18 November 2010

Misgivings About Intelligent Energy System

A follow-up post on the Intelligent Energy System ("IES").

Estimated Cost Of The IES

Energy Market Authority ("EMA") probably has, by now, an idea of the cost of implementing the IES in its present form, in terms of initial capital cost (which includes the requisite infrastructure and installation costs, not just the smart meters), periodic replacement cost and operating cost.

EMA should share with us what this cost is, even if it is a rough estimate, because it will likely be borne by consumers eventually.

If the cost is $5 per household per month or 1 cent per kWh, for instance, how many consumers will be willing to foot the bill, irrespective of whether it is subsumed under the market support services fee and/or the grid charge in the future?  If the majority are not prepared to pay, why bother to continue with the project in its present form?

Will There Be Any Meaningful Shift In Consumption From Peak Period To Off-Peak Period?

EMA mentioned that its proof-of-concept trial of smart meters and variable pricing last year showed that consumers shifted their consumption from peak periods to off-peak periods, and enjoyed some savings in the process.  What was the magnitude of the shift?

The national peak period is from 8:30 am to 8:30 pm and the off-peak period is from 12:30 am to 7:30 am (the remainder are shoulder periods) on weekdays (reference: SP Services, the market support services licensee, quoted in Market Surveillance & Compliance Panel Annual Report 2009).  It seems unlikely that many households will shift much of their electricity usage to the 12:30 am to 7:30 am off-peak period.

Furthermore, households account for only 18 per cent of the national electricity consumption, so a 1 per cent shift in household consumption is a 0.18 per cent shift in the national electricity consumption.

Will There Be Any Savings?

Even assuming there is a meaningful or significant shift in consumption patterns when the IES is fully implemented, it is doubtful if this will result in savings for households in aggregate.

The electricity suppliers will try to protect their profit when switching from a flat-rate tariff to a peak and off-peak structure.  Unless there is a reduction in the cost structure of the generating companies in particular, they are unlikely to allow their revenues to fall.

If only some consumers shift some usage from the peak period to the off-peak period, they will pay less than if they had not shifted.  But if everyone shifts, the aggregate utilities bill may not change, and the average consumer may not pay less than if no one had shifted.

Consumers may know that they pay less if they shift their consumption from the peak period to the off-peak period than if they do not shift, but will they know whether they pay less than under the flat-rate tariff?

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