The Brattle Group, a global economic and financial consultant, released a report on October 12 that says Europe could generate savings totaling €53 billion over the next twenty years once smart meters are fully deployed.  The amount of savings depends upon how expediently policy-makers adopt tariffs that encourage consumers to actively participate in their energy usage by using less when demand is high and more when demand is low.  Called dynamic pricing, Brattle Group authors explain that significant savings can be realised by reducing the capacity needed to meet peak load requirements.

Depending on how a dynamic tariff program is designed, customer participation within a new program has been demonstrated internationally to fall between 20 and 80 percent.  The report authors claim that if 80 percent of dynamic tariff participants are able to reduce their peak demand in Europe than the savings would amount to €67 billion in terms of reduced capacity and transmission costs.  On the other hand, if 20 percent of participants are able to conserve peak demand than the savings would equal €14 billion.  The authors believe that €53 billion in savings is attainable if legislators are able to persuade energy consumers to sign up for dynamic tariff programs in large numbers.

The report notes major reasons why consumers may choose not to participate in a dynamic tariff program: inadequate financial incentives, risk-aversion, lack of understanding regarding a proper response to changing prices, and difficulty in estimating the benefits of switching to the new program.  It is up to policy-makers and energy suppliers to craft tariff programs that will tear down these barriers.

The barriers can be overcome by quantifying and stressing the significance of the benefits to the environment that come about as a result of participating, providing clear and adequate financial incentives, and by offering the lowest tariffs to consumers who agree to participate in an automated demand response program.  Within some Member States a dynamic regulated tariff would significantly increase customer participation while in others dynamic transmission and distribution tariffs could be implemented where tariffs are not regulated.

The authors note that how dynamic tariffs are implemented will make or break the EU’s massive investment in smart meters.  They placed the installation cost at €51 billion and savings generated from streamlined operations between €26 billion and €41 billion.  This still leaves a gap totaling between €10 and €25 billion that requires consumer participation to close.  The gap may not be filled if policy-makers and energy providers do not take care to design tariff programs that encourage customers to enthusiastically participate.

“The EU has made bold steps in beginning to roll out smart meters,” said Ahmad Faruqui, Brattle principal and dynamic pricing expert.  “It should capitalise on this investment and take steps to ensure that customers embrace smart prices, as the savings could be substantial.”

Faruqui and co-author Dan Harris presented their findings to a London seminar on October 12.  Called “Smart Meters, Smart Prices,” the event was sponsored by ElectraLink, eMeter, Siemens, and The Brattle Group.  Participants discussed the experiences of North American and Asian utilities’ dynamic pricing programs for residential and small business customers.

The Brattle Group
44 Brattle Street
Cambridge, MA 02138
http://www.brattle.com

Electralink
21755 IH-45
Building 10
Spring, Texas 77388
http://www.electralink.com

eMeter
2215 Bridgepointe Parkway
San Mateo, California 94404
http://www.emeter.com

Siemens
Wittelsbacherplatz 2
D-80333 Munich
Germany
http://w1.siemens.com

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