Electricity smart metering as an instrument for energy efficiency


By Hanne Sæle

The implementation of Smart Metering systems provides a technological basis from which to implement new market-based products and services encouraging the endusers to save energy. Smart metering will be a technological innovation to improve energy efficiency. Article 13 in the EC Directive 2006/32/EC “Energy End-Use Efficiency and Energy Services” (ESD) states the importance of metering and informative billing reflecting the end-user’s actual energy consumption on actual time of use, enabling consumers to regulate their own energy consumption.

The public policies and implementation paths of Smart Metering in Europe vary from full-scale implementation to very limited implementation. For the next few years implementation of Smart Metering systems for small and middle-size customers will be a challenging task in the European energy markets.

What is Smart Metering?

Even though the term “Smart Metering” is frequently used today; there is not a common agreed and concrete definition of what Smart Metering actually is and which functions it includes. Accordingly, there are no clear definitions of different attributes for Smart Metering as, for example quality and reliability of it. This makes it difficult to set precise requirements for Smart Metering.

Development of more elaborated and clear definitions of terms related to Smart Metering is one of the research tasks in the project “European Smart Metering Alliance” (ESMA), which is initiated under support of the Intelligent Energy Europe (IEE) program. In the ESMA project metering industry and research organisations cooperate to exchange best practices in the field of smart metering in Europe. This article is based on findings from this project.

In this article “Electricity Smart Metering” is a definition of a metering device and supporting systems and infrastructure for transfer and management of metered data. This device registers timely electricity consumption, periodically or on request, in more details than a conventional device and it transfers metered data to the Distribution System Operator (DSO) or other market actor for monitoring and billing purposes. Smart Meters can have optional functionality as, for example, remote load control and/ or registration of power quality events. Advanced Metering Infrastructure (AMI) is often used as a synonym for Smart Metering.

Hourly metering is the most common frequency for meter reading, but time resolutions from 15 minutes to a month is also in use. Furthermore, choice of appropriate frequency for meter reading for different customer groups is discussed in several countries. Higher resolution of metered data will normally mean higher investment and operational costs, but this will also extend possible application areas. The frequency of the data transfer from a meter to an actor responsible for metering usually varies from daily to monthly, dependent on the communication carrier.

Implementation of Smart Metering provides several advantages for various actors in the electricity market. Some key advantages are presented below. 

  • Enhancing energy saving
    Continuous information about actual electricity consumption gives end-users better control of their energy use. Additionally, Smart Metering provides a technological basis for Electricity Suppliers, DSOs and possibly other market actors to offer end-users new products and services, which can encourage energy saving 
  • Providing correct and timely billing to end-users
    The ESD Directive emphasises the importance of providing actual energy consumption data to customers and correct and timely billing. Smart Metering obviously enhances the possibility to do this 
  • Improving competition and efficiency in energy markets
    Changing Electricity Suppliers in a deregulated electricity market is a complicated technical procedure, requiring exchange of different data between several market actors, including metered data for the switching end-users. Smart Metering makes it possible to request accurate metered data from a metering point at any time. It can shorten, or possibly automate, Energy Supplier switching procedures and thus reduce the costs of it. Smart Metering may also make it easier to establish international electricity retail markets in the future. Smart Metering gives more correct information concerning the electricity consumption and flow of electricity in the power network. This will improve the identification of electricity losses in distribution networks, including thefts and wrong meter readings.
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Table 1: Deregulation stage of electricity market and present metering requirements.
* Fully unbundled electricity sector; ** Electricity sector in transition

It is important to note that Smart Metering requires considerable investment costs for purchase of the equipment, its installation and commissioning. The future operation and maintenance costs of the equipment should also be considered. Additionally, the experience shows that collection and management of metered data require skilled and well-trained personnel in order to maintain high quality of the metered data. The profitability of implementation of Smart Metering is normally assessed through cost-benefit evaluations and it depends on a number of various factors, including type of equipment, its functionality, appropriate communication carriers, implementation scale, number of customers, type of area (urban or rural), organisation of the process etc. During recent years there has been a clear pattern of decline in investment and commissioning costs, making cost-benefits evaluations for implementation of Smart Meters increasingly favourable.

The ESMA project released the 2009 edition of the “European Smart Metering Guide” in February 2009. This guide is focusing on actual topics related to smart metering and energy efficiency, for example customer feedback, technical options, multi-utility issues, smart grid, demand response, regulation, standardisation etc.

A brief overview concerning the present metering requirements and status of the implementation of Smart Metering in Europe, based on the 2009 edition of the guide, are presented in Table 1 and 2.

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Table 2: Status of AMR and the main
drivers for this technology

Concerning Smart Metering, there has been a strong focus on the technology of the metering systems. This is possibly misguided, since the metering technology is simply an enabler for new energy products. The old electromechanical meter is sufficient for sales of kWh’s, with perhaps two tariff rates or even more elaborated products, provided that the load profile for a given customer is relatively standard and can be estimated. The new metering technology supports implementation of a whole range of new product offerings. Given that Suppliers and DSOs are going to come under increased public pressure to promote energy saving, implementation of these products will improve their reputation among customers. However, there has been very little development of such products.

An example of a pilot that encourages energy savings, are an innovative energy contract called “Fixed Price Contract with Return Option” (FWR). The pilot was performed within the research project “Market Based Demand Response” (2005- 2008) at SINTEF Energy Research in Norway. The product was developed by a Norwegian supplier (Trondheim Energy). Results from questionnaires among the household customers showed that the product was well accepted.

An energy contract that transfers the spot price directly to the customer is considered as the best solution with regard to reflecting the current power situation. About 45 % of the Norwegian households have this kind of contract (2008). The others have some variant of firm price contracts.

With the FWR contract, the customer buys a fixed volume at a firm price. The volume is distributed over a period (normally one year) according to a profile. The fixed volume is a financial contract that is settled with reference to the real volume and the running forward prices at Nord Pool. Deviation from the volume leads to sale or additional purchase referred to the current price in the Nord Pool Elspot market.

During the pilot, the customers with the new power product reduced their consumption by 24.5 % in Quarter 1 of 2006 (compared to Quarter 4 of 2005), while customers with spot price power products (Spot) and standard power products (SVP) increased their consumption with 10.4 % and 7.7 % respectively, in the same period. These results are based on analysing the total consumption for a group of 800 household customers, each with different power product (See also Figure 1). The first quarter of 2006 was a period with very tight power balance in the Nordic power market and high spot prices. The pilot customers got strong incentives to reduce consumption, and the registered response shows the potential for this type of contract.

The FWR product is very favourable to the supplier, since the volume and area price risk is transferred to the customers. The benefit for the customers is the profit from reduced consumption in peak load periods. Based on socioeconomic considerations, it is a benefit that the customers get the real price in the area where the electricity is delivered, since this gives customers an economic incentive to reduce consumption equal to the costs of the supply of the resource.

In this pilot, self-reading of electricity consumption was performed at least quarterly. With the use of smart meters, with hourly metering, each customer would have been settled based on their real consumption and not with use of a profile. The customer would then have gained benefits from changes in electricity consumption on an hourly basis.

The present situation and the implementation plans for Smart Metering differ significantly from country to country (See Table 1 and 2), as a result of different national factors, including climate, consumption patterns, deregulation path etc. Even in the Nordic countries, where national electricity sectors in many ways are very similar and cooperate closely, there are quite different requirements and plans for implementation of Smart Metering.

Several European countries are undergoing a public debate, discussing plans for installation of Smart Meters. Installation of Smart Metering for all customers in a distribution network is a considerable investment for the entity responsible for metering. The main challenge is to choose a technical solution which will function for the next 10 to 15 years and meet the future market requirements. The core functionality – reading and transfer of metered data — should correspond to future products. Hourly metering (or better) is often the best resolution to transfer price signals representing the running power situation, to the customers. Electricity metering with weekly or monthly resolution will diminish the potential for end-users’ flexibility. Some of the existing Smart Meters can be upgraded in order to improve their metering resolution, but not all of them.

The core functionality of Smart Meters can be extended with several optional features such as remote load control or metering of outages and voltage deviations. Investing in multi-functional meters will increase the potential benefits, including energy efficiency, but on the other hand this multi-functionality may also increase both capital and operational costs. It is also not necessarily true that this multi-functionality is going to be fully utilised by DSOs in the close future. Considering that it will usually be the end-users who are paying these costs via distribution network tariffs, several Regulators have raised the question of whether it is justifiable to install costly meters which may not be fully utilised in the future. 

Driving Forces
Before deregulation, when national electricity markets were dominated by regional electricity monopolies and the electricity tariffs were more or less constant, there was no need for Smart Metering. The new market-based pricing of electricity on the deregulated markets require Smart Metering due to new pricing models and settlement procedures, which are necessary to change electricity suppliers and to ensure competition between them. Increasing electricity consumption, both in energy and capacity encourages implementation of new Demand Response schemes, which are also requiring more precise and timely metering. 

Financing the implementation of Smart Metering is an important issue. Usually the initial investment is done by the entity responsible for metering (usually DSO) and later, gradually recovered via distribution network tariffs. (In practice it will vary from country to country, according to regulation of DSOs). At the same time it is expected that Smart Metering will provide several public benefits, such as improving energy efficiency —and thus energy balance — better functioning and a more flexible electricity market.

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Figure 1: Electricity consumption for groups of 800 household customers with different power contracts

The major part of the above mentioned challenges are common for all countries across Europe. At the same time it is difficult to see a common Smart Metering implementation strategy in Europe. There is no considerable cooperation yet related to Smart Metering between electric utilities on a European level. It is necessary to support the harmonised implementation of Smart Metering across the European Union and thus maximising the potential benefits of it, especially with regard to energy efficiency.

In order to resolve this issue, a European Smart metering community is required, involving all appropriate stakeholder groups that can develop and share best practice and establish a clear understanding of the Smart Metering and its potential among all stakeholder groups. It is also necessary to establish strong links between the Smart Metering community and other related fields — such as Demand Response and Renewables — and ensure that the needs of these other fields are accounted for during the implementation of Smart Metering schemes.

“Smart Electricity Metering as an Energy Efficiency Instrument: Comparative Analyses of Regulation and market Conditions in Europe”, A. Z. Morch (SINTEF Energy Research), J. Parsons (BEAMA Limited), Josco C. P. Kester (ECN), ECEEE 2007.

“European Smart Metering Guide. Energy Saving and the Customer. Edition 2009”, J.C.P. Kester (ECN), M.J.G. Burgos (ENDESA INGENIERÍA), J. Parsons (BEAMA), 27. February 2009.

This article is based on findings of the European Smart Metering Alliance (ESMA) project, which is partially financed by the European Commission, Intelligent Energy Europe (IEE) Agency. http://www.esma-home.eu/