Smart Grids and Smart Meteringa key for a low carbon energy future

Péter Kaderják

DirectorRegional Centre for Energy Policy Research

March 20, 2013

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Outline of the presentation

1. Traditional electricity networks2. The vision of smart grids3. What is smart metering?4. Costs and benefits5. Regulatory challenges6. Basic market models7. Appendix: pilot projects

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

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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

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• 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

2.The vision of smart grid infrastructure

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Characteristics• Decentralised

generation• Bi-directional flow

of electricity & information

• Active customers• Active

communication of system operator and system users

Smart grids for a better energy sector

The future grids (electric, gas, etc.) need to facilitate:

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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.

Main smart grid initiatives in the EU

Smart grid priorities of the EC:1. Developing common European standards2. Addressing data privacy and security issues3. Establishing a regulatory framework to provide incentives4. Guaranteeing an open and competitive retail market5. Continuous support for innovation and its adaptation

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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 grids: EU tendencies

• Between 2000-2010, €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

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• 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

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

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Smart meter(s) Utility / Service provider

Computer / web interface / mobile / home

display

Building control center

consumption data

remote load controls / disconnectionreal-time

information

energy reporting, dynamic

energy tariffs, energy analysis

& advice

heating, cooling, ventilation, electrical

appliances

A sc

hem

e of

smar

t m

eter

ing

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 consciousness4allowing time-of-use tariffs for demand-side management and peak-demand shaving4allowing 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.

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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. 11

Privacy and security issues

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Privacy of consumers:4ensuring that consumers are not subjected to unwanted targeting, profiling and marketing activityData safety for competing suppliers:4ensuring the security of sensitive business data4multi-utility systems are especially exposed to this problem Data security:4protection against hackers (and stealing consumers)EU recommendations:4standardization is needed4distinguishing personal and non-personal data4the Netherlands: roll-out delayed due to privacy issues

4.Potential benefits of smart metering

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Cons

umer

s 4Savings on bills4Quicker and easier supplier switching4Increased competition among retailers4More accurate billing4Prepayment options4Increased level of services

DSOs

4Remote connections and disconnections4Faster fault location and reconnection after outages4More accurate calculation of network losses and reactive power4More accurate monitoring of continuity of supply and voltage quality

4Cost savings by avoiding manual meter reading4More accurate data

Metering companies

Government / society4Overall energy savings4More cost-efficient energy sector4Support of distributed generation and the integration of renewables

Energy retailers4Better input data for designing pricing options and energy management services4Reduction in costs of managing queries regarding bills4Reduced theft4Reduced bad debt costs by allowing remote disconnection and prepayment options4Cost savings on the administration of supplier switching4Better planning for balancing

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

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A multi-utility system can result in savings compared to parallel individual systems4common optimization of meter reading and maintenance costs, e.g. by shared communication system and display

5. Regulatory challenges

Smart grid deployment is a regulation-driven process4Regulatory support in remunerating investments is crucial.

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Commonly a separate metering charge is included in energy bills:

1. Smoothed charge: 4for long-term cost recovery2. Annually varying charge: 4reflects the relation of costs and benefits for each year3. 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?

6. Basic models of smart metering

Three basic models of smart metering can be differentiated:1. Distributor (DSO) model2. Trading company (retailer) model3. Independent metering company model

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Generator

TSO

DSO

Smart metering device

Wholesaler

Trader

Data center

Consumer

Energy chainFinancial linkInformation flow

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-out17

THANK YOU FOR YOUR ATTENTION!

pkaderjak@uni-corvinus.huwww.rekk.eu

+36 1 482 7071

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Appendix

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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:

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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

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

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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? 22

Pilots: Italy

• Smart metering deployment in electricity by Enel since 1999 – an evolution into a smart grid envisaged between 2007-2020

• Uniquely large-scale project: 33mn meters have been installed

• Return of investments estimated in 5 years after deployment

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73% smart meters & data

concentrators20% installatio

n7% system

Cost structure:

• 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

Pilots: Ireland

• National pilot project in electricity and gas, nationwide deployment to take place between 2014-2018

• 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 24