1. Smart Grids and Smart Metering a key for a low carbon energy future
Péter Kaderják
Director
Regional Centre for Energy Policy Research
March 20, 2013

2. Outline of the presentation
Traditional electricity networks
The vision of smart grids
What is smart metering?
Costs and benefits
Regulatory challenges
Basic market models
Appendix: pilot projects

3. 1.Traditional electricity networks
Characteristics
Large, centralised electricity generation
Uni-directional flow of electricity, information
Passive customers
Rare communication between system operator and system users

4. Challenges to traditional networks
Customers become electricity producers
The spread of Decentralized Generation
Motivation: technology development (gas based microgeneration) and renwables penetration
Reverse electricity flow in the network
Customers can provide electricity storage services
Batteries of electric vehicles
Development of electricity markets
Hourly electricity price signals
More flexible reaction to prices from customers becomes possible – can shift electricity use towards low cost periods
Helps system management by reducing peak demand at low cost
21st century IT development
Fast and flexible communication of system operator and its users

5. 2.The vision of smart grid infrastructure
Characteristics
Decentralised generation
Bi-directional flow of electricity & information
Active customers
Active communication of system operator and system users

6. Smart grids for a better energy sector
The future grids (electric, gas, etc.) need to facilitate:
Energy efficiency:
to change consumer behavior and fend off “rebound effect”
Renewables and e-mobility:
intermittent and distributed production and consumption
The grids also need to be more cost-efficient and reliable.
4A transition towards smart grids, in which smart metering is to play an important role.

7. Main smart grid initiatives in the EU
Smart Grid Task Force set up by the European Commission to outline expected services, functionalities and benefits of smart grids:
4direct interaction and communication among consumers, suppliers and market players 4direct control of consumption patterns; backbone of decarbonized power systems 4integration of RES and EV 4maintaining availability for conventional power generation and system adequacy 4new market in engineering, electronics and IT sectors can enhance worldwide competitiveness of EU companies 4etc.
Smart grid priorities of the EC:
Developing common European standards
Addressing data privacy and security issues
Establishing a regulatory framework to provide incentives
Guaranteeing an open and competitive retail market
Continuous support for innovation and its adaptation

8. Smart grids: EU tendencies
Between , €5.5bn invested in about 300 smart grid projects in Europe (of which €300mn from EU budget)
But, e.g., still only about 10% of households have smart meters, and most do not utilize their full capabilities
About ¾ of investments in smart meters; second largest category is investments in integrated systems
Other main project categories: power storage, home applications, distribution automation, transmission automation
Largest project in Europe: Italy’s smart meter roll-out
A change in the composition of investments is expected: the EC forecasts that 15% will be spent on smart metering deployment and 85% to upgrade the rest of the system.
Smart metering may not prove the most expensive part of the system, but it will be a precondition for the whole system to operate

9. 3. What is smart metering (SM)?
Smart metering is more than just smart meters:
Electrical meters – instead of traditional electromechanical ones
Related hardware equipment (e.g. home displays)
Communications network
Data management and control center
consumption data
Smart meter(s)
Utility / Service provider
remote load controls / disconnection
real-time information
energy reporting, dynamic energy tariffs, energy analysis & advice
Computer / web interface / mobile / home display
A scheme of smart metering
Building control center
heating, cooling, ventilation, electrical appliances

10. What is smart metering (SM)? (cont’d)
Although smart metering is most often envisaged as a part of a smart grid (or “smart homes”), it can also contribute to a greener, more efficient and more stable energy sector in itself by:
4showing data to the consumer to induce more energy consciousness
4allowing time-of-use tariffs for demand-side management and peak-demand shaving
4allowing continuous diagnostics of the grid and observing electricity theft
But smart meters alone cannot do the job:
4a complex solution including the hardware and software, and also an appropriate selection of tariffs and services (e.g. data analytics and advisory for customers) is needed.

11. Requirements for smart metering
Interval meter data:
Load profile measurement for intra-hour intervals
Remote meter reading and data processing
Remote meter management:
Power reduction, disconnection, demand management
Measurement of consumption and generation by distributed units
Ability to manage multiple tariffs
Remote message transfer from market players to consumers and generators (e.g. price signals)
Information display for consumption statistics
Power quality measurement
Continuity of supply and voltage quality
Bidirectional communication (via PLC, GSM, GPRS, etc.)
Not just for electricity: also for gas, water, district heating, appliances.

12. Privacy and security issues
Privacy of consumers:
4ensuring that consumers are not subjected to unwanted targeting, profiling and marketing activity
Data safety for competing suppliers:
4ensuring the security of sensitive business data
4multi-utility systems are especially exposed to this problem
Data security:
4protection against hackers (and stealing consumers)
EU recommendations:
4standardization is needed
4distinguishing personal and non-personal data
4the Netherlands: roll-out delayed due to privacy issues

13. 4.Potential benefits of smart metering
4Savings on bills
4Quicker and easier supplier switching
4Increased competition among retailers
4More accurate billing
4Prepayment options
4Increased level of services
4Remote connections and disconnections
4Faster fault location and reconnection after outages
4More accurate calculation of network losses and reactive power
4More accurate monitoring of continuity of supply and voltage quality
Consumers
DSOs
Metering companies
Energy retailers
4Cost savings by avoiding manual meter reading
4More accurate data
4Better input data for designing pricing options and energy management services
4Reduction in costs of managing queries regarding bills
4Reduced theft
4Reduced bad debt costs by allowing remote disconnection and prepayment options
4Cost savings on the administration of supplier switching
4Better planning for balancing
Government / society
4Overall energy savings
4More cost-efficient energy sector
4Support of distributed generation and the integration of renewables

14. Costs of smart meters Costs can arise from a variety of sources:
Largest part is usually the initial cost of installation
Some variable costs can increase: e.g. maintenance and data management costs
New cost item: the variable cost of communication
Smart metering devices likely consume more power than traditional metering
Costs arising from security and safeguarding data privacy
A multi-utility system can result in savings compared to parallel individual systems
4common optimization of meter reading and maintenance costs, e.g. by shared communication system and display

15. 5. Regulatory challenges
Smart grid deployment is a regulation-driven process
4Regulatory support in remunerating investments is crucial.
Commonly a separate metering charge is included in energy bills:
1. Smoothed charge:
4for long-term cost recovery
2. Annually varying charge:
4reflects the relation of costs and benefits for each year
3. Upfront charge, followed by a lower regular charge:
4upfront charge for investments, regular charge for operation
4An important question: what share of the costs can or should be passed on to consumers?

16. 6. Basic models of smart metering
Three basic models of smart metering can be differentiated:
Distributor (DSO) model
Trading company (retailer) model
Independent metering company model
Generator
Wholesaler
TSO
Trader
DSO
Energy chain
Data center
Financial link
Smart metering device
Information flow
Consumer

17. Summary
Smart metering must be a complex solution involving “smart” services and tariffs – ideally pointing towards a smart grid with renewables integration, energy efficiency and increased security of supply
Deployment of smart metering solutions always boils down to a question of costs and benefits
A major challenge for regulators is the remuneration of investments as costs often emerge at different actors than most benefits
Privacy and data security is crucial. So is the protection of vulnerable households
For different markets, different solutions: pilot projects are necessary before widespread roll-out

18. THANK YOU FOR YOUR ATTENTION!

19. Appendix

20. Pilot projects
Before large-scale deployment, usually pilot projects – regional or nationwide – are carried out in most countries. The aims of pilot projects are usually threefold:
Research of technology
Analyzing consumer behavior
Testing cooperation among utilities
all three in a context of a cost-benefit analysis
Three examples:
4the United States, Italy and Ireland

21. Pilots: United States
By May 2012 already 36mn meters installed, 65mn expected by late 2015
2008 Stimulus Bill gives a significant tax advantage for installing smart meters and grids
Financing: utilities typically seeking guaranteed cost-recovery with distribution-based surcharge
A key question is rate decoupling: removing utilities’ incentives of selling as much energy as they can
In California, a USD 1.7bn undertaking by PG&E since 2006
As a result of state-wide policy, but remote meter reading, remote disconnections and outage management were also important factors
Pilot results show that most consumers have very low demand elasticity and do not change their consumption patterns much – but all of them pay for the program
Most utilities can report economies of scale when installing smart meters for both electricity and gas with a common communication system

22. Pilots: United States (cont’d)
In standalone gas smart meter deployments a very low NPV and no significant demand response was reported ⇒ consumer protection group Ratepayer Advocate filed protest, seeking least-cost alternatives to smart meters
Questions remain about the impact on low-income consumers: potential effects depend strongly on different climates, price zones and customer demographics (e.g. peak-time air conditioner usage among the elderly is not everywhere a problem)
The role of smart tariffs deemed important: “There is no point in having smart meters if you’re still going to have dumb rates.” (a representative of the Washington, D.C. Public Service Commission)
Cost savings in smart metering operations remain ambiguous
Regulatory challenge of default service policies: in case of volatile intraday end-user electricity prices, how will essential electricity services remain affordable?

23. smart meters & data concentrators
Pilots: Italy
Smart metering deployment in electricity by Enel since 1999 – an evolution into a smart grid envisaged between
Uniquely large-scale project: 33mn meters have been installed
Return of investments estimated in 5 years after deployment
Cost structure:
73%
smart meters & data concentrators
20%
installation 7%
system
Largest cost savings in field operations and logistics:
Reduced failures of meters, outage & quality of supply monitoring, practically no on-site reading (99% less), much lower logistics costs due to standardization of meters
Substantial savings in energy losses:
More accurate fraud detection: up to 50% more theft detected
Moderate savings due to less bad loans

24. Pilots: Ireland
National pilot project in electricity and gas, nationwide deployment to take place between
Overarching objective: measurable change in consumer behavior to reduce peak demand and overall energy usage when smart metering is coupled by DSM
In electricity: time-of-use tariffs together with detailed feedback to the consumer in their bills
Main results so far: a reduction of 2.5% in electricity consumption and 8.8% in peak demand
91% of consumers reported they found home displays effective in helping them reduce their peak loads
Fuel poor households’ behavior matched that of the average consumer
In gas: Bi-monthly changing tariffs led to a 2.9% reduction in overall gas usage
Most smart metering options considered exhibit an investment with a positive NPV