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SEM Chart of the Week


Smarter than you: customers and smart metering

Conall Bolger Head of Ireland

The rollout of smart meters under the National Smart Metering Programme (NSMP) is due to commence later this year. It will happen ahead of the expected January date coming into force in early 2020 giving effect to the Clean Energy for All Europeans legislation, a package of European directives and regulations which includes a right for customers to request a smart meter and dynamic tariffs. While smart meters are expected to aid customer bills, they may also facilitate changing consumer relationships. Across markets there is an emergent trend of some suppliers looking to move beyond a pure retail relationship and to position themselves as providers of consumer experience by leveraging new technology and services to improve customer engagement, and loyalty, for example providing services such as Electric Vehicles (EV) or smart devices In this edition of the SEM Chart of the Week, we ask what scale of benefit Irish customers might see from the rollout, and if those benefits are being quantified correctly? Someone who knows it all Figure 1 shows the deployment profile assumed for smart metering devices in Ireland, suggesting a near universal rollout of devices across the country by 2024. Media reports suggest a procurement cost of €1.1bn for those devices, a total of just over 2.2 million meters. The Commission for Regulation of Utilities (CRU) is seeking to maximise the potential benefit to customers by obliging suppliers to provide time of use (TOU) tariffs. To assist this transition and maximise take up they will also be required to provide information and education on the benefits of TOU tariffs to those customers (CRU19019). Within the most recent cost benefit analysis (CBA) of the smart metering programme, a TOU tariff was linked to the benefits that may accrue to customers. Electricity customers were likely to see the largest benefit, in the order of €340mn. Figure 2 shows the breakdown of costs and benefits by stakeholder category. However, looking behind the numbers shows that quantifying those benefits accurately is not straightforward. Find you fascinating The CBA assumed 95% deployment rates of smart meters with up to 95% of customers adopting TOU over time. The scale of the customer benefits is linked to the volume opting in i.e. by the number of customers adapting their behaviour in response to those incentives. However, it is challenging to accurately forecast how many will do so. Customer take up of TOU tariffs can vary significantly. Between customers on tariffs that have a TOU element and those on smart-enabled TOU, we estimate that 16% of UK residential customers are on a TOU tariff. In Sweden, according to media reports, only 2% of Swedish customers had opted in to TOU tariffs. The above implies that not only is it difficult to forecast the scale of customer benefits there is a risk of overestimating the consequent benefits That said, smart meters enable a range of associated activities whose impact were not captured in the CBA but have the potential to have a transformative effect on adjacent areas of the industry. Some examples include: providers of local energy solutions including those piloting blockchain and cryptocurrency have identified smart meters as a necessary precondition to their business, and   managing the network flows created by widespread usage of Electric Vehicles is more challenging than without smart metering devices. Call you later A narrow look at the CBA for smart metering can return a marginal/neutral result, as evidenced in the CRU’s CBA which was a -€36mn on a €1bn capital expenditure. A wider view suggests smart metering may provide infrastructure underpinning the more decentralised system of the future, laying the foundation for future disruptive technologies and business models.

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