Smarter than you think

Isabel Scott-Skinner explores some of the lesser-known capabilities of smart meters that will deliver material benefit to consumers and energy suppliers.

Everyone knows that smart meters provide usage and cost information to customers on a real-time basis, and that the benefits that this might bring in terms of demand reduction are central to the Department of Energy and Climate Change (Decc) investment case. Likewise, most people know that they offer time-of-use functionality, which could encourage consumers to make adjustments to the pattern of their energy use, and hence contribute to a peak shave benefit.
The UK specification for smart, however, includes two additional elements that could have a marked effect on peak shaving, which have not really been explored in the UK or internationally.
The first of these is load limiting. The UK’s smart meters will measure maximum demand and allow a customer’s supply to be interrupted once a pre-configured level has been reached (analogous to a fuse “tripping” when too much draw is placed on it). As of yet, we are not aware of any UK smart metering trial that has made use of this functionality, and hence to a large extent it remains an unexplored source of benefit.
One use of this could be nothing to do with peak shaving, but by using this functionality as a socially responsible form of debt collection. If you are behind on your bill, you see a reduction in the demand you can make but still have enough to keep the lights on.
An alternative and perhaps more credible use is that customers could be rewarded with tariffs that restrict them to a certain level of peak demand, thereby more accurately (and fairly) reflecting the costs the customer is placing on the network (in France this has been implemented using conventional fuses on meters).
Finally, it is possible that this functionality could be used dynamically – for example, in return for a payment or tariff incentive, customers would accept a temporary load limit imposed on their meters.
The second element is critical peak pricing, which allows a specific high rate to be set and applied during an extraordinary demand peak. In this situation, customers are advised of higher prices (ideally via a text message to their phone) for a specific, temporary period, and make their own unrestricted choice of how to react.
Critical peak pricing (as opposed to load limiting) has been successfully used elsewhere. Currently in California, dynamic time-of-use tariffs and remote cycling off of customers’ air conditioning are used to reduce demand at times of peak stress.
This area of functionality has had some exploration in the UK, with EDF Energy’s trial of an Economy Alert tariff, which is designed to incentivise customers to use more of their energy when it is plentiful, such as on a windy day.
Taken to the extreme, suppliers could use both critical peak pricing and load limiting to augment time-of-use pricing, to peak shave. In Ireland, a simple three-rate time- of-use tariff has demonstrated a peak-load reduction of over 8 per cent, without use of any other techniques. Hence the benefits in this area could be considerable.
Furthermore, as Electricity Market Reform (EMR) begins to have an effect and the UK generation mix moves towards more intermittent forms of energy, being able to adjust demand dynamically (with both critical peak pricing and load limiting enabled) will increase in value. Indeed, EMR introduces a capacity mechanism that will explicitly reward suppliers who can make available the means to offer a capacity response.
All that said, until settlement moves to make use of the half-hourly data that smart metering makes available, then financial benefits (and therefore incentives) for suppliers to move consumption from expensive peak times will be limited. Ofgem has indicated it will be looking in more detail at settlement reform in its recent smarter markets publications.
Another, currently lesser explored area of functionality in the UK (and internationally), is the smart meter prepay mode, where the meter bills the customer, displays balance, and ultimately disconnects supply when credit is exhausted.
One might be tempted to shrug this off as being of minority interest – after all there are prepayment meters in place today that do this, with credits being applied by inserting a key that has been taken to the shop and charged with credit.
However, under smart, the customer experience will be radically improved. The balance and cost will be available to the consumer in a location of their choice, through the in-home display. And more importantly, they will be able to top up their meter through a much more diverse range of channels, without leaving their home, for example via a payment website.
Additionally, there will be improved means to mitigate the customer fear of being disconnected. The meters themselves have disablement calendars (so one can suspend shut-off overnight or on public holidays) and have configurable credit tolerances. This functionality, coupled to SMS alerts to customers, plus of course the ability to top-up automatically via direct debit, means suppliers will be able to find many ways to mitigate this particular concern.
Finally, there will be a financial logic that will come to light. Today’s prepay customers have a high cost of infrastructure associated with them. In the smart metered world, all meters are capable of providing this functionality, eliminating this differential. Customers who are paying in advance (and with self-disconnect enabled) will have a lower cost to serve as they pose no debt risk, improve the cashflow of their suppliers, and (assuming the technology works), they will have fewer reasons to correspond with suppliers given billing is essentially being done in the home. All of which will imply that in future, these customers will see the lowest cost of energy.
In conclusion, there are some key elements of the UK’s smart meter specification that have the promise of material benefit to suppliers and consumers, and are, as yet, relatively unexplored. As smart meter implementations advance, these are likely to become of increased focus.
Isabel Scott-Skinner, manager, Baringa Partners