The document discusses opportunities for energy businesses from leveraging smart meter technology. It outlines how smart meters allow for more personalized tariffs like dynamic time-of-use tariffs tied to alerts. This enables new demand response programs and opportunities for aggregators. Suppliers can improve customer service through tools like remote re-energization and automated outage detection. Distribution network operators can better manage voltages, target investment, and eventually remotely operate smart grids to integrate distributed energy and storage. Overall smart meters provide opportunities across the energy value chain from generation to retail if businesses re-examine their operating models.
Wholesale Charging: Meeting the Needs of Mobile Data
Viewpoint_Smart-Metering_FINAL
1. Viewpoint
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Insights and opinions from Baringa Partners
Leveraging the smart revolution –
opportunities for energy businesses
2. Leveraging the smart revolution –
opportunities for energy businesses
The roll-out of over 53 million smart meters over the next seven years is a
huge and complex challenge. But smart is about so much more than just rolling
out meters. If suppliers and distribution businesses use the smart meter roll-out
as an opportunity to fundamentally review aspects of their operating model, then
the smart roll-out has the potential to impact the whole energy value chain.
As the number of meters on the wall increases, we are moving towards an environment
where there is a critical mass of smart-metered sites and a wide range of benefits and
opportunities are close to being unlocked. And, with the focus increasingly on the customer,
there are competitive opportunities to pursue for companies that are geared up to do so.
In this Viewpoint, Baringa’s Ysanne Hills and Isabel Scott-Skinner examine the steps which can
be taken on the route to competitive advantage.
tariffs
Driving new types of tariffs
and new ways to communicate
One of the key factors in a personalised
service is the tariff offered. Static Time of
Use (TOU) tariffs in electricity are likely
to come first, but smart meters enable
far more than this. Dynamic, alert-driven
tariffs, and device automation become a
possibility. An example of this is a “wind-
twinning” tariff, where an alert is sent to
the customer when wind generation is
high. This means that the customer can
benefit from cheaper, greener energy
and this type of demand response can be
beneficial for the network operator too -
allowing them to stabilise the system and
potentially prevent the curtailment of
wind generation. This flexibility will only
become more valuable as the volume
of wind and other forms of intermittent
generation become more prevalent.
As a result, alert-driven tariffs have
the potential to be significantly more
valuable than static TOU tariffs.
Hedging and
wholesale
pricing
Data
collection
and
processing
Generation
Metering
Transmission
and distribution
Billing and
settlement
Tariffs
2 Viewpoint – Leveraging the smart revolution – opportunities for energy businesses
3. There are barriers to these kinds
of offerings too, and careful
consideration will be needed around:
switching customers between tariffs
with different numbers of rates
how comms failures are managed
and
how alerts are sent to the
customer.
Nevertheless, more personalised and
alert-driven tariffs represent a real
opportunity for suppliers. Not only
do they create an environment where
suppliers can differentiate themselves
from the competition, but they
offer the chance to build a demand
response proposition to be offered to
distribution businesses, or to reduce
electricity sourcing costs through
reduced peak requirement and more
accurate forecasting.
Baringa has recently supported a
major utility in delivering its market
leading alert-driven tariff with three
price levels, which uses smart metering
technology to switch between the
price levels.
Home automation and new
ways to save energy
New dynamic and alert-driven tariffs
could be just the tip of the iceberg.
Smart meters facilitate a range of
potential new services by creating
a two-way communication hub.
It will be possible (with additional
technology) for customers to remotely
control individual devices within their
homes – for example, turning on
the heating half an hour before they
get home. Taking this a step further,
customers might even cede control
of some devices to a third-party to
further minimise their bill, or use an
automated monitoring system to tell
them when their use is higher (or
lower) than expected and to help
them to optimise their usage in line
with changing prices. In the case of
vulnerable people living alone, this
could even send a pre-set alert to a
neighbour or relative.
At a glance – Demand-
Side Response and
impact on peak demand
Baringa Partners performed
an analysis in 2012 of the
potential benefits of Demand-
Side Response (DSR) from
domestic customers and small
and medium enterprises (SME)
over the medium term to 2030.
The objective was to evaluate how
the DSR resource potential is best
deployed within the electricity
system, in terms of avoiding
distribution network investment
and/or providing balancing
services at the wider system level.
Baringa modelled the demand
profile projections and evaluated
the penetration rate of TOU
tariffs, forms of DSR considered
in the study, proposed by
suppliers over time and the
customer response to those
supplier offerings.
Scenarios were built covering
a range of electricity demand
assumptions based on the uptake
of Low Carbon Technologies,
namely heat pumps, electric
vehicles and smart appliances,
combined with the rate of uptake
of TOU tariffs by customers and the
response of households in terms of
changing their pattern of use.
Low carbon technologies were
considered to be potentially
flexible. Indeed, electric vehicles
provide flexibility due to the
storage capacity of their batteries,
which are assumed to be charged
overnight, and not fully discharged
(continued overleaf)
3Viewpoint – Leveraging the smart revolution – opportunities for energy businessesIssued 2014
4. Billing and
settlement
Settlement and half-hourly data
Settlement solutions are yet to be
agreed, but as the roll-out gains
pace we can expect the increasing
presence of smart to reveal a key
weakness of the current settlement
regime – the use of load profiles.
Changes to customer behaviour
are likely to be more intense than
previously experienced, both due
to the information presented on
the in-house device (IHD), and also
as more innovative tariffs become
available. This will impact the accuracy
of profiles. As the range of TOU
tariffs technically possible increases,
and automated appliances become
widespread, the times of day when
residential customers use energy will
become increasingly disparate, with
some customers who move to highly
dynamic tariffs having less predictable
consumption patterns.
each day. This allows for within-day
flexibility, charging at times of low
demand, and intraday flexibility –
limiting charging on days of high
demand and charging more on
subsequent days. Similarly, heat
pumps with water tanks provide
storage in the form of heat in the
water, and provide flexibility by
heating the water at periods of
low demand. The typical storage
capacity of heat pumps is of the
order of a few hours of heat output.
Smart appliances often do not need
to be run at a precise time - for
example, washing machines. They
can provide flexibility by running
in response to an external trigger,
potentially price.
Different penetration rates for TOU
tariffs were assumed based on the
likelihood that households with
Low Carbon Technologies would
take up a TOU tariff once they had
a smart meter. Forecasts for the
consumer response to TOU tariffs
were developed based on a review
of DSR trials across the world.
Based on those assumptions,
the conclusions of this analysis
showed that the potential DSR
benefits increase over time, due to
the assumed increase in flexible
loads, primarily due to the uptake
of heat pumps and electricity
vehicles and the uptake of more
dynamic DSR tariffs such as load
control and critical peak pricing.
Peak demand is reduced by
shifting flexible load away from
peak periods which creates the
potential for lower distribution
network reinforcement costs.
New ways to pay
Baringa has been working with a
number of suppliers to develop internal
systems and processes to facilitate
trials related to new payment and
communication channels. Real-time
data flows from meters will enable
new payment mechanisms – allowing
mobile phone style Pay-As-You-Go
tariffs, and facilitating a range of new
top-up mechanisms (eg via a website).
Disconnections can also be managed
in a much more customer-friendly
way – with meters capable of being
set up with disablement calendars
(to prevent shut-off overnight or on
public holidays) and have configurable
credit tolerances. This functionality,
coupled to SMS alerts to customers,
plus, of course, the ability to top-up
automatically via Direct Debit, means
that suppliers will be able to find many
ways to mitigate customers’ concerns
regarding disconnection.
The high infrastructure costs associated
with pre-pay will also vanish. In the
smart-metered world, all meters are
capable of providing this functionality,
eliminating this differential. Customers
who are paying in advance (and with
self-disconnect enabled) will have a
lower cost to serve as they pose no
debt risk, improve the cash flow for
their suppliers, and will have fewer
reasons to correspond with suppliers
(given billing is essentially being done
in the home). All of this implies that in
future, these customers should see the
lowest cost of energy.
(continued from previous page)
4 Viewpoint – Leveraging the smart revolution – opportunities for energy businesses
5. We can expect this to reach a tipping
point, where the industry will need
to decide whether to increase the
complexity and granularity of profiles,
or to switch to settlement using actual
half-hourly (HH) data for domestic
customers. Neither is a small change.
There is a TOU dilemma here too.
Without HH settlement, the benefits of
customers moving their consumption
to off-peak times will be smeared
across suppliers, limiting the scope of
individual suppliers to offer truly cost-
reflective TOU tariffs and discouraging
suppliers from changing their wholesale
purchasing strategies. With it, any
supplier who can offer an effective
TOU product has the potential to
reduce its wholesale costs – but only
if it understands when and how its
customers use energy, and is capable
of supporting them to shift load. In this
scenario, a supplier that is successful in
supporting its customers to use energy
at the most cost efficient times could
reap significant benefits.
Baringa is currently working with a
European energy regulator, to define
a mandate for the introduction of TOU
electricity tariffs for residential and SME
customers, they are consulting on the
options for shaping the TOU mandate
and the transition to widespread TOU
tariffs, as smart meters are rolled out.
In support of this consultation, we
have considered what the appropriate
approach might be to incentivise
suppliers and networks to offer cost-
reflective tariffs and support their
customers to shift their peak load.
At a glance – trialling
electricity smart
metering in Ireland
One of the most significant
trials of TOU tariffs to date was
the year-long trial that took
place in 2010 and involved
4,300 domestic customers in
Ireland. The aim of the trial was
to measure consumer response
(behaviour change) to a range of
TOU tariffs, in addition to more
detailed usage information.
Five static TOU tariffs were
trialled, all with three rates –
day, night and peak. The price
differentials between the rates
varied across the tariffs being
trialled, and one of the tariffs
also offered the cheaper ‘night’
rate all weekend.
The deployment of TOU tariffs
and detailed consumption
information were found to
reduce overall electricity usage
by a statistically significant
2.5 per cent overall, and peak
usage by a highly significant
8.8 per cent. An analysis of
the load distribution suggests
most participants responded by
shifting load from peak to the
post-peak period and, in general,
to night usage from peak.
Interestingly, none of the single
tariff groups stood out as being
superior in reducing overall or
peak energy usage – suggesting
that simply having a TOU tariff is
enough for customers to change
their usage profile.
Hedging and
wholesale
pricing
Sourcing strategies may evolve
Retail prices in the UK have historically
been linked to long-term wholesale
contract prices. Although various
seasonal products are traded, customer
prices (their tariff) are generally flat
across the year and are not seasonally
adjusted. Retail prices do not reflect the
true cost of the energy being delivered
at the time of consumption. Further,
sourcing strategies have always been
based on averaging out past customer
usage patterns to predict how much
energy should be bought for the future.
Smart metering - and in particular
the shift towards dynamic TOU tariffs
- will enable a purchasing strategy
whereby suppliers pass on short-term
price risk to their customers, reducing
their need to long-term hedge. In this
context, we can expect within-day
and short-term pricing to become
less volatile as dynamic TOU tariffs
expose customers to the actual cost
of consumption at different times of
day, leading to aggregate consumption
patterns becoming less ‘peaky’ and
unpredictable. This is likely to lead to a
retail pricing model that is more aligned
to the Scandinavian model where retail
pricing more accurately reflects or even
tracks day ahead and spot prices.
5Viewpoint – Leveraging the smart revolution – opportunities for energy businessesIssued 2014
6. Generation
Generation and system
balancing – widespread smart
metering enabling suppliers to
provide balancing and ancillary
services to National Grid
Balancing and ancillary services have
mainly been the preserve of those with
generation assets and are designed
around the ability of a generator
to alter the amount of energy put
on to the system. Having a better
understanding of customer demand
and better tools to control this demand
will enable suppliers to take a more
active role in the balancing market by
enabling them to provide services to
control the amount of energy that is
taken off the system.
This also creates a new ‘aggregator’
role where an organisation can take
on the responsibility of combining the
demand-response capabilities of a
large number of customers into a big
enough unit to be useful to National
Grid. This is a role which could be
undertaken by suppliers or even new
entrants and one which will become
increasingly important to National Grid
as the proportion of energy supplied by
intermittent renewables increases and
to distribution businesses as the job
of managing load on the distribution
network becomes more complicated
due to the anticipated increase in
distributed energy.
Transmission
and distribution
Improving customer service
and fault management
Distributors are largely reliant on their
customers to tell them when they
have a power cut. Access to smart
meter data on faults, including ‘last-
gasp’ functionality, where the meter
sends a final signal to say it has lost
power before switching off, offers
the opportunity to take a proactive
approach. This could vastly improve the
customer’s experience, with the ability
to conduct a remote energisation test
while they are on the phone, saving
both customers and the distribution
company from unnecessary site visits.
In addition, automated ‘last-gasp’
messages will allow the distributor to
get the right skills to the right place
more quickly – using the pattern of
meter signalling faults to diagnose
exactly where the issue is, and
potentially the cause, before the first
engineer is even dispatched.
Network planning and
management
Modelling the flow of electricity all the
way from the transmission network
to low voltage exit points has always
been challenging due to the large
number of exit points and scant detail
on what is happening as time passes.
Introducing smart meters will provide
granularity creating the potential to
improve dramatically the accuracy of
systems modelling electricity flows on
the network – whether the information
is used real-time, or not. This improved
system modelling capability and better
understanding of detailed flows across
the network have a number of key
advantages:
1 Improved investment
decision-making and network
planning – improved planning
and refurbishment programmes
will be possible using the detailed
electricity flow modelling enabled
by smart data rather than waiting
until a problem emerges. The
timing of network upgrades for
new connections will also be
more precise due to the increased
modelling accuracy – allowing
distributors to make the most cost-
efficient investment.
2 More effective voltage
monitoring on the low voltage
network – smart meters will
remove the need for site visits to
check voltage, and increase the
speed at which localised voltage
issues are picked up. Utilising this
new information effectively will be
critical as the volume of low carbon
or distributed generation increases,
as this often increases the local
voltage instability.
6 Viewpoint – Leveraging the smart revolution – opportunities for energy businesses
7. Smart grids
From voltage monitoring and targeted
investment, it is a small leap to real-
time data and greater automation of
the system to manage localised peaks
in demand. While moving towards a
‘distribution system operator role’
will require significant IT investment,
doing so will create a sustainable
platform to maximise opportunities,
and allow distributors to defer or even
avoid costly system reinforcements.
Real-time control will support the
transition to low carbon technologies
by actively managing distributed
generation and allowing more
generation to be connected to the
existing infrastructure. It will also help
to reduce losses by actively managing
peak load, using demand-response and
TOU tariffs to incentivise load shifting
away from peak hours or areas of
system stress and through the targeted
use of electrical storage embedded in
the network.
As this transition takes place, and as
the substantial changes needed to the
regulatory environment are defined,
the key for distributors will be to
assess the investment requirements
carefully and to create a roadmap
with a clear transition plan. Baringa
is currently supporting a number of
distributors to do this through their
Low Carbon Networks Fund projects.
Conclusions
The roll-out of smart meters is a project of huge proportions. But
successful roll-out in itself will not set companies apart. Market leaders
will set the agenda by planning a series of supplementary innovations
including:
taking advantage of the information which accrues from HH data and
data automation
establishing the best way for customers to gain from the savings
associated with shifting their consumption to times of lower costs
embracing new technologies – such as IHD, smart phone, smart TV or
web - to facilitate better relationships with customers
personalising the offering to customers through intelligent use of TOU
tariffs
establishing new payment methods that reduce price to customers,
and reward those who pay promptly
improving the accuracy of models which predict the flow of electricity
across the distribution network to enable better investment decisions.
Inevitably, there will be issues to confront. For example, the installation
of smart meters will highlight data inconsistencies that have existed
at meter level for some time. And changes in customer behaviour
through, for example, TOU tariffs may well lead to less predictable
consumption patterns. These present considerable challenges but are not
insurmountable, and may also open opportunities for those prepared to
invest time in exploring further.
7Viewpoint – Leveraging the smart revolution – opportunities for energy businessesIssued 2014