At Synergy’s Metering Europe conference in Copenhagen, Denmark last October, I conducted a survey among the delegates attending the opening session, using electronic voting. The audience of over 200 delegates was predominantly though not exclusively from Europe, and was split reasonably equally between vendors, advisors and utilities from all sectors, together with a smaller number of regulators.
During the session the audience was able to see the summary results after each question. As well as discussing the overall voting, this article reviews how the results varied across the different regions and roles. Overall, 86% thought that smart metering was a worthwhile goal to continue to pursue – perhaps not surprising given the attendees!
When asked whether widespread roll-out of smart metering – which was defined as more than half the residential households – was likely to happen in their region, 39% said yes within five years and 44% within ten years. Less than 3% said never (and not one of the regulators). These results are consistent with a subsequent Delphi Roundtable study that was conducted through GlobalSmartEnergy and Smart Energy International.
This study showed strong support for the proposition that smart meters will become the primary meter type over this period. When asked what smart metering might cost, the weighted average across the conference delegates was just under 150 euros for the most likely installed cost per residential end-point for an end-to-end smart metering solution.
The estimates by different groups were close to this average, but there was variation by geography. In general those estimates from southern and eastern Europe were lower (125 euros), while the most expensive were from northern Europe (190 euros). One factor that perhaps contributes to these results is the impact of the mass volume roll-out in Italy versus the generally smaller volumes and higher labour costs seen in northern regions. This issue was further investigated through the Delphi Roundtable study where participants were asked whether they think that smart meter prices will drop by more than 50% from today’s prices. More than half of the participants could envisage a drop in price – largely driven by economies of scale and standardisation – whilst the remainder disagreed for a variety of reasons including technical and market factors.
But whatever happens with meter prices is only part of the story for end-to-end price. Research shows that a large proportion of the overall solution price arises from installation, maintenance and ongoing communications and is unlikely to fall dramatically. Therefore this leads to the question, “Who should pay?” Whilst earlier in the session the delegates had suggested that customers should contribute to the cost of smart metering, a very different answer was received when they were asked specifically how much they thought that residential customers would be willing to add to their energy bills for smart metering.
Over 48% opted for the lowest option on offer in the survey – less than zero, i.e. customers would want a reduction. 22% opted for 0.1%, less than the price of a beer, and a further 20% for 1%, leaving just 9% of those taking part believing that the customer would be willing to pay any more. The delegates overwhelmingly agreed that a smart metering solution needed to be meaningful to customers to be successful.
So what are the potential benefits for smart metering? Asked to rank smart metering benefits in order of importance, 43% voted ‘Cost to serve’ as first choice and 20% voted for improved ‘Customer experience’. Smart meters give retailers a rich store of information about customer energy use and behaviours, leading directly to better billing and debt management whilst also enabling better information to be supplied to the customer and accessed from them in a two-way process. Utilities are able to customise tariffs and provide added-value offerings to individual customers because they are better able to judge what that customer wants and needs and they have the potential to implement remote controls to bring in alternative approaches such as prepayment.
But smart meters do more than this in that they can provide information to directly influence customer behaviour. Further evidence is needed to establish more about how this works and to what extent it is sustainable over time but there is no doubt that smart metering has the potential to be a powerful demand management tool.
With the European Energy Directive highlighting energy efficiency as a cornerstone of energy policy going forward, it is not surprising that the pace is being upped in terms of the demand management and energy efficiency capabilities of smart metering. Amongst the Copenhagen delegates 17% voted for impact on the ‘Environment’ as the principal benefit. Those looking to smart metering as a demand management tool might be heartened by the answer to a related question.
Delegates were asked how much they thought a residential energy customer could reduce his consumption by using a combination of smart metering and appropriate tariffs. While 4% said zero and 8% just 1%, 35% of delegates said they thought residential consumption could be cut by 5%, and 39% thought cuts of 10% were possible. 14% of delegates even thought reductions of 20% or more were possible.
So overall, the vast majority of delegates, irrespective of geography or role, are expecting a material impact on consumption, whether through overall reduction or at least peak load reduction. These results also perhaps support the earlier expectation of delegates that smart metering should reduce overall customer bills. Finally, 11% voted for ‘Asset optimisation’ and 8% for ‘Fraud prevention’ as key benefits. Smart meters can make a difference in terms of network optimisation through better targeting of investment in maintenance and new build. In addition, they support improved detection of issues through the accurate reconciliation of volumes going into the system with those leaving the system.
The range of opinion around benefits perhaps gives a clue to the real point on benefits. Some people may want to put smart metering in a box marked ‘retail and billing’, and others ‘network management’. But this appears to lead to the current problems experienced when trying to make the business case for individual parties in a competitive market. In practice, irrespective of who is responsible for driving the investment, the rollout of smart metering should be considered in terms of the overall benefits across retail suppliers, network companies, customers and the economy as a whole.
Improved information to influence customer behaviour can help not only the retail relationship, but also network optimisation and the environment. Detailed, measured reconciliation from the grid supply point through the network to the individual customer’s home can provide information to help reduce technical and non-technical network losses, as well as help suppliers to ensure that they actually bill and collect what they buy.
Delivering smart metering
Taking a holistic approach to defining and capturing the benefits for smart metering across all stakeholders will be crucial to making smart metering a success, as it will only take off if an environment is created where the overall economics stack up. This was supported by the survey, with most delegates thinking that smart metering needed a helping hand to become a reality. Given the proposition that ‘Without regulations to support an effective commercial proposition we are unlikely to see widespread use of smart metering’, 45% agreed and a further 25% strongly agreed.
Even given regulatory assistance, there are many challenges in terms of actually delivering smart metering on the ground. Delegates were asked to rank five delivery challenges in order of importance. It was interesting that a large proportion (45%) selected ‘Making decisions’ as first choice. Smart metering as a concept has been around for a great many years and the technologies have been tried and tested; the issue remains of working out how best to apply these to achieve the desired business objectives.
‘Systems integration’ received 26% of the first choice vote and also featured strongly across the audience as a second choice ranking. It is important that the thinking is in terms of delivering smart end-to-end solutions rather than focusing too much on simply the meter or display. Also in this area, it must be considered how best to contract for the delivery – as a ‘solution’ or a ‘service’. The highest level of risk is typically seen during the early stages of roll-out as new technologies, installation approaches and systems are integrated across the first 10 to 20% of the population.
During the later stages, the risk is greatly reduced and better defined. Utilities may therefore wish to establish different contractual arrangements with vendors and service providers as the roll-out proceeds. In a recent example, three different contractual models were applied over the different phases of a roll-out, starting with a solution-orientated structure during the initial phases with separate contracts with each solution provider, and then moving to a managed services orientation in the third phase. The remaining choices were split evenly between
‘Sourcing’ the required metering volumes for widespread roll-out and achieving compliance with local regulations; managing the ‘Logistics’ of implementation; and optimising the on-going ‘Operations’. Understandably, the significant up-front investment required to roll-out smart metering is an important consideration. But, also there is a need to be very aware of the ongoing costs for operations and, in particular, communications associated with providing continuous real time information when the business case is considered. Widespread roll-out of smart metering will require significant investment.
It makes sense to use this as an opportunity for utilities to deliver new ways to carry out their business. Energy companies – and water companies too – have recognised for a while now the need to work smarter. Regulators, customers, competitive markets and investors demand it more than ever before. As utilities increasingly operate in a tough, globalised, liberalised market, working smarter is a prerequisite for corporate survival.
And so utilities must use the availability of accurate real time data, informing them and their customers of what is happening, to transform their businesses, whether in retail, generation and production, transmission and distribution, and in the case of water companies leakage control. Smart metering provides an exciting opportunity for utilities. It can provide improvements in efficiency by using ‘actuals’ to measure what has happened – removing the current need for and cost of estimating, reconciling and correcting – and keeping predictions for forecasting future usage. It can drive innovation with new opportunities for products and services that can be brought to market faster in response to measured needs.
It can enable active engagement with all customers, influencing their behaviours and understanding to build and secure strong customer relationships. It can provide information to optimise their investment in network and generation assets. The winners will be those that grasp this opportunity to deliver a step change in their performance and transform their business.