Economic potential of smart metering in Germany David Bothe, Jens Perner, Christoph Riechmann 9 October 2010
Our analysis ● Exemplary implementation of cost-benefit-analysis for the economic potential of smart metering in Germany □ Focus on electricity smart meter for households □ Informs the political debate on a mandatory rollout for SM in old buildings ● Critical question Goal □ Which organisational model for Smart Metering realises the highest net utility- gains? □ How can the differentiated characteristics of households be considered within the CBA? □ Which benefits by diversity of technologies ? ● Modelling of annual net benefit from Smart Meters in German households for 2010 / 2015 / 2020 □ Net benefit = sum of macroeconomic cost reductions through energy savings, load shifting and simplified customer handling less the additional costs for installation of SM Approach □ But: No consideration of rollout effects on market penetration over time ● Parameterising a best guess scenario based on data from secondary studies, cross-checked with available figures from initial smart metering experiences in Germany Frontier Economics 2
Overview over results 1 ● Saving and shifting potential of household depend (among Mandated rollout for all households others) on pattern of consumption not profitable, since smart meters ● Hence possible cost savings via smart metering are often will not pay off for many premises below the additional costs, e.g. for small households 2 ● Adapting the SM system to customer requirements Freedom of technology choice increases net benefit and installation options for □ Cost reduction (e.g. synergies via use of existing broadband) households imply highest cost- □ Increasing benefit (e.g. integration into heat pump) effectiveness ● This forecloses an uniform, coordinated proceeding 3 ● Future benefits of SM not guaranteed, given various uncertain trends Current market dynamics indicate a ● Lock-in through early mandatation may therefore be significant option value of inefficient postponing any binding decision □ Nevertheless a value from an early standardisation might exist 4 ● No economic justification for an immediate fully mandated rollout ● Market-based organization / competition promises more efficient solution for households ● Some role for the regulator is still possible regarding minimum standardisations Frontier Economics 3
1 Comprehensive rollout not profitable Net benefit per household at full coordinated rollout of smart metering 60 Net benefit = annual savings 50 through reduction and shifting of consumption as 40 Netbenefits (in m€) For a lot of well as reduced customer Net effect per year: - 121 Mio € households handling costs less Total investments required: 5.600 Mio € 30 annualized costs for the smart metering 20 smart meter is not profitable 10 Scenario: Installation of ... uniform smart meter (with the 0 best cost-benefit-ratio) and 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% accounting for economies of -10 scale -20 ● Advantages of smart metering depend primarily on the patterns of consumption of households □ How high is the existing potential for energy A ... since savings / efficiency improvements? consumption □ To which extent can the load be shifted from peak to off-peak? B patterns vary widely ● Especially for smaller households with lower consumption, smart meters are not profitable in any scenario Frontier Economics 4
1 A Energy savings depend on average consumption Saving potential through smart metering Competing actions ● Results from international studies vary: ● Factual saving benefits of SM might be impaired by competing efficiency increasing □ Latest studies within a regulatory environment actions indicate 3-5% of total household consumption □ Aim of the core IEKP (Germany’s “Integrated □ Decreasing effect of smart meters over time Energy and Climate Package”) measure through habituation in the long run (without smart metering) alone: -12% until 2020 Optimistic assumption of 5% saving potential through SM in the long run ● Hence, absolute saving potential depends on size and consumption of household □ Our analysis is based on a distribution of consumption among German households based on a number of persons, living space and usage of electric heating (night heating storage and heat pump) 20000 Derived distribution of annual 18000 HH with night storage consumption per household 2010 16000 heating 14000 12000 kwh p.a. HH with heat pump 10000 8000 6000 HH without electric 4000 heating 2000 0 10% 20% 30% 40% 50% 60% 70% 80% 90% Frontier Economics 5
1 B Low potential of load shifting for households Potential varies between different households ca. 10% fraction of average consumption Load shifting not Direct load shifting Indirect load shifting through automation via tariff incentives realistic □ Night heating storage □ Lighting □ Washing machine □ Cooking □ Heat pump □ Dishwasher □ TV □ Boiler □ Dryer □ I&C technology □ Fridge and freezer ● Not taken into consideration, since ● Only relevant potential ● Not relevant for the realization not tied to smart metering for CBA potential analysis Feasible net potential is further narrowed ● Advantage of stochastic smoothing of demand is lost by coordinating load ● Catch-up effect limits the use of load shifting Assumption: 6% of total demand shiftable *) *) Different figures apply to heating households Frontier Economics 6
2 Freedom of choice increases benefit - Not “one size fits all” Exemplary advantages of technology choice costs benefits Synergies in communication � �� e.g. -5% in comp. Voluntary adaption of smart meters may allow for usage of available broadband connection Might be to powerline achieved without SM � Integration into other devices � *) e.g. -45% if Other devices may provide the metering function without additional hardware integrated into (e.g. heat pump or control unit of local generation plants) heat pump Coordination of time of installation � �� ● Combination of SM-installation with other operations e.g. -30% d. combination ● In coordination with regular change Consideration of specific customer preferences �� � *) Increases in benefits can be achieved when preferences for certain technologies exist (e.g. internet tools or apps of different providers) This potential would not be realised in case of a coordinated uniform rollout But: Counter-balancing effects of economies of scale through standardisation need to be considered Frontier Economics 7 *) No quantitative incorporation into the analysis
3 Looking forward: Competing trends and high uncertainty Effect on net benefit ● Decrease of population / increase in the number of � households in Germany Demographics ● Smaller size of households with increasing living � space ● Wholesale prices increases only slightly until 2020 up Basic �� to 55 €/MWh (Base) trends Generation ● Declining Base/Peak spread lessens the (Based on costs attractiveness of load shifting based on tariffs � government □ Integration of REN might require short-time load energy management via automation outlook) Patterns of ● The need for electricity heating slightly decreases, �� heatpumps will not compensate the extinction of NSH consumption Meter ● Cost reductions for meters due to learning curve � technology effects Accounted for in quantitative analysis Additional qualitative effects ● Quantification not Trends feasible due to ● E-Mobility with high uncertainty, which amount ● Expansion of local generation suggests an option of value of postponing ● Available communication infrastructure any binding decision uncertainty on smart metering *) Possible feedback effects through optionally occuring price effects by smart metering as well as special Frontier Economics 8 effects caused by the change in generating capacities are not incorporated.
4 Optimal rollout – scenarios for our analysis Without system-competition With system-competition Point2Point-Kosten (no choice of technology by the consumer) (full choice of technology by the consumer) Szenario Szenario 1 2 “coordinated rollout” “compulsory choice” Coordi- ● Cost reduction through ● Free choice of nation Completely coordination technology ● Uniform technology mandated ● 100% rollout ● 100% rollout Scenario EDL-21 Limited to a sub-group 1a 2a (basic meter) (e.g. based on threshold) mandated Consideration of EDL-21 version (Basic meter) Szenario 3 “freedom of choice” ● Free choice of meter Freedom of (dump or smart) choice by the ● SM chosen by 50% of consumer Synergies are isolated customers with positive considered in an net benefits additional scenario Synergies 3a Frontier Economics 9
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