The debate about the introduction of smart metering for electricity consumers has recently gained momentum with several news stories raising suspicions about this supposedly revolutionary way we consume electricity, and consequently emit green house gasses. It seems that governments in Australia (both state and federal) are keen to press on with the rollover of smart meters, and some of the commentators suggest that this may be under the influence of the concerned corporate sector. The main idea behind smart metering is to bridge the gap between consumers of electricity and its producers. If consumers had a way to know the real cost of producing electricity at a time of consumption—and prices serve to provide this information—they may be able to respond by curtailing their ‘discretionary’ consumption at times when costs (and prices) are high. This should in theory result with less consumption overall, and importantly less consumption in critical times, reducing the risk of blackouts, and therefore the need to ‘gold plate’ the electricity supply system, which has been widely identified as the main reason for recent rises in electricity prices.
The arguments of the critics of smart metering are reasonable: this shifts the price risk (at least in short-term) from producers and distributors to consumers, and imposes extra non-monetary burden on consumers, who have to worry on the daily basis about the price of electricity, on top of all other things.
However, some evidence from recent experimental economics work that we conducted, shows that consumer are willing to respond to changes in prices in real-time, if that means that they can fare better in monetary terms. My own experience with time-of-use (ToU) pricing (peak, off-peak, shoulder) in our family house is that it is not overly difficult to shift electricity consumption around in response to electricity prices. Since we have been on ToU pricing, my family and I have managed to drive the peak period consumption (2 pm – 8 pm; the price at peak times is about 4 times the price of off-peak) to a minimum. Our electricity bill has actually decreased, even though our consumption of power has somewhat increased.
Now, what does it all mean for green house gas emissions? Smart metering and pricing of electricity are likely to significantly reduce demand in peak periods, but probably increase the electricity use in off-peak periods. Given that peak electricity is supplied typically by either less carbon intensive generators (i.e. gas fired turbines) or by renewable sources (e.g. solar, wind) it is likely that the moving around electricity consumption will mean a slight shift towards more carbon intensive, off-peak sources (e.g. coal fired turbines). This short-run effect however will amount to a very small, if any, increase in emissions, as the off-peak electricity generators are running their turbines irrespective of the demand (can’t shut a coal fired station over night and fire it up again in the morning). In the long run, the ability to curtail peak consumption as a result of smart metering will mean that the need to build new power stations will abate, as the existing generation portfolio will be more efficiently utilized. In turn, this means potentially significant savings in green house gas emissions by avoiding building new large power stations that, at least in Australia under current economic conditions, are likely to be coal-fired.
So smart metering, while having its downsides, also has positives in terms of reducing the need for investing in poles and wires to meet few short hours of extreme peak demand, and also reducing the need to build new power stations to cater to that demand. It has some good prospects to save us some money on the electricity bill, and while perhaps not showing reduction of emissions on individual bills, certainly avoiding new increase in overall emissions over a period of time.
While I am skeptical of the smart-metering push (there was clearly something fishy since the industry themselves were pushing for it – and we now know why after the Melbourne trial have just cut cost of labour for the utilities without any impact on demand due to poor design of the roll-out), I think shifting as much consumption off peak demand as possible is necessary to ease pressure for building new power plants. The reduced emissions from a whole new plant should more than off-set the increased consumption during off-peak times.
I wonder how the changes in the timing of electricity demand will (or won’t) persist after the smart meters are installed. While smart metering might provide a very compelling reason to curb peak demand in the short run — because the peak prices feel very high, and because adjusting usage is a new and maybe exciting challenge — consumers could eventually get used to the higher peak prices and become bored by the challenge, and then revert (at least somewhat) to their traditional usage. Perhaps there is some evidence of this (or no evidence of this!) in Italy or other regions where smart metering has been in place for some time…