Computer chips are cheap. So is computer memory and IT communications technology.
The odds are you’ve thrown out (or hopefully recycled) a perfectly good, functioning mobile phone in the past year or two which proves the point.
So why is it that we run our electricity system on the basis that computing power, communications and memory are extraordinarily expensive?
We still send a man around to each individual home around every state, except Victoria, where they battle the weeds and the barking dog to read our meter (or manually download the billing data) every few months.
And we still charge for electricity based largely on an assumption electricity meters can’t even tell the time and date, even though we know the cost of providing electricity varies enormously over time.
And you still only learn how much electricity you’ve consumed and how much it costs several months too late to do anything about it, or work out what might have caused any major change in consumption.
Your network business suffers from an information black hole about the quality of the power it sends into your home and sometimes relies on you to tell it when something has gone awry.
And if you happen to install a solar system (and there aren’t many people doing that, are there?) outside of Victoria you’ll be required to install a new meter even if you had your meter recently replaced, because it can only measure electricity flowing in one direction.
It’s like the electricity industry has been left in a time before the internet and affordable mobile phones.
The Grattan Institute has correctly pointed out in its latest report that we can’t continue to charge for electricity without regard to how much load households place on the electricity system when capacity is most constrained. There is a massive cross-subsidy where households who are energy efficient and/or frugal pay the costs providing infrastructure to meet the needs of households who consume copious amounts of electricity on a handful of hot days (or cold days in the case of Tasmania) that total around 30 to 40 hours per year.
But Grattan have chosen to propose an interim, halfway house solution which seems to be based on an assumption that computing and communications technology are very expensive. Instead of charging customers for their network peak usage based on the 30 to 40 hours which are specifically the problem, most customers would be charged based on their five maximum usage periods across the 3120 hours of the year that lie between 9am and 8pm on weekdays. This actually gives customers very little capability to adjust their behaviour to reduce their load on the network and reduce their electricity costs.
This would still require us to replace existing old rotating disc meters with new, relatively basic interval meters ... but with the apparent benefit of avoiding the need for a smart meter with communications capability (as well as other valuable functionality, such as measuring generation export).
Yet, according to Craig Memery of the Alternative Technology Association, who has been heavily involved in government deliberations around smart meters, there is not much difference in cost between a relatively dumb interval meter and a smart meter. In anticipation that smart meters would become the default in the future, meter manufacturers have concentrated their resources on smart meters. This has meant they are not much more expensive than the inferior interval meter.
With the Grattan proposal we risk spending a large quantity of money on interval meters and then a few years down the track find ourselves wanting to rip them out to replace with smart meters, which provide us with a far greater degree of flexibility in how we manage our electricity system.
It is deeply unfortunate that Australia’s electricity system seems to be held prisoner in a time warp because politicians are petrified by the flack the Victorian Labor Government suffered in its botched mandated smart meter rollout. But much of the problems that government experienced are entirely avoidable (see The dumb approach to smart meters, December 2012). The costs of that rollout appear to have exceeded the benefits, but that’s because it was done badly not because smart meters inherently represent poor value for money.
Another issue inhibiting progress is an ideological obsession among government officials with delegating decisions to the market without having the good sense to accept there isn’t really a functioning market in existence because:
– It is dominated by a monopoly network service provider with weak incentives to innovate and contain costs;
– Split incentives are rife between network distributors, retailers and customers about how the benefits and costs from smart meters are shared; and
– Informed consumer choice isn’t possible when information about a consumer’s own consumption patterns and peak demand don’t exist.
A reliance on this so called 'market' to rollout improved metering infrastructure will be exceedingly slow, inhibiting the potential for more sensible pricing and also better exploitation of demand-side solutions to meet our energy needs and reduce emissions.
It is also more likely to result in sub-economic scale, potential problems with interoperability and, also, greater metering servicing and maintenance costs.
Victoria’s strategy and logic with smart meters was broadly right, unfortunately their execution was appalling. We should learn from it, not just write it off.