(John Kemp is a Reuters market analyst. The views expressed are his own)
By John Kemp
LONDON, July 1 (Reuters) - Used right, the new generation of smart power meters could cut peak electricity consumption by up to 20 percent, avoiding the need to construct 2,000 new power plants across the United States.
Installing them, however, is the easy part. The industry faces years of battling to convince consumers to use them to change the way they use electricity. And that comes down to a question fo behaviour, choice and politics - not technology.
Unlike traditional accumulation meters, which simply record the total amount of electricity used and must be read manually, smart meters will record the time of use in hourly or shorter intervals, and each will have its own communications link enabling it to be read remotely by the utility.
The aim, in essence, is to encourage consumers to think about when they use power by showing them how much more they have paid by using it during peak periods when - under proposed dynamic pricing, which meters also make possible - costs are higher.
For the entrepreneurial, well-educated and well-motivated consumer that offers the chance to scythe back how much they pay for power - and integrate, for example, how they use electricity generated by solar panels on the roof.
But the evidence shows that so far it is only industry - long used to thinking about power costs - that has made much use of the new meters.
An assessment published by the Federal Energy Regulatory Commission (FERC) in 2009 says that universal participation in so-called demand response programmes could cut projected maximum demand on the U.S. grid in 2019 by 188 Gigawatts (GW), from 950 GW to 762 GW.
Massive savings are possible only, however, if all households and businesses are fitted with a smart meter, put on some form of dynamic pricing and accept technologies such as programmable communicable thermostats that automatically reset the airconditioning by a few degrees in response to a sharp rise in power prices.
If customers are allowed to opt out from dynamic pricing, projected demand response would fall to 138 GW (14 percent) of peak consumption. If customers are required actively to opt in, demand response would fall to just 82 GW (9 percent), or even lower, according to FERC ("National assessment of demand-response potential" June 2009).
Installing smart meters is only the first step in the metering revolution. Customers must be gently pushed on to a tariff that gives them much sharper incentives to shift consumption away from peak periods, and equipped with technology that will automatically turn down loads in response to high prices without the need for manual intervention.
In 2012, demand-response measures cut electricity consumption by 145 GWh across PJM Interconnection, which coordinates transmission and wholesale electricity markets in all or parts of 13 states and the District of Columbia.
Nearly 60 GWh of demand reductions were contracted in the day-ahead market as part of PJM's normal capacity planning process, but 85 GWh were achieved in the real-time market as part of PJM's regulation of the grid in response to unexpected changes in supply and demand.
Three-quarters of the total emergency response came from just three sources: manufacturing processes (27.5 percent); heating, ventilation and airconditioning (HVAC) (22 percent); and from the customer switching on back-up power sources such as diesel generators (22.6 percent).
Industrial users accounted for nearly half of emergency response (46 percent), with much smaller contributions from schools (7 percent), office buildings (6 percent), hospitals (4 percent) and retailers (2 percent).
Residential customers accounted for just 14 percent of emergency demand response in PJM in 2012.
"The majority of demand response comes from large commercial and industrial consumers, primarily through interruptible tariffs and capacity and demand bidding programmes. However, it is the residential class that represents most untapped potential," FERC explained in its 2009 assessment.
Residential customers could supply more than half of avoided peak demand in 2019, more than 90 GW, according to FERC, but only if they can pushed onto dynamic tariffs.
Most consumers currently pay a flat rate regardless of the amount of electricity used or time of consumption.
A few are on two-part or three-part time-of-use (TOU) tariffs which vary prices according to the season (summer, winter, shoulder) and/or time of day (peak, off-peak). But TOU tariffs are not truly dynamic: the schedule is static and known with certainty ahead of time.
Under dynamic pricing, prices are not known with certainty ahead of time. In a real-time pricing scheme, prices vary each hour in line with the wholesale cost of electricity. Under critical peak pricing (CPP), maximum prices are known in advance, but the days on which they will be charged are not announced until the day before or the actual day of consumption when it becomes clear the grid will be stretched.
The point of both systems is to give customers a strong financial incentive to shift as much load as possible when the cost of generation and transmission is highest and the grid is close to full capacity.
Evidence about the amount of load-shifting under critical peak and real-time pricing programmes is mixed. Existing demand response programmes suggest that customers can and will shift significant amounts of consumption if the financial incentives are strong enough.
But so far most of the evidence comes from medium and large industrial and commercial customers. Pilot programmes with residential customers have been small scale.
SET AND FORGET
Most residential customers have neither the time nor the inclination to keep checking when critical peak pricing periods have been declared by their supplier, let alone constantly follow power prices continually in real time.
"Consumers have other priorities besides their electric bill and environmental concerns" admit industry supporters. "The goal is to enable their electrical devices to respond to variable energy prices or other information following guidelines set up by the consumers themselves" ("Customer view of smart grid - set and forget?" 2012).
"Consumers should only need to spend a little time to tweak their smart home to meet the needs of their household and then move on to other things."
Enthusiasts talk about the potential for a home automation network where all appliances could be operated remotely (via a smart phone or the internet) and wirelessly linked to the smart meter.
Most of the advanced meters being rolled out across the United States currently, and all those planned for installation in the United Kingdom between 2015 and 2020, could in theory communicate with appliances on the consumer side of the meter and cause them to turn off, or reset heating and cooling temperatures, without manual intervention.
But the average home is a long way from full automation. Air conditioning systems and major appliances would need to be retrofitted or replaced to be able to communicate with the smart meter, which will be expensive and likely to happen only very slowly when systems reach the end of their normal life.
Imposing aggressive critical peak or real-time prices without some form of automation would risk triggering a furious response from consumers, when they realise just how much they have paid for power used during peak periods when the bill arrives.
EMPOWERED OR UNCONCERNED?
Regulators and utilities are likely to remain cautious for the time being. Rolling out smart meters will therefore provide only limited benefits until smart appliances are widely deployed, which will take much longer.
Smart metering experts frame the concept in terms of "engaging" customers, "empowering" them to become "active participants" in the electricity system.
"Smart meters put consumers in control of their energy use, allowing them to adopt energy efficiency measures that can help save money on their energy bills and offset price increases," is how Britain's Department of Energy and Climate Change (DECC) puts it.
The problem is that many customers rather like being dis-engaged and dis-empowered from the fiddly details of how much their electricity actually costs and when and where it is generated, freeing them to focus on much more interesting things.
Smart meters make smart tariffs possible. Actually shifting customers to some form of dynamic power pricing will require major work from utilities, regulators and politicians to convince them there are real benefits. (Editing by Patrick Graham)