(John Kemp is a Reuters market analyst. The views expressed are
By John Kemp
LONDON, July 1 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
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
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
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)
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
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)