Friday, June 26, 2009

Smart meters

Yesterday, the Parliamentary Commisisoner for the Environment released a major report on smart meters [PDF]. The report was highly critical of electricity retailers for installing "dumb meters", which enabled them to impose time-of-use charging, while not giving any information or control to customers. According to the PCE, proper smart meters, which interfaced with smart appliances to enable automated demand-response to pricing would lead to more efficient electricity usage and lower costs to consumers.

Which is true to some extent - we all benefit by e.g. shifting non-immediate loads like a dishwaser or dryer to the middle of the night when demand is low. But the primary means by which this efficiency is expected to occur is through price signals - that is, by exposing residential customers directly to the spot market. And that means being gouged for up to $500 / MWh at peak times such as breakfast and dinnertime - exactly when you want to be using electricity. The theory is that people will respond to higher prices by shifting their demand to when it is cheaper - by, for example, having dinner at 4am, or heating the house during the day when no-one is home. The sheer insanity of this is yet another example of economics' complete disconnection from reality.

Despite the delusions of economists, residential demand isn't that flexible. Exposure to the spot market will mean that people don't use electricity, but they'll do it by not doing things they probably ought to - like eating, showering and keeping their homes warm (remember, failure to do the latter kills people, and the incentive to not do it will be highest precisely when it is most needed: the depths of winter. So we'll pay for "more efficient" electricity usage in sickness and healthcare costs instead). Mercury Energy recently ran a large trial of residential time-of-use metering in Auckland; they found that people responded to high prices not just by reducing demand at peak times, but reducing demand overall. In a country which already has a serious problem with cold homes, that's probably not something we want to happen - especially in the South Island.

This doesn't mean I don't want smart meters - I have occasional geeky thoughts about managing my home's electricity network over something like SNMP to turn various things on and off at set times or establish default usage profiles (for example, "going on holiday") (these are then usually followed by geeky nightmares about the prospect of someone hacking said network and turning my computer off - or of the thing running on Windows). But the key "benefit" of the technology - time-of-use pricing - is not really a benefit at all to residential users. Instead, its just another way for electricity companies to gouge us for more money, and another way of exposing yourself to financial disaster (just think what would happen to your power bills in a dry year. And yet, you still can't cook your dinners at 4am, because of the rigid patterns imposed by the workplace). While it might result in lower costs in ordinary times, it is at the price of massively reduced security (hmm... where have we seen that before?) And that equation just doesn't work out for the vast majority of people (though a few greedy stupid ones might disagree, until they get whacked with a dry year).

And all that said, I still support the PCE's conclusion: if electricity retailers are going to be installing smart meters, the government must regulate to ensure they can work for customers as well as retailers. But it needs to do more than that. In particular, it needs to ensure that time of use charging is not mandatory, and that there are always competitive flat-rates available for residential users. It may be more expensive, but it beats going bankrupt every winter.