Can Smart Meters Help to Reduce Electricity Prices?

If you are sitting at home, at work, or in a public space as you read this, pause for one moment and look around at all the electricity being consumed in the surrounding environment. Heating, lighting, appliances, and technical gadgets all require electricity to operate. But can you estimate the cost per minute of the energy being used? Even in our home environments, where we could name every active electrical device, it is hard to guess how much they are costing us per minute. Thats where smart meters come. Smart meters allow consumers to measure and monitor their electricity usage. By understanding what electricity we use and when we use it on a day-to-day basis, we can adjust our usage to reduce our electricity bills and limit our carbon footprint.

How Smart Meters Work:
Smart meters are the next generation of meter for gas and electricity. They are installed in the homes of individual customers and allow two-way communication between the customer and the power company.

The display on the smart meter allows the customer to see how much electricity they are using in real-time and how much it costs. They can easily see the effect of switching on a hairdryer or games console. They can also understand when peaks and troughs of electricity usage occur within the household. This may be the morning, when the family is getting ready to go out to work and school, or in the evening, when everyone returns.

Smart meters are also able to handle prepayments. This allows customers with financial difficulties to secure their electricity supply by paying in advance for their electricity. They can then monitor usage to ensure that they only use what they can afford. Smart meters can be switched easily between credit and prepayment without the need for a new meter to be fitted, allowing for maximum flexibility.

How Can Smart Meters Influence Electricity Prices?
Electricity cannot be stored. It has to be produced, transported, and used immediately. This makes is difficult for power companies to manage peaks and troughs in demand. For example, retail demand during the day tends to be low, when most people are out at work or school. The grid then comes under pressure in the early evening when people arrive home and begin cooking dinner, putting on the laundry, watching television, and all the many other routine tasks that demand electrical power. In contrast, business usage of electricity tends to be higher during the day when people are at work.

The theory behind smart meters is that, if power companies varied the price of electricity to make it more expensive at peak times and cheaper at times of low demand, then consumers would avoid putting on unnecessary appliances at peak times. For example, if electricity costs more between 6.00pm and 8.00pm, people would delay putting on their laundry until after 8.00pm. This is known as “time of day” pricing.

Smart meters also reduce the costs to the power company of taking meter readings, which previously relied on an army of people knocking on doors and taking manual readings. Smart meters can transmit actual energy usage direct to the power company. The reduction in costs of meter reading can be passed on to the consumer through lower electricity costs.

Interaction with Renewables:
If you have solar panels fitted in your home, you may be involved in microgeneration. This involves selling your excess electricity back to the grid. Smart meters can measure every unit of electricity that is generated and store this information, ensuring that you receive credit for all the power you export to the grid.

The Disadvantages of Smart Meters
Smart meters do not directly reduce energy consumption or electricity prices. They simply help consumers to understand when and how they use electricity. Unless the individual consumer takes further action, there will be no change to their electricity use. Their bills and carbon footprint will remain the same unless they reduce consumption or find ways to use energy more efficiently. It then follows that, unless consumers make changes to their behavior, the drain on the grid will not change and electricity prices will continue to rise.
In some quarters, this emphasis on the responsibility of the consumer to reduce and regulate electricity usage shifts the burden away from energy companies. There is concern that focusing on usage rather than generation stifles necessary innovation in new technologies, which will deliver more efficient electricity production.

An additional concern for many people is the communication that must take place between the smart meter and the energy company. This would give the energy company insight in to how energy is used in each individual household. It could also give them the ability to disconnect consumers remotely. This throws up concerns around vulnerable consumers who may experience difficulties paying their bills due to low income or illness.

There are also concerns that power companies will engage in load limiting to smooth out peaks and troughs in demand. This would limit the amount of electricity that could be used by individual households. Load limiting could be useful for consumers who are concerned about running up excessive bills. The energy company could supply a low level of electricity enough to power only the essential items, such as lights, refrigerator, and television. However, most consumers would object to being told what electrical items they can and cannot use in their own homes.

Market Penetration of Smart Meters in the U.S.A.
In 2011, around 25% of electricity consumers in the U.S. had smart meters fitted, according to the U.S. Energy Information Administration. This equates to over 33 million consumers nationally. The number of smart meters installed varies considerably state by state, from 84% of electricity users in Maine through to no reported installations in West Virginia. Market penetration is greatest in states that have in place legislation and regulations that support smart meter installations. The American electricity market remains heavily regulated and power companies can only recoup the cost of smart meter installation if state regulations permit them to do so.

Sam Jones studies the energy market to bring all the latest news. For more information on Smart Meters he recommends the uSwitch Energy Price comparison website advice and information pages.


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