Would the profitability of smart metering projects be built on an unfounded basis?

The amounts invested in smart meters deployments make business plans and cost-benefit analysis of these projects essential for the comfort of policymakers and investors.

While completing cost-benefit analysis, one parameter appeared to me more important than the others: the amount of energy savings achievable thanks to the smart meters.

First, it determines the community’s interest in such meters. Recognize them as a vector of energy performance gives them an intrinsic value to society and justifies the participation of the “community” to investment.

It then appears as an essential lever for profitable smart meters deployments. The analysis performed for Germany by Ernst & Young clearly shows the sensitivity of the business plan of Smart Meters to energy savings: 3.6% savings can switch from a negative net present value to an attractive one.

Other studies conducted by reputable companies, “play” with this parameter and show benefits to the community 4 times greater than the benefits for the distribution network operator. Without the contribution of the community, no profitable project! Better! Energy savings represent more than half of the benefits for the community!

The only limitation of this reasoning is that the energy savings included in the study are a declaration of intent or, at best, a goal that seems achievable, without this having been seriously checked.

Do the facts give reason for these studies? Are the savings actually achieved? Or that statement is a hidden intention lever used to “sell” smart meters?

The savings envisaged with a deployment of smart meters rely on changes of behaviours. They are based on the belief that “to see its consumption helps reduce” (see previous article). One observes in most projects that savings are lower than those expected, that they emanate from a segment of the population already involved, certainly helped by viewing their consumption, and that they are rarely sustainable.

The issue of a cost-benefit analysis becomes to check the credibility of the energy savings target taken into account in the analysis, by demonstrating, through pilots, for instance, the capacity of the energy company to help and lead its customers to achieve it sustainably. This requires a methodology to assist the consumer in this direction (see previous article).

This is not to say that all the smart meters projects find their profitability in an unfounded hope in energy savings. For example, energy companies that are facing a significant amount of energy theft make their project easily profitable by reducing the thefts.

However, most European countries projects should pay attention to this point in order to avoid future disappointments. I recommend, in any case, to justify, thanks to lessons learnt from serious pilot projects, the target of energy savings taken into consideration in the cost-benefit analysis of deployment of smart meters.

2 Comments

  1. The problem with basing assessment on the results from pilots lies in the recruitment of users. In pilots, users are volunteers, usually good-willing and therefore already interested in energy (e.g. saving or flexibility). This is a strong bias since around 90-95% of people refuse to participate to smart meter pilots. In conclusion, the results of pilots cannot be generalised to the whole population.

  2. Thank you for your comment. I totally agree. A pilot project has to be conducted under the same conditions as a real deployment; relying on volunteers only has to be banned. Such pilots are also opportunities to refine the methodology that is targeted to educate before deploying, to avoid misunderstandings and opt-out attitudes and to start an engagement process of the consumer.

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