Economic potential of smart metering in Germany David Bothe, Jens - - PowerPoint PPT Presentation

Economic potential of smart metering in Germany

David Bothe, Jens Perner, Christoph Riechmann 9 October 2010

2 Frontier Economics

Our analysis

Goal Approach

• 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 □ 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

• 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

□ 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?

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Overview over results

Mandated rollout for all households not profitable, since smart meters will not pay off for many premises Freedom of technology choice and installation options for households imply highest cost- effectiveness Current market dynamics indicate a significant option value of postponing any binding decision

• 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
• Saving and shifting potential of household depend (among
• thers) on pattern of consumption
• Hence possible cost savings via smart metering are often

below the additional costs, e.g. for small households

• Adapting the SM system to customer requirements

increases net benefit

□ Cost reduction (e.g. synergies via use of existing broadband) □ Increasing benefit (e.g. integration into heat pump)

• This forecloses an uniform, coordinated proceeding
• Future benefits of SM not guaranteed, given various

uncertain trends

• Lock-in through early mandatation may therefore be

inefficient

□ Nevertheless a value from an early standardisation might exist

1 2 3 4

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• 20
• 10

10 20 30 40 50 60 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Netbenefits (in m€)

Comprehensive rollout not profitable

1 A B

For a lot of households smart metering is not profitable ... ... since consumption patterns vary widely

Net benefit per household at full coordinated rollout of smart metering

Net benefit = annual savings through reduction and shifting of consumption as well as reduced customer handling costs less annualized costs for the smart meter Scenario: Installation of uniform smart meter (with the best cost-benefit-ratio) and accounting for economies of scale

Net effect per year:

• 121 Mio €

Total investments required: 5.600 Mio €

• Advantages of smart metering depend primarily on the patterns of

consumption of households

□ How high is the existing potential for energy savings / efficiency improvements? □ To which extent can the load be shifted from peak to off-peak?

• Especially for smaller households with lower consumption, smart meters

are not profitable in any scenario

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Energy savings depend on average consumption

1 A

Competing actions Saving potential through smart metering

• Results from international studies vary:

□ Latest studies within a regulatory environment indicate 3-5% of total household consumption □ Decreasing effect of smart meters over time through habituation in the long run

• Factual saving benefits of SM might be

impaired by competing efficiency increasing actions

□ Aim of the core IEKP (Germany’s “Integrated Energy and Climate Package”) measure (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)

HH with night storage heating HH with heat pump HH without electric heating

2000 4000 6000 8000 10000 12000 14000 16000 18000 20000 10% 20% 30% 40% 50% 60% 70% 80% 90% kwh p.a.

Derived distribution of annual consumption per household 2010

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□ Night heating storage □ Heat pump □ Boiler □ Fridge and freezer □ Washing machine □ Dishwasher □ Dryer □ Lighting □ Cooking □ TV □ I&C technology

Low potential of load shifting for households

1 B

• Not taken into consideration, since

realization not tied to smart metering

• Only relevant potential

for CBA

• Not relevant for the

potential analysis

Feasible net potential is further narrowed

• ca. 10% fraction of average consumption
• Advantage of stochastic smoothing of demand is lost by coordinating

load

• Catch-up effect limits the use of load shifting

Potential varies between different households

Assumption: 6% of total demand shiftable*)

*) Different figures apply to heating households

Direct load shifting through automation Indirect load shifting via tariff incentives Load shifting not realistic

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Freedom of choice increases benefit - Not “one size fits all”

2 Synergies in communication

Voluntary adaption of smart meters may allow for usage of available broadband connection

• e.g. -5% in comp.

to powerline

• costs

benefits Integration into other devices

Other devices may provide the metering function without additional hardware (e.g. heat pump or control unit of local generation plants)

• e.g. -45% if

integrated into heat pump

*)

Might be achieved without SM

Coordination of time of installation

• Combination of SM-installation with other operations
• In coordination with regular change
• e.g. -30% d.

combination

• 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

*) No quantitative incorporation into the analysis

Exemplary advantages of technology choice

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Looking forward: Competing trends and high uncertainty

3

Basic trends (Based on government energy

• utlook)

Demographics

• Decrease of population / increase in the number of

households in Germany

• Smaller size of households with increasing living

space Generation costs

• Wholesale prices increases only slightly until 2020 up

to 55 €/MWh (Base)

• Declining Base/Peak spread lessens the

attractiveness of load shifting based on tariffs

□ Integration of REN might require short-time load management via automation

Additional qualitative effects

Effect on net benefit

• Patterns of

consumption

• The need for electricity heating slightly decreases,

heatpumps will not compensate the extinction of NSH Meter technology

• Cost reductions for meters due to learning curve

effects Trends with high amount

• f

uncertainty

• E-Mobility
• Expansion of local generation
• Available communication infrastructure
• Quantification not

feasible due to uncertainty, which suggests an option value of postponing any binding decision

• n smart metering

Accounted for in quantitative analysis

• *) Possible feedback effects through optionally occuring price effects by smart metering as well as special

effects caused by the change in generating capacities are not incorporated.

9 Frontier Economics

Limited to a sub-group (e.g. based on threshold) Point2Point-Kosten

• Cost reduction through

coordination

• Uniform technology
• 100% rollout

Without system-competition

(no choice of technology by the consumer)

Completely mandated With system-competition

(full choice of technology by the consumer)

Freedom of choice by the consumer

mandated

Consideration of EDL-21 version (Basic meter)

Szenario “coordinated rollout”

• Free choice of meter

(dump or smart)

• SM chosen by 50% of

customers with positive net benefits Szenario “freedom of choice”

• Free choice of

technology

• 100% rollout

Szenario “compulsory choice”

Optimal rollout – scenarios for our analysis

Scenario EDL-21 (basic meter) Coordi- nation

1 1a 2 3

Synergies

3a

Synergies are isolated considered in an additional scenario

4 2a

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• 150
• 100
• 50

50 100 1 1a 2 3 3a 2a

Netbenefits in m€ (in 2009 prices)

2010 2015 2020

4

Results of the analysis - Summary

Annual net benefit over all house- holds 1 1a 2 2a 3 3a

Coordinated rollout with optimal standard meter Mandated rollout of basic meter (EDL-21) Compulsory choice, mandated rollout with system-competition Compulsory choice for all households exceeding 5000 kWh Freedom of choice with 50% penetration for smart meters Freedom of choice (3) with additional synergies

Conclusions

• Mandating smart metering for all households always leads to dead-weight losses, since in

any scenario there are numerous households with negative net benefit

□ If nevertheless a full rollout is considered, focus should be on cost optimization by economies of scale

• Free choice of technology enables the households to use the most efficient technological
• ptions

□ Therefore, system-competition is the preferred organisational form □ A potential lack of market take-up may be overcome by a partial mandate for certain types of households with (expected) positive net benefit

11 Frontier Economics 7.19 5.50 5.44

• 3.16
• 3.25
• 3.00
• 4
• 2

2 4 6 8 1 1a 2 3 3a 2a

Average benefit per household

100% 100% 100% 14% 14% 18% 0% 20% 40% 60% 80% 100% 1 1a 2 3 3a 2a

smart households (in %)

10 20 30 40

smarte households (in million)

• 121
• 131
• 128

52 32 31

• 150
• 100
• 50

50 100 1 1a 2 3 3a 2a

Net benefits (in m€)

5,648 2,824 4,126 728 738 934 1,000 2,000 3,000 4,000 5,000 6,000 1 1a 2 3 3a 2a

frozen capital (in m€)

Average benefit of a smart meter for each smart meter household

The customers in scenario 2a who installed a smart meter have on average benefit of €7.2.

Results – Details (for 2010)

Capital employed

The necessary capital investments for all mandated rollout scenarios is more than 2 billion higher than with a partial rollout

Percentage of smart households

In all scenarios with a partial rollout, less than 20%. Even with an optimal market penetration less than 30% would install a smart meter. mandatory rollout partial rollout

Net benefit

The benefits of a mandatory rollout are always negative, and positive for a partial rollout

Attractive social „rate of return“ Highest „social rate of return“

4

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