Cleantech Market Intelligence
Smart Meter, AMI Benefits in Great Britain
The recent announcement in Great Britain of technology winners in the massive smart meter rollout included some large numbers. According to the U.K. Department of Energy and Climate Change (DECC):
“Between now and 2020 energy suppliers will be responsible for replacing over 53 million gas and electricity meters. This will involve visits to 30 million homes and small businesses.”
“Over the next 20 years the installation of smart meters will provide £6.7 billion net benefits to the UK: the programme will cost £12.1 billion and provide £18.6 billion in benefits.”
Let’s take these numbers for a spin.
There are dozens of distinct smart grid functions that boost the operational efficiency of a utility (called a distribution network operator or DNO in Great Britain). The most established benefit categories of an automated metering infrastructure (AMI) are broadly described as:
1. Reduction in meter reading legwork and gasoline savings: operational expenditures (OPEX)
2. Avoided spending on handheld equipment and vehicles: capital expenditures (CAPEX)
The legwork (1) consists of planned and unplanned meter reads that can cost a large U.S. utility $20 to $30 per meter on average per year. Maintaining or replacing handheld equipment and keeping vehicles on the road (including gas, insurance, and other maintenance) can amount to $5 to $10 per meter per year.
Translated into British pounds (at an exchange rate of $0.65), these savings categories alone could save British utilities and customers approximately £0.9 billion to £1.7 billion per year when the 53 million endpoints have been fully rolled out. At a fairly conservative discount rate of 6% to 7%, a net present value investment of £12.1 billion would break even in 10 years with £1.7 billion in annual undiscounted savings (~$1.2 billion in annual average discounted savings).
In a conservative business case (utilities tend to be conservative), the lower limit in the range (£0.9 billion) may constitute the majority of the total AMI benefits. Note here that meter reading, handhelds, and vehicles (1 and 2 above) often make up 80% of quantified benefits. With £0.9 billion in annual undiscounted benefits (~£0.6 annual average discounted benefits), a £12.1 billion investment takes 20 years to break even. That seems like long time, even for the most patient of utilities, depending of the useful life of the smart meters.
Therefore, it’s critical that the DNOs immediately plan to take advantage of all the new information that lies in the AMI data to offer time-of-use (TOU) pricing plans. Given reasonable participation in TOU pricing (20% being the best-in-class target in American utilities), significant electricity usage is likely to shift away from higher-priced rush hours. In turn, peaking power plant buildouts can be avoided.
Consider this: Dryers alone have a power rating of roughly 4 kW on average. If some percentage of 30 million new AMI customers do their laundry for half price in the weekend or during other “electric-happy hours,” this could reduce the need for peak capacity in the order of gigawatts and billions.