Smart metering in Colombia – costs vs benefits

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A national smart meter rollout in Colombia is likely to start providing positive net benefits only from the seventh year into implementation.

This is according to a detailed cost-benefit analysis for a rollout that was undertaken by the local consultant Econometria Consultores, and has now been released by the regulator Creg.

Creg is currently firming up proposals following consultation for a 10-year rollout to achieve 75% coverage corresponding to about 11.8 million out of the 15.7 million customers connected to the National Interconnected System (SIN) by 2030.

Creg’s preferred deployment model combines a centralised data management approach with the network operators responsible for the smart meter installations, i.e a hybrid of the models being implemented in Europe. The cost of this model for a 75% deployment is estimated at almost Co$5.1 billion (US$1.5 million) of which Co$4.54 billion is capex and Co$0.54 billion is opex.

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For comparison, implementation of the UK model of third party centralised data and communications and smart meter installation by the commercial suppliers is estimated at Co$5.5 billion of which Co$4.9 billion is capex and Co$0.6 billion is opex.

In both cases the capital costs of the smart meters themselves account for over three-quarters of the total capex. (Note these costs are different from those presented by Creg in the consultation document, which refer to 100% deployment.)

The benefits are estimated at Co$3.6 billion by 2030, rising to almost Co$5.8 billion by 2040. The largest contributors are from the avoided costs of replacing end-of-life conventional meters, customer switching between suppliers, reduction of losses and the avoided costs of generation.

The document notes that a positive net profit occurs only from year seven of the deployment. This is due to the greater proportion of the investment occurring in the first few years with the peak in year four. This indicates that financing mechanisms will be required.

Extending the benefit period to 20 years, as the capex drops the benefits continue to increase with the probability of obtaining positive net social benefits increasing to 55% by 2040. Given this low probability, regulatory measures are recommended to enhance new benefits from the smart meters in order to make the rollout viable.

For example, the benefit analysis has not taken account of the energy efficiency benefits associated to flexible tariffs or an expansion of prepayment schemes.

Dynamic rates and demand response

With the release of the cost-benefit analyses, the large energy consumer association, Asoenergía, adds to the call for further regulatory measures to stimulate the use of dynamic rates and demand response programmes.

In a lengthy analysis drawing on data on smart metering in the US from the Federal Energy Regulatory Commission (FERC) and American Council for an Energy-Efficient Economy, Asoenergia argues for a consistent innovation plan to avoid underutilisation of the technology.

“The deployment of AMI in Colombia will be crucial for the evolution of the sector in the coming years, but the plan must be accompanied by incentives that materialise the potential benefits for users and the remuneration for such implementation must be subject to these,” says Asoenergia.