Documents
Resources
Learning Center
Upload
Plans & pricing Sign in
Sign Out

Evaluation of residential Smart Meter programmes

VIEWS: 99 PAGES: 77

									Evaluation of residential smart meter
               policies
         WEC-ADEME Case studies
  on Energy Efficiency Measures and Policies


Prepared by Jessica Stromback and Christophe Dromacque,
          VaasaETT Global Energy Think Tank

                  July 2010




                                     July 2010 - VaasaETT GETT
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




                                                                                                                                      2
              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, South
Korea, Brazil and Sweden. The study looks at challenges within the market
structures causing an interest in Smart Meters, the problems they aim to solve, the
policy framework put in place and the results. If a policy framework was not
designed to bring environmental benefits, this was taken into consideration during
analysis.

Smart Meters do not necessarily bring environmental benefits. Like many new
technologies, their rollout requires replacing an entire, fully functional, existing
system. Their lifespan is expected to be short, at only 15 to 20 years (rather than
over 30 years for traditional meters) and they use electricity to run – which requires
extra generation to supply. The overreaching conclusion of the study is that the
policies governing smart meters, are decisive in limiting or maximizing the positive
impacts of this technology.

Smart Meters (AMI) are measuring devices which send consumption information to
the utility using communication technology at pre-programmed intervals. They will
also include more advanced features such as outage information, two-way
communication capabilities, a remote on/off switch etc. A fully functional AMI
meter, such as those being rolled out in Australia and California, will have
approximately 30 separate functionalities. Most of these functionalities will
primarily benefit the utility unless expressly employed toward end-consumer
programmes 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 they
actually bring on their own. This can sometimes cause confusion and mean that
the 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 a
variety of highly effective energy efficiency programmes can be built but they only
form one part of this infrastructure, the rest is made up of regulatory structures,
financial market structures, enabling communication technology, marketing and
active consumer participation. The central required element is always supportive
policy and regulation.


Main Conclusions of the Report

    1) As a technology, (without appropriate regulation) smart meters provide
       more 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 term
       societal and environmental benefits if they are placed in their correct
       position; namely as a platform for efficiency programmes supported
       through appropriate regulation and market structures.

    4) There are basic conflicts of interest caused when a utility which earns off
       of electricity sales, is asked to lower those sales through helping
       consumers 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 are
       rewarded, utilities and private companies tend to exceed the minimal


                                                                                         3
       requirements set by regulators in their drive to maximize the benefits of the
       new market structures.

   6) Smart Meters and the communication technology required for energy
      efficiency programmes are expensive – at least €200 per household. They
      are therefore not necessarily appropriate tools for developing nations, or
      those 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 costs
      for consumers should be included only with a method for controlling those
      costs, through easily accessible feedback information. Accurate monthly
      billing has not been found satisfactory enough by residential consumers or
      consumer interest groups.



The electricity market is highly regulated even when it is “free”. If regulatory
requirements for a “successful” Smart Meter rollout include environmental
benefits, such as increased systems efficiency and lowered consumption, then
Smart Meters can and will be used to create these benefits. If regulators and
policy makers do not make this part of their definition of “success” and do not
support it with constructive policy measures, Smart Meters will not bring
substantial environmental benefits. Policy decides the uses to which this tool can
be put.




                                                                                       4
                                     Synthesis Report


Study content and   This report studies Smart Meter Policy for residential consumers and its influence
main findings       on the societal and environmental benefits they can provide. Five example
                    markets were used, placed in different geographical regions: California USA,
                    Victoria Australia, South Korea, Brazil and Sweden. South Korea and Brazil have
                    discussed national rollout but have not as yet finalized their plans. The study looks
                    at challenges within the market structures causing an interest in smart meters, the
                    problems they aim to solve, the policy framework put in place and the results. If a
                    policy framework was not designed to use the meters to lower consumption or
                    improve 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, existing
                    system. Their lifespan is expected to be shorter at only 15 to 20 years (rather than
                    30 +) and they use electricity to run – which requires extra generation to supply.

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

                    Smart meters are often marketed according to the programmes they can enable
                    with sufficient investment and regulatory support – rather than the functionalities
                    they actually bring on their own. This can sometimes cause confusion and mean
                    that the 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 a variety of highly effective energy efficiency programmes can be built – but
                    they only form one part of this infrastructure, the rest is made up of regulatory
                    structures, financial market structures, enabling communication technology,
                    marketing and active consumer participation. The central required element is
                    always supportive policy and regulation.

                    There is a basic conflict of interest for the utilities when increasing systems
                    efficiency and when helping end consumers to lower overall consumption. Utilities
                    often earn money from the volume of electricity sold. To lower can be seen as
                    lowering profits. Unless smart meter regulation therefore requires improved
                    efficiency measures, utilities will have only weak incentives to use their new smart
                    meter technologies to help lower consumption. Sweden provides a good example
                    here. If regulation requires lowered consumption – and rewards success, the
                    effect can be the opposite, utilities and private businesses will join forces to
                    maximize their benefits from the regulatory structure. The results will be that the
                    utilities will sometimes exceed the minimal regulatory requirements for efficiency.
                    In this best-case scenario the regulation has provided the protective umbrella
                    under which private business and utilities can securely create environmentally
                    beneficial business opportunities for themselves and the public. California
                    provides a good example of this.

                    Regulation as a protection for investment

                    A concrete example of the influence of regulation in encouraging investment in
                    efficiency can be seen in the Federal Energy Regulatory Commission‟s (FERC)

                                                                                                            5
                             protective “umbrella” regulation for demand response, one of the main systems
                             efficiency programmes which smart meters enable. Demand response is defined
                             by FERC as: “Demand response is a tariff or programme established to motivate
                             changes in electric use by end-use customers in response to changes in the price
                             of electricity over time, or to give incentive payments designed to induce lower
                             electricity use at times of high market prices or when grid reliability is jeopardized.”
                             (US Department of Energy) People consume more electricity at some times of
                             day than at others, causing daily consumption peaks. On days with extreme
                             weather conditions these peaks can increase, causing critical peaks, which are
                             expensive to supply. Entire power plants must be built to supply these peaks in
                             energy for only a few hours a year. If these peaks in consumption can be lowered
                             the power plants are no longer necessary – increasing systems efficiency and
                             lowering costs.

                             In 2005 FERC made the decision to support the implementation of demand
                             response (DR) throughout the USA. “It is the policy of the United States that time-
                             based pricing and other forms of demand response…shall be encouraged, the
                             deployment of such technology and devices… shall be facilitated and unnecessary
                             barriers to demand response participation in energy, capacity and ancillary service
                                                          1
                             markets shall be eliminated” . (US Energy Policy Act 2005. Sec. 1252) The policy
                             is not specific on exactly how demand response is to be encouraged but it creates
                             a protective framework. The impact is reflected in the increase of investment in
                             demand response.


                             Figure 1: PJM Demand Side Response Estimated Revenue - The influence of
                             FERC 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 the
                             industry know that demand response would be protected long term, there was
                             reason to invest in the programmes. This investment in smart meter enabled
                             programmes benefit consumers through lowered energy prices and the
                             environment by lowering the number of power plants.

                             In some market however such as in the European technology market, where the
                             electricity 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 the
                             results of a survey of 86 utility managers or market experts all of whom work with

1
    US Energy Policy Act 2005. Sec. 1252


                                                                                                                         6
demand response, carried out by VaasaETT in 2009. Only 33% of respondents
spontaneously named regulation as a driver for demand response in their country
while 62% spontaneously named at least one regulatory factor as a barrier to
demand response in their market.

Figure 2: Spontaneous responses of industry managers covering regulatory
drivers 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 already
have full smart meter rollout, did not name their own smart meter regulation as a
driver for demand response. This mirrors the findings of this study, that Swedish
metering regulation has not encouraged the full potential of smart meter enabled
energy efficiency or systems efficiency programmes.


Main Conclusions of the Report

   1) As a technology, (without appropriate regulation) smart meters provide
      more 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 term
      societal and environmental benefits if they are placed in their correct
      position; namely as a platform for efficiency programmes supported
      through appropriate regulation and market structures.

   4) There are basic conflicts of interest caused when a utility which earns off
      of electricity sales, is asked to lower those sales through helping
      consumers 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 are
      rewarded, utilities and private companies tend to exceed the minimal
      requirements set by regulators in their drive to maximize the benefits of the
      new market structures.

   6) Smart Meters and the communication technology required for energy
      efficiency programmes are expensive – at least €200 per household. They
      are therefore not necessarily appropriate tools for developing nations, or
      those 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 costs
        for consumers should be included only with a method for controlling those


                                                                                          7
                        costs, through easily accessible feedback information. Accurate monthly
                        billing has not been found satisfactory enough by residential consumers or
                        consumer interest groups.


Smart Meter
                Smart meters can enable a variety of effective programmes. These can be divided
enabled
                into two categories. The first is systems efficiency programmes, which include all
programmes
                programmes using smart metering technology to improve the overall efficiency of
                the electricity system. These are: demand response, integration of micro
                generation, coordination of consumption with the availability of clean energy and
                the integration of electric vehicles. All of the above are enabled by smart meters
                and are part of a Smart Grid future. However, most of them, such as those
                integrating micro generation and electric vehicles, are only in the testing phase and
                have not been deployed on national levels as yet. Therefore, for the purposes of
                this study, only policy supporting demand response programmes has been looked
                for in national smart meter regulation.
                Systems efficiency programmes help end consumer by enabling them to lower
                their costs and also decreasing the overall costs of electricity by lowering the
                number of power plants which must be constructed and maintained.
                The second type of smart meter enabled programmes encourages energy
                efficiency – meaning that they encourage end consumers to lower their overall
                levels of energy consumption. This is usually done through using the information
                gathered by the meters to enable various forms of information technology, such as
                in-house displays, in order to raise the consumer‟s awareness of the implications
                of their consumption habits and to help them change their behaviour and lower
                their consumption. These are commonly called feedback programmes.
                Feedback programmes help the environment through lowering electricity
                consumption and they also directly empower and enable consumers to lower their
                own 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 technology‟s capabilities
                benefit the utilities only.
                NOTE: For descriptions and definitions of smart meter enabled demand
                response and feedback programme types please see Glossary of Terms.




                Each of the countries in this report represents a stage in Smart Meter Rollout.
Country smart
                Sweden has complete rollout, California and Victoria are in the midst and South
meter policy
                Korea and Brazil are analysing the possibility. Below is a synopsis of the main
findings
                findings from each market.




                                                                                                        8
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 the
market, each with a specific mandate. Energimyndigheten (the Swedish Energy
Agency) is the central administrative authority - market regulator - for the supply
and use of energy. It is responsible for implementing the energy policy
programmes set out by the Swedish Parliament, with the objective of „creating an
ecologically sustainable and economically viable energy system‟. The smart
metering 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 meter
readings for all consumers, including residential consumers. The regulation was
motivated by data-handling complications occurring when customer chose to
switch between electricity retailers. As switching levels increased, this system
became unreliable. There were no incentives to perform well and mistakes were
made. A study found that 7% of retailer switches were completed later than
expected usually either because information about the customer was missing, or
the retailer and the DNO had different information about the customer. In some
cases the customer was never informed the switch had successfully taken place
and never received an invoice from the new retailer.

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


                                                                                      9
                               the network companies are free to decide the pace of implementation. The cost of
                               the reform is estimated at around SEK 10 billion (1.1 billion€) and will be paid for
                               by the end consumers." The government also considered that a more direct
                               understanding of the consumption and costs would heighten general awareness
                               about the electricity market and thereby increase competition.

                               The results: All consumers now receive accurate monthly invoices. This has
                               caused some shock electricity bills during the cold winter months for those
                               consumers using electric heating as prior to smart metering electricity costs were
                               averaged out over the course of the year. The accurate billing may produce
                               increased awareness of electricity consumption and encourage increased
                               efficiency. This has not as yet been calculated but could possibly be up to 3-5% of
                               residential consumption, if informative billing pilots in other countries are any
                               indication.

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


                               Victoria (Australia)

                               This study focuses on Victoria, the second most populous state in Australia with
                               4.7 million people and 2.4 million residential electricity customers. Victoria is the
                               most densely populated state and has a highly centralised population with over
                               70% 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 mainly
                               by the increased use of air conditioning on very hot days. Currently, 13.2 % of
                                                                                                        2
                               Victorian dwellings have electric heating and 70% have air conditioning . The high
                               proportion of air conditioner explains the needle peaks in consumption which in
                               turn 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 new
                               investment in generation and secondly, there is a cost factor; supply costs escalate
                               exponentially on days of extreme peak demand because 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 phenomenon of cross subsidy
                               from 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 are
                               helping to cause them or not. The Victorian Essential Services Commission has
                               estimated that the cross subsidies between those domestic customers who do not
                               have air conditioning and those who do, could be as much as $200 per customer
                               per 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. It
                               should be noted that end-users are bearing the cost of the roll-out through
                               increased distribution costs.

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

                               “…the progressive national roll out of „smart‟ electricity meters from 2007 to allow
                               the introduction of time of day pricing and to allow users to better manage their
                               demand for peak power but only where benefits outweigh costs for residential
                               users, and in accordance with an implementation plan that has regard to costs and
                               benefits and takes account of different market circumstances in each State and
                               Territory.”

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

2
    Australian Bureau of Statistics, 2010


                                                                                                                   10
mandatory rollout of interval meters for electricity customers”, which referred to
manually read meters. According to the Commission:

“Interval meters enable retailers and customers to measure real time electricity
consumption and to send and respond to the cost-related price signals… The
responses of electricity demand to cost related prices should contribute to:

•     Smoothing the peaks in the electricity load profile, thus reducing the volatility
of 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 to
satisfy 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 would
not be needed”


The Essential Services Commission of Victoria commissioned from CRA and
Impaq Consulting an advanced interval meter communications study to investigate
whether it would be cost-effective to add communications, and whether a faster
rollout would be beneficial. The consultants estimated the benefits, costs and net
benefits for various technologies relative to the costs and benefits of the rollout of
manual interval meters. A rollout schedule at the same rate as originally planned of
a Distribution Line Carrier (DLC) private network solution has marginally negative
net 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 normal
cycle reads, which accounts for about 45% of the total benefits. The second
largest share of benefits, at 35% of total benefits is the avoided cost of special
meter reads and de-energisations / reenergisations. The savings associated with
avoided battery replacement accounts for about 6.5% of the total benefits. The
demand response benefits account for 7% of total benefits. Avoided retailer costs
account for 5% of benefits. An additional $9 million in benefits is achieved by
eliminating 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 the
project started to face serious controversy. In November 2009, Victorian Auditor-
General D. D. R. Pearson released an audit of the Advanced Metering
Infrastructure (AMI) project. It found that installation costs had blown out from an
original estimate of $800 million to more than $2 billion and criticized the
technology used and the assumptions taken to justify the business case. There
was also criticism of the TOU prices which were meant to cut the needle peaks. It
had been calculated that those who did not leave their homes during the day, such
as the elderly or handicapped would be disproportionately penalized by the new
pricing 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 the
benefits of the tariffs to consumers in order to reach their efficiency goals.

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


                                                                                      11
                              provided along with the meters. This is typical of other markets as well where
                              smart metering was sold to the public as devices which would inform them and
                              educate them about their own consumption when in actual fact they would need to
                              buy extra feedback technology such as an in-house-display. The meters in
                              Victoria have the capability to support in-house-displays but these displays will not
                              be provided by the utilities, the consumers have to buy them themselves. When
                              this was realized consumer groups accused the utilities of being misguiding.

                              Australian smart meter rollout will help to lower peak and overall consumption - if
                              the utilities succeed in convincing the public to participate. However the regulatory
                              frameworks are in place to support these programmes and encourage their
                              success – it will now but up to the industry and consumers to ensure the system
                              fulfils its potential.



                              California (USA)

                              In California Smart Metering is integrated into a larger package to help control
                              consumption 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. The
                              State counts 14.8 million retail energy customers which were provided with 91
                              TWh of electricity in 2008. Household consumption is one of the lowest in the
                              country with an average of 6,150 kWh per year. State-wide sales amounted to
                              268.1 TWh while generation was only at about 208 TWh which makes California
                              the largest electricity importer in the USA.

                              The California Energy Crisis 2001

                              In 2001, California suffered from rolling blackouts due to a failed opening of the
                              electricity wholesale market – caused largely by poor regulation and the greed and
                              market manipulation by the generators/Enron. The mechanisms of how the
                              wholesale market failed are beyond the scope of this report, however the outcome
                              was a loss of faith in deregulation and competition and a decision to increase the
                              power of demand as one mechanism for controlling the power of the generators - a
                              conclusion was reached that a factor in the California crisis was the lack of
                              demand response to mitigate market power.

                              The California Public Utilities Commission (CPUC) began a rulemaking in June
                              2002 which it concluded in November 2005 with the aim of “developing demand
                              response as a resource to enhance electric system reliability, reduce power
                              purchase and individual consumer costs, and protect the environment. The desired
                              outcome of this effort was that a broad spectrum of demand response programmes
                              and tariff options would be available to customers who make their demand-
                                                                                     3
                              responsive resources available to the electric system. ” Subsequently the CPUC
                              and the utilities have developed an integrated package of smart metering plus
                              demand response measures of direct load control and time differentiated pricing
                              tariffs.
                              All of the utilities in California have now received permission to rollout smart
                              meters as part of a larger efficiency plans – the main demand response
                              programmes in use are critical peak pricing, critical peak rebates, time of use and
                              automated AC thermostats. Customer feedback and education will also be used
                              but sometimes as a support to the pricing programmes only.
                              On top of this, each utility has asked for extra funds to provide services which go
                              beyond the minimal requirements of the smart metering regulation. There is good
                              evidence that private industry as well as the utilities now have a substantial
                              financial stake in the success of these programmes creating green jobs and

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


                                                                                                                                            12
business opportunities.
The positive cost/benefit for the utilities is directly related to how successful they
are with their demand response programmes (due to the regulatory framework in
place). The overall success of the meter rollout will now be dependent on the
ability of the utilities and private companies involved to educate and interest
consumers. Rollout is due to be completed in 2012 for most utilities and the full
impact 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 South
America 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 over
7,491 kilometres. Brazil is the world's eighth largest economy by nominal GDP and
the ninth largest by purchasing power parity. Economic reforms and sustained
growth have given the country new international recognition.


Average household consumption is estimated at about 1,780 kWh per year and
electricity consumption historically increased at a faster path than GDP.
Hydropower provided 85% of electricity generated, with smaller amounts coming
from 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 Latin
America but still much higher than most OECD countries. Again in 2005,
interruption frequency and duration are very close to the averages for Latin
America as the average number of interruptions per subscriber was 12.5, while
duration of interruptions per subscriber was 16.5 hours compared to an average of
13 interruptions and 14 hours for the region.
Electricity demand increased at a faster pace than electricity supply throughout the
1990's. This situation was partly due to delays in power plant construction during
the 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 - 1999
whereas electricity demand increased by 45%. Water reserves were then heavily
used to mitigate the insufficient supply capacity expansion. Recognizing the need
to tackle the supply problem, the government launched a programme in 2000
aiming to encourage investment in gas-fired power plants and develop the market
for natural gas. Due to regulatory uncertainty and the high cost of gas when
transportation from Bolivia was factored in, the programme failed to provide strong
enough incentives for new investment; only 15 of the 49 planned power plants
were built. Furthermore, most of these new power plants started operation too late
to avoid a power shortage in 2001 when an unusually dry summer reduced
reservoirs to insufficient levels. Coupled with the rise in demand due to economic
recovery, it resulted in a shortage of electricity during the whole second semester
of 2001. The government imposed draconian measures to ration electricity usage
throughout the country.

Distribution companies CEMIG and AMPLA are using imported smart meter
technologies with the aim of pinpointing electricity theft. Indeed, one of the main
motives behind the implementation of residential smart meters differs from other
countries. While in some countries advanced metering is being introduced for
conservation purposes, this is not the case in Brazil, which has a generation
surplus. Rather the main motivation is fraud and theft of electricity, which reaches
20% and more in some utilities, with a total value around R$5 billion (US$2.7
billion) per year. In May 2010, the Brazilian Power Regulatory Agency (ANEEL)
agreed to partner with the Ministry of Science and Technology to create a standard
for the local manufacturing of smart meters. The regulator also announced
tentative plans for a nationwide rollout of smart metering, expecting to replace
about 63 million meters by 2021. The Brazilian Electronic and Electrical


                                                                                     13
Association (ABINEE) is already working with the Brazilian Standards Institute to
define new standards.

Concerns in the Brazilian market include the question of how well the technology
will hold in the warm, moist climate and the expense of reaching the entire
population, 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 theft
as well as improve efficiency. Those who live on very low incomes will most likely
be exempt from paying for the meters and the costs may be divided between the
wealthier consumers and the utilities.




South Korea


South Korea, officially the Republic of Korea, is located in the southern half of the
Korean 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 238
km long with North Korea with which it is officially still at war. Korea, as one of the
first generation Asian Tigers, has experienced tremendous economic growth over
the last decades and especially in the 1980‟s when it caught up with the West. In
the 1960‟s, the South Korean GDP was as low as Africa‟s poorest countries.
Today, GDP per capita (PPP) stands at close to US$ 28,000 which brings it on par
with many West European countries.


As part of its liberalization efforts in 2001, Korea enacted the Electricity Business
Act and established the Korea Electricity Commission (KOREC), the Korea Power
Exchange (KPC) and decided to reorganize the national electricity company
KEPCO. KOREC took charge of the regulations in the electric power sector with
the aim of creating an environment of fair competition, protecting the rights and
interests of consumers and arbitrates disputes relating to the electricity business.


Korea faces very limited domestic natural resources as well as a challenging
location, therefore security and continuity of supply has long been of particular
importance for the Government. It has now also expanded its focus from just
security of supply at all costs to also encompass economic efficiency and
environmental protection. South Korea does not have the peak load problem other
countries have because its large industrial users already have time-of-use
metering and advanced demand side management programmes that enable them
to shift their load to off-peak hours when necessary.
The 4th Basic Plan of Long-Term Electricity Supply and Demand forecasts supply
margins at peak to be between 6 and 10% until 2011 and to remain at between 12
and 24% after 2012 and until 2022. Furthermore, given Korean households‟
relatively low level of electricity consumption and the fact that residential
consumption represents only 14% of the national consumption, it is likely that
KEPCO's main goal behind its decision to rollout Smart Meters to residential
customers is to improve its operational efficiency. Indeed, operational benefits for
the utilities usually represent the majority of the benefit resulting from a mass
rollout. In the case of KEPCO, the company may have considered these benefits
alone to be enough to justify the required investment.
There is currently no specific residential Smart Meter policy in Korea. However, the
electricity network is expected to receive a massive overhaul over the next few
years as one of the major components of the county‟s stimulus package. This
includes the creation of a smart grid which, according to the Ministry of Knowledge
Economy, is expected to generate a new market worth approximately US$ 54.5bn
annually, create 500,000 new jobs and reduce the country‟s power consumption by
3% once it is completed in 2030. Other expected benefits include a reduction in


                                                                                      14
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 by
giving end-users more information regarding daily electricity-prices, allow them to
cut household power bills by around 15%". The Korean government plans to have
a nationwide Smart Meter network by 2020. A new Smart Grid law is expected to
be proposed to the National Assembly during the later part of this year which will
specify meter installation schedule and features.




                                                                                  15
                                               Victoria (Australia)


                                                   Smart Meter Policy and Application



National and State           Australia has an area of 7.7m sq. km while its population is only 21m. The majority
Energy market                live in the south eastern coastal region stretching from Adelaide in South Australia,
context                      through Melbourne in Victoria, Sydney in New South Wales, Brisbane in
                             Queensland and up to Cairns. The government is federal in character, with a
                             Commonwealth Government, and 6 states which are namely Victoria, New South
                             Wales, Queensland, South Australia, Tasmania, and Western Australia. In
                             addition, there are 2 territories, Northern Territory and the Australian Capital
                             Territory, which is the City of Canberra and environs. The various entities are
                             termed “jurisdictions”.

                             This study focuses on Victoria, the second most populous state in Australia with
                             4.7 million people and 2.4 million residential electricity customers. Victoria is the
                             most densely populated state and has a highly centralised population with over
                             70% of Victorians living in Melbourne, the state capital and largest city. Victoria
                             also has the particularity of being the most active electricity market in term of
                                                 4
                             customer switching . 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 kWh
                             per year. In 2008, over 90% of electricity was generated from brown coal while
                             only about 4% of Victoria's electricity consumption came from renewable sources
                             which were mainly Hydro (52%) followed by Wind and Biomass with a about a
                                                                                                            5
                             quarter of the renewable mix each. The remaining 4% being supplied by gas . The
                             Victorian Renewable Energy Act 2006 (the Act) established the VRET scheme
                             which mandates Victoria‟s consumption of electricity generated from renewable
                             sources to reach 10% by 2016. The VRET scheme commenced operating on
                             January, 1st 2007.

                             The government of Victoria led the way to competition and privatization. In 1993 it
                             restructured the state and municipally owned electric industry into five generating
                             companies, a separate transmission company, five DNOs, and set up a power pool
                             for physical spot trading that commenced operation in 1994. All of the companies
                             were privatized by 1999. In May 1997 the Victorian market was combined with
                             New South Wales, and subsequently they became part of the National Electricity
                             Market in December 1998. The government of Victoria set a timetable for
                             introducing competitive choice to customers in a phased manner culminating in full
                             retail competition from January 2002. The retail markets for small customers
                             commenced with a regulated default tariff that in Victoria was set to provide
                             significant “headroom” for competing retailers to win customers from the incumbent
                             retailer. In consequence, the switching rate in these states was very high – by the
                             end 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 state
                             regulator is now the Essential Services Commission of Victoria. Traditionally small
                             customers have had simple single register accumulating meters and are read
                             quarterly. In 2007, the Government mandated smart meters to be rolled out by
                             December 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.


                                                                                                                 16
Objectives of State             Peak demand continues to grow at the considerable rate of around 3% per year
policy                          and 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 a
                                       6
                                cooler . The high proportion of air conditioner explains the needle peaks in
                                consumption which in turn 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 new investment in the electricity supply system and secondly, there is a
                                cost factor; supply costs escalate exponentially on days of extreme peak demand
                                because 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 a
                                phenomenon of cross subsidy from electricity customers who do not use air
                                conditioning to those who do. The Victorian Essential Services Commission has
                                estimated that the cross subsidies between those domestic customers who do not
                                have air conditioning and those who do, could be as much as $200 per customer
                                per year. The main goals behind the decision to roll out smart meters are therefore
                                peak clipping and give customers tools to manage and diminish their electricity
                                consumption. It should be noted that end-users will bear the cost of the roll-out
                                through increased distribution costs.


                                Influence from the Federal Government

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

                                “…the progressive national roll out of „smart‟ electricity meters from 2007 to allow
                                the introduction of time of day pricing and to allow users to better manage their
                                demand for peak power but only where benefits outweigh costs for residential
                                users, and in accordance with an implementation plan that has regard to costs and
                                benefits and takes account of different market circumstances in each State and
                                Territory.”

                                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 by
                                CRA, KPMG and Energy Market Consulting Associates to undertake a cost/benefit
                                analysis 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 a
                                minimum national functionality for a rollout of smart meters? The consultants
                                completed Phase 1 in September 2007

                                · Phase 2 addresses the further question of whether the costs of rolling-out smart
                                meters (or of undertaking an alternative demand management scenario) exceed
                                the benefits, given the particular circumstances of different jurisdictions. The
                                consultants completed Phase 2 in February 2008.

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

                                Smart Meters are electricity meters that are capable of both measuring and
                                recording 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 face
                                significant maximum demand growth, in order to delay the need for expensive

6
    Australian Bureau of Statistics, 2010.


                                                                                                                   17
                            investment in network capacity and peak generation.

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

                            3. Third, to reduce greenhouse gas emissions.

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

                            For a non-smart meter rollout of direct load control (DLC) infrastructure, only the
                            first and third of these drivers apply. There is no business efficiency benefits
                            associated with a DLC rollout. In relation to the third driver we note that the impact
                            of a smart metering rollout on greenhouse gas emissions will depend critically on
                            how demand changes as a result of changes in customer behaviour and
                            particularly on the extent to which demand is reduced rather than simply shifted
                            from 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 is
                            mandatory across all small customers. The reason for considering a mandatory
                            rollout is due to the market failure arising from the benefits of smart meters
                            accruing to both distributors and retailers, such that neither distributors nor
                            retailers would invest optimally in a smart meter rollout on its own”.



Polic y description

Main characteristics Policy

                            In July 2004 the Essential Services Commission of Victoria took a decision on a
                                                                                           7
                            mandatory rollout of interval meters for electricity customers” , which referred to
                            manually read meters. According to the Commission:

                            “Interval meters enable retailers and customers to measure real time electricity
                            consumption and to send and respond to the cost-related price signals… The
                            responses of electricity demand to cost related prices should contribute to:

                                      smoothing the peaks in the electricity load profile, thus reducing the
                                      volatility of 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
                                      to satisfy the future growth of, and peaks in, the demand for electricity

                            These potential improvements in wholesale market efficiency are particularly
                            relevant for Australia‟s „energy only‟ wholesale market, which has weather driven
                            needle peaks in demand and relatively low forecast reserve plant margins. These
                            features are especially relevant in the Victorian and South Australian regions of the
                            market.




7
  Essential 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


                                                                                                                               18
                            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
                                      would not be needed”

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

                                      “Market forces alone would fail to deliver a timely interval meter rollout on
                                      a scale sufficient to provide economies in meter manufacture, installation
                                      and reading

                                      Regulatory intervention would be required to achieve the economic
                                      benefits 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 would
                                      accrue to the market from their decisions to install interval meters”

                            The government decided to look at the issue again and in 2005 commissioned
                            from CRA and Impaq Consulting an advanced interval meter communications
                                 8
                            study to investigate whether it would be cost-effective to add communications,
                            and whether a faster rollout would be beneficial. The study evaluated the costs and
                            benefits 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 signal
                                      downstream of the distribution transformer into the low voltage hence is
                                      suitable for urban areas where there are many customers connected to the
                                      same low voltage transformer

                                      Mesh radio

                                      Power line carrier (PLC), which injects the communication signal at
                                      medium voltage and is designed to be able to pass through the distribution
                                      transformer. Hence it is suitable for rural areas where there are few
                                      customers on a single low voltage line but many customers on the same
                                      medium voltage feeder.

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

                            The consultants estimated the benefits, costs and net benefits for various
                            technologies relative to the costs and benefits of the rollout of manual interval
                            meters. A rollout schedule at the same rate as originally planned of a DLC private
                            network solution has marginally negative net benefits, but a faster rollout using
                            DLC, mesh radio or PLC should provide net benefits (see cost/benefit analysis for
                            Victoria).

                            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


                                                                                                                   19
                              cancelled and that the Victorian government and electricity supply industry should
                              undertake an accelerated rollout of interval metering with advanced
                              communications across the State. To that end the government should facilitate the
                              development, in conjunction with the industry and the Essential Services
                              Commission, of a common functional specification that will be mandated for smart
                              meters.

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


Accompanying        The Victorian Government is supportive of an Emissions Trading Scheme (ETS)
energy   efficiency as the main policy for reducing emissions. Together with a target for renewable
measures            energy penetration, a well designed ETS is seen as the most effective way of
                    promoting energy efficiency and lower carbon emissions. The Federal Government
                    is leading the development of the Carbon Pollution Reduction Scheme (CRPS) in
                    Australia. 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. It
                    was later abandoned in a political backflip and has now been scrapped. On April
                    27th, 2010, the Prime Minister announced that the Government has decided to
                    delay the implementation of the CPRS until after the current commitment period of
                    the Kyoto Protocol (which ends in 2012). The Government cites the lack of
                    bipartisan support for the CPRS and slow international progress on climate action
                    for the delay. The Prime Minister announced that the CPRS will be introduced only
                    when there is greater clarity on the actions of other major economies including the
                    US, China and India.

                              The Victorian Renewable Energy Act 2006 established the Victorian Renewable
                              Energy Target (VRET) scheme which mandates Victoria‟s consumption of
                              electricity generated from renewable sources be increased to 10% by 2016. The
                              VRET scheme was announced in June 2006 and commenced operating on
                              January, 1st 2007. It is administered by the Essential Services Commission.
                              There are nineteen eligible sources of renewable energy listed under the VRET
                              Act, including hydro, wave, tidal, wind, solar, geothermal and biomass. Victorian
                              energy retailers and large wholesale purchasers of electricity are required to
                              purchase and surrender to Government, accredited renewable energy certificates
                              on a yearly basis. These certificates are tradable and provide accredited
                              renewable energy generators with an additional source of revenue, over-and-
                              above the value of the electricity they produce. Over the life of the Scheme, VRET
                              is expected to encourage more than $2 billion worth of renewable energy
                                                                                                     9
                              investment and more than 2,000 new jobs, mostly in regional Victoria .



Market Drivers

Current market level • Meter price
of Smart Meter
rollout in Victoria  According to the latest estimate, the cost of the entire deployment project should
                     reach $1.6 billion or $667 per meter up from $0.8 billion initially planned when the
                     project was launched.

                              The costs of the smart metering system will be recovered over time via a supply
                              charge. On October 30th, 2009 the Australian Energy Regulator released its
                              finalised metering charges for meters for 2010 and 2011, with different prices for
                              the different electricity distributors based on the choice of communications
                              technology, network characteristics and associated costs of rolling out smart


9
    Department of Primary Industries, 2010.


                                                                                                               20
                                    10
                            meters . The determination results in the following charge for customers in 2010:
                                   CitiPower – $104.79
                                   Jemena – $134.63
                                   Powercor – $96.67
                                   SP AusNet – $86.10
                                   United Energy Distribution – $69.21

                            On average, Victorians will pay $67.97 more in 2010 for metering services than in
                            2009, 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 GPRS
                            for the balance. Victorian electricity distributor CitiPower and Powercor will
                            use Landis+Gyr to provide smart meters to more than one million electricity
                            customers.

                            •    Number of SM in place

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

                            •    Content of Functionality requirements SM
                                                                                              11
                            The government of Victoria mandated in October 2007 :

                                     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 customer‟s 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 customer‟s load

                            * Measure power factor

                            * Meter loss-of-supply and outage detection



10
   AER, "AER makes final determination on Victorian smart meter costs and charges", October 2009.
11
   Advanced Metering Infrastructure Minimum AMU Functionality Specification (Victoria), October 2007, Department of Primary
Industries.


                                                                                                                              21
                            * 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 initial
                            meter data provider, there will be a number of bespoke communications systems
                            (rather than open systems) for communications to the meter, but the market will
                            still receive its data in the standard format. The data protocol being used is the
                            existing one for remotely read meters, which will in due course be extended to
                            accommodate additional functionalities. After the initial rollout, competition for
                            smart meters may be available, which would mean that retailers could choose their
                            own metering provider (for installation etc) and meter data agent (for data
                            collection). But again this will not impact the use of standard protocols in the
                            delivery of data.




Imp a ct/ ev a lu at io n

Cost / Benefit              Australia
analysis for
members of the              Though the following study applies to Australia in general and not to Victoria in
value chain                 particular, we thought it should be included in the report due to the fact that this
                            study is known as one of the widest and most thorough Smart Metering
                            Infrastructure 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, and
                            Energy Market Consulting Associates to undertake a cost/benefit analysis of the
                            case for introducing smart meters and direct load control at a national level. The
                            work has been undertaken in two phases:

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

                            • Phase 2 addressed the further question of whether the costs of rolling-out smart
                            meters (or of undertaking an alternative demand management scenario) exceed
                            the benefits, given the particular circumstances of different jurisdictions. The
                            consultants completed Phase 2 in February 2008

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




                                                                                                                  22
In Phase 2, the consultants analysed the implications of four alternative scenarios
and concluded that distributor-led rollout – where each distribution network service
provider is given the responsibility for owning and installing meters and associated
metering 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 were
developed 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 a
result of the rollout of smart meters in each scenario

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

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




                                                                                    23
Figure3: National present value of benefits and costs for DNO roll-out and
DLC (Au$m)


               SMI Costs   Avoided   Distributor   Retailer     Other       Demand      Net
                           meter     business      business     benefits    Response    Position
                           costs     efficiency    efficiency
                                     benefits      benefits
 Minimum       (4,343)     1,756     2,100         98           318         250         179
 Net Benefit
 Maximum       (2,717)     2,606     2,900         196          211         738         3,934
 Net Benefit

                                                            Exchange rate Q1 2010: 1 AU$ = 0.6543 €



The majority of the benefit for the Distributor-led rollout scenario results from
avoided 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 of
a 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 call
centre costs initially increase as customers query new tariff products that are
introduced 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 and
management time

The final benefit category of benefits results from changes in the time of use and
level 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 wholesale
prices

· The deferral of peak generating capacity

· Reductions in the level of unserved energy, generation operating costs and
carbon emissions resulting from changes in the pattern of electricity market
dispatch.

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

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




                                                                                                   24
                                                                                                 12
                           smart meter rollout and the likely take-up rate of those products and estimates of
                           the demand response resulting from the introduction of these tariffs, which have
                                                         13
                           been developed by NERA . CRA have taken these estimates of demand
                           response and estimated both the potential value of the network deferral benefits
                           that may occur and the impact on the electricity market (including the reduction in
                           greenhouse gas emissions). Over the twenty year period of the cost benefit
                           analysis the total reduction in greenhouse cases is estimated to be between
                           597,000 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 the
                           circumstances 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 of
                           the estimated avoided meter costs and business efficiencies alone. The inclusion
                           of an interface with HAN would likely further increase the net benefits, particularly if
                           direct load control was targeted to maximize both participation and the resultant
                           network deferral benefit

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

                           In the second phase of their study, the consultants tried to determine the prospects
                           for success in introducing more cost reflective time of use or critical peak pricing
                                  14
                           tariffs . 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 the
                           retailer makes about $50 per customer (before interest and tax), which leaves
                           around $70 per customer for a retailer‟s operating costs. One retailer stated that “If
                           a customer calls you more than a couple of times a year, you have probably just
                           lost your margin on that customer”. Another retailer explained that for this reason
                           “retailers really do not want their customers to care” about the product

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

                           · Most retailers were not keen on the introduction of smart meters linked with
                           introducing new cost reflective tariffs because “the key question a retailer will ask
                           itself is: are more cost reflective tariffs going to increase the $50 margin I can
                           make on the typical customer?”. Also, the large retailers were not keen on
                           spending 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 by
                           focusing on tariffs as the customer does not understand them and is not interested
                           in investing the time necessary to understand them. This is simply because their
                           bills are not significant enough for them to care. One retailer stated “our
                           salespeople never talk about tariffs when trying to win a customer – all they do is
                           offer the same basic offer, but with some alternative benefit”. The retailer also
                           stated that if you talk about tariffs “you are dead” in terms of making sales”

                           From the customers‟ perspective:

                           · A report by the Essential Services Commission of South Australia found there
                           was “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


                                                                                                                  25
                            with the introduction of smart metering. They have also found low take up rates in
                            certain jurisdictions where smart meters are voluntary”

                            · A consistent finding across all of the focus groups was that participants were
                            much 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 right
                            thing‟ and reduce electricity consumption without needing to think about it and in
                            that respect it not impacting their lifestyle. The fact that they would also reduce
                            their electricity costs and receive a payment for adopting DLC was viewed as a
                            bonus. In contrast to their willingness to consider DLC, the vast majority of
                            participants did not see much benefit to them in adopting critical peak pricing (i.e. a
                            tariff with a high peak price). The government of South Australia is supporting
                            DLC. A trial was undertaken in 2007/08 under the name “Beat-the-Peak” which
                            uses a small device controlled remotely to switch off an air conditioner‟s
                            compressor for some minutes for the few hours of peak demand on days of high
                            temperatures. There is a reduction in load of 10-20% when DLC is activated

                            · There is a marked difference between the individual sense of responsibility to
                            conserve energy and day to day behaviour related to saving electricity – at a day
                            to 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 interval
                            meter was lower for approximately 50% of customers and higher for the other
                            50%; for 30% of customers it would be more than 10% higher than the current
                            profiled-based cost and for 16% it would be more than 20% higher. Conversely, for
                            25% 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 for
                            those customers with a greater proportion of their consumption in higher-cost
                            periods:

                            * it does not appear that seasonal TOU tariffs lead to a reduction in per-unit retail
                            costs 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-unit
                            customer cost ($5 - 6/MWh respectively, or around 4%) compared with a control
                            group, 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 in
                            savings of between $75 and $86 per customer
                            * CPP tariff customers also used less energy than the control group. Consequently
                            their annual bills were on average $92 (for CPP) and $139 less than for the control
                            group

                            · 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 cost
                            reflective tariffs


                            Victoria

                            The Essential Services Commission of Victoria commissioned from CRA and
                                                                                                           15
                            Impaq Consulting an advanced interval meter communications study                  to
                            investigate whether it would be cost-effective to add communications, and whether
                            a faster rollout would be beneficial (See page 3). The consultants estimated the
                            benefits, costs and net benefits for various technologies relative to the costs and
                            benefits of the rollout of manual interval meters. A rollout schedule at the same
                            rate as originally planned of a Distribution Line Carrier (DLC) private network
                            solution has marginally negative net benefits, but a faster rollout using DLC, mesh
                            radio, 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


                                                                                                                  26
  Figure 4: Cost benefit analysis results of accelerated rollout (NPV in 2005
                prices 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 normal
cycle reads, which accounts for about 45% of the total benefits. The second
largest share of benefits, at 35% of total benefits is the avoided cost of special
meter reads and de-energisations / reenergisations. The savings associated with
avoided battery replacement accounts for about 6.5% of the total benefits. The
demand response benefits account for 7% of total benefits. Avoided retailer costs
account for 5% of benefits. An additional $9 million in benefits is achieved by
eliminating the need for Portable Data Entry devices used by meter readers.


Environment

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




                                                                                     27
Market reaction             The meter roll out was formally launched in April 2009. Only a few months later the
                            project started to face serious controversy. In November 2009, Victorian Auditor-
                            General D. D. R. Pearson released an audit of the Advanced Metering
                                                        16
                            Infrastructure (AMI) project . It found that installation costs had blown out from an
                            original estimate of $800 million to more than $2 billion and criticized the
                            technology used and the assumptions taken to justify the business case.


                            Victorian households and consumer associations were already complaining about
                            the 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 a
                            further increase of $8.42 in 2011. Related to this, is the fact that the meters are not
                            accompanied by in-house display or other tools to help customers track their
                            consumption and hence try to lower it even though it was one of the main
                            arguments to roll-out smart meters. Customers seeking information on their use
                            and on peak and off-peak charges need to buy an in-home display in addition to
                            having to pay for the meters. The Victorian Ministry of Energy justified this by
                            saying in-home displays were not mandated because it would have significantly
                            increased costs to households and that alternative cheaper options, such as web
                            portals or mobile phone applications, are being developed. Victorians started
                            wondering how and if the benefit to distributors of improved efficiency induced by
                            smart metering will flow through to consumers.

                            A wave of criticisms recently arose when the University of Melbourne found “…that
                            the Federal Government's new 'smart meter' rollout for energy use could adversely
                            affect the most disadvantaged households in Australia. Time-of-use pricing will
                            severely penalise consumers who cannot shift their use to off-peak periods. The
                            report has found that pensioners, parents with young children, public housing
                            tenants and people with disabilities will be the worst hit by the smart meter rollout
                            and will struggle to cope with an increase in annual electricity costs. These groups
                            may be forced to forgo essential electricity use or give up other items such as food
                                                                                                17
                            and clothing, because of an inability to afford electricity usage."

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

                            As a result of all the bad publicity and the fact that a State election will take place
                            at the end of this year, Victorian Energy Minister Peter Batchelor announced on
                                       nd
                            March 22 an indefinite moratorium on the new electricity time-of-use (TOU)
                            pricing structures "because of concerns that pensioners and the poor would be
                            hardest hit by higher electricity prices". In June 2010, the Victorian government
                            announced that TOU tariffs will no longer be mandatory and people will have the
                            right to choose whether they want to stay under the current flat rate tariffs or
                            receive TOU tariffs. In the meantime, the Government will commission trials to
                            identify the winners and losers and negotiates with distributors, retailers and
                            consumer groups on how to minimise the pain for those that would otherwise be
                            worse off.




16
  Towards 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, August
2009.
http://vinnies.org.au/files/NAT/SocialJustice/August09CustomerProtectionsandSmartMeters-IssuesforVictoria%28amended%29.pdf


                                                                                                                                  28
Challenges /             One of the early criticisms of the programme was that in-home displays (IHD) were
Solutions                not mandated together with the rollout of the meters. Smart Meters alone do not
                         bring about consumption reductions; consumers need to be informed about current
                         prices and consumption levels in order to adjust to price signals. IHDs provide
                         immediate continuous feedback and act as constant reminders. The displays now
                         in production are attractive and interactive; they also provide a wide variety of
                         information results.
                                                                                                           18
                         In a review by VaasaETT of 124 pilot projects conducted across the world , IHDs
                         seem to be the most effective tool to provide information to customers; over half of
                         the studies showed overall consumption reduction of between 9 and 13%. The
                         tools currently being developed in Victoria are mobile phone applications and
                         websites. Websites require that the consumer enter a code to access the site.
                         They do not constantly remind the consumer of their consumption level as they
                         must be accessed to be viewed. Though a well designed site can offer valuable
                         information about the household‟s current electricity costs, how much CO 2 they are
                         producing, how much they have saved or spent since last month and energy
                         saving tips for the household, the interest level in such sites is generally low. The
                         average percentage of users of such dedicated webpage tends to be as low as 2
                         to 5% and therefore their impact on national consumption levels will be below
                         measurable levels. If however, a website is part of a larger information package
                         this is not necessarily the case.

                         Mobile phone and I-Phone application displays are becoming increasingly popular
                         as these can warn consumers of problems while they are away or in time to react
                         to higher prices in the electricity market, when combined with dynamic pricing
                         tariffs. Using phones also avoids the environmental and financial costs of
                         supplying a display and can be timely for instance showing only when consumption
                         has gone above the consumer‟s set goals etc. However, given that feedbacks are
                         likely to be sent to only one member of the family (the owner of the electricity
                         contract); there is a risk that the information is not shared properly across all the
                         members of a multi member household.

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

                         As we mentioned above, Smart Meters as such do not bring about energy savings
                         nor do they lower customer bills. They do so if the regulation surrounding them
                         makes it possible. TOU tariffs were mandated and were supposed to be introduced
                         following the deployment of Smart Meters in Victoria. However, due to the
                         backlash described above and the looming State election in late 2010, the
                         government has announced that TOU tariffs will not be mandatory and that
                         residential 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 seems
                         that under the current legislation end-users and especially low income end-users
                         will be worse off after the roll out if TOU is made mandatory. Victorian consumer
                         associations have predicted that as much as 95% of customers would not switch to
                         TOU tariffs and would remain on their current price structure (flat tariffs for the vast
                         majority). Based on our pilot comparison study, we believe this number is far too
                         pessimistic. Victorian and Australian pilots have shown that customers' take up is
                         high at around 35% and that participants were for the most part pleased with the
                         tariff 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 Think
Tank, May 2010.


                                                                                                                   29
benefits: that they can benefit from more dynamic price structures and that these
contributes 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 from
         it were based on mandatory TOU tariffs. The opt-in approach may lower
         the expected benefits resulting from Demand Response (7% of total
         benefits in Victoria) at least in the short term as it is doubtful people will
         massively sign up for TOU tariffs from the beginning. The Victorian
         government will commission a study to assess the effect of optional TOU
         tariffs on the business case.


For distribution companies:

One of the main goals of the deployment of Smart Meters was to delay
investments in new infrastructure to satisfy the future growth of, and peaks in, the
demand for electricity. For instance, SP AusNet predicted a 26% drop in peak
demand thanks to compulsory TOU pricing. Though this figure seems very high, it
highlights the fact that optional TOU tariffs fundamentally changes the business
case. Therefore, peak demand may remain an issue in Victoria and distribution
businesses 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 convince
         people to sign up for the new pricing structure. However, what might be
         seen by many as a failure could be transformed as an opportunity to
         further improve benefits of the Smart Meter infrastructure on the customer
         bills and for the environment. Indeed, one of the risks of mandatory TOU
         tariffs is that retailers could feel they do not have to explain to people what
         are these are tariffs for and how they can benefit from them.

What we have found in our pilot comparison study is though dynamic prices are
the best way to clip peak demands, customer education is one of the most efficient
way to achieve overall consumption reductions (overall consumption reduction of
    18
6% ) 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 degree
of participant satisfaction. Retailers and public authorities will now be encouraged
to further improve their education programmes.

For the environment:

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

         DNOs will still need to build extra peak capacity generation (usually dirtier
         power plants) and it is likely that the possible benefit of Smart Meters on
         CO2 emissions will be lower than it could have been.
                                                             18
         VaasaETT's survey of 124 pilots across the globe showed that the use of
         TOU tariffs led to an average overall consumption reduction of 2% and an
         average reduction of 4% during peak hours (18% when coupled with
         automation). The effect of these tariffs on energy efficiency and peak
         demand could therefore be partly wasted.




                                                                                       30
                  For residential customers:

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

                           Consumers with air-conditioning could potentially benefit substantially by
                           investing 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. If
                           they decide that the new tariffs do not interest them, they will incur the
                           costs of the smart meters and not benefit from the programmes they
                           enable.
                           The well documented (and unfair) phenomenon of cross subsidies from
                           smaller users to larger users as a result of needle peaks in consumption
                           will remain in place in Victoria.

Discussion
                  The Victorian case highlights the importance of not only paying attention to the
                  Smart Meters and the rollout but also to all the surrounding components when
                  deploying an AMI system. The Australian and Victorian legislators paid a lot of
                  attention to the meters themselves and conducted thorough cost/benefit analyses
                  to help them find the best way forward. They, however, overlooked one of the main
                  tools to achieve peak clipping which is one of the main reasons why they are
                  initiating a mass rollout in the first place. Indeed, successful Demand Response
                  programmes also rely on well designed dynamic pricing structures which, in turn,
                  need education programmes and innovative feedbacks interfaces to be understood
                  and taken advantage of successfully.

                  In this kind of situation, good communication and information become very
                  important. Victorians acceptance of the TOU tariffs is dependent on their
                  understanding the potential benefits, for themselves and the environment.
                  (Australians are said to be particularly conscious of the environment) in addition to
                  have 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 future
                  success.

                  In order to make the new tariffs fairer and therefore more acceptable politically, low
                  income customers could be allowed to stay on flat tariffs. Doing so would prevent
                  the most vulnerable from getting higher bills due to dynamic tariffs and, given that
                  low income customers are anyway less likely to have power hungry appliances
                  such as air conditioning, most of the benefit of dynamic tariffs on peak clipping and
                  CO2 emission would remain intact.


                  In any case and as argued in the previous part, it is not necessarily a bad thing that
                  mandatory TOU tariffs were cancelled. Provided that Utilities and public authorities
                  inform customers properly, this backlash might turn out to be beneficial for the
                  entire project, the electricity industry, customers‟ pockets and the environment.




Ref e re nc e s
                  EEE Limited, Henney Alex, Australia-SM-2009, Respond 2010.




                                                                                                       31
                                                   South Korea


                                                 Smart Meter Policy and Application



National Energy            South Korea, officially the Republic of Korea, is located in the southern half of the
market context             Korean 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 238
                           km long with North Korea with which it is officially still at war. Korea, as one of the
                           first generation Asian Tigers, has experienced tremendous economic growth over
                           the last decades and especially in the 1980‟s when it caught up with the West. In
                           the 1960‟s, the South Korean GDP was as low as Africa‟s poorest countries.
                           Today, GDP per capita (PPP) stands at close to US$ 28,000 which brings it on par
                           with many West European countries. A unique aspect of the Korean economy is
                           the existence of chaebol, family controlled conglomerates. Although their
                           dominance in the Korean economy has diminished, particularly since the Asian
                           economic crisis in 1997, they remain heavily involved in the economy and
                           influential in the country's politics. The big four remaining chaebol are Hyundai,
                           LG, the SK Group and Samsung (1/5 of the country‟s exports).

                           In 2008, Koreans were supplied with 425 TWh of electricity and the average
                           domestic consumption was 3,822 kWh per household and per year. South Korea's
                           geographical location with North Korea to the north makes importing and exporting
                           of electricity impossible and inexistent so far. Combustible fuels (coal, natural gas
                           and oil) provided 65% of the electricity produced in South Korea in 2008. Nuclear
                           power provided almost all of the remaining energy. Government officials plan for
                           nuclear to contribute to nearly half the country's electricity generation by 2022. It
                           also plans to gradually increase the share of renewable energy including hydro in
                           the production of electricity; from 1.5% in 2008 to 5% in 2011 and 9% in 2030 with
                           priorities given to photovoltaic, wind power and hydrogen fuel cells. Korea's power
                                                                           th
                           capacity currently stands at 72,500 MW (12 largest in the world) and boasts a
                           very reliable infrastructure; the annual average household blackout time is 16
                           minutes (2nd in the world) and the rate of transmission and distribution loss is at
                           4% (1st in the world). The country's peak demand was registered in 2008 at
                                                                                                     19
                           62,794 MW and the reserve margin at peak for that year was at 9.1% . The 4th
                           Basic Plan of Long-Term Electricity Supply and Demand expects electricity
                           demand (after Demand Side Management) to increase by an annual average rate
                           of 2.1% and peak demand (after Demand Side Management) to increase by an
                                                                                          1
                           annual average rate of 1.9% during the period of 2008-2022 .

                           As part of its liberalization efforts in 2001, Korea enacted the Electricity Business
                           Act and established the Korea Electricity Commission (KOREC), the Korea Power
                           Exchange (KPC) and decided to reorganize the national electricity company
                           KEPCO. KOREC took charge of the regulations in the electric power sector with
                           the aim of creating an environment of fair competition, protecting the rights and
                           interests of consumers and arbitrates disputes relating to the electricity business.
                           KOREC currently regulates generation, transmission, distribution, independent
                           power producers, generation companies and the Korea Power Exchange (KPX).
                           Also following the Electricity Business Act, KPX, a cost-based pool was
                           established. All generation has to be dispatched through the pool with a few
                           exceptions, such as generators in island areas. KPX administers the hourly
                           market; it handles trading, metering and settlements and is responsible for
                           operation of the grid. The Ministry of Knowledge Economy (MKE) is the primary
                           government body for energy policy. MKE is the result of the merger in 2008 of a

19
   The 4th Basic Plan of Long-Term Electricity Supply and Demand (2008 ~ 2022), MKE and KPX, December 2008. Available at
http://www.kpx.or.kr/english/news/data/the_4th_basic_plan.pdf


                                                                                                                           32
                  number of government institutions; the Ministry of Commerce, Industry and Energy
                  with elements of the Ministry of Information and Communications, the Ministry of
                  Science and Technology, and the Ministry of Finance and Economy. Its mandate
                  centres on security and of energy supply:

                      -   Managing the national energy supply
                      -   Promote overseas energy development projects (increase self-sufficiency
                          and production by its national oil company KNOC).
                      -   Implement environmentally friendly growth policy
                      -   Combat climate change

                  The Electricity Business Act planned to open the electricity market for free
                  competition by 2009. However, these plans have been delayed due in part to tepid
                  investor response, public concerns about rising power prices and reluctance on the
                  part of the government to sell some power sector assets. The newly empowered
                  government in place at the time even announced the suspension of the
                  privatization plan in 2004. Although part of the original reform plan, there is now no
                  plan to liberalize the demand side of the market. The current model is one of a
                  single-buyer model, similar to earlier stages of European liberalization, and to the
                  United States experience with independent power producers. KEPCO is the only
                  Utility allowed to sell power to residential customers. KEPCO's retail rates are
                  applied to six different classes of customers, namely residential, general,
                  educational, industrial, agricultural and street lights. The retail rates are regulated
                  by the Korea Electricity Commission. All rates are applied according to a two-part
                  tariff, a basic rate depending on the demand charge for residential customers or
                  the peak kW for the other customers and a power demand charge based on each
                  kWh used. Both the basic and power demand charges cost more as usage per
                  customer increases (inverted block rate). Whereas KEPCO offers only one
                  residential rate structure for all customers, it offers a variety of rate services such
                  as seasonal prices (winter/summer) for smaller industrial customers and basic
                  time-of-use tariffs for larger customers that charge higher prices during the
                  summer and peak times of day. However none of these rates vary in real time,
                  which would directly reflect the hourly cost based prices derived from the electricity
                  dispatch mechanism in place.

                  The Korean government‟s plan is to have a nationwide smart electricity meter
                  network by 2020. A new Smart Grid law is expected to be proposed to the National
                  Assembly during the later part of this year which might specify meter installation
                  schedule and features. Ahead of an official decision, KEPCO recently announced
                  plans for an AMI deployment for 18 million low voltage customers to be completed
                  by 2020. KEPCO plans to install 500,000 Smart Meters in 2010, 750,000 in 2011
                  and complete roll-out by 2020 with 24 million smart meters installed.


Objectives of     Korea faces very limited domestic natural resources as well as a challenging
national policy   location, therefore security and continuity of supply has long been of particular
                  importance for the Government. It has now also expanded its focus from just
                  security of supply at all costs to also encompass economic efficiency and
                  environmental protection. South Korea does not have the peak load problem other
                  countries have because its large industrial users already have time-of-use
                  metering and advanced demand side management programmes that enable them
                  to shift their load to off-peak hours when necessary. The 4th Basic Plan of Long-
                  Term Electricity Supply and Demand forecasts supply margins at peak to be
                  between 6 and 10% until 2011 and to remain at between 12 and 24% after 2012
                  and until 2022. Furthermore, given Korean households‟ relatively low level of
                  electricity consumption and the fact that residential consumption represents only
                  14% of the national consumption, it is likely that KEPCO's main goal behind its
                  decision to rollout Smart Meters to residential customers is to improve its
                  operational efficiency. Indeed, operational benefits usually represent the majority
                  of the benefit resulting from a mass rollout. In the case of KEPCO, the company
                  may have considered these benefits alone to be enough to justify the required
                  investment.



                                                                                                        33
                     Another objective for both KEPCO and the Korean Government behind the rollout
                     is to boost technology exports. KEPCO plans to make smart grid technologies
                     another pillar to prop up its growth, following its success in exporting nuclear plants
                     for the first time in 2009. The company plans to spend US$ 2.4 billion on this
                     business and forecasts it will take up 16.5% of its projected sales of US$ 76 billion
                     in 2020. Late last year, the South Korean government declared its plan to boost its
                     home industries with an aim of winning 30% of the global smart grid market in the
                     future. Recently, KEPCO together with other Korean conglomerates submitted bids
                     to conduct smart grid related pilot projects in Australia, the Philippines, Saudi
                     Arabia                                     and                                  others.

                     International Influence

                     Korea ratified the Kyoto Protocol in November 2002. As a non-Annex I country,
                     Korea does not have any mandatory greenhouse gas emission targets; however,
                     Korea wants to be seen as working to improve energy efficiency and curbing the
                     growth of its greenhouse gas emissions. Though it has not taken on any binding
                     emissions targets, the Korean government announced shortly before the UN
                     Climate Conference summit in Copenhagen in 2009 that it had set the goal of
                     cutting greenhouse gas emissions by 21-30% by 2020, relative to the ``business
                     as usual'' scenario. Korea chose the highest figure recommended for non-Annex I
                     countries by the Intergovernmental Panel on Climate Change.


Polic y description

Main characteristics Policy

                     There is currently no specific residential Smart Meter policy in Korea. However, the
                     electricity network is expected to receive a massive overhaul over the next few
                     years as one of the major components of the county‟s stimulus package. This
                     includes the creation of a smart grid which, according to the Ministry of Knowledge
                     Economy, is expected to generate a new market worth approximately US$ 54.5bn
                     annually, create 500,000 new jobs and reduce the country‟s power consumption by
                     3% once it is completed in 2030. Other expected benefits include a reduction in
                     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 by
                     giving end-users more information regarding daily electricity-prices, allow them to
                     cut household power bills by around 15%". The Korean government plans to have
                     a nationwide Smart Meter network by 2020. A new Smart Grid law is expected to
                     be proposed to the National Assembly during the later part of this year which will
                     specify meter installation schedule and features.

                     KEPCO had until recently concentrated its efforts on making its transmission and
                     distribution grids more efficient and residential customers were seen as less
                     strategic since they use relatively little electricity compared to homes and
                     apartments in North America and Europe. In addition, the structure of residential
                     tariffs with rarely revised and low regulated prices make Smart Metering close to
                     pointless from a residential customer's perspective. However, KEPCO‟s strategy
                     recently evolved. The company announced in March 2010 plans for an AMI
                     deployment to 18 million low voltage customers by 2020. KEPCO plans to install
                     500,000 Smart Meters in 2010, 750,000 in 2011 and complete roll-out by 2020 with
                     a total of 24 million Smart Meters installed. The company is expected to cover all
                     metering costs and retrieve them through regular power bills. Officially, there
                     should be no specific cost increase related to the Smart Meter deployment to
                     residential customers.

                     The future smart grid infrastructure is currently being tested in the southern island
                     of Jeju. The test bed project involves 6,000 households and will run between
                     December 2009 and May 2013. The first 18 months will be used to build the
                     infrastructure and the next 24 months for testing the technology and the different
                     features of the project. The budget allocated to this project is US$ 200 million.


                                                                                                           34
                    KEPCO, together with other major Korean technology, telecom and construction
                    companies are taking part in this project including LG, SK Telecom, Samsung and
                    Korea Telecom. Their contribution to the budget is US$ 150 million. These
                    companies will form groups or consortiums and test different technologies, tariffs
                    structures, communication devises, frequency etc. The Ministry of Knowledge
                    Economy only requires these technologies to allow for interoperability. The project
                    is officially open to foreign companies, however, Korean companies have over the
                    past shown a tendency to develop and use domestic technology.

                    The smart grid technologies being tested in this project fall into five categories:

                            Commercial and Residential Areas: Smart Meters will be installed in
                             homes and businesses and should allow for 5-minute interval reading by
                             the Utility. The frequency at which consumption information will be given
                             to customers has not been mandated and thus depends on each
                             consortium.
                            Transportation Networks: infrastructure for electric cars such as
                             recharging stations to drivers to recharge their vehicles and replace their
                             batteries.
                            Renewable Energy: electricity generated from wind turbines and solar
                             energy will be connected to the power grid for transmission to
                             households.
                            Smart Power Grid: a “smart power grid” will have a two-way electricity
                             transmission system that will automatically detect and correct any
                             interruption of service. The advanced intelligent power grid will be also
                             able to communicate with appliances so that more electricity is used at
                             off-peak times.
                            Electricity Service: Diverse rate plans will be available and consumers will
                             be able to choose the one that fits their own patterns of electricity
                             consumption the best. Real-Time Pricing, CPP and more sophisticated
                             TOU will be available to customers and again will depend on each
                             consortium's design. It is expected that easily accessible devices such as
                             In-House Displays and mobile phones will be used to inform consumers
                             about their consumption patterns and the rates being applied. The
                             communication methods are also up to each consortium's design as long
                             as interoperability is guaranteed.


Accompanying        Korea ratified the Kyoto Protocol in November 2002. As a non-Annex I country
energy efficiency   Korea does not have any mandatory greenhouse gas emission targets; however
measures            officials want to be seen as working to improve energy efficiency and curbing the
                    growth of its greenhouse gas emissions. Though it has not taken on any binding
                    emissions targets, the Korean government announced shortly before the UN
                    Climate Conference summit in Copenhagen that it had set the goal of cutting
                    greenhouse gas emissions by 21-30% by 2020, relative to the "business as usual''
                    scenario. Korea chose the highest figure recommended for non-Annex I countries
                    by the Intergovernmental Panel on Climate Change. To meet this target, the
                    Government announced it will inject a total of US$ 91 billion until 2013 (2% of GDP
                    and twice the amount recommended by the UN for green investment). The focus
                    will be put on achieving major reductions in the building and transportation sectors.

                    Another important part of Korea's plan to promote "green growth" is to increase the
                    share of renewables in its energy mix. At present, Korea's share of renewables
                    (including hydro) in its electricity production is one of the lowest in the OECD. The
                    government has set two targets for penetration of renewable energy; from 1.5% in
                    2008 to 5% in 2011 and 9% in 2030 with priorities given to photovoltaic, wind
                    power and hydrogen fuel cells. This target is seen by many as too ambitious given
                    that new and renewable energy accounted for less than 3% of total primary energy
                    supply in 2008. US$ 8 billion are supposed to be invested between 2004 and 2011
                    to meet the 5% supply target. One of the government‟s main instruments to
                    promote new and renewable energy is through a differentiated feed-in tariff
                    programme. Five-year fixed rates for small hydropower, biomass and waste and
                    15-year rates guarantee for wind and photovoltaic have been put in place. The


                                                                                                          35
tariff for photovoltaic (0,7 US$/kWh), which is seen as a potential export market for
Korean industry, is nearly seven times larger than the rate paid for wind (0,105
US$/kWh), which receives the second-highest subsidy. Feed-in rates are
generous, but one might wonder the rationality of giving priority to solar power in a
country with low solar irradiance profile unless to give its national champions a
market to try and develop technologies to catch up with Japanese rivals and keep
an edge on Chinese up and coming companies. The result of these feed-in tariffs
has been that South Korea‟s solar demand now rivals Japan‟s as Asia‟s largest
market; the country has set a goal of installing 1,300MWp by 2012. The
government is considering introducing more market-based methods for promoting
renewable power generation such as carbon emissions trading which should be
introduced tentatively in 2011, and then fully implemented in 2012.

Different Demand Side Management (DSM) programmes have been used in Korea
since the 1970‟s. Traditionally they are used mainly as supplemental or emergency
resources when it is difficult to keep the system balanced and focus on large
industrial and commercial users. They can be grouped into two categories; load
management (LM) and energy efficiency (EE). In the 1970s, several LM
programmes were introduced: night thermal-storage power rates (1972), inverted
block rate (1974), seasonal tariffs (1977) and Time-of-Use tariffs (1977) and
linkage between base rate and peak usage (1978). In the 1980s, the concern of
the authorities was the occurrence of peak loads in the summer. As a result, a
summer vacation/maintenance schedule adjustment in agreement with large users
(1985) and overnight usage rate programme (1985) is introduced. In the 1990s,
various programmes aiming to keep the reserve rate high were introduced. Load
shift (1990) and voluntary load reduction programmes (1995) started with large
users. The EE programmes started with heat storage (1986) and cooling storage
appliances (1991), high efficiency lighting (1994), high efficiency vending machine
(1997), remotely-controlled A/C (1999) later followed. Over the last decade, the
government introduced Direct Load Control (2001) and Emergency load reduction
programmes (2003) to manage load and high efficiency inverter (2001), high
efficiency electric motor (2002), high efficiency transformer (2006), and high
efficiency pump (2006) to improve energy efficiency. Prior to the Electricity Industry
Law of June 2001, Kepco was the only one to operate DSM programmes. In an
attempt to improve their efficiency, the law moved the responsibility of DSM
programme management from KEPCO to the government. The government has
allocated funds collected from electricity taxes paid by customers to KEPCO and
Korea Energy Management Corporation (KEMCO) both of which are now in
charge of organizing DSM programmes.


The Ministry of Knowledge Economy found that DSM allowed maintaining a
comfortable reserve margin over the years and a higher load factor. It also led to
postpone capacity investments, increased base load usage and decrease
generation costs and CO2 emissions. However, programmes are seen as lacking
innovations as current ones have started 10 or 20 years ago and have seen little
adjustment despite of innovations in the electricity industry and technology
advances. Another concern is that until the Government took charge, there was a
clear unbalance between the importances given to LM programmes compared to
EE programmes. The reason might be that KEPCO has no incentive to reduce
electricity sales and therefore focuses on what is profitable for the company such
as higher load factor and improved network management. Currently, DSM
programmes are operated both by KEPCO and KEMCO and funded partly with
Government money. Some programmes have been run in coordination but the
majority have been operated exclusively which created excessive competitions,
inefficient duplication and confusion from the point of view of customers. Finally,
LM programmes, so far, do not include residential demand response and focus on
large I&C customers. The main programmes include summer vacation /
maintenance schedule whereby big users agree to perform maintenance during
the summer when peaks are most likely to occur and aggregation whereby the
DLC programme is planned to be called by the Korean Power Exchange when the
available generation capacity is less than 100 to 200million MW with emergency
saving programme. KEPCO and KEMCO then send signals to their DLC


                                                                                     36
                           contractors and notify KPX of their result. These programmes‟ only operate
                           between the end of July and the middle of August when peak demand is most
                           likely to occur (which leads to tensions when peak demand occurs outside these
                           time periods such as in 2007). The effect of these two types of programmes in
                           peak reduction for the last 3 years to 2009 represented 97% of LM results.
                           Demand Response programmes focus on I&C customers because residential
                           consumption is relatively low (less than 4,000 kWh per year per household) and
                           represent only 14% of the country‟s consumption.
                                                                               rd
                           In 2006, the Government announced the 3 National Electricity Demand Forecast
                           and Supply Plan in which investments in DSM programmes were multiplied by
                           three and the proportion of EE in DSM programmes by two in 2020 compared to
                                20
                           2005 . In 2008, two major documents for DSM were published; a roadmap for
                                                                      21
                           Demand Response development until 2015 in which the government‟s move
                                                                                    th
                           towards market-based approaches were expressed and the 4 basic Plan of Long-
                                                                           22
                           Term Electricity Supply and Demand (2008 - 2022) in which investments plans
                           and directions are detailed.


                                                    Figure 5: Projected Investments in DSM




                                          Source: The 4th Basic Plan of Long-Term Electricity Supply and Demand (2008 ~ 2022).



                           On the short term the plan focuses on strengthening the management of the load
                           that has the highest effect on peak reduction versus investment in order to secure
                           a stable supply and demand since the installed reserve rate at peak is expected to
                           be about 10% in the short-term (2008 - 2012) whereas in the long run, DSM shall
                           focus on the efficiency improvement program and actively respond to the Climate
                           Change Agreement given that the reserve rate at peak is expected to exceed 15%.

                           The most significant policies being implemented are:

                                     Procure various measureable/tradable demand resources to balance
                                     electricity demand and supply and to stabilize electricity market
                                     (aggregation)

                                     Develop real-time, interactive, non-emergency programs by using IT
                                     technologies


                           The quantitative targets of these visions until 2015 are:

                                     700 million kW of Peak load reduction (10% of peak load) – Mostly from
                                     LM, expecting 330 million kW of Measurable/Tradable DR resources (5%
                                     of peak load)

                                     4,500 GWh of energy usage reduction (1% of total sales) – Mostly from

20
    The 3rd National Electricity Demand Forecast and Supply Plan, MKE, 2006.
21
   “A study on Long-term Operation Plan to Establish Mid- and Long-term Policies for Load Management and Energy Efficiency”, MKE,
2008 (in Korean).
22
   The 4th Basic Plan of Long-Term Electricity Supply and Demand (2008 ~ 2022), MKE and KPX, December 2008.




                                                                                                                              37
                                     energy efficiency

                                    Procurement of 330 million kW of DR resource – Using IT based real-time
                                    demand resource procurement

                                    Increase of the participation for rate programs by 20%, – Introduce DSM
                                     type tariffs (TOU, CPP, RTP, etc…)

                                    Increase the public participation over 20% – Encourage commercial DSM
                                     programmes

                                    Completion of market transformation up to 50% – MT in Industrial
                                    appliance/home appliance/High Efficiency lighting/ Building management

                                    Introduction of market fusion DSM operation system – Demand Response
                                     Resources / Energy Efficiency Resource Standard / Renewable Portfolio
                                     Standard




Market Drivers

Current market level            Prevalent meter types
of SM rollout
                            Will largely depend on the results of the Jeju island trials.

                                Current frequency of meter readings for residential customers

                            Monthly (performed manually)

                            •   Number of Smart Meters in place

                            KEPCO plans to install 500,000 Smart meters in 2010.

                            •   Content of Functionality requirements of Smart Meters

                            A Smart Grid law is expected to be proposed to the National Assembly during the
                            later part of 2010 which might specify meter installation schedule and features.
                            These will largely depend on the results of the Jeju trials.




Imp a ct/ ev a lu at io n

Positive/ negative          No cost/benefit analysis was commissioned by the Government nor made public
cost/benefit for            by KEPCO.
members of the
value chain (if
applicable)                 Environment

                            Smart Meters as such do not improve energy efficiency nor do they have an
                            impact on CO2 emission; an appropriate legislation makes these possible. Given
                            the main goals driving KEPCO to install Smart Meters to its residential customers
                            (operational efficiency and developing knowhow for exports); it is likely that
                            residential Smart Meters will not bring environmental benefits. Of course, the
                            regulations that should be mandated at the end of the year may force KEPCO to
                            enable residential customers to save on their energy consumption and allow them
                            to take part in peak clipping.




                                                                                                            38
Potential Energy   The project is expected to save the distributor about US$ 280 million per year in
savings            metering costs and overall energy consumption. The nationwide roll-out of smart
                   meters is estimated to allow household customers to cut their power bills by
                   around 15%.


Market reaction    So far there is none, but increasing electricity prices have, in the past, been a
                   particularly sensitive topic in Korea and politics are traditionally reluctant to do it.
                   The opening of the market has been slowed down and retail market competition
                   brought to a halt by huge demonstrations due to public perception that electricity
                   prices would increase if competition was to be introduced. Usually, people start
                   being interested in their electricity tariffs when their bills keep inflating or big jump
                   are to be expected. Therefore, criticisms are to be expected when the mass rollout
                   will start and talks about increasing the regulating tariffs start being debated in the
                   mass media.



Challenges/        Korea's residential rates are among the lowest of the IEA countries and prices
Solutions          have not been revised since November 2008. With the current legislation,
                   electricity prices do not reflect market forces and the introduction of smart metering
                   for residential customers would hardly be beneficial to them. In addition, some
                   segments of customers receive very low rates which are in fact below actual costs.
                   The agricultural sector's rates represent 46% of the residential rate and the
                   industrial rate 66%. Plans are under way to reorganize these rates to a voltage and
                   cost-based rate system in the medium and long term and abolish the current
                   system of cross subsidiaries. However, increasing electricity prices is particularly
                   sensitive in Korea and politics are traditionally reluctant to do it.

Discussion         It is important to note that sophisticated Smart Meters are not necessarily
                   appropriate for developing and low consumption market, the meter infrastructure
                   and the data handling being extremely expensive. Given Korean households'
                   rather low average consumption levels and the fact that they are responsible for
                   only 14% of national consumption, basic remotely read meters allowing KEPCO to
                   improve its operational efficiency could be sufficient as residential customers
                   would not need to support massive investments and a very long payback period.
                   However, if end-users do not benefit from the meters, it is important that they do
                   not bear the costs. As has happened in many countries, customers will see
                   installation of Smart Meters, increasing power bills and no way for them to benefit
                   from it. KEPCO is expected to cover all metering costs and retrieve them through
                   regular power bills. Officially, there should be no specific cost increase related to
                   the Smart Meter deployment to residential customers. It is, however, very likely
                   that the artificially low regulated residential tariffs will have to be raised.

                   Finally, KEPCO started to rollout its remotely read meters to residential customers
                   before the National Assembly legislated on the matter. Indeed, a Smart Grid law is
                   expected to be proposed to the National Assembly only during the later part of this
                   year which might specify meter installation schedule and features.


References         International Energy Agency, 2010
                   Jin-Ho Kim, Tae-Kyung Hahn, and Kwang-Seok Yang; Roadmap for Demand
                   Response in the Korean Electricity Market; 2009
                   Kepco, 2010
                   Korea Electricity Commission, 2010
                   Korea Power Exchange, 2010
                   Ministry of Knowledge Economy, 2010




                                                                                                           39
                                        California


                                     Smart Meter Policy and Application


National Energy
                  The electricity market within the United States is divided into regions. Each region
market context
                  is run as an autonomous area supplying its own energy needs. Electricity trade
                  agreements are made between regions but these can strongly resemble energy
                  trade agreements between nation states in Europe rather than agreements which
                  are all created within the same country. One region of the USA – Texas has
                  chosen to have no grid connection with any other market in order to be able to
                  have total autonomy and develop a fully deregulated competitive energy market.


                                       Figure 6: Major US Electricity markets




                  Figure 6 represents major US electricity markets. The white sections represent the
                  completely regulated markets. The coloured sections represent the electricity
                  markets which at least have a free wholesale electricity trading market. Functional
                  wholesale markets are important for the successful creation of such smart
                  metering enabled programmes as demand response.

                  The Federal Energy Regulatory Commission (FERC) has a stated policy of
                  supporting demand response programmes as a form of generation and acts as an
                  umbrella of regulatory certainty under which regional regulators and private
                  investors can invest in demand response development. The regulation runs as
                  follows:

                  “It is the policy of the United States that time-based pricing and other forms of
                  demand response….shall be encouraged, the deployment of such technology and
                  devices….shall be facilitated, and unnecessary barriers to demand response
                  participation in energy, capacity and ancillary service markets shall be eliminated.”
                  –US Energy Policy Act of 2005, Sec. 1252(f)

                  In support of Demand Response and to help the Federal Government track the
                  progress of these programmes, the FERC carries out regular national demand
                  response progress assessments and action plans. These review the status of
                  Demand Response and Smart Metering nationally and mark out best practice and
                  next steps. The USA is the only market reviewed by these researchers with as
                  consistent a support of this smart meter enabled systems efficiency resource.




                                                                                                          40
Smart metering has not been mandated at the national level. Smart metering and
required minimal capabilities are mandated by the regional regulators. Each utility
which wants to rollout smart meters must then submit a complete and thorough
rollout proposal. It must consist of detailing the budget, cost/benefit, expected
sources of service improvement for residential consumers, expected efficiency
improvement, pricing changes etc. The regulatory body then reviews this plan and
consumer groups have the opportunity to oppose it. It is normal for such plans to
be refused the first time or for adjustments to be required. Particularly difficult
areas are who is to bare the final risk if the project goes over budget – the utility
shareholders or consumers and how are TOU or Peak Pricing programmes to be
implemented. The latest example of a surprise refusal on the part of the Regulator
was against Baltimore Gas and Electric in Maryland (June 2010). The regulator
blocked the proposal stating among other points, that the utility‟s education plan for
consumers about the new TOU tariffs was insufficient and that end consumers
should not be made to bare all the financial risk of smart meter rollout – despite the
fact that all eventual benefits were to be passed on to them. This serves as an
example of the types of issues which can be raised around such regulation.


California Energy Market Context

In California Smart Metering is integrated into a larger package to help control
consumption 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. The
State counts 14.8 million retail energy customers which were provided with 91
TWh of electricity in 2008. With an average of 6,150 kWh per year for household
consumers, it is one of the lowest in the country. State-wide sales amounted to
268.1 TWh while generation was only at about 208 TWh which makes California
the largest electricity importer in the USA. The fact that the state must rely on
imports is one driver for smart meter enabled programmes such as demand
response both for residential and commercial customers.


                      Figure 7: California Energy Mix 2009




Though 14% of California‟s generation is from renewables, only 2.8% is made up
of intermittent renewables wind and solar. This means that peaks and valleys in
electricity prices are derived from peaks in consumption or failures within the
system, rather than unsteady generation. Though the residential consumption
levels are some of the lowest in the USA, weather related peaks – generated by air
conditioning on hot summer days, poses a challenge for the utilities and represents
large costs for supplying a relatively few hours a year – costs which are passed


                                                                                     41
                           directly on to end consumers. It has therefore been calculated that lowering peak
                           will benefit the whole of society, as there will be less need to maintain peaking
                           plants and network infrastructure.


                                         Figure 8: Source: Peak Load Management Alliance USA




                           Figure 8 represents the price of Demand Response against the price of building
                           new generation capacity. It is important to note that this does not include the cost
                           new network capacity which building new generation would also require. The
                           benefits are therefore actually substantially higher than are shown here. “AVG EE
                           Payment” stands for Average Energy Efficiency Payment. The difference between
                           the cost of the Demand Response programme and the amounts paid to Demand
                           Response participants is how the utilities or aggregators pay for the price of the
                           programmes and eventually make a profit on them. This is also how the
                           necessary technical infrastructure – such as smart meters and data-handling
                           capabilities are justified to regulators. In their cost/benefit analysis, the American
                           Utilities rely on the results of their own pilot studies to calculate the payback time
                           and benefits of their planned rollouts.


                           The California Energy Crisis of 2001

                           In 2001, California suffered from rolling blackouts due to a failed opening of the
                           electricity wholesale market – caused largely by poor regulation and the greed and
                           market manipulation of the generators/Enron. The mechanisms of how the
                           wholesale markets failed are beyond the scope of this report; however the
                           outcome was a loss of faith in deregulation and competition and a decision to
                           increase the power of demand as one mechanism for controlling the power of the
                           generators. A conclusion was reached that a factor in the California crisis was the
                           lack of demand response to mitigate market power.

                           The CPUC began a rulemaking in June 2002 which it concluded in November
                           2005 with the aim of “developing demand response as a resource to enhance
                           electric system reliability, reduce power purchase and individual consumer costs,
                           and protect the environment. The desired outcome of this effort was that a broad
                           spectrum of demand response programmes and tariff options would be available to
                           customers who make their demand-responsive resources available to the electric
                                    23
                           system. ” Subsequently the CPUC and the utilities have developed an integrated
                           package of smart metering plus demand response measures of direct load control
                           and time differentiated pricing tariffs.


23
  Decision 05-11-009 November 18, 2005, Order Instituting Rulemaking on policies and practices for advanced metering, demand
response, and dynamic pricing, Rulemaking 02-06-001, http://docs.cpuc.ca.gov/PUBLISHED/FINAL_DECISION/51376.htm


                                                                                                                               42
In order to gauge the potential of smart meter enabled pricing programmes for
residential and commercial consumers, the State-wide Pricing Pilots was
developed starting in 2002 and running between 2003 and 2004. The pilot cost
$22 million and involved 2,500 end consumers, residential and commercial.

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

The Tariffs tested included:

        Time of Use (TOU) -only rate where the peak price was twice the value of
        the off-peak price.

        Critical Peak Rates (CPP): rate where the peak price during the critical
        days was roughly five times greater than the off-peak price; on non-critical
        days, a TOU rate applied.



The SPP tested two variations of the CPP rates:

        The Critical Peak Price Flat (CPP-F) rate had a fixed period of critical peak
        and day-ahead notification. CPP-F customers did not have an enabling
        technology.

        The Critical Peak Price Variable (CPP-V) rate had a variable-length of
        peak duration during critical days and day-of notification. CPP-V
        customers had the choice of adopting an enabling technology, such as
        automated thermostats for the AC units.

(For further details of rates tried – see Exhibit 1 Annex 1)


  Figure 9: Percent reduction in peak-period electricity use on critical days.
                         Average summer 2003-04.




                                                           Source: Charles River Associates



Figure 9 represents how residential consumers reacted to various critical peak
prices. The higher the price, the more they lowered consumption during the critical
peak hours. The consumption would increase after the peak hours were past. The
different zones were divided up according to weather and summer temperatures.
Residential consumers in the zones with the highest average temperatures shifted



                                                                                          43
                            the highest percentages of load.

                            The findings from the TOU pricing structures were inconclusive due to a small
                            sample size. The first year reductions of -5.9 were noted and the second summer
                            only -0.6.


                            Price Elasticity

                            During the California State Pilot price elasticity (how much people react to changes
                            in price) was found to be dependent on three variables: Dynamic Price, weather
                            and a single large source of consumption – in this case central air-conditioning.
                            Weather influences elasticity. Regions with more extreme temperature variations
                            tend to produce larger reductions in peak consumptions. Therefore a region with
                            higher or lower temperatures will react more strongly to price than those with
                            milder temperatures. A large central source of load – such as a central AC unit,
                            provides a single action through which consumers can make substantial cuts in
                            their consumption.       Consumer groups with higher electric heating of AC
                            penetration will therefore also shed more load than those without.

                            The Brattle Group therefore took all four of the above into their calculations when
                            forecasting the levels of DR for the California utilities.


                                Figure 10: PRISM Calculation model for forecasting DR results. Source
                                                                         24
                                                           Brattle Group




                            The PRISM calculation model of customer price elasticity in Figure 10 produced an
                            accurate tool for forecasting the price elasticity of participants in the California
                            State Pilot. However the limits of these types of models for forecasting regional
                            dynamic pricing results need to be acknowledged. The members of a pilot sample
                            group go through a marketing, recruitment and education process to be part of the
                            pilot. This heightens their awareness of the pricing tariffs in a manner, which has
                            proved difficult to reproduce in California now, during rollout.

                            Regional programmes need to be given time to get established. However, it is
                            important to keep in mind that what will serve well as a mathematical forecasting
                            model when a selected group of screened consumers is involved, may need to be
                            adjusted when the consumer group is potentially the entire population. Here the
                            level to which the marketing and educational campaigns have succeeded in
                            engaging that population will be central.


                            This pilot programme was a success as consumers responded to the dynamic
                            prices. Legislation was therefore passed to laying the differing programme types

24
  Faruqui, Ahmad, Ryan Hledikand, John Tsoukalis. (2009) The Power of Dynamic Pricing. The Electricity Journal. Vol 22. April
2009.


                                                                                                                                44
                              which should be made available to end consumers. This is on top of a pricing
                              system which is already complicated by tiers. Tiers mean that consumers pay for
                              the first few hundred kilowatt-hours at a low rate, but the next few units of
                              consumption are billed at a high rate. A small increase in use can therefore result
                              in a big increase in the bill. Residential prices were at 15.2 cents per kWh in
                              February 2010 which was among the highest in the US but still far cheaper than in
                              most European countries. However, if a TOU rate or Critical peak rate arrives at
                              the end of the month when a consumer is already on a high pricing tier the
                              increase in price can be amplified.

                              On 5 June 2003 the California Energy Commission, the CPUC, and the Consumer
                              Power and Conservation Financing Authority published “California Demand
                                                                                25
                              Response: A Vision for the Future (2002-2007) ”. The document set as a target
                              that “All California electric consumers should have the ability to increase the value
                              derived from their electricity expenditures by choosing to adjust usage in response
                              to price signals, by no later than 2007”. The objectives were to improve reliability,
                              lower power costs and help protect the environment.


Objectives of State           The objectives of the California Smart Meter Policy is to use the infrastructure as
policy                        part of a larger package to lower peak, increase systems efficiency, avoid
                              unnecessary investment in new generation capacity and benefit the environment.


Polic y description
Main characteristics Policy

                              On February 19th, 2004 the CPUC established six minimum functionality
                              requirements for Smart Metering

                                       Implementation of the price responsive tariffs; in particular for residential
                                       and small commercial customers (<200 kW) on an opt out basis:



                              * Two or three period TOU tariffs with ability to change TOU period length
                              * CPP with fixed day-ahead notification
                              * CPP with variable or hourly notification
                              * Flat/inverted tier tariffs which are increasing block rates i.e. for each month
                              consumption below a certain level was at the lowest price (a lifeline tariff);
                              consumption in the next band is a higher price; and so on until consumption above
                              a fifth level is the highest price.

                                       Collection of usage data at a level of detail (interval data) that supports
                                       customer understanding of hourly usage patterns and how those usage
                                       patterns relate to energy costs. In practice this means 1 hourly data for
                                       residential and small commercial customers, and 15 minute data for larger
                                       sites



                                       Customer access to personal energy usage data with sufficient flexibility to
                                       ensure that changes in customer preference of access frequency do not
                                       result in additional AMI system hardware costs



                                       Compatibility with applications that utilize collected data to provide
                                       customer education and energy management information, customized
                                       billing, and support improved complaint resolution

25
     http://www.caiso.com/1f5d/1f5dafda37730.pdf.


                                                                                                                   45
                                  Compatibility with utility system applications that promote and enhance
                                  system operating efficiency and improve service reliability, such as remote
                                  meter reading, outage management, reduction of theft and diversion,
                                  improved forecasting, workforce management, etc.



                                  Capability of interfacing with load control communication technology

                                                                   Feedback is a central component in any
                                                                   successful Smart Metering programme.
                                                                   Smart Meters alone do not bring about
                                                                   consumption reduction. Consumers need to
                                                                   be informed about current prices and
                                                                   consumption level in order to adjust to price
                                                                   signals. IHDs provide immediate continuous
                                                                   feedback and act as constant reminders.
                                                                   The displays now in production are
                                                                   attractive and interactive; they also provide

                          Figure 11: Energy Globe. The              a wide variety of information results. In a
                          globe changes color depending             review by VaasaETT of 124 pilot projects
                          on the electricity price. Source:                                         26
                                                                 conducted across the world , IHDs seem
                          PG&E‟s
                                                                 to be the most effective tool to provide
                                                                 information to customers; The average
                                                                 consumption reduction for IHD was -12.6%.
                         The tools currently being developed in California are websites for all consumers,
                         however these have proved to be not as efficient. Websites require that the
                         consumer enter a code to access the site. They do not constantly remind the
                         consumer of their consumption levels as they must be accessed to be viewed.
                         Though a well designed site can offer valuable information about the household‟s
                         current electricity costs, how much CO2 they are producing, how much they have
                         saved or spent since last month and energy saving tips for the household, the
                         interest level in such sites is generally low. The average percentage of users of
                         such dedicated webpage tends to be as low as 2 to 5% and therefore their impact
                         on national consumption levels will be below measurable levels. If however, a
                         website is part of a larger information package this is not necessarily the case.
                         The dynamic pricing programmes on offer in California therefore may increase the
                         interest of the population in the websites. The principle behind the California
                         Smart Meter requirements was not that act as a complete energy management
                         solution but that they form the basis on which a wide variety of solutions can be
                         built – depending on what the individual customer decided was appropriate. As
                         the meters will also have the capability to interface with an IHD, consumers will
                         have the possibility to increase their level of feedback or home automation
                         elements if and when they decide this will be beneficial.


                         California Public Utilities Commission (CPU) Approved Smart Meter Rollouts

                         In four decisions the CPUC approved funding for the three investor owned utilities
                         to roll-out smart meters:

                                  On 20 July 2006 in D.06-07-027 the Commission authorized PG&E to
                                  deploy a new AMI system that was based on fitting a snap-on
                                  communications module to existing electromechanical meters, and
                                  included authorization for PG&E‟s proposal for critical peak pricing tariffs.
                                  The decision authorized ratepayer funding for $1.69bn. However, on
                                  March 12 2008 in D.09-03-026 the Commission authorized PG&E an

26
  Stromback, Dromacque, Golubkina, Lewis, Respond 2010, Demand Response pilot comparison, VaasaETT Global Energy Think
Tank, May 2010.


                                                                                                                   46
                               additional $623m to upgrade the previously approved system to electronic
                               meters with enhanced functionality. This was approved due to the fact
                               that the extra costs could be recuperated through improved functionalities.
                               The gas meter upgrades still involve the snap-on communications module



                               On 16 April 2007 the Commission adopted D.07-04-043, a settlement
                               among SDG&E, the Division of Ratepayer Advocates (DRA) and Utility
                               Consumers‟ Action Network to allow $572m in ratepayer funding for
                               SDG&E‟s proposed AMI Project from 2007 through 2011. The
                               Commission found that there are between $40m and $51m in net benefits
                               under the SDG&E Settlement Agreement



                               On 18 September 2005 in Decision 08-09-039 the Commission adopted a
                               settlement proposed by Southern California Edison Company (SCE) and
                               the DRA to allow $1.63bn in ratepayer funding for SCE‟s proposed AMI
                               project from 2008 through 2012. The CPUC found that there are between
                               $9m and $304m in net benefits for the Settlement Agreement. From 2008
                               through 2012, SCE will install approximately 5.3 million new, AMI-enabled
                               electric meters that can, among other things, measure energy usage on a
                               time-differentiated basis.


Accompanying        The smart meter rollouts have all been accompanied by extra energy efficiency
energy   efficiency measures or integration with already existing measures. The important element to
measures            note here is that each utility has gone beyond the minimal regulatory requirements
                    in their effort to improve the efficiency and energy savings created by the system.
                    This is not a finding which is unique to California. When the market structures and
                    regulation creates a platform of regulatory certainty, private/public partnerships are
                    formed because business opportunities are created for those who can use the
                    regulation to their advantage. The following measures taken by the utilities to
                    increase the environmental benefits created by the smart meter rollouts should be
                    seen as an indication of the power of positive regulatory structures.


                       The Commission approved the following budgets for the utilities‟ technical
                       assistance and technology incentives activities/emerging market and technology
                       projects/automated demand response programme and services:

                       These projects include:

                       • SCE projects comprised energy storage projects, integrated demand side
                       management activities, and projects to expand demand response to residential
                       customers. In addition, SCE describes projects that would integrate with its AMI
                       system, such as development of customer interfaces and displays, intelligent
                       circuit breakers, smart appliances and communication tools for pool pump cycling

                       • PG&E intends to emphasize projects which integrate energy efficiency and
                       demand response, and, like SCE, plans to continue to work with the Demand
                       Response Research Centre and other research organizations. Specific areas of
                       focus include: energy storage, smart thermostats and smart appliances,
                       technologies compatible with AMI, advanced lighting systems and energy
                       management systems. PG&E forecasts $2,421,000 for this programme in the
                       2009-2011 cycle

                       • SDG&E proposals include the Residential Automated Controls Technology Pilot
                       to test, implement, and evaluate enabling technologies that may assist in achieving
                       load reduction during periods of peak energy use. The utility proposes testing
                       energy management systems, programmable communicating thermostats, online
                       curtailment tools, smart appliances and load control devices in conjunction with the


                                                                                                          47
                       deployment of the SDG&E Smart Meter (AMI) system. SDG&E proposes a budget
                       of $1,689,671 for the 2009-2011 budget cycle.




M ark et Dr iv e r s

Current market level Rollout is ongoing and will be completed by 2011 – 2013.
of SM rollout        TOU pricing will by mandatory for all Commercial Consumers

                       The CPUC has approved proposals from the three investor owned utilities to install
                       AMI systems.


                       SCE:

                          SCE‟s scheme to roll-out approximately 5.3 million meters over a five-year
                          period beginning in 2008 will cost $1.63bn representing an average cost of
                          $310 per electric meter installed.       It is using ITRON Open Way
                          communications; 80% of the meters will be ITRON and 20% another
                          manufacturer. It is expected to generate $1,174m in operational benefits and
                          $816m in energy conservation, load control, and demand response related
                          benefits

                          SCE is continuing with its Peak Time Rebate programme; extending its load
                          control programmes, and introducing TOU and CCP tariffs:-

                          *    The Peak Time Rebate (PTR) programme for residential customers
                               provides a credit of $0.75/kWh for usage reductions during peak periods (2
                               p.m. to 6 p.m.) on designated critical days. PTR would be an “overlay” to
                               customers‟ other tariff, whether TOU or traditional tiered tariffs, which
                               provide a price signal to encourage load reduction during critical peak
                               periods. The PTR programme for the residential class is estimated to
                               provide a peak demand reduction of 410 MW by 2013.

                          *    SCE already has one of the largest air conditioning load control
                               programmes in the world with 360,000 residential customers participating.
                               With Edison SmartConnect™, SCE can offer two-way communication with
                               PCTs to transfer temperature set point information, event status, and
                               enable customer override. SCE anticipates 342MW of demand reduction
                               by 2013

                          *    TOU and CPP tariffs for residential and C&I customers under 200 kW are
                               estimated to provide 131MW of demand reduction by 2013

                       SDG&E:

                          The CPUC approved $572m for SDG&E‟s proposed AMI Project from 2007
                          through 2011 when SDG&E will install approximately 1.4 million new, AMI-
                          enabled, solid state electric meters and 900,000 AMI enabled gas modules. It
                          is using ITRON Open Way communications and ITRON meters. There is
                          between $40m and $57m benefit

                          Over 50% of the potential operational benefits SDG&E projects for the AMI
                          project relate to meter reading. SDG&E claims $69.4m in benefits associated
                          with reduced energy theft (both electric and gas), improved meter accuracy,
                          and reduced billing exceptions. SDG&E also claims that meter accuracy
                          benefits will amount to $53m

                          Demand response benefits accrue from system peak load reductions :-



                                                                                                        48
  *     residential customers will be eligible for a Peak Time Rebate programme
        which is estimated to provide 105MW in 2011

  *     small commercial customers (<20kW) with AMI meters will be defaulted
        onto a three-period TOU tariff, and will also be given the opportunity to
        benefit from the PTR programme or to volunteer for a CPP tariff, which will
        provide 8MW in 2011

  The net present value benefits are estimated at $123m for residential
  customers and $14m for small commercial customers

  Operational benefits represent approximately 60% of the total SDG&E‟s costs
  while avoided capacity and energy benefits represent approximately 35%

  In 2009 SDG&E undertook an in-home display technology evaluation followed
  by a multi-vendor project with several vendors‟ HAN devices, and a single
  vendor project with a complete solution of HAN devices and web portal for
  control

  SDG&E has teamed with Google to display previous day customer
  consumption on Google PowerMeter

PG&E:

  PG&E was the first mover with a decision by the CPUC in 2006 authorizing
  funds for a roll-out of a snap-on communications module to electro mechanical
  meters. Technology evolved rapidly and prices of electronic meters reduced,
  so it reconsidered its programme and in 2009 got authorization to roll-out
  electronic meters for electricity and gas with increased functionality
  incorporating an integrated load-limiting connect/disconnect switch, and a
  Home Area Network gateway device. The meters are split 50/50 between GE
  and Llandis+Gyr, and it is using Silver Springs communications technology

  PG&E was authorized to offer on a voluntary basis a CPP tariff to its residential
  and small commercial and industrial customers with demand below 200 kW
  who have the smart modules. PG&E designed the CPP tariff to be similar to
  the design used in the State-wide Pricing Pilot research project as an “overlay”
  in addition to the regular tariff. PG&E‟s expected demand response by 2011,
  with full deployment of smart meters and an aggressive marketing campaign,
  ranges from 206 to 448MW for the proposed CPP tariff

  The authorized original AMI project was cost effective in that the present value
  revenue requirement (PVRR) of the project costs, $2,258.3m, was more than
  offset by the sum of the PVRR of operational benefits, which amounted to
  $2,024.2m, and the PVRR of the demand response benefits associated with
  the CPP tariffs, which amounted to $338m. PG&E estimates $572,453,000 in
  upgrade costs that are incremental to those costs. The PVRR of the
  incremental costs is $841,157,000, which is offset by incremental operational,
  conservation and demand response benefits estimated by PG&E to be
  $1,063,124,000 (PVRR). The adopted costs and benefits result in a PVRR net
  benefit of $(30,606,000). By this adopted analysis, the upgrade is cost
  effective

  PG&E has a range of demand response programmes including a PTR
  programme and a SmartAC Programme




                                                                                  49
Imp a ct/ ev a lu at io n

Positive/ negative           Utilities in California are not competitive and are single units. It therefore does not
cost/benefit for            make sense to divide up the cost/benefits to the differing parts of the value chain.
members of the              The utilities represent the cost/benefits of their plans as one unit to the state
value chain (if             regulator.
applicable)
                            The cost of these systems varied per meter is depicted in figure 12. The variations
                            in price can be due to functionality, rollout plan efficiency and the spread and
                            make-up of the local population. However another factor to consider when
                            comparing the cost of meter installations is that each utility may calculate such
                            elements as installation, communication and back office costs as well as benefits,
                            differently and therefore such graphs must be seen as an indication of cost only.
                            Enel‟s Smart Meter Rollout was much cheaper than others partially because it was
                            carried out in an efficient and effective manner and partially due to the simplicity of
                            the data-handling and communications systems installed. It is interesting to note
                            that despite the very low level of functionalities and services provided by the
                            Swedish smart meters, the rollout was more expensive than that of Southern
                            California Edison.


                                         Figure12: Comparative costs of Smart Meter rollouts.




                            In all three of the approval agreements, energy savings and improved customer
                            service were an important part of the justification and cost/benefit analysis of the
                            smart meter rollout. For example, the Southern California cost/benefit analysis of
                            their smart meter system and the meter enabled programmes such as demand
                            response and energy conservation to be approximately 30-40% of the benefits
                            calculated over a twenty year period. The payback of the entire smart metering
                            system is reliant of a positive outcome from their DR programmes.

                                SCE‟s business case is reasonably expected to generate $1,174m in
                                operational benefits and $816m in energy conservation, load control, and
                                demand response related benefits

                                The ex ante energy conservation participation goals and forecasted energy
                                conservation benefits of $164m included in the settlement agreement are
                                reasonable

                                A risk sharing mechanism under which ratepayers pay 90% and shareholders
                                pay 10% of cost overruns up to $100m without additional reasonableness
                                review is reasonable

                                Under a force majeure provision, SCE may recover up to $100m beyond the
                                authorized $1.63bn in rates without additional reasonableness review,
                                shareholder contribution or penalty, if the increased costs are due to events
                                beyond SCE‟s control




                                                                                                                   50
   Potential costs and benefits from revenue protection and meter electricity
   usage and benefits from meter accuracy will not be included in the SCE
   business case, but will be reflected as societal benefits. The Settlement
   Agreement identifies benefits beyond the financial benefits included in the
   business case, and quantified these benefits at approximately $295m. The
   societal elements that provide net benefits in the settlement agreement are the
   costs and benefits related to unaccounted-for energy and energy theft, which
   are estimated to result in a net benefit of $39m, and benefits associated with
   increased meter accuracy which the settlement agreement estimates at
   approximately $256m



End-consumer

Demand Response and Efficiency lowers the total cost of electricity whether the
individual end consumer participates in the programmes or not. This is due to the
fact that less generation and grid capacity must be maintained and systems costs
therefore go down. Therefore prices go down for everyone.

The Critical Peak Rebate programmes, Critical Peak Pricing and Automation will
all offer consumers the opportunity to control and lower their own costs. For small
commercial consumers, who take advantage of the feedback capabilities in the
smart meters, the technology will bring the benefits of energy consumption
oversight which is now often only reserved for larger companies who can afford an
energy manager on-site. This should provide them with a better understanding
and control over their own energy costs.

With this being said, there are two reservations to mention here. The first is that
Commercial Customers, all of whom will have to be on a TOU rate from 2011, may
very well find it difficult or impossible to shift load during peak hours. The State
has allocated funds to help perform audits and provide support; however a
backlash is to be expected as busy, stressed business owners will see their
electricity costs increase overnight.

Secondly, though the smart meters have excellent capabilities and can be used as
a platform to incorporate in-house-displays, information on pricing tariffs, and
home automation, no actual readymade feedback capabilities are being installed
for all consumers. This means in effect that there will be nothing in the new meter
which educates the residential consumers about the impact of their own usage.
They will have to seek this out themselves, either by logging into the website
provided by the utilities or by purchasing an in home display. This constitutes a
substantial area of risk for the long-term cost/benefit results of the utilities‟
programmes. The positive prognosis for smart metering has relied heavily on
active customer involvement. The benefit of the system for residential consumers
will depend on how successful the utilities are with persuading and educating the
population and on their own personal initiative.

Another positive aspect which has not been discussed above is the creation of
green jobs and a green economy which is already growing up around the
ambitious goals set by the regulator. Companies are moving in providing the
displays, automation units, building audits and commercial demand response
capabilities. Not only therefore do energy saving and efficiency programmes help
consumers lower their own costs and increase their purchasing power, but they
also provide business opportunities.



Environment

The environment benefits directly from these programmes. Though the smart
meter rollout itself and the increased data-handling capacity required to support it
represent a direct environmental cost, this is more than paid for in increased


                                                                                   51
                  systems efficiency and lowered electricity consumption.


                    Figure 13: SDG&E Demand response impacts in 2011 (first year after full
                                                            18
                                          meter deployment.




                  The exact amounts of environmental benefits have as yet to be calculated and it is
                  best to wait and review how well the three main utilities succeed in persuading
                  consumers to participate in the new programmes before calculating their exact
                  environmental impact.        The expected amounts of shifted load however, are
                  substantial. For example Figure 13 shows the amount of load SDG&E estimates
                  they will shift in 2011, during the first year of full programme deployment. Each of
                  the three major utilities expect to shift similar amounts of load from their primary
                  smart meter enabled programmes alone, plus encourage overall consumption
                  reductions. Approximately 2000 MW of load is expected to either be shifted or
                  avoided completely.


Market reaction   Though Smart Meter structures have been designed to benefit residential
                  consumers, rollout has not been smooth for all utilities. PG&E for example, is
                  facing a class action law-suit brought by a group of consumers in Kern County
                  which is an area of the State with one of the hottest climates. The customers claim
                  that the meters are measuring incorrectly and increasing their costs.

                  The claim has been found to have some very limited grounds through the
                  extensive tests which have been carried out by the company on many of the
                  meters in question; however most of the claims were unfounded. The increases in
                  electricity costs having more to do with a changed tariff structure, the tier system
                  and unusually high temperatures. The public image damage has been done
                  however, and the costs of rollout increase as extra testing, recalls and lawyers
                  need to be paid for. This cost will eventually be passed on the consumers
                  themselves.

                  As for the dynamic pricing programmes and the feedback capabilities in the meters
                  it is as yet too early to ascertain if these will be a success as rollout is not
                  complete. A central – element of success for all of these programmes will be the
                  education of both commercial and residential consumers throughout California.


Discussion        California is an example of a market which has rolled out smart meters as a small
                  part of a much larger energy efficiency and systems efficiency package. The
                  benefits of this lie in the fact that the meters now have the potential to bring with
                  them substantial social and environmental benefits. As California is one of the first
                  markets to be this active there will certainly be mistakes made. However, overall
                  benefits are and will be felt.

                  The Critical Peak Rebate programmes, Critical Peak Pricing and Automation will
                  all offer consumers control and lower their own costs. For small commercial
                  consumers, who take advantage of the feedback capabilities in the smart meters,
                  the technology will bring the benefits of energy consumption oversight which is
                  now often only reserved for larger companies who can afford an energy manager
                  on-site. This should provide them with a better understanding and control over


                                                                                                      52
                  their own energy costs.

                  This said there are two reservations to mention here. The first is that Commercial
                  Customers, all of whom will have to be on a TOU rate from 2011, may very well
                  find it difficult of impossible to shift load during peak hours. The state has
                  allocated funds to help perform audits and provide support however a backlash is
                  to be expected as busy, stressed business owners will see their electricity costs
                  increase overnight.

                  A key component of the California story will be their success in educating and
                  motivating a large portion of their residential and commercial customers to
                  participate positively in the new pricing tariffs. If they fail here – and they may –
                  the benefits calculated in the rollout plans will not be fully realized.

                  The success or failure of metering will therefore have to be decided post-rollout.
                  After the utilities have had the opportunity to address the technical difficulties and
                  mistakes which occur during rollout and educate and motivate their consumers.
                  The eventual environmental benefits of the system will also be entirely dependent
                  on the utilities success in involving consumers.


                  The creation of green bobs and a green economy is already growing up around the
                  ambitious goals set by the regulator. For example, as stated above, Commercial
                  Customers, all of whom will have to be on a TOU rate from 2011, may very well
                  find it difficult or impossible to shift load during peak hours. The Commercial
                  Demand Response industry and aggregators are aware that this is going to be an
                  issue. Many of them are now establishing extra personnel in California in order to
                  take care of the large increase in commercial demand response participation which
                  is expected 2011. A concrete example of green jobs created through energy
                  efficiency measures.


                  Companies are also moving in providing the displays, automation units, building
                  audits and commercial demand response capabilities. Not only therefore do
                  energy saving and efficiency programmes help consumers lower their own cost
                  and increase their purchasing power but they also provide business opportunities.



Ref e re nc e s
                  Business Case for Demand Response October 8, 2009 Ross Malme Demand
                  Response Resource Centre
                  EEE Limited, Henney Alex, California-SM-2009, Respond 2010




                                                                                                       53
ANNEX 1: SPP rate details




                            54
                                          Sweden


                                    Smart Meter Policy and Application



National Energy   The population of Sweden is 9.3 million and the number of households 4.9 million
market context    while there are 5.07 million connected electricity customers. The average
                  household electricity consumption is 9,000 kWh a year, making it the second
                  highest in Europe after Norway and well over double the average European
                  household consumption. Electricity costs are a concern for the population
                  especially during the winter months.

                  The Swedish electricity market has several bodies to regulate and supervise the
                  market, each with a specific mandate. Energimyndigheten (the Swedish Energy
                  Agency) is the central administrative authority - market regulator - for the supply
                  and use of energy. It is responsible for implementing the energy policy
                  programmes set out by the Swedish Parliament, with the objective of „creating an
                  ecologically sustainable and economically viable energy system‟. The smart
                  metering regulation which resulted in the meter rollout did not originate with the
                  Energimyndigheten, but with the Swedish Parliament.

                  The Competition Authority has the responsibility for applying the competition rules
                  between utilities. It has been debated whether the parameters by which this
                  authority has the mandate to judge utilities (again a mandate provided by the
                  government) are stringent enough to ensure fair competition. In all markets in
                  Europe, including the Swedish Electricity market, utilities are now deregulated to
                  varying degrees, however the various parts, retail, transmission/distribution,
                  generation can be owned by one parent company. In certain instances, the
                  interests of the individual part and the interests of the parent company - clash. In
                  Sweden as in other deregulated markets, the real level of deregulation within
                  utilities is relevant to smart metering regulation and particularly the programmes
                  that they enable in two ways.

                  First, the level of real utility unbundling will directly impact the types of energy
                  efficiency and demand response programmes which any part of the utility is likely
                  to pursue. For example, the retailer section of a utility may have reason to be
                  interested in demand response as a method for lowering electricity purchasing risk
                  during peak consumption hours, however this will not be the case if, in fact, the
                  overall utility (parent company) earns most from peak load generation, which the
                  demand response programmes aim to lower. In this case it will be the partner with
                  the greatest financial pull which wins out. As most energy efficiency and systems
                  efficiency programmes penalize generation, the part of the utility with the greatest
                  financial pull, this can sometimes explain the reluctance of the industry to enable
                  these programmes. It also puts the impetus on the regulatory bodies and policy
                  makers to create market structures and regulation which take these factors into
                  account and actively support smart meter enabled, environmentally friendly
                  programmes when mandating rollout.

                  Second, market unbundling and meter ownership complicate the decision making
                  process surrounding what capabilities to include in the meters. Capabilities which
                  enable feedback and pricing programmes – the environmentally friendly
                  programmes, cost extra money. However in Sweden, and in most of Europe, it is
                  usually the network companies which own and pay for the meter rollout and the
                  retailers which carry out most of end-consumer oriented programmes. The
                  interests of the network company are therefore to only include capabilities which
                  will improve their own back office processes and systems reliability while the
                  retailer will want frequent and granular data for pricing programmes and


                                                                                                     55
                  communication capabilities into the home. If the regulator does not provide clear
                  requirements for smart meter capabilities, it is possible that the network companies
                  will not include basic and necessary capabilities in the meters required for energy
                  efficiency related programmes as it will not be they who will run them or benefit
                  from them.

                  This factor was not taken into account by Swedish policy makers. The result being
                  that many of the Swedish meters are not capable of supporting energy efficiency
                  programmes, nor is the national data handling and communication system capable
                  of handling the necessary levels of data required for the most effective pricing
                  programmes. The government has ordered an investigation into the cost of
                  upgrading the system so that these programmes can be implemented. The results
                  will be available in the autumn of 2010.


Objectives of     The objectives of the Swedish Smart Meter Policy were:
national policy
                  * To improve data handling during customer switches between electricity Retailers
                  and the Distribution Network Operator
                  * To provide all consumers with accurate monthly invoices rather than estimated
                  invoices
                  * To further competition within the electricity market by supplying all end
                  consumers with accurate monthly invoices rather than estimated bills in the hopes
                  that this would increase awareness of electricity costs and encourage consumers
                  to take the trouble to switch away from expensive Retailers.
                  * To give electricity customers a more direct connection between consumption and
                  billing in order to encourage behavioural change and increased energy efficiency.

                  In order to accomplish these goals smart meters per say were not mandated; only
                  monthly meter readings.

                  The legislation ran: “In order to facilitate supplier changes and give electricity
                  customers a more direct connection between consumption and billing, the
                  government has passed a decision to introduce monthly metering of electricity
                  usage among all electricity customers by 1 July 2009. Within the given timeframe,
                  the network companies are free to decide the pace of implementation. The cost of
                  the reform is estimated at around SEK 10 billion (€ 1.1 billion) and will be paid for
                  by the end consumers." The government also considered that a more direct
                  understanding of the consumption and costs would heighten general awareness
                  about the electricity market and thereby increase competition.


                  The new regulation requirements:

                  •        July 1, 2009 Sweden moved to monthly billing based on actual
                  consumption.
                  –        The meter reading must have a time stamp 00.00 day 1 every month and
                  have a status mark ”first-rate”(prima)
                  •        If a meter reading is missing, extrapolation is not allowed (forward
                  estimation) but interpolate (a later meter reading must exist)
                  –        The meter reading will get the status “calculated” and can be used for
                  invoicing and settlement
                  •        Time to correct the billing and settlement will be shortened from 13 months
                  to 2 months.
                  •        Lead time for exporting meter readings to retailers is shortened from 30
                  days to 5 days.
                  •        Message handling is changed from MSCONS and DELFOR to UTILTS.
                  •        Yearly consumption must be estimated based on actual consumption over
                  the last 12 calendar months.
                  •        A message of prognosis for the coming 12 months must be sent to the
                  energy supplier at the start of delivery (customer shift and supplier switch) and is
                  based on the latest 12 month period.



                                                                                                      56
                     •       For new connections, an equivalent prognosis must be decided based on
                     calculated consumption for the installation.
                     •       Consumption statistics must be given to the energy user, at latest on the
                     invoice and cover the last 13 months. It can also be given through the web (My
                     Pages) or customer invoice.

                     While DNO‟s handle their internal communication systems, the communication
                     system between the network operators and the retailers is EDIEL and is
                     standardized.

                     Scope of policy goals

                     The scope of the above policy is limited to monthly readings. It does not develop a
                     cost/benefit analysis, or include overt energy efficiency goals other than accurate
                     monthly invoices to encourage energy savings. In pilot studies informative billing
                     has helped to decrease consumption be approximately 4% so this may have an
                     impact on Swedish consumption levels. Feedback capabilities into the home,
                     Dynamic Pricings and Home Automation capabilities which smart meters can
                     include were not considered. Possible CO2 reductions were also not considered.

                     Regional influence

                     The Smart Meter directive fulfils the European Commission Directive 2006/32/EC
                     Article 13 “Member States shall ensure that, where appropriate, billing performed
                     by energy distributors, distribution system operators and retail energy sales
                     companies is based on actual energy consumption, and is presented in clear and
                     understandable terms…Billing on the basis of actual consumption shall be
                     performed frequently enough to enable customers to regulate their own energy
                     consumption” According to some interpretations of the Directive monthly bills
                     provides consumers with consumption information often enough for them to act
                     upon it.


Polic y description

Main characteristics Policy

                     In 2003 the Swedish government passed legislation (proposition 2002/03:85),
                     which required accurate monthly invoices based upon actual meter readings for all
                                                            st
                     residential customers beginning July 1 , 2009. The legislation was in response to
                     widespread dissatisfaction among residential consumers due to inaccurate
                     invoices and data errors during switching.

                     Meter reading regulation prior to smart meter rollout was similar to many other
                     countries in Europe; large consumers, those with fuses of 63 Amps and above,
                     had to have hourly interval meters and were billed on a monthly basis. Residential
                     meters were read once a year with the settlement period stretching to 13 months.
                     Between readings, the provisional invoices were based upon estimated
                     consumption and averaged out slightly over the year so that residential customers
                     with electric heating were protected from high monthly electricity bills during the
                     cold winter months. Considering that for some homes up to 80% of their electrical
                     costs are from electric heating, this process of evening out expenses throughout
                     the year had a real impact on their understanding of how much their electric
                     heating was actually costing them.

                     The provisional monthly settlement was estimated forward. This meant that the
                     provisional allocation of electricity to retailers in, for example, September were
                                                             th
                     estimated and reported by August 15 . Since these were estimated in advance,
                     there was no load profile available for the actual month; therefore, the Distribution
                     Network Operator‟s (DNO) profile from the previous year was used. This
                     introduced errors into the system when household composition changed or other
                     factors came into play.


                                                                                                         57
                      When a customer decided to switch Retailers, the new Retailer was required to
                      notify the DNO of the switch. The DNO then checked the customers‟ data and sent
                      a notification of the switch to the previous retailer. The DNO was also to inform
                      both retailers of the customer‟s meter reading at the time of the switch. Previously
                      in Sweden switches took place the first of the month and the DNO had 30 days to
                      provide the meter data.

                      As switching levels increased this system became unreliable. There were no
                      incentives to perform well and mistakes were made. A study found that 7% of
                      retailer switches were completed later than expected usually either because
                      information about the customer was missing, or the retailer and the DNO had
                      different information about the customer. In some cases the customer was never
                      informed the switch had successfully taken place and never received an invoice
                      from the new retailer.

                      On top of this, the DNO was required to read the meter only once a year, but if this
                      proved difficult it could be postponed for two years. The long settlement period of
                      13 months or 26 months meant that some customers received large invoices which
                      were difficult to pay, further damaging the reputation of the electricity industry.

                      Therefore, when the Swedish legislature passed proposition 2002/03:85 the focus
                      was not on preparing the market for future development nor on the technological
                      requirements involved but on being publicly seen to address the issues causing
                      the public dissatisfaction with the electricity industry. In 2003, the “Big Three” were
                      more unpopular than the tax office and customs. The only group which was close
                      to being as unpopular were the police and even they scored higher than Fortum
                      and E.ON.

                      As accurate monthly invoices were considered an improvement in service over and
                      above what residential customers had hither to received, it was decided it would be
                      appropriate to have end consumers pay for them directly through an extra network
                      tariff. It was also decided that accurate billing alone was a sufficient improvement
                      in service to justify the €1.1 billion or the € 200 per customer they would be
                      charged. This stands out in sharp contrast to most other mandated smart meter
                      rollouts both in the USA, Australia and Europe where either the network company
                      is supposed to pay for the meters and/or the level of service eventually provided to
                      residential customers should be higher and include in house feedback capabilities,
                      dynamic pricing etc.

                      Though installing new meters was not a requirement in the original legislation, only
                      accurate monthly meter readings, the network companies decided that meters
                      which could be read remotely would be the most cost effective means of fulfilling
                      the requirements of the new legislation. During the actual rollout the first utilities
                      calculated that smart meters would in fact be more beneficial than simple
                      automatic meter reading meters (AMR) and therefore upgraded their systems as
                      they went. This was particularly true for utilities such as Vattenfall who began
                      rollout in 2003 (Figure 1). During rollout, metering costs as compared to
                      functionalities improved dramatically – a reflection of the development of the
                      technology.

                      As the end users were to pay for accurate monthly invoices, no public cost/benefit
                      analysis was made.


Accompanying        The government is committed to upholding the 2020 objectives set by the
energy   efficiency European Commission. This has included a wide range of goals from improving
measures            building practices to increasing the percentage of wind generation. These have
                    not directly dealt with residential or commercial electricity consumption however
                    and this sector is under represented when it comes to efficiency programmes and
                    regulation.




                                                                                                            58
Market Drivers

Current market level • Meter price
of SM rollout
                     The budget per meter was 200€, however some investments may well have been
                     made to increase functionality by the actual Network companies

                                Prevalent meter types (if available)

                            Many different types of meters were used during rollout – this was partially due to
                            the lack of regulatory requirements

                                Current frequency of meter readings

                            Monthly

                            •   Number of SM in place

                            5.1 million

                            •   Content of Functionality requirements SM

                            One monthly meter reading.




Imp a ct/ ev a lu at io n

Positive / negative Generation Companies
cost / benefit for
members of the No benefits
value chain

                            Network companies

                            Network companies have benefited from improved back-office efficiency which has
                            lowered their own costs and lowered the cost of serving end consumers. Figure
                            14 depicts Vattenfall‟s progress as functionality and benefits increased for the
                            Network company while costs for the meters fell. This benefit may eventually be
                            passed on to end consumers if the network tariffs are lowered. However, so far
                            this has not occurred.


                                                 Figure 14: AMR Market development




                                                            Source: Vattenfall AB




                                                                                                              59
Retailers

Retailers have benefitted from improved access to data as they now receive
accurate data on a monthly basis and 5 days after a customer request to switch
between retailers. This has improved billing practices and eased handling
customer switching processes. The accurate monthly bills have also lowered the
number of customer complaints and therefore the Retailers/Networks companies
cost for their call centres. Figure 15 shows E.ON‟s calculation of these benefits.
They calculated that meter reading enquiries have fallen by 70% and invoice
complaints by 60% 8 months after rollout was completed. As call centres are a
major cost for Retailers this represents significant saving. Again this benefit could
theoretically be passed on to end consumers if prices were lowered in reflection of
these savings. Due to the varying costs in raw materials, water levels, etc all
influencing electricity prices, it is difficult to calculate whether this has take place or
not.

             Figure 15: E.ON’s internal benefits - Customer service




                                   Source: E.On Sverige




End-consumer

The big three utilities are developing websites where customers will be able to
view their consumption information either from the previous month or perhaps the
previous day. As of the time of researching this report this service is not yet widely
available.

The current advantages for end- consumers are a better oversight of their energy
consumption due to accurate monthly invoices and improved switching times and
data handling processes. The accurate invoices and increased awareness that
this brings may encourage them to lower their consumption levels.

The disadvantages are that they have paid more than other residential customers
with smart meters for a comparatively low level of service improvement.

The accurate monthly bills are also in some ways a burden for consumers as well
as a benefit. Prior to smart meter rollout electricity costs were averaged out over
the course of the year. This lowered consumer awareness of how their actions
influenced their costs but it also protected them from extremely high bills during the
cold winter months. On top of this, no information of feedback displays have been
provided to help consumers control these costs, resulting in shock electricity bills
for some on electric heating. This is particularly difficult for low income families and
those who live on fixed budgets. In this way smart metering has directly penalized
the most vulnerable members of society who also had to pay the 200 Euros to
have the meters installed.




                                                                                          60
                  It points to the need:

                  1. For protective regulation during rollout
                  2. For mandated feedback and education requirements as an integral part of any
                  smart meter policy and regulatory package.
                  Environment

                  Benefits

                  None so far. Though it may be that the shock winter electricity bills will encourage
                  an improvement in energy efficiency among residential consumers. This has not as
                  yet been calculated. During pilot tests accurate monthly billing has increased
                  awareness and encouraged savings of approximately 4%.

                  The situation may improve further if the major utilities introduce dynamic pricing
                  and improved feedback capabilities. It is therefore too early to judge at this stage
                  the final results of this rollout.


                  Costs

                  Mechanical meters can last up to 30-40 years. The life expectancy of Smart
                  Meters is 15 – 20 years – and this is not yet proven. Smart meters also draw
                  current and the data-handling processes also require electricity. Therefore the
                  rollout of 5.1 million Smart Meters comes at an environmental cost.

                  At this stage it is not possible to calculate whether the Swedish Smart Meter rollout
                  will provide more environmental costs or benefits.



Market reaction   Due to protests at the high electricity bills during the winter 2009-2010, the
                  government has launched an investigation into the cost of upgrading the smart
                  metering system and data handling capabilities in order to enable In House
                  Displays for residential consumers and dynamic pricing programmes. The results
                  will be provided in the Autumn of 2010


Challenges/       A low level of systems capabilities and a lack of regulation
Solutions


Discussion        Swedish smart metering policy has been a success in that it solved the problem it
                  set out to solve – namely badly handled switches and data handling practices
                  between retailers and network companies. It also is meeting its second goal, to
                  provide accurate monthly invoices to all consumers.

                  However from the point of view of this report – analysing the impact of smart meter
                  regulation on environmental programmes and customer services, the regulation
                  has underperformed. From this point of view, Sweden is a prime example of the
                  importance of smart meter regulation which takes into account not only one
                  immediate political challenge, such as public discontent due to badly handled
                  switching, but also long term energy efficiency and systems efficiency goals.
                  These can be reached through customer feedback programmes and dynamic
                  pricing and both require substantial data handling infrastructure and meter
                  functionality. Customer services and protection of vulnerable customers should
                  also be carefully considered. Without all of the above smart meters do not bring
                  environmental benefits (over and above the potential benefits of accurate monthly
                  bills) and they do not necessarily improve customer service to any substantial
                  degree.




                                                                                                      61
Ref e re nc e s
                  EEE Limited, Henney Alex, Nordics-SM-2009, Respond 2010
                  Kristina Engström Smart Metering-operational Challenges from E.ON Elnät
                  Sweden Metering Scandinavia 2010-03-10
                  Lars Garpetun Smart Meteringin the future; “Experiences from operations after a
                  full-scale Smart Metering rollout”. Vattenfall Distribution Nordic




                                                                                                    62
                                                           Brazil


                                                  Smart Meter Policy and Application



National Energy            Brazil, officially the Federative Republic of Brazil, is the largest country in South
market context             America 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 over
                           7,491 kilometres. Brazil is the world's eighth largest economy by nominal GDP and
                           the ninth largest by purchasing power parity. Economic reforms and sustained
                           growth have given the country new international recognition. Brazil is a founding
                           member of the United Nations, the G20, Mercosul and the Union of South
                           American Nations, and is one of the BRIC Countries. Furthermore, Brazil‟s
                           economy barely suffered from the current economic crisis thanks to healthy
                           macroeconomic fundamentals, bourgeoning middle class and of course abundant
                           raw resources such as oil, minerals and agricultural commodities. According to the
                           Economist Intelligence service, unemployment rate currently stands at 7.4% and
                                                                                             27
                           economic growth should reach 5.5% in 2010 and 4.5% in 2011 .



                           Energy Indicators

                           Brazil had 96.6 GW of installed generating capacity in 2007. The same year, the
                           country generated 437 TWh of electric power, while consuming 402 TWh.
                           Currently, 97% of households are connected to the electricity network which
                           amounts to almost 54 million customers. Average household consumption is low
                           and estimated at about 1,780 kWh per year but historically electricity consumption
                           has increased at a faster pace than GDP.

                           Hydropower provided 85% of electricity generated, with smaller amounts coming
                           from 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 Latin
                           America but still much higher than most OECD countries which average
                           approximately 6-7%. Again in 2005, interruption frequency and duration are very
                           close to the averages for Latin America as the average number of interruptions per
                           subscriber was 12.5, while duration of interruptions per subscriber was 16.5 hours
                                                                                                  28
                           compared to an average of 13 interruptions and 14 hours for the region .

                           Brazilian household consumption is low as they use fewer household appliances
                           than their American or European counterparts. There exists however an unusual
                           appliance which puts a certain strain on the grid. The use of electric showers for
                           water heating is widespread. A study by Procal (National Programme for Electricity
                           Conservation) estimates that there are more than 30 million electric showers
                           installed in Brazil. These appliances, in addition to consuming about 6% of all
                           electricity produced in the country, represent 24% of household consumption and
                           account for approximately 18% of the peak demand of the national electric system.
                           As a result, nearly 20,000 MW of hydro and thermal power plants are fired only to
                           switch on electric showers.

                           Due to an expected 4% annual rise in electricity consumption over the next 25
                           years, new energy investments are estimated to reach approximately US$800
                           billion by 2030, according to Brazil‟s long-term National Energy Plan.

27
 The Economist, Economic and financial indicators, April 24th 2010
28
 World Bank - Benchmarking Data 1995-2005


                                                                                                               63
                            Approximately 130 projects are currently under construction and 469 have been
                            approved, which will allow for an additional 33,800 MW of installed capacity in the
                            country in the coming years. The Plan estimates that new power projects could
                            add 88,000 MW of central hydro power (mostly in the Amazon region), 7,200 MW
                            of small hydro, 4,600 MW of wind power, 6,300 MW of bio fuel and 1,300 MW of
                            waste to energy projects across the country by 2030.



Background                  The 2001 energy crisis and the importance of diversification and DSM
information and
resulting objectives        Electricity demand increased at a faster pace than electricity supply throughout the
of national policy          1990's. This situation was partly due to delays in power plant construction during
                            the 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 - 1999
                            whereas electricity demand increased by 45%. Water reserves were then heavily
                            used to mitigate the insufficient supply capacity expansion. Recognizing the need
                            to tackle the supply problem, the government launched a programme in 2000
                            aiming to encourage investment in gas-fired power plants and develop the market
                            for natural gas.

                            Due to regulatory uncertainty and the high cost of gas when transportation from
                            Bolivia was factored in, the programme failed to provide strong enough incentives
                            for new investment; only 15 of the 49 planned power plants were built.
                            Furthermore, most of these new power plants started operation too late to avoid a
                            power shortage in 2001 when an unusually dry summer reduced reservoirs to
                            insufficient levels. Coupled with the rise in demand due to economic recovery, it
                            resulted in a shortage of electricity during the whole second semester of 2001.

                            The government imposed draconian measures to ration electricity usage
                            throughout the country. To the government‟s credit, it rejected the easier to-
                            implement and apparently more popular „„rolling blackouts‟‟ solution and opted for
                            a quota system. This was based on historical and target consumption levels, with
                            penalties for exceeding quotas (surcharges of up to 200% of their electricity rates
                            or power cut-offs for up to six days), bonuses for overachievers, and some ability
                            for large users to trade quotas in a secondary market. The measures proved
                            successful as the government‟s goal of reducing historical consumption levels by
                            at least 20% for an eight-month period was essentially achieved.

                            The anticipated dire economic impact (GDP reduction, unemployment, etc...) was
                            by and large avoided and a major long-term benefit in the form of a significant
                            long-term conservation impact, especially on residential consumption, was
                                      29
                            achieved . Rationing measures were lifted at the end of February 2002 with the
                            return of heavy rains. With water reservoirs going back to safe levels, the gas-fired
                            power plant construction programme was quickly abandoned by the following
                            government which keeps the country heavily reliant on its hydro capacity.
                            However, the persistent reduction in demand, coupled with the increase in installed
                            capacity after 2001, created excess supply in the market. When President Lula
                            took office in 2003, there was 8,500 MW of surplus capacity.

                            An excess in capacity lowers the national drivers and the cost/benefit of efficiency
                            and demand response programmes. However in areas with limited network
                            capacity these programmes can be of interest as they mean the Distributer can
                            avoid making investments locally. The energy efficiency measures which have
                            been put into place (see; Accompanying Energy Efficiency Measures) were
                            designed to solve local, rather than national capacity challenges. The current
                            excess of total capacity means that local solutions may be of more interest for
                            several years to come – despite the rising consumption levels.



29
  World Bank experts report that 91% of households reduced consumption; and two years later, two-thirds of them were still saving
on prior consumption. Annual consumption growth rates, pre-estimated at over 4%, still hover in the 1–2% range.


                                                                                                                                    64
                              Current market structure

                              A new model for the electricity sector was approved by Congress in March 2004:

                              "Central to the new model is the creation of a “Pool” (ACR), matching electricity
                              demand and supply capacity through long-term contracts. Demand is estimated by
                              the distribution companies, which have to contract 100% of their projected
                              electricity demand over the following 3 to 5 years. The price at which electricity is
                              traded through the Pool is an average of all long-term contracted prices and is the
                              same for all distribution companies. All current electricity procurement contracts
                              remain in place; therefore, each distribution company will have different portfolios
                              of contracts. Purchase of electricity by distributors from their own subsidiaries is
                              not allowed. As such, vertically-integrated companies will need to be unbundled. In
                              parallel to the “regulated” long-term Pool contracts, there is a “free” market (ACL).
                              If actual demand turns out to be higher than projected, distribution companies will
                              have to buy electricity in the free market. In the opposite case, they will sell the
                              excess supply in the free market. Distribution companies will be able to pass on to
                              end consumers the difference between the costs of electricity purchased in the
                              free market and through the Pool if the discrepancy between projected and actual
                              demand is below 5 per cent. If it is above this threshold, the distribution company
                                                            30
                              will bear the excess costs."

                              With long-term contracts set through the Pool, price uncertainty will be broadly
                              restricted to electricity traded in the free, short-term market and bilateral contracts
                              between generators and large consumers. Indeed, the Pool is aimed at captive
                              consumers, such as households and small businesses, with large consumers
                              allowed to buy electricity directly from generators on a competitive, customized
                              basis. Large consumers are also free to invest in generation, selling the energy
                              that exceeds their needs.

                              These measures should reduce market volatility and allow distribution companies
                              to better estimate market size. If actual demand turns out to be higher than
                              projected, distribution companies will have to buy electricity in the free market. In
                              the opposite case, they will sell the excess supply in the free market. Distribution
                              companies will be able to pass on to end consumers the difference between the
                              costs of electricity purchased in the free market and through the Pool if the
                              discrepancy between projected and actual demand is below 5%. If it is above this
                              threshold, the distribution company will bear the excess costs. Another important
                              aspect of the model, in particular in a situation of temporary excess supply is the
                              splitting of the market between the “old” generation plants (built before 2000) and
                              the “new” ones. This ensures that short-term price considerations will not harm the
                              adequate remuneration of future investments.

                              For the creation of Demand Response programmes, the government‟s investments
                              in a free wholesale electricity market and one which rewards distribution
                              companies for accuracy is central. It means that if and when such programmes
                              are set up, there will already be a functioning free market where the demand
                              response savings can be “sold”. This is an example of a financial market structure
                              central to for functioning smart meter enabled programmes. It serves as an
                              illustration of the wide ranges of structures which must be put in place for the
                              capabilities which are advertised with smart meters, to be fully implemented.


                              Energy Policy

                              The energy shortage of 2001 and its consequences are often described as the
                              most important drivers behind the current Brazilian energy policy. The
                              Government‟s two main instruments are the National Energy Plan 2030 published
                              in 2006 and the National Plan on Climate Change published in November 2007.
                              These documents highlight the will of the Brazilian Government to diversify the

30
     OECD Economic Surveys: Brazil, 2005. Available at http://www.oecd.org/dataoecd/12/11/34427493.pdf


                                                                                                                    65
                               national energy matrix away from the historical dependence on hydropower and
                               improve energy efficiency.


                               Diversifying away from Hydro power (Proinfa)
                                                                                                           31
                               Brazil has a huge Hydro power potential; most of it still untapped . Hydro
                               accounted for 85% of the 437 TWh generated in 2007 and a little over 69 GW or
                               about 75% of installed capacity. In 2009, Brazil was the third largest producer of
                               hydro electricity in the world behind China and Canada. As a result, the country is
                               vulnerable to drought. This was seen during the 2001 electricity crisis when water
                               reserves were abnormally low over a long period of time and the country was on
                               the edge of blackout as no other generation source could make up for the loss of
                               hydro generation. The crisis underscored Brazil's pressing need to diversify away
                               from water power and manage electricity demand. Given that wind energy's
                               greatest potential in Brazil is during the dry season, it is seen by the authorities as
                               a hedge against low rainfall and is being pushed forward by the Government. The
                               programme Proinfa, designed to promote the expansion of renewable energy in
                               general and specifically encourage the growth of domestic renewable energy
                               industries such as wind, biomass and micro-hydro was launched in April 2002. The
                               first phase provided various incentives, such as a 20-year power purchase contract
                               with Eletrobrás, and below-market rates for financing from Brazil‟s National
                               Development Bank (BNDES) for wind, biomass and small-scale hydroelectric
                               projects. However, the Brazilian Government changed the Proinfa format during its
                               second phase. The programme currently provides for the operation of 144 plants,
                               totalling 3,299.40 MW of installed capacity.

                               The Brazilian Wind Energy Association and the government have set a goal of
                               achieving 10 GW of wind energy capacity by 2020 from the current 605 MW.
                               However, uncertainty surrounding the financing and profitability of wind projects in
                               Brazil raises doubts over whether the country can reach its stated goals. The lack
                               of a floor price the government will pay for energy, as is customary in countries
                               that are leaders in wind energy, like Germany and Spain, could limit the industry‟s
                               growth because the winning projects may prove to be unprofitable.

                               If the country does succeed in substantially increasing its wind generation in times
                               of drought the proportion of wind generation in the market as compared to other
                               generation forms will increase. As wind is an intermittent renewable, at some
                               points it will fail to generate electricity. This in turn will increase the value of
                               mechanisms which can help the population control demand – through for example
                               smart meter enabled demand response and feedback. Potentially therefore the
                               wind generation planned in Brazil could impact the cost/benefit ration for smart
                               meters.


Po li c y d e sc r ipt i on

Main characteristics

                               Smart Metering

                               There were, as of September 2008 and according to data provided by the Brazilian
                               Association of the Electric and Electronic Industry (ABINEE) and the Brazilian
                               Association of Electricity Distributors (ABRADEE), around 4 million remotely read
                               meters in Brazil, mainly for High Voltage customers. Distribution companies
                               CEMIG and AMPLA are using imported smart meter technologies with the aim of
                               pinpointing electricity theft. Indeed, one of the main motives behind the
                               implementation of residential smart meters differs from other countries.

                               While in some countries advanced metering is being introduced for conservation


31
     ANEEL reports that as of 2002, only 28% of Brazil's Hydro power capabilities were exploited.


                                                                                                                     66
                               purposes, this is not the case in Brazil, which has a generation surplus. Rather the
                               main motivation is fraud and theft of electricity, which reaches 20% and more in
                               some utilities, with a total value around R$5 billion (US$2.7 billion) per year. In
                               May 2010, the Brazilian Power Regulatory Agency (ANEEL) agreed to partner with
                               the Ministry of Science and Technology to create a standard for the local
                               manufacturing of smart meters. The regulator also announced tentative plans for a
                               nationwide rollout of smart metering, expecting to replace about 63 million meters
                               by 2021. The Brazilian Electronic and Electrical Association (ABINEE) is already
                               working with the Brazilian Standards Institute to define new standards.

                               The market requires about 3.2 million meters per year, of which approximately 2.4
                               million meters are for new customers and the remainder for replacements, and of
                               which in 2008 about 60 percent were planned to be electronic. Currently, there are
                               eight manufacturers of electronic meters in Brazil, with a production capacity of 5
                               million meters per year. High tariff barriers add to the cost of imported meters
                               which makes large international meter manufacturers seek for partnership with
                               local meter makers.



Accompanying        Efficiency programmes
energy   efficiency
measures            Energy efficiency investments and policies started in the mid eighties. The
                    movement was initiated by Utilities with the objective of reducing the need for new
                    capacity investments as the power sector was facing financial difficulties. These
                    actions resulted in the creation of the National Programme of Electric Energy
                    Conservation (PROCEL) in 1985 to fund or co-fund conservation projects carried
                    out by state and local utilities, universities, state agencies, private companies and
                    research institutes. The programme is still running and projects involve R&D,
                    demonstrations, trials, education and training, DSM programmes, etc. Another
                    objective is to stimulate the manufacturing and marketing of more efficient
                    products that will help improve overall energy efficiency.

                               A few years after it started, it became obvious that the programme lacked sufficient
                               funding to truly be effective; the Government then passed a law in 2000 requiring
                               electricity distribution companies to invest 1% of their net operational revenues on
                               energy efficiency programmes with 50% directed at low income consumers (about
                               € 85 million per year since 2005). The regulator ANEEL is responsible for defining
                               efficiency priorities and approving utilities‟ annual plans. Since 2007 the regulator
                               has enforced the need to provide evaluation plans for the programmes delivered.
                               Procel is estimated to have helped save 28.5 million MWh and approximately U.S.
                                                                32
                               $ 19.9 billion since its start . In addition to a national labelling programme to
                               inform consumers about the power efficiency of some products, the Government
                               stated, in 2001, that any devise consuming electricity must meet minimum
                               efficiency criteria measured by a consumption index devices cannot exceed.

                               Typical examples of efficiency programmes run under Procel include:
                                       Distribution company Coelba ran a programme to distribute 17,000
                                       refrigerators to low income residential consumers. The main incentive for
                                       the electric utilities to establish this programme comes from the high
                                       energy efficiency gains achieved from installing new refrigerators in low-
                                       income households, given that a high proportion of their electricity bill
                                       comes from running their old refrigerator. It needs to be said that the
                                       targeted consumers have, in general, difficulty to pay their bills which
                                       historically created an incentive for low income families to arrange
                                       clandestine connections to the electricity grid. The Ministry of Mines
                                       estimates that the programme led to savings of 36 kWh per month per
                                       household which translates into R$ 6.56 per month. The total electric
                                       power saved by year is 4,320 GWh.

                                       Distribution company Cemig started a programme in 1994 in the rural and

32
     Ministry of Mines and Energy.


                                                                                                                   67
                                    poor Vale do Jequitinhonha region. Cemig faced concrete problems with
                                    electricity supply and financial constraints to expand its transmission
                                    system in the region where low-income households and electric
                                    consumption predominate. These constraints convinced Cemig to give
                                    away low consumption bulbs as part of a programme for the region.
                                    Cemig‟s objective was to reduce 1.8 MW during peak period. The
                                    company also managed to improve its system load factor.

                                    The use of solar energy for residential water heating is one of the recent
                                    initiatives embraced by Procel, since it was shown that the maximum solar
                                    heating is closely related to peak-hour demands; therefore, it is promoting
                                    large-scale use of solar water heating systems through the programme.
                                    Heating water using solar panels also reduces the strain of electric
                                    showers on the system and is perfectly suitable for self production in areas
                                    not connected to the national grid.



                            A major issue is that Utilities seem to use efficiency and micro generation primarily
                            to solve very specific problems depending on the challenges and context they
                            face, and not as a tool to obtain demand-side resources that could be an
                            alternative to supply-side resources. Another issue is the current flat electricity
                            prices for residential customers, unrelated to the time-of-use. To summarize, there
                            is currently no major residential demand response programmes but rather attempts
                            to increase residential energy efficiency in order to avoid further investments in
                            generation capacity and improve distributors load factors.



M ark et Dr iv e r s

Current market level Smart meters are installed for industrial customers only. The government has
of SM rollout        been considering a national rollout for commercial and residential customers but
                     no decision has been reached and there is no clearly defined date when the
                     decision will be taken. Standardization bodies are working on a Brazilian smart
                     meter standard and work is being done to create a Brazilian meter which can be
                     produced within the country and withstand the hot moist climate. These are
                     indication that a national rollout is expected to take place at some point.

                            Smart Meters are not yet mandated for small commercial or residential consumers.
                            If they are, lowering electricity theft will be a main market driver. It is also likely
                            that some areas of the country will be provided the opportunity to participate in
                            Demand Response programmes, although this will depend on regulatory
                            frameworks and allowing the utilities to adjust their electricity prices.

                            A market driver for the government appears to be stimulating local industry as they
                            are encouraging Brazilian companies to design a meter for the market.



Imp a ct/ ev a lu at io n

Positive/ negative          No cost/benefit analysis has been made.
cost/benefit for
members of the              This will not be possible until the logistical plan is created for a 54 million meter
value chain (if             rollout in a moist hot climate where meter life may be short. The government will
applicable)                 also need to decide minimal functionalities and the types of programmes the
                            meters will be required to support as this has a direct impact on price.

                            Most of the benefit will be through a lowering of electricity theft. Efficiency
                            programmes have been used and micro generation has also been encouraged but
                            the utilities do not seem to have much experience either with feedback or dynamic
                            pricing programmes such as demand response. They will need to test these


                                                                                                                  68
                   programmes before they will be able to gage the amount of savings this will be
                   able to provide in Brazil.

                   It is not possible to gage the potential benefits of the meters for residential
                   consumers until the above questions are answered. This will depend on how
                   much they are asked to pay for the meters; the programmes put into place and the
                   amount the total system + rollout costs.

Potential Energy   Piloting and experience with smart meter enabled programmes such as feedback
savings            and dynamic pricing has yet to take place and therefore potential energy savings
                   cannot be calculated.


Challenges/        Key issues still need to be considered regarding the introduction of a smart meter
Solutions          infrastructure in Brazil. These include the reliability of meters in the Brazilian
                   environment, particularly in the high levels of humidity, and their lifetime, stated as
                   15 years compared with the 25 years of electromechanical meters, the
                   functionalities to be included in the meters for the different groups of users, and
                   metrological and communication standards.

                   The issue of how a mass roll-out would be financed and who would end bearing
                   the cost has not been decided upon either. Given one main goal behind the roll out
                   (reduce electricity theft) and the fact that it would be politically impossible to ask
                   the           13           million         low-income            Brazilians          to
                   pay to install Smart meters, DNOs might be asked to pay. But it could also be that
                   low-income Brazilians would be exempt from the tariffs increase with the rest of the
                   Brazilian subsidizing the cost as has happened in the past. Finally under the
                   current legislation, electricity prices do not reflect market forces and the
                   introduction of smart metering for residential customers would hardly be beneficial
                   to them especially if they end up bearing the cost through higher distribution tariffs.

                   The high levels of theft however do mean that a simple and low functionality smart
                   metering system could pay for itself, as it has in Italy, assuming the logistical
                   difficulties of such a large rollout, 54 million customers, and the effects of the moist
                   climate are not too costly. In most smart meter rollouts, it is not the actual meters
                   which cost; it is the communication and data-handling infrastructure put into place.
                   However if tampering and accurate readings are the main goals, this infrastructure
                   is less expensive – again as can be seen from the example of the Italian rollout
                   which cost only €70 per household as compared to over €200 in most other
                   markets.       This will again mean however that the number of environmentally
                   beneficial programmes enabled by the system may be lowered depending on the
                   system design.


Discussion         Smart metering may be a positive solution for Brazil - to help the utilities combat
                   electricity theft. In areas where up to 20% of electricity supply is stolen, the meters
                   could generate a positive cost benefit both for the utilities and for those consumers
                   who pay for their electricity and therefore subsidies those who do not.

                   The Brazilian residential smart meter rollout, if it takes place, will be strategically
                   and technically challenging due to the large number of households involved, 54
                   million and the moist climate. It will be important for regulators and policy makers
                   to carefully calculate how best to maximise the meters‟ potential to help save
                   energy or cut consumption as well as lower theft peak.

                   Not all of the programmes which smart meters can enable will be cost effective, as
                   the data handling and enabling technology requirements are too costly (such as for
                   fast acting automated demand response programmes) and average electricity
                   consumption is still very low at only 1700kWh a year per household (The average
                   household consumption for California is 6000 kWh per year and for Sweden 9,000
                   kWh per year). There will therefore be a delicate balance between maximising the
                   benefits the meters can bring, while keeping the rollout costs within bounds in a
                   market with low average consumption and 13 million low income households.


                                                                                                          69
References   Most of the supporting figures were provided by ANEEL the Brazilian Power
             Regulatory Agency, 2010.




                                                                                     70
                                             Glossary of Terms

                       Smart Meter Enabled Programme Terms and Results

Extract from Respond 2010 by VaasaETT 2010: Demand Response Programme
Descriptions

Demand Response is a programme designed to help consumers shift consumption away from peak
consumption times to lower consumption periods, lowering distribution and supply costs. This is achieved
through dynamic pricing mechanisms. The prices are raised at peak times and lowered at low
consumption times. However there are several methods and degrees of dynamic pricing, depending on the
surrounding regulatory framework and the load profiles of the market.


                            Figure 1: The influence of peak pricing on load curves33




                                                         Source: Epri



Figure 1 demonstrates the peak clipping achieved through the Critical Peak Pricing (CPP) programme
piloted during the California State Pilot. Residents on the pricing programme lowered their consumption
during the peak hours. When the peak period was over consumption of the control group, it rose above the
peak level, as A/C units turned back on. However the total consumption peak would still have been
lowered thanks to the customers enrolled in the CPP programme. Below is an overview of the residential
demand response programmes on the market.

Dynamic Pricing is defined here as a price which is time based and includes more than one tariff. All of
the programmes described below are therefore examples of dynamic pricing.


Time of Use Pricing (TOU) Daytime consumption is higher than night-time consumption. There are also
daily morning and evening peaks in residential consumption. TOU tariffs aim to encouraging people to use
more electricity during times when consumption in lower. TOU usually includes 2 to 3 different tariffs per
day: a day/night tariff or night, day and peak hour tariffs. Some TOU pricing schemes have been on the
market for an extended period of time and it is difficult to calculate their impact, however in TOU pilot tests
the average consumption reduction during peak is approximately -4%.



33
  Load curve = usage levels. Load curves are a bit like sound waves. The higher the usage the more they go up. Lower the usage
and then go down.


                                                                                                                             71
                                Figure 2: TOU bands mandated by the Italian regulator 2008




                                                    Source: Autorità per l'energia elettrica e il gas

Figure 2 provides an example of a state run TOU programme mandated by the Italian regulator. A 9 hour
peak hour band is relatively long for a 3 price system, as this is a long period during which to avoid
consumption. This TOU tariff structure was not mandatory but an opt-in programme for consumers.
Utilities were, however, required to make the pricing structure available and these pricing bands were
shown on all smart meters, irrespective of what pricing programme the consumer was actually using.

TOU programmes can also be coupled to automation. These will mean for example, that a thermostat or
washing machine may be turned off or turned down for the peak TOU tariff period. The averages reduction
of TOU programmes with automation is - 18%


Critical Peak Pricing (CPP) Critical peak pricing specifies a substantially increased price for electricity use
during times of heightened wholesale prices caused by heightened consumption (for example on very hot
days) or when the stability of the system is threatened and black-outs may occur.

Unlike time-of-use pricing times, which are typically in place for three to twelve hours a day, the periods
when critical peaks occur depend on conditions in the market and might not be decided in advance. In
exchange for a lower than average tariff during non-peak hours consumers agree to have substantially
higher tariffs, between 5 and 15 times higher depending on the programme, during critical peak hours or
days. The number of critical peak periods which the utility is allowed to call is often agreed upon in
advance in order to lower consumer risk. Otherwise they might be unduly inconvenienced during a
particularly severe season with an above average number of peak days. Residential customers are notified
the day before that the next day will be a CPP day. This may be done using emails, a warning light, mobile
phone message and/or a message on their in-house display (IHD).

The programmes are effective but there are some questions as to the fairness for low-income consumers
who will be especially impacted by the programmes as well as for those for whom shifting load may be
especially difficult. This is why CPP is usually not a mandatory or opt-out tariff but voluntary for residential
consumers. In California it is now mandatory however for Commercial consumers.

CPP can be combined with TOU rates, feedback and automation. Automation most often takes the form
of an automated thermostat in an AC device or heating system. The thermostat turns down or off the
device during the critical peak hours. Automation doubles programme results.
                                                                                                34
Average consumption reduction during peak hours for CPP is -22% .
Average consumption reduction during peak hours for CPP with Automation is -32%.

Critical Peak Rebates (CPR) are inversed as Critical Peak Pricing tariffs. The consumers are paid for the
amounts that they reduce consumption below their predicted consumption levels, during critical peak hours.
These programmes tend to be more acceptable to the public and to regulators alike as consumers can only
benefit from participation.

The peak consumption reductions of CPR have so far not been as high as CPP. Opportunity cost does not
make as big an impact or communicate as effectively with end consumers as a high electricity price.

34
     Note that this is not a reduction in overall consumption – only a reduction during Critical Peak Hours


                                                                                                              72
CPR is a relatively new form of tariff and there have not been a large number of programmes compared
here. However the average reduction during peak hours of programmes used is – 15% and with
automation was -31%.


Network tariffs: Dynamic network tariffs are rare for residential consumers and the average effects are not
covered here. However, in reality network capacity issues also incur costs, which the network company
includes in its fees. In markets where consumption is low, such as in Germany for example – coordinating
the electricity and network costs would increase the cost/benefit of the total system and increase tariff
options. In Commercial and Industrial programmes in parts of the USA, such as New York, Network
Capacity is also priced and this increases the value of a MW of shifted load in areas with network capacity
                                             35
shortages from $28,000 per MW to $80,000.

Home Automation: Traditionally, homes have been wired for four systems: electrical power, telephones,
TV outlets (cable or antenna), and a doorbell. With the invention of the electronic micro and auto controller
and the widespread uptake of digital communication technology, the cost of electronic control is falling
rapidly and its uses are increasing.

Through remote controllers in appliances, which can either communicate with each other and/or react to
outside information, such as electricity pricing signals for example, the price responsiveness of a household
will approximately double. This is called automation. In most pilots the automation are an AC or electric
heating thermostat which is set to turn down or turn off during peak pricing periods. However automation
systems can be advances and include the lighting, appliances, and entertainment equipment. Residents
can be informed when their equipment is malfunctioning or be able to turn it on and off remotely.

Automation improves the results of all energy efficiency and DR programmes by between 50% - 450%
depending on what is automated and the programme in question. However, it also adds to the cost of
rollout. Currently for example a Smart Home automation system will cost approximately €2,000. A smart
thermostat is much cheaper at approximately €200-€300.             For residential consumers with high
consumption levels, these costs will be made up through financial savings, especially in cooperation with a
dynamic pricing programme. However for small homes or apartments these prices can be prohibitive.



                            Figure 3: % of consumption reductions during peak hours




In DR programmes this provided two sources of value, the first is the amount of load shifted, the second is
the speed with which this load can be shifted. Both are of importance. Household automation enables the
aggregated residential load to participate in the 10 minute market for example, increasing its value. As of
now residential consumers participate in the day-ahead markets and are alerted by phone or emails of
upcoming events. With automation, load can be shifted in minutes or seconds, often without the residents

35
     Malme, Ross. (2010) Residential and C&I Customer Demand Response Demand Response. Schneider Electric, 2010.


                                                                                                                   73
noticing this take place.


Feedback Definition and Programmes

Feedback programmes (FP) are not time based. Their aim is to lower overall consumption and they are
therefore referred to as energy efficiency programmes. However energy efficiency is a broad term, which
can include adding insulation, double glazed windows, efficient heating systems etc. The aim of an energy
efficiency action may be to allow someone to maintain the same behaviour but consumer less energy while
they do it – to lower the energy cost of an action. For example, a person might still keep their house at
22 degrees but use less electricity than their neighbour while doing so, due to their triple glazed windows.
They have not changed their behaviour they have changed their physical environment.

Feedback programmes aim to help consumers change their behaviour through providing them with
feedback / information about the consequences of their actions. This does often lead toward investments
in energy efficient household appliances or repairs but because of the difference in emphasis and focus the
two will not be viewed as directly interchangeable in this report.

Feedback programmes differ from public education programmes in that the information given is directly
related to that particular consumer‟s consumption levels, and is repeated over time, enabling the consumer
to track and influence their own actions have on the amounts of energy they consume.

A feedback programme will therefore be defined as: a customer oriented, information based programme,
which provides the consumer with feedback information about their consumption levels and patterns –
repeatedly over an extended period of time. The aim of a feedback programme is to enable consumers to
change their behaviour and lower their energy consumption.

Feedback can be included in a DR programme and it improves the results of these programmes but the
two are not interchangeable as one focuses on shifting consumption to cheaper times and the other on
lowering over all consumption.

Sarah Darby makes a distinction in her report, written for the British Government, “The Effectiveness of
Feedback on Energy Consumption” (2006) between direct and indirect feedback. This distinction will be
maintained here, as it is a useful tool for differentiating between what can otherwise become a confusing
array of programmes.

Indirect feedback is aggregated and arrives at the customers house at certain pre-decided times.
                                                                                                           36
Informative billing is an example of indirect feedback. Most residential consumers in Europe now
receive estimated bills, which are adjusted for the time of year and the customer's average consumption.
They therefore do not accurately reflect the actual usage for a given month. The difference between the
estimated average consumption and the actual usage is made up at the end of the billing period or when a
resident changes electricity supplier.

Informative billing will bill for the actual consumption and provides either historical information comparing
what the consumer used this month to last month or to last year during the same period. The bill may also
provide information on how much the household consumed in comparison to other dwellings of the same
           37
description . The average savings from informative billing is -4.6%.


Direct feedback includes communication techniques, which are immediate and directly available to the
consumer. This includes in-house displays, websites, or ambient displays. Consumers have continuous
direct access to these sources. They provide such information as: how much energy is consumed at any
given time, and the current cost or savings made. It will sometimes also allow consumers to set personal
consumption goals and warn them if they are exceeded. Some feedback displays systems will provide
information to the consumer about how much each of their various appliances are consuming individually.
This brings the added benefit of security and ease. For example there are systems now through which a


37
  The methodology for determining the comparability between dwellings depends on the utility. Some are more detailed than others,
including number of appliances and number of residents, while others compare houses in the same area or of the same size.
Comparative data is most helpful for those residents which use more than the average. Telling subjects that they already consume
less than their neighbors will not encourage further savings. Utilities could therefore consider using customer segmentation in
deciding content of bills.


                                                                                                                              74
consumer can see if they have left their iron plugged in or their stove on, through their mobile phone. If the
programme includes automation – they will be able to turn these devices on/off or down remotely.


                            Figure 4: Average results of feedback pilot programmes


                                                                                                                    % of consumption
                                                                                                                    reductions




Direct feedback can be provided in many formats, through a wide range of technology and as a re-
enforcement tool within demand response pricing and automation programmes.

Websites: Websites are sometimes mandated by regulators. Their aim is to provide the consumer with
information about their electricity consumption. California and Finland are just two examples of such
markets. Websites are chosen as a means of providing feedback because they are relatively cheap. They
                                                                                                  38
rely on Smart Meters to collect the necessary consumption data and therefore the granularity of data
provided to consumers depends largely on how often the meters are read or how often the information is
transferred from the meter to the utility (or retailer). For example, in Norway, the meters will have the
capability of reading the electricity consumption in a household once every 15min but the communication
system between the meter and the network company only supports hourly readings. The information is
sent in a packet from the meter to the network company once a day. This means that a consumer will be
able to see his consumption in hourly segments from the day before on the utility provided website.

Websites require that the consumer enter a code to access the site. They do not remind the consumer of
their presence as they must be accessed to be viewed. Though a well designed site can offer valuable
information about the household‟s current electricity costs, how much CO 2 they are producing, how much
they have saved or spent since last month and energy saving tips for the household, the interest level in
such sites is generally low. There is a risk that average percentile of those who access them tends to only
be around 2-5% and therefore their impact on national consumption levels will be below measurable levels.
If however, a website is part of a larger information package this is not necessarily the case.

Opower in the USA cooperates with utilities such as PG&E to produce a website, telephone messages and
informative bills for end consumers. They combine energy data with social data, such as income levels,
household size, home ownership etc to produce highly segmented, appropriate messages for consumers.
They now have over 2 million residential consumers on the programme and the average savings are
between -2% to -3% depending on the region. The average cost per kW saved is only $.03; the electricity
costs less to save than to generate.

There are also cases in which motivational factors have been used to encourage consumers to access the
site. For example, SEAS-NVE in Denmark has created a programme where every customer who accesses
their site and enters their meter reading has the chance to win 50,000 DKK or approximately €6,700 in a
monthly lottery. This is combined with innovative customer segmented information and an innovative
marketing plan directed at individually identified customer segments (See Customer Segmentation below).
The programme is highly effective and consumers also saved large amounts of electricity – an average of -

38
  Data granularity means how detailed the data is which is provided. Do they give real time readings, every 15 minutes, every hour,
every day?


                                                                                                                                  75
17.4% for 30,000 customers involved. The programme is ongoing. This indicates that websites can be
effective as part of a larger programme package.




                                                               Figure 20: ESB Trial Display Ireland (2009)
In house displays (IHD) are
displays, which hang on the
wall or sit on a counter and
provide close to real time
information about household
electricity consumption. They
also provide a variety of other
data. For example the display
now being provided in the Irish
ESB pilot allows people to: set
daily budgets for how much
they want to spend, informs
them of their success levels,
what the current price of
electricity is and provides
information on how much they
have spent so far this month.
It provides them real-time &
historical information on their
electricity usage & costs. The “home screen” for the dynamic display unit is the key screen that the
customer always sees when the device is switched on, while further information can be gained if desired
through navigating to other screens.


This could be considered a good basic display unit and the residential energy reductions from such units
average approximately -11%.

More advanced units include information on how much individual appliances are consuming in a
household, though this requires some type of in-house communication network in order to provide the
                      39
necessary information . These displays can alert the owner if an appliance has been left on or is faulty
and consuming too much. They also educate the owner as to which appliances consume most in a
household. Most residential consumers are unaware or ill informed about what in fact requires most
electricity and many of them actually forget to consider entire appliances – such as the fridge (BeAware
2009).

In house displays also have the potential to serve a social role. There are products being sold now in
France for example, where a family can access the consumption levels of an elderly relative. This acts as
a warning system both for over consumption – the stove has been left on, or to let the relatives know that
the relation is perhaps ill as nothing has been consumed that day. These are only a few examples of the
varying types of information displays now provided.

Ambient Displays differ from IHDs in that they do not provide specific consumption information but rather
signal to the consumer messages about their general level of consumption and/or a change in electricity
prices. Many ambient displays have the attributes of being attractive and intuitive, this adds to their
customer acceptance potential. Two examples of these are the Energy Orb sold by PG&E in California and
the Energy Tree by Interactive Institute in Sweden.




39
  There are several forms of such networks but they will not be detailed here as the information is technical and irrelevant for the
purposes of this study.


                                                                                                                                       76
                              Figure 21: The Energy Orb PG&E ($149.00)

Originally designed to track stock market prices, the Energy Orb now can also be programmed to change
from green to yellow to red depending on the current electricity price




Figure 22: The Energy Tree Source: Interactive Institute


The medium on which information is displayed can vary and is continually developing. The Energy Tree
continues to grow as long as residents stay within their pre-set consumption goals. If they go over their
setting, the tree begins to die.

Mobile phone and I-Phone application displays are becoming increasingly popular as these can warn
consumers of problems while they are away or in time to react to higher prices in the electricity market,
when combined with dynamic pricing tariffs. Using phones also avoids the environmental and financial
costs of supplying a display and can be timely – showing only when consumption has gone above the
consumer‟s set goals etc.




                                                                                                       77

								
To top