Odd but true: most business cases predict negative results and still smart meters are rolled out. As one representative from a utility regulator stated: I you decide to have a new kitchen installed you don’t calculate a business case for it, do you? Most cost benefit analyses that have positive results are influenced by single variable: energy savings by domestic consumers. The fact whether a business case has a positive or negative value can be manipulated by increasing or decreasing the projected energy savings. The energy savings however are not beneficial to the companies that invest in the facilitation of the savings.
Sometime back (when working for Kema) I was involved in number of cost/benefit analyses. One was conducted for the Min of Economic Affairs in the Netherlands. During the process it turned out that the four major grid operators could not come to consensus on the way to calculate costs and benefits. The final report presented average values whereas significant variations in costs and benefits were reported by the grid operators. It turned out that a single model for costs and benefits could not be applied for these companies.
Differentiate in selection of functionality and timing of deployment (departure from ‘now or never’ scenario)
Cost-efficient smart metering, a dynamic model for optimization of costs and benefits of smart metering
Dynamic model for optimization of costs and benefits of smart metering
<ul><li>Backgrounds for dynamic modelling of smart meter deployment </li></ul><ul><li>Introduction to the model </li></ul>
<ul><li>Split incentive: investments by metering operator provides benefits reaped by consumers </li></ul><ul><li>Projected capital and operational expenses exceed the remuneration for metering services in most cases (emphasis on cost reduction of smart metering) </li></ul><ul><li>Most calculations are based on ‘now or never’ and ‘all or nothing’ scenarios </li></ul>Calculations are based on snapshot whereas implementation and deployment take place in dynamic environment
<ul><li>Current models are based on ‘Incremental innovation’ </li></ul><ul><li>Technical developments enable ‘semi-radical innovation’ </li></ul>Identical business model Changed business model Identical technology Incremental innovation Semi-radical innovation Changed technology Semi-radical innovation Radical innovation
<ul><li>Include strategic fit adjusted to local parameters and legal framework (including remuneration for regulated services) </li></ul><ul><li>Including semi-radical innovation based on a technology roadmap with 10 year horizon </li></ul><ul><li>Include appropriateness of communication technologies (Quality of service and costs) </li></ul><ul><li>Include external costs (i.e. CO2 reduction) </li></ul>
<ul><li>Regulatory framework determines boundaries of strategic fit </li></ul><ul><li>Strategic fit itself includes: </li></ul><ul><ul><li>Future proof </li></ul></ul><ul><ul><li>Interoperability </li></ul></ul><ul><ul><li>Number of suppliers </li></ul></ul><ul><ul><li>Standards </li></ul></ul><ul><ul><li>Geographical applicability </li></ul></ul>Weights assigned to the various factors determine the strategic fit.
- 2010 2010 - 2013 2013 - 2020 Distributed generation Domestic energy savings Plug in vehicles Distribution automation Flexible tariffs Real-time pricing Fraud detection Improved billing Security of supply Sustainability Improved competition <ul><li>Selected functionality determines quality of service for communication technology </li></ul><ul><li>Timing of deployment determines cost for communication </li></ul>
<ul><li>Average CO2 per dwelling in EU is about 3 tons annually (with significant variations accross EU) </li></ul><ul><li>Based on EUR 17 / ton this represents a value of over EUR 50,- annually </li></ul><ul><li>With projected CO2 reduction of 20 % the benefits add up to over EUR 10,- annually per dwelling </li></ul>How can smart meters contribute to reaping these potential benefits?
CO2 abatement at the demand side is cost effective providing opportunities for smart metering Diagram used with kind permission of McKinsey and company
<ul><li>Direct savings to consumer (reduced energy bill due to savings) </li></ul><ul><li>CO2 benefits to enabling technology (smart meters) </li></ul>Meter operators should be allocated tradable CO2 certificates for abatement facilitated by them