Flemish minister of energy Freya Vandenbossche has announced that she is considering the scrapping of plans to install smart meters in every Flemish household. Recent studies have unveiled that it is uncertain in how far these smart meters would reduce the cost of energy in our region. And that’s a bit thin in terms of expected results if the investment costs are due to run up to two billion euro’s. Two billion that are to be paid by the energy consumers, money that is due to put further upward pressure on grid fees. In this blog, I have often criticized energy policy decisions in my home country. But I think that this decision to scrap the smart metering program is very wise. As the minister says, it’s a much better idea to spend those two billion e.g. on the greening of power production or on investments in direct energy efficiency enhancement. I even think that investing it in interconnection of power grids on a European scale is an even better idea.
Smart metering sounds like a geek’s wet dream. For many years, technology freaks have mused about the possibilities of merging new economy information networks with the old economy power grid. (Gas grids have been pinpointed much less for smart metering potential.) Even Google was rumoured as having plans for entering the energy aka IT business. If stuffy utility companies get replaced by Silicon Valley nobility, “working in the energy sector”, all of a sudden starts to sound much sexier. However, it is to be feared that as with many other ICT ideas, this one might also fail because of lack of a consumer’s need.
Smart metering is supposed to reduce the overall costs of energy as it helps to align demand with supply. In a basic application, the smart meter in your home would be fed with information about the spot market for electricity, which works on a day ahead basis. If for a given hour, let’s say two o’clock on a Tuesday afternoon, forecasted demand is high and supply low, the price for electricity for that hour will be high. Your smart meter would then switch off non-essential electronic equipment, your washing machine, e.g. If everyone starts using such smart meter applications, overall supply and demand would come closer to each other, as all of Flanders’ washing machines would be switched off, the demand would drop. This would reduce the need for investment in peaking power plants that produce electricity in the hours that demand is high and renewable power production low. Some even attributed environmental benefits to the introduction of smart meters. The size of power supply on the North-West-European grid is increasingly more determined by the output of renewable energy. If there is no wind and no sun, the lack of wind and solar power create the need for production of gas-fired power in low-efficiency peaking plants. Most analysts have predicted that the cost of peakload, electricity in high-demand hours, would rise excessively as more renewable power is being produced. With smart metering, consumers would reduce their energy need in those expensive hours with no wind or solar power on the grid. With less peaking plants producing electricity, the overall carbon dioxide emissions would go down.
Having just written the previous paragraph, I find it hard not to get enthusiastic about smart metering myself. However, I am convinced that the perceived benefits of smart metering are based on two mistaken premises. The first one is that consumers can easily adapt their energy consumption patterns. The second one is precisely the idea that peakload power prices are rising as we produce more and more renewable energy.
- Reducing power demand
We do not consume electricity because we like it or feel like doing it. We use electricity because we need it, and as it is one of the only products you cannot store, we need it now. Switching off people’s washing machines and fridges is obviously a very exciting idea for information technologists. But what if my daughter needs that particular dress for a party and it can’t be washed because the washing machine is switched off? What if my fridge is off and I have people coming over and have to open the fridge twenty times or more? Will I have to serve my guests warm champagne?
When I hear people talk about what they would switch off with their smart metering applications, I have to think again of that salesman that once tried to sell me domotica for in my house. The guy was talking about creating “light paths”, saying: “you enter your garage and the light in your garage is on for thirty seconds, than you have ten seconds of light in your hall and by then the light is on in your living room”. I just asked him: “what if I forgot something in the car?”, “what if I’m in a hurry to get to the bathroom?”, “will I be stumbling around in the dark”? This is the main problem with smart metering. It demands a degree of planning that most people simply cannot live up to. We have managed to create the comfort of having electricity every exact moment that we need it. I don’t think we are rational enough to ever give that up.
Smart metering is not exactly very new. Twenty-five years ago, similar applications were sold to industrial consumers of electricity. The new thing about the current smart metering ideas is that the grid itself would be used to transfer the information. The older smart metering applications used traditional communication technologies: phone lines, later modems and even later mobile phones. The difference is also that industrial consumers have continuous capacity offtake meters anyhow, the smart metering application just had to capture the quart-hourly data. However, the basic idea was the same:capture the data and use it to switch non-essential equipment off to reduce the cost. The aim was not so much to reduce kilowatthours in expensive low supply – high demand hours. The aim was to reduce capacity off-take, as this was heavily billed in the regulated tariffs of those days.
Many companies invested in this first generation smart metering applications and many were dissapointed in their limited effects. It turned out to be hard to find equipment that could easily be switched off. Having your workers standing idle because the smart meter just switched off the power supply to their production line, isn’t exactly cost-reducing. In many companies, fierce debates were held on the definition of non-essential electronic equipment. A typical example is the air-conditioning system in the large meeting room. It takes one baking hot session with an important client in that meeting room for that airco to become essential. These examples show very clearly that switching off electronic equipment is less evident than it sounds. Many first generation smart metering equipment ended up hanging unused and even unconnected in the electricity cabines.
2. Peakload – Baseload spread
The good news is: we might not even need that. In the past years, we have noticed a remarkable reduction of the peakload – baseload price differential, even as the production of renewable power has grown exponentially. I see a combination of two reasons for this. The first one is the growing impact of cross-border interconnection. It has become a lot easier to cover a supply and demand gap in one country with electricity produced in another country. The second one is the increased diversification of the power production parc. With more and more small-sized power production plants using different technologies, there is less chance of a drastic reduction of supply when a big power plant goes offline. Bringing these two together shows that there is less need for reducing demand in hours of a tight supply and demand balance. On a cloudy day, when no solar power is coming from Germany, the cogeneration units in the greenhouses in the Netherlands are often producing more electricity as they have an increased heat demand.
As peaking prices fall, there is less and less economic incentive for using smart metering. I was therefore not surprised to hear that the report presented to the Flemish Parliament, stated that it would take twenty years for smart meters to be compensated by savings. Moreover, we have to consider that this smart meter application is in fact an arbitrage activity, and as such, it is destroying its own economic rationale. If all people have smart meters, if all of them switch off their washing machines when the wind stops blowing, the price in that hour will go down. The overall society will reach its goals. But the individual will say, “what’s the use of this?”, as he no longer sees economic benefits as the peakload prices have fallen.
It could be that in the (near) future we find smarter smart metering applications. But for the time being, I think it is a wise decision not to invest Flemish money in it. We can use it very well for other things.
(By the way, this wasn’t Freya Vandenbossche’s only good decision this week. She also announced a reform of the green electricity subsidy system in Flanders. This is very much in line with our earlier blog on that topic. We are curious now about the details and the effects of this reform.)