicationsof their consumption habits and to help them change their behaviour and lowertheir consumption. These are commonly called feedback programmes.

Feedback programmes help the environment through lowering electricityconsumption and they also directly empower and enable consumers to lower theirown costs through knowledge and information.

Both of these types of programmes, systems efficiency and energy efficiency,enable the smart meters to directly benefit the end consumers as well as the

environment. Without these programmes most of the technologys capabilitiesbenefit the utilities only.

NOTE: For descriptions and definitions of smart meter enabled demandresponse and feedback programme types please see Glossary of Terms.

Country smartmeter policyfindings

Each of the countries in this report represents a stage in Smart Meter Rollout.Sweden has complete rollout, California and Victoria are in the midst and SouthKorea and Brazil are analysing the possibility. Below is a synopsis of the mainfindings from each market.


9/77

9

Overview of Market facts and Smart Meter Rollout Stages

Sweden

Swedish smart meter rollout of 5.3 million meters was completed July 1, 2009.The Swedish electricity market has several bodies to regulate and supervise themarket, each with a specific mandate. Energimyndigheten (the Swedish EnergyAgency) is the central administrative authority - market regulator - for the supplyand use of energy. It is responsible for implementing the energy policyprogrammes set out by the Swedish Parliament, with the objective of creating anecologically sustainable and economically viable energy system. The smartmetering regulation which resulted in the meter rollout did not originate with the

Energimyndigheten, but with the Swedish Parliament.

The legislation did not specifically require smart meters but only monthly meterreadings for all consumers, including residential consumers. The regulation wasmotivated by data-handling complications occurring when customer chose toswitch between electricity retailers. As switching levels increased, this systembecame unreliable. There were no incentives to perform well and mistakes weremade. A study found that 7% of retailer switches were completed later thanexpected usually either because information about the customer was missing, orthe retailer and the DNO had different information about the customer. In somecases the customer was never informed the switch had successfully taken placeand never received an invoice from the new retailer.

The legislation ran: In order to facilitate supplier changes and give electricitycustomers a more direct connection between consumption and billing, thegovernment has passed a decision to introduce monthly metering of electricityusage among all electricity customers by 1 July 2009. Within the given timeframe,


10/77

10

the network companies are free to decide the pace of implementation. The cost ofthe reform is estimated at around SEK 10 billion (1.1 billion) and will be paid forby the end consumers." The government also considered that a more directunderstanding of the consumption and costs would heighten general awarenessabout the electricity market and thereby increase competition.

The results: All consumers now receive accurate monthly invoices. This hascaused some shock electricity bills during the cold winter months for thoseconsumers using electric heating as prior to smart metering electricity costs wereaveraged out over the course of the year. The accurate billing may produceincreased awareness of electricity consumption and encourage increasedefficiency. This has not as yet been calculated but could possibly be up to 3-5% ofresidential consumption, if informative billing pilots in other countries are anyindication.

No other demand response or feedback rollout occurred in conjunction with thesmart metering rollout. Approximated 15% of the meters installed are capable oflittle more than the required monthly reading; therefore upgrading the system willbe expensive.

Victoria (Australia)

This study focuses on Victoria, the second most populous state in Australia with4.7 million people and 2.4 million residential electricity customers. Victoria is themost densely populated state and has a highly centralised population with over70% of Victorians living in Melbourne, the state capital and largest city.

Peak demand continues to grow at the rate of around 3% per year, driven mainlyby the increased use of air conditioning on very hot days. Currently, 13.2 % ofVictorian dwellings have electric heating and 70% have air conditioning

2. The high

proportion of air conditioner explains the needle peaks in consumption which inturn leads to two issues. Firstly, there is the issue of a potential inability of the

supply system to meet extremes of peak demand without significant newinvestment in generation and secondly, there is a cost factor; supply costs escalateexponentially on days of extreme peak demand because of the low utilization ofthe assets to cover the short duration peaks (20% of capacity is used less than10% of the time). As a result, there is well known phenomenon of cross subsidyfrom electricity customers who do not use air conditioning to those who do.Everyone has to pay for the capacity to supply the needle peaks whether arehelping to cause them or not. The Victorian Essential Services Commission hasestimated that the cross subsidies between those domestic customers who do nothave air conditioning and those who do, could be as much as $200 per customerper year.

The main goals behind the decision to roll out smart meters were peak clipping

and give customers tools to manage and diminish their electricity consumption. Itshould be noted that end-users are bearing the cost of the roll-out throughincreased distribution costs.

In February 2006, the Council of Australian Governments agreed to improve pricesignals for energy customers and investors, and committed to:

the progressive national roll out of smart electricity meters from 2007 to allowthe introduction of time of day pricing and to allow users to better manage theirdemand for peak power but only where benefits outweigh costs for residentialusers, and in accordance with an implementation plan that has regard to costs andbenefits and takes account of different market circumstances in each State andTerritory.

In July 2004 the Essential Services Commission of Victoria took a decision on a

2 Australian Bureau of Statistics, 2010


11/77

11

mandatory rollout of interval meters for electricity customers, which referred tomanually read meters. According to the Commission:

Interval meters enable retailers and customers to measure real time electricityconsumption and to send and respond to the cost-related price signals Theresponses of electricity demand to cost related prices should contribute to:

Smoothing the peaks in the electricity load profile, thus reducing the volatilityof energy prices

Improving the efficiency of the operation of the electricity wholesale market

Improving the balance between supply and demand in the wholesale market

Lowering the cost of energy by delaying investments in new infrastructure tosatisfy the future growth of, and peaks in, the demand for electricity

In addition to the demand management benefits, interval meters should:

Increase the accuracy of settlement and ensure equity among customer

Provide a digital platform for the innovation of customer services

Reduce disputes associated with, and the need for, estimated data

Improve customer transfer efficiency because a manual meter reading wouldnot be needed

The Essential Services Commission of Victoria commissioned from CRA andImpaq Consulting an advanced interval meter communications study to investigatewhether it would be cost-effective to add communications, and whether a faster

rollout would be beneficial. The consultants estimated the benefits, costs and netbenefits for various technologies relative to the costs and benefits of the rollout ofmanual interval meters. A rollout schedule at the same rate as originally planned ofa Distribution Line Carrier (DLC) private network solution has marginally negativenet benefits, but a faster rollout using DLC, mesh radio, or Power Line Carrier(PLC) should provide net benefits.

The most significant benefit derives from the avoided cost of manually read normalcycle reads, which accounts for about 45% of the total benefits. The secondlargest share of benefits, at 35% of total benefits is the avoided cost of specialmeter reads and de-energisations / reenergisations. The savings associated withavoided battery replacement accounts for about 6.5% of the total benefits. Thedemand response benefits account for 7% of total benefits. Avoided retailer costs

account for 5% of benefits. An additional $9 million in benefits is achieved byeliminating the need for Portable Data Entry devices used by meter readers.

The meter roll out was formally launched in April 2009. Only a few months later theproject started to face serious controversy. In November 2009, Victorian Auditor-General D. D. R. Pearson released an audit of the Advanced MeteringInfrastructure (AMI) project. It found that installation costs had blown out from anoriginal estimate of $800 million to more than $2 billion and criticized thetechnology used and the assumptions taken to justify the business case. Therewas also criticism of the TOU prices which were meant to cut the needle peaks. Ithad been calculated that those who did not leave their homes during the day, suchas the elderly or handicapped would be disproportionately penalized by the newpricing structure. The result has been that rollout will continue but the TOU tariffs

will no longer be mandatory. This means that the utilities will have to sell thebenefits of the tariffs to consumers in order to reach their efficiency goals.

Another criticism of the system was that feedback displays were not being


12/77

12

provided along with the meters. This is typical of other markets as well wheresmart metering was sold to the public as devices which would inform them andeducate them about their own consumption when in actual fact they would need tobuy extra feedback technology such as an in-house-display. The meters inVictoria have the capability to support in-house-displays but these displays will notbe provided by the utilities, the consumers have to buy them themselves. Whenthis was realized consumer groups accused the utilities of being misguiding.

Australian smart meter rollout will help to lower peak and overall consumption - ifthe utilities succeed in convincing the public to participate. However the regulatoryframeworks are in place to support these programmes and encourage theirsuccess it will now but up to the industry and consumers to ensure the systemfulfils its potential.

California (USA)

In California Smart Metering is integrated into a larger package to help controlconsumption as a direct method of improving security of supply for the State.

California is the USA's most populous State with about 37 million people. TheState counts 14.8 million retail energy customers which were provided with 91TWh of electricity in 2008. Household consumption is one of the lowest in thecountry with an average of 6,150 kWh per year. State-wide sales amounted to268.1 TWh while generation was only at about 208 TWh which makes Californiathe largest electricity importer in the USA.

The California Energy Crisis 2001

In 2001, California suffered from rolling blackouts due to a failed opening of theelectricity wholesale market caused largely by poor regulation and the greed and

market manipulation by the generators/Enron. The mechanisms of how thewholesale market failed are beyond the scope of this report, however the outcomewas a loss of faith in deregulation and competition and a decision to increase thepower of demand as one mechanism for controlling the power of the generators - aconclusion was reached that a factor in the California crisis was the lack ofdemand response to mitigate market power.

The California Public Utilities Commission (CPUC) began a rulemaking in June2002 which it concluded in November 2005 with the aim of developing demandresponse as a resource to enhance electric system reliability, reduce powerpurchase and individual consumer costs, and protect the environment. The desiredoutcome of this effort was that a broad spectrum of demand response programmesand tariff options would be available to customers who make their demand-

responsive resources available to the electric system.3

Subsequently the CPUCand the utilities have developed an integrated package of smart metering plusdemand response measures of direct load control and time differentiated pricingtariffs.

All of the utilities in California have now received permission to rollout smartmeters as part of a larger efficiency plans the main demand responseprogrammes in use are critical peak pricing, critical peak rebates, time of use andautomated AC thermostats. Customer feedback and education will also be usedbut sometimes as a support to the pricing programmes only.

On top of this, each utility has asked for extra funds to provide services which gobeyond the minimal requirements of the smart metering regulation. There is goodevidence that private industry as well as the utilities now have a substantial

financial stake in the success of these programmes creating green jobs and

3Decision 05-11-009 November 18, 2005, Order Instituting Rulemaking on policies and practices for advanced metering, demand response, anddynamic pricing, Rulemaking 02-06-001, http://docs.cpuc.ca.gov/PUBLISHED/FINAL_DECISION/51376.htm


13/77

13

business opportunities.

The positive cost/benefit for the utilities is directly related to how successful theyare with their demand response programmes (due to the regulatory framework inplace). The overall success of the meter rollout will now be dependent on theability of the utilities and private companies involved to educate and interestconsumers. Rollout is due to be completed in 2012 for most utilities and the fullimpact of the programmes may take a couple of years after this to be fully realized.

Brazil

Brazil, officially the Federative Republic of Brazil, is the largest country in SouthAmerica and the world's fifth largest, both by geographical area and by population.Bounded by the Atlantic Ocean on the east, Brazil has a coastline of over7,491 kilometres.

Brazil is the world's eighth largest economy by nominal GDP and

the ninth largest by purchasing power parity. Economic reforms and sustainedgrowth have given the country new international recognition.

Average household consumption is estimated at about 1,780 kWh per year andelectricity consumption historically increased at a faster path than GDP.Hydropower provided 85% of electricity generated, with smaller amounts comingfrom conventional thermal, other renewable sources and nuclear in that order.Distribution losses in 2005 were 14%, well in line with the 13.5% average for LatinAmerica but still much higher than most OECD countries. Again in 2005,interruption frequency and duration are very close to the averages for LatinAmerica as the average number of interruptions per subscriber was 12.5, whileduration of interruptions per subscriber was 16.5 hours compared to an average of13 interruptions and 14 hours for the region.

Electricity demand increased at a faster pace than electricity supply throughout the1990's. This situation was partly due to delays in power plant construction duringthe late 1980's and early 1990's and partly due to a lack of supporting regulation.As a result installed capacity expanded by only 28% over the period 1990 - 1999whereas electricity demand increased by 45%. Water reserves were then heavilyused to mitigate the insufficient supply capacity expansion. Recognizing the needto tackle the supply problem, the government launched a programme in 2000aiming to encourage investment in gas-fired power plants and develop the marketfor natural gas. Due to regulatory uncertainty and the high cost of gas whentransportation from Bolivia was factored in, the programme failed to provide strongenough incentives for new investment; only 15 of the 49 planned power plantswere built. Furthermore, most of these new power plants started operation too lateto avoid a power shortage in 2001 when an unusually dry summer reducedreservoirs to insufficient levels. Coupled with the rise in demand due to economicrecovery, it resulted in a shortage of electricity during the whole second semesterof 2001. The government imposed draconian measures to ration electricity usagethroughout the country.

Distribution companies CEMIG and AMPLA are using imported smart metertechnologies with the aim of pinpointing electricity theft. Indeed, one of the mainmotives behind the implementation of residential smart meters differs from othercountries. While in some countries advanced metering is being introduced forconservation purposes, this is not the case in Brazil, which has a generationsurplus. Rather the main motivation is fraud and theft of electricity, which reaches20% and more in some utilities, with a total value around R$5 billion (US$2.7billion) per year. In May 2010, the Brazilian Power Regulatory Agency (ANEEL)

agreed to partner with the Ministry of Science and Technology to create a standardfor the local manufacturing of smart meters. The regulator also announcedtentative plans for a nationwide rollout of smart metering, expecting to replaceabout 63 million meters by 2021. The Brazilian Electronic and Electrical


14/77

14

Association (ABINEE) is already working with the Brazilian Standards Institute todefine new standards.

Concerns in the Brazilian market include the question of how well the technologywill hold in the warm, moist climate and the expense of reaching the entirepopulation, 13 million of whom will not have the money to pay for the meters.

If smart metering is eventually mandated for Brazil, it will be largely to lower theftas well as improve efficiency. Those who live on very low incomes will most likelybe exempt from paying for the meters and the costs may be divided between thewealthier consumers and the utilities.

South Korea

South Korea, officially the Republic of Korea, is located in the southern half of theKorean Peninsula. It occupies an area of 100,032 sq kilometres and has a

population of over 48 million inhabitants. The country has only one land border 238km long with North Korea with which it is officially still at war. Korea, as one of thefirst generation Asian Tigers, has experienced tremendous economic growth overthe last decades and especially in the 1980s when it caught up with the West. Inthe 1960s, the South Korean GDP was as low as Africas poorest countries.Today, GDP per capita (PPP) stands at close to US$ 28,000 which brings it on parwith many West European countries.

As part of its liberalization efforts in 2001, Korea enacted the Electricity BusinessAct and established the Korea Electricity Commission (KOREC), the Korea PowerExchange (KPC) and decided to reorganize the national electricity companyKEPCO. KOREC took charge of the regulations in the electric power sector with

the aim of creating an environment of fair competition, protecting the rights andinterests of consumers and arbitrates disputes relating to the electricity business.

Korea faces very limited domestic natural resources as well as a challenginglocation, therefore security and continuity of supply has long been of particularimportance for the Government. It has now also expanded its focus from justsecurity of supply at all costs to also encompass economic efficiency andenvironmental protection. South Korea does not have the peak load problem othercountries have because its large industrial users already have time-of-usemetering and advanced demand side management programmes that enable themto shift their load to off-peak hours when necessary.

The 4th Basic Plan of Long-Term Electricity Supply and Demand forecasts supplymargins at peak to be between 6 and 10% until 2011 and to remain at between 12and 24% after 2012 and until 2022. Furthermore, given Korean householdsrelatively low level of electricity consumption and the fact that residentialconsumption represents only 14% of the national consumption, it is likely thatKEPCO's main goal behind its decision to rollout Smart Meters to residentialcustomers is to improve its operational efficiency. Indeed, operational benefits forthe utilities usually represent the majority of the benefit resulting from a massrollout. In the case of KEPCO, the company may have considered these benefitsalone to be enough to justify the required investment.

There is currently no specific residential Smart Meter policy in Korea. However, theelectricity network is expected to receive a massive overhaul over the next fewyears as one of the major components of the countys stimulus package. This

includes the creation of a smart grid which, according to the Ministry of KnowledgeEconomy, is expected to generate a new market worth approximately US$ 54.5bnannually, create 500,000 new jobs and reduce the countrys power consumption by3% once it is completed in 2030. Other expected benefits include a reduction in


15/77

15

carbon emissions by 41Mta and the saving of US$ 10bn a year in energy imports.The plans also call for the nationwide roll-out of smart meters, "which could bygiving end-users more information regarding daily electricity-prices, allow them tocut household power bills by around 15%". The Korean government plans to havea nationwide Smart Meter network by 2020. A new Smart Grid law is expected tobe proposed to the National Assembly during the later part of this year which willspecify meter installation schedule and features.


16/77

16

Victoria (Australia)

Smart Meter Policy and Application

National and StateEnergy marketcontext

Australia has an area of 7.7m sq. km while its population is only 21m. The majoritylive in the south eastern coastal region stretching from Adelaide in South Australia,through Melbourne in Victoria, Sydney in New South Wales, Brisbane inQueensland and up to Cairns. The government is federal in character, with aCommonwealth Government, and 6 states which are namely Victoria, New SouthWales, Queensland, South Australia, Tasmania, and Western Australia. Inaddition, there are 2 territories, Northern Territory and the Australian CapitalTerritory, which is the City of Canberra and environs. The various entities aretermed jurisdictions.

This study focuses on Victoria, the second most populous state in Australia with4.7 million people and 2.4 million residential electricity customers. Victoria is themost densely populated state and has a highly centralised population with over70% of Victorians living in Melbourne, the state capital and largest city. Victoriaalso has the particularity of being the most active electricity market in term ofcustomer switching

4. The total electricity consumption for 2007 was 35.5 TWh of

which residential customers used 12.1 TWh with an average of about 5,700 kWhper year. In 2008, over 90% of electricity was generated from brown coal whileonly about 4% of Victoria's electricity consumption came from renewable sourceswhich were mainly Hydro (52%) followed by Wind and Biomass with a about aquarter of the renewable mix each. The remaining 4% being supplied by gas

5. The

Victorian Renewable Energy Act 2006 (the Act) established the VRET scheme

which mandates Victorias consumption of electricity generated from renewablesources to reach 10% by 2016. The VRET scheme commenced operating onJanuary, 1st 2007.

The government of Victoria led the way to competition and privatization. In 1993 itrestructured the state and municipally owned electric industry into five generatingcompanies, a separate transmission company, five DNOs, and set up a power poolfor physical spot trading that commenced operation in 1994. All of the companieswere privatized by 1999. In May 1997 the Victorian market was combined withNew South Wales, and subsequently they became part of the National ElectricityMarket in December 1998. The government of Victoria set a timetable forintroducing competitive choice to customers in a phased manner culminating in fullretail competition from January 2002. The retail markets for small customers

commenced with a regulated default tariff that in Victoria was set to providesignificant headroom for competing retailers to win customers from the incumbentretailer. In consequence, the switching rate in these states was very high by theend of 2007 about 40% had switched. Now the default tariffs have been ended,and retailers are free to offer any form of pricing structure they wish. The stateregulator is now the Essential Services Commission of Victoria. Traditionally smallcustomers have had simple single register accumulating meters and are readquarterly. In 2007, the Government mandated smart meters to be rolled out byDecember 2012 though it was later postponed to December 2013.

4 World Retail Energy Market Rankings, VaasaETT Global Energy Think Tank, 2010.5 Sustainability Victoria, 2010.


17/77

17

Objectives of Statepolicy

Peak demand continues to grow at the considerable rate of around 3% per yearand is driven mainly by the increased use of air conditioning on very hot days.Currently, 13.2 % of Victorian dwellings have electric heating and 70% have acooler6. The high proportion of air conditioner explains the needle peaks inconsumption which in turn leads to two issues. Firstly, there is the issue of apotential inability of the supply system to meet extremes of peak demand withoutsignificant new investment in the electricity supply system and secondly, there is acost factor; supply costs escalate exponentially on days of extreme peak demandbecause of the low utilization of the assets to cover the short duration peaks (20%of capacity is used less than 10% of the time). As a result, there is well known aphenomenon of cross subsidy from electricity customers who do not use airconditioning to those who do. The Victorian Essential Services Commission hasestimated that the cross subsidies between those domestic customers who do nothave air conditioning and those who do, could be as much as $200 per customerper year. The main goals behind the decision to roll out smart meters are thereforepeak clipping and give customers tools to manage and diminish their electricityconsumption. It should be noted that end-users will bear the cost of the roll-outthrough increased distribution costs.

Influence from the Federal Government

In February 2006, the Council of Australian Governments agreed to improve pricesignals for energy customers and investors, and committed to:

the progressive national roll out of smart electricity meters from 2007 to a llowthe introduction of time of day pricing and to allow users to better manage theirdemand for peak power but only where benefits outweigh costs for residentialusers, and in accordance with an implementation plan that has regard to costs andbenefits and takes account of different market circumstances in each State andTerritory.

At its meeting on May 25th, 2007, the Ministerial Council on Energy (MCE) set up

a working group, which commissioned NERA as lead consultant supplemented byCRA, KPMG and Energy Market Consulting Associates to undertake a cost/benefitanalysis of the case for introducing smart meters and direct load control (DLC).The work has been undertaken in two phases:

Phase 1 addresses the question: What functionalities should be included in aminimum national functionality for a rollout of smart meters? The consultantscompleted Phase 1 in September 2007

Phase 2 addresses the further question of whether the costs of rolling-out smartmeters (or of undertaking an alternative demand management scenario) exceedthe benefits, given the particular circumstances of different jurisdictions. Theconsultants completed Phase 2 in February 2008.

The Standing Committee of Officials of the MCE published a ConsultationRegulatory Impact Statement on the Cost-Benefit of Options for National SmartMeter Roll-Out in April 2008 followed by a final Regulatory Impact Statement forDecision in June 2008. The MCE issued a Smart Meter Decision Paper on 13June 2008 followed by consultation for changing the National Electricity Law.

Smart Meters are electricity meters that are capable of both measuring andrecording energy consumption in short intervals, and of two-way communication,enabling energy providers to read and control features of the meter remotely.

There are three main potential motivations for a smart metering rollout:

1. First, to provide a capability to manage network demand where jurisdictions facesignificant maximum demand growth, in order to delay the need for expensive

6 Australian Bureau of Statistics, 2010.


18/77

18

investment in network capacity and peak generation.

2. Second, to achieve business efficiencies from the avoidance of costs, or betterdelivery of existing services (including the development of innovative new productsand increased retail competition).

3. Third, to reduce greenhouse gas emissions.

These three motivations are all reflected in the list of objectives that the MCE hasrequired a smart meter rollout to be assessed against.

For a non-smart meter rollout of direct load control (DLC) infrastructure, only thefirst and third of these drivers apply. There is no business efficiency benefitsassociated with a DLC rollout. In relation to the third driver we note that the impactof a smart metering rollout on greenhouse gas emissions will depend critically onhow demand changes as a result of changes in customer behaviour andparticularly on the extent to which demand is reduced rather than simply shiftedfrom peak to off-peak times.

NERA reiterated a view held by the Essential Services Commission of Victoria that

each of the smart meter scenarios assume that the rollout of smart meters ismandatory across all small customers. The reason for considering a mandatoryrollout is due to the market failure arising from the benefits of smart metersaccruing to both distributors and retailers, such that neither distributors norretailers would invest optimally in a smart meter rollout on its own.

Policy description

Main characteristics Policy

In July 2004 the Essential Services Commission of Victoria took a decision on a

mandatory rollout of interval meters for electricity customers7, which referred tomanually read meters. According to the Commission:

Interval meters enable retailers and customers to measure real time electricityconsumption and to send and respond to the cost-related price signals Theresponses of electricity demand to cost related prices should contribute to:

smoothing the peaks in the electricity load profile, thus reducing thevolatility of energy prices

improving the efficiency of the operation of the electricity wholesale market

improving the balance between supply and demand in the wholesalemarket

lowering the cost of energy by delaying investments in new infrastructureto satisfy the future growth of, and peaks in, the demand for electricity

These potential improvements in wholesale market efficiency are particularlyrelevant for Australias energy only wholesale market, which has weather drivenneedle peaks in demand and relatively low forecast reserve plant margins. Thesefeatures are especially relevant in the Victorian and South Australian regions of themarket.

7Essential Services Commission, Mandatory rollout of interval meters for electricity customers - Final decision, July 2004.http://www.esc.vic.gov.au/NR/rdonlyres/8FCF80D2-F7EB-4071-9C7F-A0721A95B004/0/IMRO_FinalDecisionFinal9July04.pdf


19/77

19

In addition to the demand management benefits, interval meters should:

Increase the accuracy of settlement and ensure equity among customer

Provide a digital platform for the innovation of customer services

Reduce disputes associated with, and the need for, estimated data

Improve customer transfer efficiency because a manual meter readingwould not be needed

The Commission assessed that the benefits exceeded the costs and justified amandated rollout because:

Market forces alone would fail to deliver a timely interval meter rollout ona scale sufficient to provide economies in meter manufacture, installationand reading

Regulatory intervention would be required to achieve the economicbenefits that would result from a more timely and larger scale rollout

And because of split benefits:

Individual market participants could not capture the full benefits that wouldaccrue to the market from their decisions to install interval meters

The government decided to look at the issue again and in 2005 commissionedfrom CRA and Impaq Consulting an advanced interval meter communicationsstudy

8to investigate whether it would be cost-effective to add communications,

and whether a faster rollout would be beneficial. The study evaluated the costs andbenefits of four different technologies for advanced meter communications:

Wireless networks, based on cell phone technology (GPRS or Code

Division Multiple Access)

Distribution line carrier (DLC), which injects the communications signaldownstream of the distribution transformer into the low voltage hence issuitable for urban areas where there are many customers connected to thesame low voltage transformer

Mesh radio

Power line carrier (PLC), which injects the communication signal atmedium voltage and is designed to be able to pass through the distributiontransformer. Hence it is suitable for rural areas where there are fewcustomers on a single low voltage line but many customers on the samemedium voltage feeder.

The DLC and mesh radio technologies are not suitable for use in remote ruralareas because the density of customers is too low.

The consultants estimated the benefits, costs and net benefits for varioustechnologies relative to the costs and benefits of the rollout of manual intervalmeters. A rollout schedule at the same rate as originally planned of a DLC privatenetwork solution has marginally negative net benefits, but a faster rollout usingDLC, mesh radio or PLC should provide net benefits (see cost/benefit analysis forVictoria).

The consultants recommended that the rollout of manually read meters be

8 Advanced Interval Meter Communications study, 23 December 2005.http://new.dpi.vic.gov.au/__data/assets/pdf_file/0019/15157/AMI-Study.pdf


20/77

20

cancelled and that the Victorian government and electricity supply industry shouldundertake an accelerated rollout of interval metering with advancedcommunications across the State. To that end the government should facilitate thedevelopment, in conjunction with the industry and the Essential ServicesCommission, of a common functional specification that will be mandated for smartmeters.

The government accepted the recommendations and in August 2006, Victorianlegislation was passed to give the relevant Minister the power to make Orders inconnection with the state-wide rollout of 2.4m smart meters. These powers havebeen exercised to commence the rollout at the end of 2008 and to be completedby the end of 2012 (later postponed to December 2013).

Accompanyingenergy efficiencymeasures

The Victorian Government is supportive of an Emissions Trading Scheme (ETS)as the main policy for reducing emissions. Together with a target for renewableenergy penetration, a well designed ETS is seen as the most effective way ofpromoting energy efficiency and lower carbon emissions. The Federal Governmentis leading the development of the Carbon Pollution Reduction Scheme (CRPS) inAustralia. The CPRS was a proposed cap-and-trade system of emissions

trading for greenhouse gases, due to be introduced at a national level in 2010. Itwas later abandoned in a political backflip and has now been scrapped. On April27th, 2010, the Prime Minister announced that the Government has decided todelay the implementation of the CPRS until after the current commitment period ofthe Kyoto Protocol (which ends in 2012). The Government cites the lack ofbipartisan support for the CPRS and slow international progress on climate actionfor the delay. The Prime Minister announced that the CPRS will be introduced onlywhen there is greater clarity on the actions of other major economies including theUS, China and India.

The Victorian Renewable Energy Act 2006 established the Victorian RenewableEnergy Target (VRET) scheme which mandates Victorias consumption ofelectricity generated from renewable sources be increased to 10% by 2016. The

VRET scheme was announced in June 2006 and commenced operating onJanuary, 1st 2007. It is administered by the Essential Services Commission.There are nineteen eligible sources of renewable energy listed under the VRETAct, including hydro, wave, tidal, wind, solar, geothermal and biomass. Victorianenergy retailers and large wholesale purchasers of electricity are required topurchase and surrender to Government, accredited renewable energy certificateson a yearly basis. These certificates are tradable and provide accreditedrenewable energy generators with an additional source of revenue, over-and-above the value of the electricity they produce. Over the life of the Scheme, VRETis expected to encourage more than $2 billion worth of renewable energyinvestment and more than 2,000 new jobs, mostly in regional Victoria

9.

Market Drivers

Current market levelof Smart Meterrollout in Victoria

Meter price

According to the latest estimate, the cost of the entire deployment project shouldreach $1.6 billion or $667 per meter up from $0.8 billion initially planned when theproject was launched.

The costs of thesmart metering system will be recovered over time via a supplycharge. On October 30th, 2009 the Australian Energy Regulator released itsfinalised metering charges for meters for 2010 and 2011, with different prices forthe different electricity distributors based on the choice of communications

technology, network characteristics and associated costs of rolling out smart

9Department of Primary Industries, 2010.


21/77

21

meters10. The determination results in the following charge for customers in 2010:CitiPower $104.79Jemena $134.63Powercor $96.67SP AusNet $86.10United Energy Distribution $69.21

On average, Victorians will pay $67.97 more in 2010 for metering services than in2009, with a further increase of $8.42 in 2011.

Current frequency of meter readings

Quarterly

Prevalent meter types

Four of the five DNOs will be using mesh radio for 96+% of the meters and GPRSfor the balance. Victorian electricity distributor CitiPower and Powercor willuse Landis+Gyr to provide smart meters to more than one million electricitycustomers.

Number of SM in place

100,000 in Victoria (10,000 in Melbourne) as of early June 2010

Content of Functionality requirements SM

The government of Victoria mandated in October 200711

:

smart meters for all customers

the meters to be the responsibility of the DNOs

communications technology is a decision of the distributor

minimum functionality specification of:

* Remotely measure half-hourly consumption (Remote Routine and special reads)with a capability of being read at least once every 24 hours

* Controlled load or dedicated circuit management (storage hot water)

* Remote connect and disconnect of customers entire load at meter

* Remote time clock synchronization

* Remotely measure separate exports and imports of energy

* Remote setting of times for controlled load switching

* Remote firmware upgrades

* Supply capacity control for entire customers load

* Measure power factor

* Meter loss-of-supply and outage detection

10AER, "AER makes final determination on Victorian smart meter costs and charges", October 2009.11Advanced Metering Infrastructure Minimum AMU Functionality Specification (Victoria), October 2007, Department of PrimaryIndustries.


22/77

22

* Recording of meter settings, status indicators, events

* Open ZigBee interface to home area network

* Control of other load (e.g. air conditioner at time of summer peak)

* Tamper detection

Since the DNO will be responsible for the initial rollout of meters and for the initialmeter data provider, there will be a number of bespoke communications systems(rather than open systems) for communications to the meter, but the market willstill receive its data in the standard format. The data protocol being used is theexisting one for remotely read meters, which will in due course be extended toaccommodate additional functionalities. After the initial rollout, competition forsmart meters may be available, which would mean that retailers could choose theirown metering provider (for installation etc) and meter data agent (for datacollection). But again this will not impact the use of standard protocols in thedelivery of data.

Impact/evaluation

Cost / Benefitanalysis formembers of thevalue chain

Australia

Though the following study applies to Australia in general and not to Victoria inparticular, we thought it should be included in the report due to the fact that thisstudy is known as one of the widest and most thorough Smart MeteringInfrastructure cost/benefit analysis ever conducted.

In May 2007 the Ministerial Council on Energy (MCE) set up a working group,which commissioned NERA as lead consultant supplemented by CRA, KPMG, andEnergy Market Consulting Associates to undertake a cost/benefit analysis of thecase for introducing smart meters and direct load control at a national level. Thework has been undertaken in two phases:

Phase 1 addressed the question: What functionalities should be included in aminimum national functionality for a rollout of smart meters? The consultantscompleted Phase 1 in September 2007

Phase 2 addressed the further question of whether the costs of rolling -out smartmeters (or of undertaking an alternative demand management scenario) exceedthe benefits, given the particular circumstances of different jurisdictions. Theconsultants completed Phase 2 in February 2008

In Phase 1, the consultants concluded that the meters should have the followingminimum functionalities:


23/77

23

In Phase 2, the consultants analysed the implications of four alternative scenariosand concluded that distributor-led rollout where each distribution network serviceprovider is given the responsibility for owning and installing meters and associatedmetering data services within its area of operations as a monopoly service provider

- would be the most cost effective.

The total costs of a national smart metering rollout are estimated as ranging from$2.7bn to $4.3bn in NPV terms over a 20 year period. These estimates weredeveloped through a cost build up exercise, which included estimating the costs of:

Smart meters and their installation in each jurisdiction

Communications infrastructure

Meter data and communications management systems

Market operator systems to manage changes to market settlement information

and new metering related business to business transactions

Retailer systems to support the retailer activities expected to be undertaken as aresult of the rollout of smart meters in each scenario

Distributor systems to support the distributor activities expected to be undertakenas a result of the rollout of smart meters in each scenario

The benefits associated with a national rollout of smart metering were estimated tobe between $4.5bn and $6.7bn in NPV terms over the 20 year period of analysisunder the distributor led rollout scenario.


24/77

24

Figure3: National present value of benefits and costs for DNO roll-out andDLC (Au$m)

SMI Costs Avoidedmetercosts

Distributorbusinessefficiencybenefits

Retailerbusinessefficiencybenefits

Otherbenefits

DemandResponse

NetPosition

Minimum

Net Benefit

(4,343) 1,756 2,100 98 318 250 179

MaximumNet Benefit

(2,717) 2,606 2,900 196 211 738 3,934

Exchange rate Q1 2010: 1 AU$ = 0.6543

The majority of the benefit for the Distributor-led rollout scenario results fromavoided meter costs associated with not having to replace the existing meter stock,and from business efficiency benefits for distributors (totalling approximately 39%and 44 to 46% of total benefits, respectively):

Distributor business efficiency benefits resulting from smart metering include:

* the avoided cost of routine manual meter reading* the avoided cost of special meter reads (i.e., when customers move into or out ofa premise)* the avoided costs of manual disconnections and reconnections* reductions in calls to faults and emergency lines* avoided costs of customer complaints about voltage quality of supply

Retailer benefits resulting from smart metering include:

* a reduction in call centre costs as a result of fewer high bill enquiries. But callcentre costs initially increase as customers query new tariff products that areintroduced following a smart metering rollout* a reduction in bad-debt and working capital requirements

* a reduction in hedging costs, due to interval data leading to improved forecasting;* other cost reductions, including costs for data validation and settlement andmanagement time

The final benefit category of benefits results from changes in the time of use andlevel of electricity demand by consumers which leads to:

The deferral of peak network augmentation

Reductions in retailers hedging costs as a result of reductions in peak whol esaleprices

The deferral of peak generating capacity

Reductions in the level of unserved energy, generation operating costs andcarbon emissions resulting from changes in the pattern of electricity marketdispatch.

Nationally the demand response benefits range between $250m and $738m inNPV terms over the 20 year period of the analysis (excluding the demandresponse benefits that may arise from including an interface to a HAN). Thisrepresents between 6-11% of total benefits resulting from the introduction of smartmetering. Including an interface to a HAN may increase the total demand responsebenefits by a further $169m to $925m.

The demand response benefits are calculated based on assumptions in relation tothe ToU tariffs and critical peak pricing products that may be offered following a


25/77

25

smart meter rollout and the likely take-up rate of those products12 and estimates ofthe demand response resulting from the introduction of these tariffs, which havebeen developed by NERA

13. CRA have taken these estimates of demand

response and estimated both the potential value of the network deferral benefitsthat may occur and the impact on the electricity market (including the reduction ingreenhouse gas emissions). Over the twenty year period of the cost benefitanalysis the total reduction in greenhouse cases is estimated to be between597,000 tonnes and 12.3 million tonnes.

The national aggregated results mask differences in the underlying net benefits by jurisdiction, because both the costs and benefits vary according to thecircumstances of each jurisdiction:

A distributor-led rollout of smart metering in Queensland, New South Wales,Victoria and Western Australia would deliver positive net benefits on the basis ofthe estimated avoided meter costs and business efficiencies alone. The inclusionof an interface with HAN would likely further increase the net benefits, particularly ifdirect load control was targeted to maximize both participation and the resultantnetwork deferral benefit

On a per meter basis, meter costs are higher in rural and remote areas comparedto urban areas.

In the second phase of their study, the consultants tried to determine the prospectsfor success in introducing more cost reflective time of use or critical peak pricingtariffs

14. The consultants looked closely at the behaviour of retailers and of

customers.

From the retailers perspective:

The typical domestic electricity bill is about $1,000 per annum, on which theretailer makes about $50 per customer (before interest and tax), which leavesaround $70 per customer for a retailers operating costs. One retailer stated that If

a customer calls you more than a couple of times a year, you have probably justlost your margin on that customer. Another retailer explained that for this reasonretailers really do not want their customers to care about the product

The thin retailer margins constrains the degree to which retailers are in a positionto offer differential tariffs

Most retailers were not keen on the introduction of smart meters linked withintroducing new cost reflective tariffs because the key question a retailer will askitself is: are more cost reflective tariffs going to increase the $50 margin I canmake on the typical customer?. Also, the large retailers were not keen onspending Au$50-100m on new billing and customer service systems

The typical view is that it is likely to be very difficult to sell retail products byfocusing on tariffs as the customer does not understand them and is not interestedin investing the time necessary to understand them. This is simply because theirbills are not significant enough for them to care. One retailer stated oursalespeople never talk about tariffs when trying to win a customer all they do isoffer the same basic offer, but with some alternative benefit. The retailer alsostated that if you talk about tariffs you are deadin terms of making sales

From the customers perspective:

A report by the Essential Services Commission of South Australia found therewas no evidence that small customers would accept more complicated structures

12 KPMG, Work stream 3 Retail Impacts Consultation Report (February 2008), Appendix A.13 NERA, Workstream 4 Consumer Impacts Consultation Report (February 2008), section 5.14 NERA, Report for the Ministerial Council on Energy Smart Meter Working Group, February 2008.http://www.nera.com/image/PUB_SmartMetering_ConsumerImpact_Feb2008.pdf


26/77

26

with the introduction of smart metering. They have also found low take up rates incertain jurisdictions where smart meters are voluntary

A consistent finding across all of the focus groups was that participants weremuch more willing to consider a DLC tariff option compared to other alternatives.Participants viewed DLC options as providing them with a way to do the rightthing and reduce electricity consumption without needing to think about it and inthat respect it not impacting their lifestyle. The fact that they would also reducetheir electricity costs and receive a payment for adopting DLC was viewed as abonus. In contrast to their willingness to consider DLC, the vast majority ofparticipants did not see much benefit to them in adopting critical peak pricing (i.e. atariff with a high peak price). The government of South Australia is supportingDLC. A trial was undertaken in 2007/08 under the name Beat-the-Peak whichuses a small device controlled remotely to switch off an air conditionerscompressor for some minutes for the few hours of peak demand on days of hightemperatures. There is a reduction in load of 10-20% when DLC is activated

There is a marked difference between the individual sense of responsibility toconserve energy and day to day behaviour related to saving electricity at a dayto day level the primary motivation for most consumers to save electricity is to save

money on the bill rather than actually saving or conserving energy

A study in NSW found that the cost of service for customers with an intervalmeter was lower for approximately 50% of customers and higher for the other50%; for 30% of customers it would be more than 10% higher than the currentprofiled-based cost and for 16% it would be more than 20% higher. Conversely, for25% of customers the underlying cost of service would have been more than 10%less than the current profiled-based cost. The cost of service is naturally greater forthose customers with a greater proportion of their consumption in higher-costperiods:

* it does not appear that seasonal TOU tariffs lead to a reduction in per-unit retailcosts to customers, suggesting that there was little if any price-responsive load

shifting* customers on critical peak pricing (CPP) tariffs appear to have a lower per-unitcustomer cost ($5 - 6/MWh respectively, or around 4%) compared with a controlgroup, which is a direct result of load reduction in the higher-cost CPP periods.The usage of the CPP group is around 40% less at peak times, and results insavings of between $75 and $86 per customer* CPP tariff customers also used less energy than the control group. Consequentlytheir annual bills were on average $92 (for CPP) and $139 less than for the controlgroup

Losing the cross subsidies that are implicit in profiles and increasing costs hence prices would limit the interest of some customers in moving to more costreflective tariffs

Victoria

The Essential Services Commission of Victoria commissioned from CRA andImpaq Consulting an advanced interval meter communications study

15to

investigate whether it would be cost-effective to add communications, and whethera faster rollout would be beneficial (See page 3). The consultants estimated thebenefits, costs and net benefits for various technologies relative to the costs andbenefits of the rollout of manual interval meters. A rollout schedule at the samerate as originally planned of a Distribution Line Carrier (DLC) private networksolution has marginally negative net benefits, but a faster rollout using DLC, meshradio, or Power Line Carrier (PLC) should provide net benefits.

15 Advanced Interval Meter Communications study, 23 December 2005.http://new.dpi.vic.gov.au/__data/assets/pdf_file/0019/15157/AMI-Study.pdf


27/77

27

Figure 4: Cost benefit analysis results of accelerated rollout (NPV in 2005prices over the 18 year life of the investment)

Exchange rate Q1 2010: 1 AUD = 0.6543

The most significant benefit derives from the avoided cost of manually read normalcycle reads, which accounts for about 45% of the total benefits. The secondlargest share of benefits, at 35% of total benefits is the avoided cost of specialmeter reads and de-energisations / reenergisations. The savings associated withavoided battery replacement accounts for about 6.5% of the total benefits. Thedemand response benefits account for 7% of total benefits. Avoided retailer costs

account for 5% of benefits. An additional $9 million in benefits is achieved byeliminating the need for Portable Data Entry devices used by meter readers.

Environment

Lower peak consumption should lead to lower CO2 emission given that peakgeneration is met mostly with gas and coal generation.


28/77

28

Market reaction The meter roll out was formally launched in April 2009. Only a few months later theproject started to face serious controversy. In November 2009, Victorian Auditor-General D. D. R. Pearson released an audit of the Advanced MeteringInfrastructure (AMI) project16. It found that installation costs had blown out from anoriginal estimate of $800 million to more than $2 billion and criticized thetechnology used and the assumptions taken to justify the business case.

Victorian households and consumer associations were already complaining aboutthe inflated electricity bills to pay for the smart meters. Indeed, on average,Victorians will pay $67.97 more in 2010 for metering services than in 2009, with afurther increase of $8.42 in 2011. Related to this, is the fact that the meters are notaccompanied by in-house display or other tools to help customers track theirconsumption and hence try to lower it even though it was one of the mainarguments to roll-out smart meters. Customers seeking information on their useand on peak and off-peak charges need to buy an in-home display in addition tohaving to pay for the meters. The Victorian Ministry of Energy justified this bysaying in-home displays were not mandated because it would have significantlyincreased costs to households and that alternative cheaper options, such as webportals or mobile phone applications, are being developed. Victorians startedwondering how and if the benefit to distributors of improved efficiency induced bysmart metering will flow through to consumers.

A wave of criticisms recently arose when the University of Melbourne found thatthe Federal Government's new 'smart meter' rollout for energy use could adverselyaffect the most disadvantaged households in Australia. Time-of-use pricing willseverely penalise consumers who cannot shift their use to off-peak periods. Thereport has found that pensioners, parents with young children, public housingtenants and people with disabilities will be the worst hit by the smart meter rolloutand will struggle to cope with an increase in annual electricity costs. These groupsmay be forced to forgo essential electricity use or give up other items such as foodand clothing, because of an inability to afford electricity usage."

17

In summary, the report found that dynamic pricing system could increase powerbills by up to $300 a year for low-income families which represents a 30% jump ontheir average annual power bills (about 30% of Victorian households fall into thiscategory). Other studies found similar results.

As a result of all the bad publicity and the fact that a State election will take placeat the end of this year, Victorian Energy Minister Peter Batchelor announced onMarch 22

ndan indefinite moratorium on the new electricity time-of-use (TOU)

pricing structures "because of concerns that pensioners and the poor would behardest hit by higher electricity prices". In June 2010, the Victorian governmentannounced that TOU tariffs will no longer be mandatory and people will have theright to choose whether they want to stay under the current flat rate tariffs orreceive TOU tariffs. In the meantime, the Government will commission trials to

identify the winners and losers and negotiates with distributors, retailers andconsumer groups on how to minimise the pain for those that would otherwise beworse off.

16Towards a smart grid the roll-out of Advanced Metering Infrastructure, Victorian Auditor-General, November 2009.17 Customer Protections and Smart Meters - Issues for Victoria, St Vincent de Paul Society Victoria, University of Melbourne, August2009.http://vinnies.org.au/files/NAT/SocialJustice/August09CustomerProtectionsandSmartMeters-IssuesforVictoria%28amended%29.pdf


29/77

29

Challenges /Solutions

One of the early criticisms of the programme was that in-home displays (IHD) werenot mandated together with the rollout of the meters. Smart Meters alone do notbring about consumption reductions; consumers need to be informed about currentprices and consumption levels in order to adjust to price signals. IHDs provideimmediate continuous feedback and act as constant reminders. The displays nowin production are attractive and interactive; they also provide a wide variety ofinformation results.

In a review by VaasaETT of 124 pilot projects conducted across the world 18, IHDsseem to be the most effective tool to provide information to customers; over half ofthe studies showed overall consumption reduction of between 9 and 13%. Thetools currently being developed in Victoria are mobile phone applications andwebsites. Websites require that the consumer enter a code to access the site.They do not constantly remind the consumer of their consumption level as theymust be accessed to be viewed. Though a well designed site can offer valuableinformation about the households current electricity costs, how much CO 2 they areproducing, how much they have saved or spent since last month and energysaving tips for the household, the interest level in such sites is generally low. Theaverage percentage of users of such dedicated webpage tends to be as low as 2to 5% and therefore their impact on national consumption levels will be below

measurable levels. If however, a website is part of a larger information packagethis is not necessarily the case.

Mobile phone and I-Phone application displays are becoming increasingly popularas these can warn consumers of problems while they are away or in time to reactto higher prices in the electricity market, when combined with dynamic pricingtariffs. Using phones also avoids the environmental and financial costs ofsupplying a display and can be timely for instance showing only when consumptionhas gone above the consumers set goals etc. However, given that feedbacks arelikely to be sent to only one member of the family (the owner of the electricitycontract); there is a risk that the information is not shared properly across all themembers of a multi member household.

Demand Response are programmes designed to help consumers shiftconsumption away from peak consumption times to lower consumption periods,lowering distribution and supply costs through improved load factors of thedistributor's power plants. This can be achieved through dynamic pricingmechanisms. The prices are raised at peak times and lowered at low consumptiontimes. However there are several methods and degrees of dynamic pricing,depending on the surrounding regulatory framework and the load profiles of themarket.

As we mentioned above, Smart Meters as such do not bring about energy savingsnor do they lower customer bills. They do so if the regulation surrounding themmakes it possible. TOU tariffs were mandated and were supposed to be introducedfollowing the deployment of Smart Meters in Victoria. However, due to the

backlash described above and the looming State election in late 2010, thegovernment has announced that TOU tariffs will not be mandatory and thatresidential customers will have the choice to stay on the tariff they currently have(the vast majority have a flat rate tariff). The choice can be justified as it seemsthat under the current legislation end-users and especially low income end-userswill be worse off after the roll out if TOU is made mandatory. Victorian consumerassociations have predicted that as much as 95% of customers would not switch toTOU tariffs and would remain on their current price structure (flat tariffs for the vastmajority). Based on our pilot comparison study, we believe this number is far toopessimistic. Victorian and Australian pilots have shown that customers' take up ishigh at around 35% and that participants were for the most part pleased with thetariff structures being tested and would like to remain on such tariffs if they could.Therefore, optional TOU tariffs do not mean that people will not choose them, it

means that the industry and public authorities will have to explain and sell their

18 Stromback, Dromacque, Golubkina, Lewis, Respond 2010, Demand Response pilot comparison, VaasaETT Global Energy ThinkTank, May 2010.


30/77

30

benefits: that they can benefit from more dynamic price structures and that thesecontributes to protecting the environment.

However, the consequences of this turn around are manifolds:

For the business case:

The cost/benefit analysis and the positive business case that resulted fromit were based on mandatory TOU tariffs. The opt-in approach may lowerthe expected benefits resulting from Demand Response (7% of totalbenefits in Victoria) at least in the short term as it is doubtful people willmassively sign up for TOU tariffs from the beginning. The Victoriangovernment will commission a study to assess the effect of optional TOUtariffs on the business case.

For distribution companies:

One of the main goals of the deployment of Smart Meters was to delayinvestments in new infrastructure to satisfy the future growth of, and peaks in, thedemand for electricity. For instance, SP AusNet predicted a 26% drop in peakdemand thanks to compulsory TOU pricing. Though this figure seems very high, ithighlights the fact that optional TOU tariffs fundamentally changes the businesscase. Therefore, peak demand may remain an issue in Victoria and distributionbusinesses may have to invest more than expected to meet the growth in demand.

For retailers:

If TOU tariffs are not mandatory, it will take more efforts to convincepeople to sign up for the new pricing structure. However, what might be

seen by many as a failure could be transformed as an opportunity tofurther improve benefits of the Smart Meter infrastructure on the customerbills and for the environment. Indeed, one of the risks of mandatory TOUtariffs is that retailers could feel they do not have to explain to people whatare these are tariffs for and how they can benefit from them.

What we have found in our pilot comparison study is though dynamic prices arethe best way to clip peak demands, customer education is one of the most efficientway to achieve overall consumption reductions (overall consumption reduction of6%

18) and that pilots with a strong focus on well designed feedback and education

processes have had the best results for energy efficiency as well as a high degreeof participant satisfaction. Retailers and public authorities will now be encouragedto further improve their education programmes.

For the environment:

If few people sign up for TOU tariffs (which might not be the case if propereducation work is done):

DNOs will still need to build extra peak capacity generation (usually dirtierpower plants) and it is likely that the possible benefit of Smart Meters onCO2 emissions will be lower than it could have been.

VaasaETT's survey of 124 pilots across the globe18

showed that the use ofTOU tariffs led to an average overall consumption reduction of 2% and anaverage reduction of 4% during peak hours (18% when coupled with

automation). The effect of these tariffs on energy efficiency and peakdemand could therefore be partly wasted.


31/77

31

Discussion

For residential customers:

The results and involvement of residential consumers will depend entirely on howwell the utilities manage to sell the new tariffs.

Consumers with air-conditioning could potentially benefit substantially byinvesting in automation for their air conditioning units or raising the

temperature in their homes by 2 or 3 degrees for a few hours a day. Ifthey decide that the new tariffs do not interest them, they will incur thecosts of the smart meters and not benefit from the programmes theyenable.The well documented (and unfair) phenomenon of cross subsidies fromsmaller users to larger users as a result of needle peaks in consumptionwill remain in place in Victoria.

The Victorian case highlights the importance of not only paying attention to theSmart Meters and the rollout but also to all the surrounding components whendeploying an AMI system. The Australian and Victorian legislators paid a lot ofattention to the meters themselves and conducted thorough cost/benefit analyses

to help them find the best way forward. They, however, overlooked one of the maintools to achieve peak clipping which is one of the main reasons why they areinitiating a mass rollout in the first place. Indeed, successful Demand Responseprogrammes also rely on well designed dynamic pricing structures which, in turn,need education programmes and innovative feedbacks interfaces to be understoodand taken advantage of successfully.

In this kind of situation, good communication and information become veryimportant. Victorians acceptance of the TOU tariffs is dependent on theirunderstanding the potential benefits, for themselves and the environment.(Australians are said to be particularly conscious of the environment) in addition tohave to potential, if well understood, to significantly lower their energy bills.Informative education packages showing how to best benefit from the new tariff

structures and saving figures supported by trials will crucial elements in futuresuccess.

In order to make the new tariffs fairer and therefore more acceptable politically, lowincome customers could be allowed to stay on flat tariffs. Doing so would preventthe most vulnerable from getting higher bills due to dynamic tariffs and, given thatlow income customers are anyway less likely to have power hungry appliancessuch as air conditioning, most of the benefit of dynamic tariffs on peak clipping andCO2 emission would remain intact.

In any case and as argued in the previous part, it is not necessarily a bad thing thatmandatory TOU tariffs were cancelled. Provided that Utilities and public authorities

inform customers properly, this backlash might turn out to be beneficial for theentire project, the electricity industry, customers pockets and the environment.

ReferencesEEE Limited, Henney Alex, Australia-SM-2009, Respond 2010.


32/77

32

South Korea

Smart Meter Policy and Application

National Energymarket context

South Korea, officially the Republic of Korea, is located in the southern half of theKorean Peninsula. It occupies an area of 100,032 sq kilometres and has apopulation of over 48 million inhabitants. The country has only one land border 238km long with North Korea with which it is officially still at war. Korea, as one of thefirst generation Asian Tigers, has experienced tremendous economic growth overthe last decades and especially in the 1980s when it caught up with the West. Inthe 1960s, the South Korean GDP was as low as Africas poorest countries.Today, GDP per capita (PPP) stands at close to US$ 28,000 which brings it on parwith many West European countries. A unique aspect of the Korean economy is

the existence of

ee case study smart meters

Documents