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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
"Evaluation of residential Smart Meter programmes"