Is Mandating “Smart Meters” Smart?

Abstract

The advent of "smart meters" will make possible Real Time Pricing of electricity: customers will face and react to wholesale spot prices, thus consumption of electric power will be aligned with its opportunity cost. This article determines the marginal value of a fraction of demand (or a consumer) switching to Real Time Pricing. First, it derives this marginal value for a simple yet realistic speci…cation of demand. Second, using data from the French power market, it estimates that, for the vast majority of residential customers whose peak demand is lower than 6 kV A, the net surplus from switching to Real Time Pricing is lower than 1 e/year for low demand elasticity, 4 e/year for high demand elasticity. This …nding casts a doubt on the economic value of rolling out smart meters to all residential customers, for both policy makers and power suppliers.

Start-up costs of thermal power plants in markets with increasing shares of variable renewable generation

“…Likewise, it is questionable whether the value of making consumers more responsive to real-time prices always compares favorably with the costs of equipping them to do so. Léautier (2014) for example argues that in the case of small residential customers this value might be far below the cost of installing smart meters.…”

Do Benefits from Dynamic Tariffing Rise? Welfare Effects of Real-Time Retail Pricing Under Carbon Taxation and Variable Renewable Electricity Supply

“…While the majority of electricity consumers usually faces time-invariant retail prices, introducing real-time retail pricing that reflects the temporal variation in the marginal costs of electricity supply is often found to result in significant allocative efficiency gains (Borenstein and Holland 2005;Borenstein 2005;Holland and Mansur 2006;Joskow and Tirole 2007;Allcott 2011Allcott , 2012. It seems likely, however, that these gross welfare gains would be outweighed in many markets by the relatively high upfront costs of advanced metering infrastructure as well as by the related transaction costs, deeming the large-scale roll-out of real-time retail pricing inefficient (Leautier 2014). The market penetration of variable renewable energy technologies (VRE) such as wind or solar is widely assumed to change this in part because of the projected increase of wholesale price volatility, which is seen to drive the welfare loss from consuming either "too little" or "too much" under common flat retail rate schemes (Allcott 2011;Borenstein 2012;Leautier 2014;Mills and Wiser 2014;ACER 2014;IEA 2016).…”

“…It seems likely, however, that these gross welfare gains would be outweighed in many markets by the relatively high upfront costs of advanced metering infrastructure as well as by the related transaction costs, deeming the large-scale roll-out of real-time retail pricing inefficient (Leautier 2014). The market penetration of variable renewable energy technologies (VRE) such as wind or solar is widely assumed to change this in part because of the projected increase of wholesale price volatility, which is seen to drive the welfare loss from consuming either "too little" or "too much" under common flat retail rate schemes (Allcott 2011;Borenstein 2012;Leautier 2014;Mills and Wiser 2014;ACER 2014;IEA 2016).…”

“…For a wide range of carbon tax scenarios, we find that these welfare gains can actually be higher in cases where carbon taxation does not induce renewable supply compared to cases where carbon taxes and renewable supply shares are relatively high. Hence, given that introducing real-time pricing in conventional electricity markets may result in net losses when accounting for related infrastructure costs, as found by Leautier (2014), for instance, current roll-out plans for smart meters in U.S. and EU markets might be too optimistic about the renewable supply share at which real-time pricing is becoming net beneficial.…”

“…Hence, to the extent that smart meter roll-out policies are based on the expectation that price volatility has sufficiently increased and that it is the sole driver of efficiency gains from time-based pricing schemes, these policies might be misguided (cf. Allcott 2011;Borenstein 2012;Leautier 2014;ACER 2014;IEA 2016).…”