National rollout of smart meters may not be justified in Australia


Canberra, Australia — (METERING.COM) — March 10, 2008 – A mandatory national rollout of smart meters in Australia may not be justified, a comprehensive cost benefit analysis on smart metering and direct load control suggests.

In some jurisdictions, notably Queensland, New South Wales and Western Australia, the benefits are clear-cut. However, for the Australian Capital Territory (ACT), Tasmania and the Northern Territory the benefits are less clear and in addition in these jurisdictions there is unlikely to be significant demand response benefits.

The cost benefit analysis forms part of an initiative endorsed by the Council of Australian Governments (COAG) in April 2007, for a staged approach for a national rollout of smart meters to areas where the benefits for consumers outweigh the costs. It was initiated by the Ministerial Council on Energy (MCE) and was undertaken by a consortium of consultants including NERA Economic Consulting, CRA International, KPMG and Energy Market Consulting associates.

Based on a review of four scenarios – a distributor-led national rollout of smart meters, retailer-led rollout, non-smart meter direct load control, and centralized communications as part of a retailer-led rollout – the distributor-led rollout was found to yield the maximum net benefits, estimated between Aus$179 million and $3.9 billion over a twenty-year period. The total benefits over this period are estimated to be between Aus$4.5 billion and $6.7 billion, mostly resulting from avoided meter costs and business efficiency benefits for suppliers with demand response contributing between six and 12 percent, while the costs are estimated to be between Aus$2.7 billion and $4.3 billion.

Under the other scenarios the value of the benefits falls, while the costs under a retailer-led rollout scenario could rise to almost Aus$6 billion.

The results mask differences in the underlying net benefits, however, and these are not unequivocally positive in all jurisdictions. In Queensland, New South Wales and Western Australia a distributor-led rollout of smart metering would deliver positive net benefits on the basis of the estimated avoided meter costs and business efficiencies alone. In Victoria demand response objectives may need to be pursued more aggressively, and in South Australia the costs would need to be kept within the lower range of the estimates to deliver positive net benefits.

For the ACT, Tasmania and the Northern Territory the results indicate that the justification for a smart meter rollout depends on whether the bottom end of the range of cost estimates can be achieved together with the upper end of the avoided meter costs and business efficiency benefits.

As a result of the analysis it is concluded that a distributor-led rollout would best satisfy the MCE’s objectives. It is also recommended that a Home Area Network interface should be incorporated within the national minimum smart meter functionality, in addition to the functionalities already agreed.

The analysis also indicates that households with a relatively low proportion of total consumption during peak periods (i.e. households where occupants work during the day) are likely to be better off after the introduction of time-of-use (TOU) tariffs without necessarily needing to change their current electricity usage behavior. However a number of consumer issues require further consideration, in particular around households under financial distress and educational programs on smart metering.

The study will be reviewed by the MCE’s Smart Meter Working Group, which will make recommendations to the MCE and the Standing Committee of Officials.