VaasaETT The Newsletter Edition 1 V2

MARCH-APRIL 2009

Issue No.1

THE NEWSLETTER In this Issue:

Will Europe’s residential customers be ripped off by smart metering Smart Meters Require Smart Pricing Utility Customer Service Innovation Award From around the world Recent Events News What’s up ?

Welcome to the first edition !

Each issue will highlight the work of selected Think Tank partners, select the winner of the seasonal VaasaETT Outstanding Service Development Award, and give an update on coming events and reports as well as pertinent market developments. This edition focuses on Smart Metering and Demand Response, and future editions will focus on a host of other issues of key interest to our global network. Sincerely, Dr Philip Lewis, CEO, VaasaETT

Will Europe’s residential customers be ripped-off by smart metering?

The European Committee of Permanent Members has finally agreed upon a timeframe for mandated Smart Meter Rollout throughout Europe. By the year 2020 all EU countries will be required to have completed 80% of their rollout - unless this is proven impossible through an economic assessment.

However, the question arises Will SM end up costing more while providing less for EU customers?

In order to maximize results and minimize costs, SM needs to be rolled out using open standards and economies of scale as the new Energy Package enables.

However, it should also be done with the view to maximizing benefits to residential consumers through

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energy efficiency measures such as Demand Response (DR)- as is the case in the USA and Australia.

In Europe, due to a general lack of understanding on the part of national governments and regulators, this is not the case.

SM is in the process of being rolled out with the view to providing accurate billing - a far cry from the energy efficiency programs it actually makes possible. Without an adequate mandate from the EU, this situation is likely to result in SM rollout but missed opportunity.

Utilities are businesses not charities - despite the general impression that they “owe” us all electricity. Currently, it is the opinion of many electricity retailers that a lowering in electricity consumption through DR programs would mean a lowering in their profits. They would need supportive regulatory measures from their regulators and governments to make such programs a financial possibility. As they

currently have little such support, the majority of European Utilities currently have very limited plans for their Smart Meters - most of which will bring no direct benefit to residential consumers, but will rather only add to their costs.

Demand Response holds real potential for Europe: In cooperation with our partners Capgemini and Enerdata, we have calculated that if active leadership were taken and DR programs were made a reality throughout Europe, the savings would mount to: €50 billion, 202 TWh hours and 100 Mt of avoided CO2 emissions within the EU 15 by the year 2020. These programs are what hold the real potential within SM but it will take an adequate EU mandate, regulatory leadership and governmental vision to make them a reality.

Their potential benefits are real and their loss will be equally real.

Jessica Strömbäck, VaasaETT

THE NEWSLETTER MARCH-APRIL 2009

Issue No.1

Smart Meters require Smart Pricing All around the globe, regulators and customers respond to higher prices by utilities are focused on smart meters. In lowering their electricity usage. the EU, smart meters are widely regarded as central to achieving the The extent of price response depends on 20-20-20 European Commission several factors, such as the magnitude of Objectives. However, without providing the price increase, the presence of customers with smart price signals, it is doubtful that the purported “We find conclusive evidence benefits of smart meters would that residential customers accrue.

respond to higher prices by

Much of the policy debate over lowering their electricity smart meters thus far has focused usage.�

Ahmad Faruqui and Sanem on how to get the meters installed Sergici, Brattle Group, Inc. and who should pay for them. An equally important challenge for European policy makers and central air conditioning or electric regulators is to ensure that utilities have an incentive to use smart meters fully- to heating and the availability of enabling technologies such as two-way make smart prices part of an offer that will attract new customers or to maintain programmable communicating thermostats and always-on gateway profit margins while lowering peak systems that allow multiple end-uses to consumption. be controlled remotely. Across the range If smart prices are offered in conjunction of experiments studied, time-of-use rates with smart meters, what will be the likely induce a drop in peak demand that ranges between three to six percent and impacts on customer energy use and critical-peak pricing rates induce a drop peak demand? To help inform this in peak demand that ranges between 13 assessment, we have surveyed the to 20 percent. When accompanied with evidence from the 15 most recent enabling technologies, the latter set of experiments conducted in the U.S., rates lead to a drop in peak demand in Canada, Australia, and France with the 27 to 44 percent range. All dynamic pricing of electricity. We find experiments reviewed in our survey are conclusive evidence that residential

Winner Spring 2008:

cost to Utilities. As VaasaETT focuses on customer psychology and products we are pleased to learn of new innovations where this is not the case.

Customer Friendly Billing Systems which Save Utilities Money. The general impression in the electricity industry is that all customer services are an automatic extra

One area where headway has been made recently is in innovative billing. Telrock, for example, provides innovative billing services, where customers receive their billing information through an SMS

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based on panel data, involving repeated measurements on a cross-section of customers.

Our survey finds that in addition to displaying a wide variation in the size of impact due to different rate designs, the impacts also vary widely among the experiments using the same rate design.

The residual variation comes from variation in price elasticities and in sample design. Availability of the enabling technologies, ownership of central air conditioning and the type of the days examined (weekend vs. weekday) are some of the factors that lead to variations in the demand elasticities.

However, what is clear is the overall effectiveness of dynamic pricing for peak consumption reduction among residential customers, irrespective of whether they live in the U.S., Australia or Europe.

Ahmad Faruqui and Sanem

Sergici, Brattle Group, Inc.

and can reply to pay. It also allows them to submit meter readings or be guided through a change in supplier or moving home, all through SMS messaging. This is convenient for the customer and even speeds the overall rate of payment. Approximately 30% of customers pay by text within 24 hours and 70% within the first 48. One

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supplier who has a 10M customers account base, was able to report an estimated saving of over ÂŁ25M during a 5 year period! When one considers that from the customers p o v this is an extra and beneficial service, it is good to see that for once both sides can benefit.

THE NEWSLETTER MARCH-APRIL 2009

Issue No.1

From Around the World The total costs of a national smart metering rollout are estimated as ranging from $2.7bn to $4.3bn in NPV terms over a 20 year period for a distributor-led rollout. The costs rise to over $5.9bn for a retailer led rollout (upper bound).

Australia - costs and benefits of national smart meter rollout South Australia and Victoria have some of the world’s peakiest electricity load shapes – the last 10% of maximum demand occurs for less than 20 hours per year – and thus very low asset utilization of peaking plant.

This implies that those creating the peak are imposing significant costs on those with flatter load profiles. For example, the Victorian Essential Services Commission has estimated that the cross subsidies between those domestic customers that do not have air conditioning and those that do, could be as much as $200 per customer per annum. It therefore becomes and obvious question of customer rights to solve this problem. [Trowbridge study].

The benefits associated with a national rollout of smart metering have been estimated to be between $4.5bn and $6.7bn in NPV terms over the twenty year period of analysis, under the distributor-led rollout scenario. The value of the benefits falls under the alternative rollout scenarios, to $4.1bn in the lower bound for both the retailer-led rollout and the centralized communications scenario.

benefits (excluding the potential demand response benefits associated with including an interface to the HAN).

However some regions, such as Victoria have decided against rolling out SM to solve their Critical Peak Problem, they are carrying out extensive piloting of

Australia is part of a global multi-client study - Respond 2009 - by VaasaETT. The study includes a 28 national market review of the status of Smart Metering and Demand Response as well as extensive state of the art best practice and the leading visions, innovations, pilots and implementations. Each issue of THE NEWSLETTER will give some highlights from this research. For more information on how to become a Sponsor of Respond 2009: andy.white@vaasaett.com

The majority of the benefits result from avoided meter costs associated with not having to replace the existing meter stock and business efficiency benefits for distributors (totaling approximately 39 to 44% and 41 to 55% of total benefits, respectively).

Demand response benefits represent between 6 and 12% of total estimated

Automated thermostats instead, while other regions such as New South Wales are using pricing schemes such as Critical Peak Pricing and Time Of Use with and without SM. It will be interesting to see which systems prove most efficient and cost effective in the long run for this continent.

Alex Henney, EEE Ltd.

Haggling over Meters, Mandates and Timeframes Late Friday afternoon, 27 March 2009, the EU Energy Package passed the next hurdle to final passage when the Committee of Permanent Representatives approved the text agreed to earlier in the week between the European Parliament, Commission and Council.

No further significant changes to the agreement are expected before final passage.

Smart Metering Provisions in the Energy Package Both the Electricity and Gas Directives address the issue of smart metering, whereby the Electricity Directive text is more precise and stringent. The main points referring to smart metering are as follows: Electricity Directive: Member States shall ensure the implementation of intelligent metering systems. The deployment of smart metering systems may be

subject to “an economic assessment of all the long-term costs and benefits to the market and the individual consumer or which form of intelligent metering is economically reasonable and cost-effective and which timeframe is feasible for their distribution. “The economic assessment must take place within 18 months after the transposition of the Directive into national law”.

John Harris, Landys & Gyr

Join the Round-Table for Free !

The Demand Response Roundtable is a FREE service and resource for those carrying out research into Demand Response and related topics. For more information contact Jessica Stromback

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THE NEWSLETTER MARCH-APRIL 2009

Issue No.1

Recent Events News A Glimpse from ‘Smart Metering Scandinavia’ An exciting and diverse line-up of speakers presented case studies on their smart metering projects and insights at Smart Metering Scandinavia 2009, an event attended by over 220 people in Oslo, Norway, March 4-5.

The conference was officially opened with an in-depth session on The Integrated Nordic End User Market.

Mr Toger Lien, former CEO of Nordpool indicated that demand flexibility and demand response is the key to reach the EU’s 20-20-20 targets.

In addition Mr Paananen of NordREG told that market integration will happen and smart metering will be part of the solution for achieving this.

The morning session was continued by a presentation of Mr Thor Erik Grammeltvedt of the Norwegian regulator NVE, who presented the regulatory framework and metering roadmap for Norway. Unfortunately he also announced that smart metering implementation is probably going to be delayed due to the economic crisis and standardization issues. Significant advancements in the area of smart metering standardization and harmonization have however, recently taken place within and between countries, as detailed by VTT and Gemdale Consulting Group, who presented the work that has been done by the Nordic AMR Forum.

The afternoon session focused on overcoming challenges following largescale meter rollout, and what has been learnt from large-scale rollout to date.

Practical deployment experiences were presented by Sofia Tekniska Verken Linköping, E.ON; Göteborg Energi, Hilbrand Does and Oxxio. Besides real

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life experiences, important "toolbox" input was given on sourcing strategy, business process management, system integration and privacy and data security issues. These presentations illustrated that it is not just about smart metering rollout, but that organizational issues should also be prominently considered. Smart metering implementation affects the organization and utilities should be aware of this.

The second day of the conference revealed evidence and examples of the extensive opportunities that await those who develop smart metering-based demand response and smart grid offerings. VaasaETT, and ECN for instance presented state of the art pilot project results from Europe, Australia and the USA showing an enormous potential to manage consumption through the use of psychology, feedback, pricing and home automation schemes.

The need to learn from best practice around the world and avoid re-inventing the wheel was also clear.

Maher Chebbo (EU SmartGrid Platform) and Energinet provided a vision to the huge scope of possibilities and initiatives surrounding the smart grid. In most cases the smart meter is seen as central to such developments, but as illustrated by the presentation of Tampere University for instance, future home automation solutions may ignore the smart meter, especially if the roll-out of smart meters and related offerings continue at such a slow pace. Companies such as Nokia and their partners are already about to introduce products and services that could largely bypass the energy industry.

NVE-SEAS provided an impressive case study, illustrating how it is possible to segment your customer base in order to develop popular, targeted added value offerings and marketing based on the smart meter. These offerings included a unique lottery based on the read-out numbers on the meter, and a variety of customer information services. BKK, a utility from Norway went on to show how interesting future customer offerings can be identified, even from within the utility. It was also apparent from these presentations that the industry should focus more on added value services, rather than added value products. But also highlighted, for instance by Dong Energy, was the fact that smart metering and services that go beyond the meter remain all too often insufficiently mandated, and require more state commitment and support.

It was also pointed out, by presentations by for instance Capgemini and Taylor Made / Hafslund, that substantial process and organizational developments are also required in order to maximize the benefits from smart meter roll-out. Not only should telecommunications be more ambitious than often it is, but also processes should be re-engineered with the solutions most appropriate to each process rather than through a key in hand approach. It was pointed out however, that technology is a means to an end in all of this, and should not be seen, for instance, as a sole guarantee of lower cost-to-serve. Metor furthermore supported the case for online technology platforms as a provider of greater process efficiency and added value.

Dr Philip Lewis (VaasaETT) & Lars Molde (Capgemini)

For More Information or to attend, sponsor or exhibit at next year’s event visit: http://oslo.smartmetering.eu/

THE NEWSLETTER MARCH-APRIL 2009

Issue No.1

What’s up?

Future Events from around the world !

Each edition of The Newsletter will highlight just a few upcoming events that we recommend, focusing on the topic in that newsletter. Many more events will be posted in the forthcoming all new Global Energy Think Tank website coming soon. If you would like to suggest an event for future editions of the newsletter, contact: christophe.dromacque@vaasaett.com Metering, Billing, CRM Europe 2009 Summary: Probably the world’s largest metering event with around 3000 delegates from around the world.

Date: 6-8 October, 2009 Place: Barcelona, Spain More Info: http://www.metering-europe.com Smart Metering UK and Ireland 2009 Summary: Get to know the latest developments in the UK and Irish metering market set to go 100% smart.

Date: 9-10 June, 2009 Place: London, UK More Info: http://london.smartmetering.eu Peak Load Management Alliance Autumn 2009 Conference Summary: State of the art US Demand Response Date: 12 October, 2009 (preliminary date) Place: Chicago, USA More Info: http://www.peaklma.com/ VaasaETT Demand Response Round-Table Workshop Summary: Where global demand response piloting, implementation and other research knowledge is shared.

Date: 15-16 September, 2009 Place: Amsterdam, The Netherlands More Information: Forthcoming. For more information on the round-table visit: www.vaasaett.com

Did you know?

million meters ($6.4bn). The procurement will be worldwide (RFP) from 4 different concentrators manufacturers and 7 meter vendors.

A new EDF meter has a USB port where the user can plug a USB drive to get information he might want to work on with his computer.

A radio module could be plugged in for in-home connectivity. The meters are installed in the basement or garage, but is weatherized to be installed outside too (not often used).

Meanwhile EDF is operating a fleet of 35m meters: 25m electromechanical meters and 10m solid state, replacing 1m electro-mechanical by solid state meters each year.

A 1% scale trial (300.000) will be deployed until mid 2010.

Then after 6 months of return of experience, EDF will launch phase 2 for 35

EDF meters are designed to last 30 years for electromechanical and 20 years for solid state.

EU15 states could save 100 Mt of CO2 emissions through Demand Response A recent free report published by Capgemini, in cooperation with VaasaETT and Enerdata models the potential benefits to be obtained from widespread demand response implementation in Europe. For your free coy visit: www.vaasaett.com

VaasaETT research estimates 25bn Euro worth of imminent smart meter sales in USA and 6 EU states.

The research, a preliminary study within VaasaETT’s Respond 2009 (Demand Response - Smart Metering project), further indicates that Great Britain represents the largest potential smart meter market in Europe in the foreseeable future. More information on Respond 2009 from: jessica.stromback@vaasaett.com

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