Practice Recommendations
for Smart Meters Rollout in
the Energy Community
Customer
1. INTRODUCTION ........................................................................................................... 5
3.3.4 Austria.................................................................................................... 30
Italy 106
Sweden 106
Germany 106
The Energy Community Contracting Parties are obliged to implement the European Union's
acquis communautaire on electricity, gas, environment, competition, energy efficiency and
renewables. Provisions on the roll-out of intelligent metering systems are in particular set out
by Annex I of Directives 2009/72/EC and 2009/73/EC requiring Member States of the Euro-
pean Union to install by 2020 intelligent metering systems for electricity consumption for at
least 80% of customers where such a roll-out is assessed positively, and to prepare a timet-
able to implement intelligent metering systems within 10 years. For gas consumers no fixed
targets are stipulated. Implementation of such metering systems is required and a timetable
should be set up, however a firm time horizon is not provided. With the Energy Community's
decision from October 6, 2011, the Third Package (Directives 2009/72/EC, 2009/73/EC and
associated regulations) is to be implemented in the Energy Community's legal framework.1
According to the Ministerial Decision, the cost-benefit assessments regarding smart meter-
ing deployment as specified in Annex I of the Directives are due by January 1, 2014 (Article
6). The same timeline for a roll-out after a positive assessment of costs and benefits dep-
loyment of intelligent metering systems to 80% of consumers by 2020 however applies to
the Contracting Parties of the Energy Community as well as for EU Member States.
As mentioned in the terms of reference (ToR) of this project, the recently created review of
smart metering roll-out for electricity in the Energy Community2 shows that large-scale im-
plementation of smart metering has not yet taken place in the Energy Community and that all
Contracting Parties still need to carry out the economic assessment of the long-term benefits
and costs of smart metering implementation.
Smart metering is mainly perceived to be an electricity topic. Due to the properties and con-
sumption patterns of electricity, this is certainly the most promising area of application for
smart metering.
However, it can also be relevant for other network industries such as gas, water and district
heating. EU Directive 2009/73/EC explicitly stipulates the requirements for Member States to
draft a roll-out plan also for gas smart metering. Although not providing a deadline, the
1
Decision of the Ministerial Council of the Energy Community, D/2011/02/MC-EnC: Decision on the implementa-
tion of Directive 2009/72/EC, Directive 2009/73/EC, Regulation (EC) No 714/2009, Regulation (EC) No 715/2009
and amending Articles 11 and 59 of the Energy Community Treaty.
2
Energy Community Regulatory Board (2010): A Review of Smart Meters Rollout for Electricity in the Energy
Community; available at: http://www.energy-community.org/pls/portal/docs/744178.PDF
In line with the objectives of this project as specified in the ToR, the report is structured in
the following way:
Chapter 2 includes an overview of different terms subsumed under intelligent metering, pro-
vides an unambiguous definition of smart metering and describes the typical set-up of a
smart metering infrastructure.
Chapter 3 describes in brief the relevant EU legal framework and gives an overview of the
state of smart metering in the EU in general and in five example countries in particular.
In chapter 0, potential barriers for successful smart metering deployment are highlighted and
discussed.
Chapter 0 discusses the costs and benefits of smart metering and the approach in setting-up
a cost benefit analysis. The chapter provides some purely indicative cost and benefit estima-
tions as seen for example in actual cost-benefit studies.
Chapter 0 describes the different models for the metering sector and discusses the role of
regulation in smart metering as well as the role smart metering could play for regulation.
Closely linked to the benefits of smart metering are the new services which may emerge
from deployment, as is discussed in chapter 7.
Chapter 0 describes the general structure and characteristics of the smart metering deploy-
ment schedule.
Chapter 0 concludes the paper by summarizing the recommendations for smart metering
roll-out in the Energy Community.
The report is accompanied by a template for the scope of a country-wide cost-benefit analy-
sis, showing the general set-up of a cost-benefit analysis, the steps to perform and the re-
sulting deliverables; the template is supplied separately.
The term smart metering is used in a variety of ways. The relevant EU Directives3 promoting
the deployment of smart metering use the term intelligent metering, further technical terms
often used in parallel are Automated Meter Reading (AMR), Advanced Metering Infrastruc-
ture (AMI) or Automated Meter Management.
Smart
AMR AMI AMM
Metering
Source: KEMA
In order to provide clarity for any discussion or public consultation about the design of a
smart metering system and the subsequent roll-out decision it is necessary to provide an
unambiguous definition of smart metering. As the term itself can be and is used in a broad
context, it is recommended to define smart metering through its components and through the
functionalities provided by such a system.
This shows that there is a clear distinction to be made between a smart meter and smart
metering. The smart meter is the individual appliance installed at an energy consumers
house or facility, primarily metering the consumers energy consumption. Smart metering is
an actual application of smart meters on a larger scale, i.e. the application of a general prin-
ciple rather than an individual appliance.
3
The most relevant Directives would be Directive 2009/72/EC of the European Parliament and of the Council
of13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC,
and Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common
rules for the internal market in natural gas and repealing Directive 2003/55/EC, cf. chapter 3.1.
Current discussions at European level focus among others on defining a set of standard
functionalities. The European Regulators' Group for Electricity and Gas (ERGEG) published
Guidelines of Good Practice (GGP) where a set of typical functionalities of a smart metering
system is included.5 Another approach to defining standard functionalities for smart metering
is taken through a standardization mandate of the European Commission to standardization
bodies6. The ERGEG GGP explicitly aim to be in line with the official standardization process
through this mandate.
In line with the general direction taken by the debate in the European Union, we would like to
define smart metering in general as follows:
The definition should be taken as a starting or orientation point for the debate. It may evolve
over time (it most certainly will) and it may differ between countries, (pilot) roll-out projects,
etc.
The next sections describe the typical set-up of a smart metering infrastructure and give an
overview of the typical minimum and optional smart metering functions.
4
Interpretative Note on Directive 2009/72/EC Concerning Common Rules for the Internal Market in Electricity
and Directive 2009/73/EC Concerning Common Rules for the Internal Market in Natural Gas Retail Markets,
Commission Staff Working Paper, Brussels, 22 January 2010, p. 7
5
EREGEG, Final Guideline of Good Practice on Regulatory Aspects of Smart Metering for Electricity and Gas,
Ref: E10-RMF-29-05, Brussels, 8 February 2011.
6
European Commission, Standardization mandate to CEN, CENELEC and ETSI in the field of measuring instru-
ments for the development of an open architecture for utility meters involving communication protocols enabling
interoperability, M/441 EN, Brussels, 12 March 2009.
In line with the distinction between an individual smart meter and the general concept of
smart metering, it is important to point out that the implementation of smart metering requires
a complete infrastructure.
Optionally, a graphical display within the consumer's living space providing actual
real-time meter data and eventually information on tariffs or other relevant data (In-
house display, IHD)
Communication and data processing infrastructure between the devices on the con-
sumer premises and the back-end systems, Including eventually different communi-
cation solutions, depending on situation and approach
Energy data management (EDM) systems at the metering operators8 back-end that
provide necessary data to billing and invoicing systems of the supplier and optionally
to the consumer, e.g. on a web page
7
The report uses the terms 'regulator' and 'regulatory authorities' mostly in an interchangeable way, although
typically either the national regulatory authority or for instance a ministry could be implied. Apart from for instance
setting network tariffs, there is in most cases no default responsibility. The authority or governmental office which
is responsible is thus dependent on the regulatory and legislative framework in a particular country. What can be
typically observed is that the overall responsibility for a roll-out decision falls into the responsibility of the govern-
ment or if the roll-out is stipulated by law legislative bodies. The role of the national regulatory authority is
typically much more focused on execution and support of governmental or parliamentary decisions, i.e. for in-
stance providing a cost-benefit analysis, deciding about functional requirements or preparing a smart metering
deployment plan.
8
As will be assessed in detail in chapter 0, several entities may in principle be suited to take over the responsi-
bility for metering, although in general it will be the DSO. If in the present report the role of the metering operator
is referred to, this may mean a stand alone metering service or any other market player (most likely the DSO or
eventually the supplier) taking over the responsibility for metering.
GSM
Electricity
Communication module
GPRS
Household appliances
Meter
EDM
Gas
Meter DSL
Meter data
District storage and
Heat PLC management
Data transmission
Source: KEMA
The above figure shows an exemplary fully fledged smart metering infrastructure. As indi-
cated above, in practice some of the depicted elements are not a mandatory part of smart
metering.
Traditional meters in the residential sector for electricity are electromechanical induction
meters; for gas bellows-type flow meters are used. The electricity meter uses a very small
amount of the electricity flowing through to drive the meter, the gas meter uses the energy of
the gas flow, i.e. in principle it is purely mechanical and does not require an electricity
supply. Traditional meters measure only the amount of electricity or gas flowing through
them. The meter data, when read, does not allow any conclusion on variations of consump-
tion over time since the last meter reading, only the accumulated amount of energy con-
sumed since the last meter reading is shown.
In order to deploy smart metering these traditional meters are replaced by modern electronic
solid state meters; for gas electronically refitted bellows-type meters are also regularly used.
These meters are able to measure the load over time.
Traditional
Meters
Smart Meters
Figure 3: Examples of Traditional and Smart Meters for the Residential Sector
Metering data (e.g. a load curve) is crucially required in order to enable the required smart
metering functionalities, and needs to be available not only in digital format. In addition, the
meter needs to be able to process the data, submit it and to receive and process data as
well, e.g. requests for actual meter data, tariff information, commands for a remote (dis-
)connection and/or load limitation, firmware updates, etc. This data is transmitted between
the metering device (or the associated communication module) and the back-end EDM sys-
tem through the wide area network (WAN).
Moreover, meter data as well as data received by the meter can be transmitted directly to
the other appliances on the consumer's premises, using the home area network (HAN). A
consumer may use an in-house display to have access to this information somewhere in his
living area (whereas the meter is typically hidden away in the basement or in some meter
closet). Additionally, the meter may be connected to a smart home unit, which controls
household appliances based on the information received, for example switching on the dish-
washer when electricity prices are low.
Electricity smart meters are often able to measure the electricity withdrawn from the grid as
well as electricity injected into the grid. Thus, in cases where a distributed generation unit,
e.g. PV panel or micro CHP, is used, a separate meter would not be required.
The smart meter set-up on the consumer's side may follow two different approaches. The
communication technology may be included in the smart meter or the set-up may be mod-
ular, with a rather simple electronic meter and a separate communication module containing
the bigger part of the set-up's "intelligence". Such a set-up may be beneficial in cases where
In cases where a roll-out for smart metering for gas is also considered, an assessment
should be made as to whether an integrated approach would be favorable. In a multi utility
set-up, the communication infrastructure is shared, avoiding costly redundancy. There are
two possible approaches: firstly, one of the meters (typically the electricity meter) has an
interface to connect additional meters, or the modular approach is taken (multi utility com-
munication, MUC) and the communication module is able to connect several meters (multi
utility communication controller, MUC-C).
Electricity Meter
Network Operator/
Metering Operator
MUC-C
WAN
EDM
Gas Meter
The MUC-C is the key device in a multi utility set-up. It functions as a data hub between the
metering devices, other appliances like the in-house display and the communication towards
the back-end systems.
If the smart metering deployment targets a change in consumers' behavior, feedback to the
consumer is essential.
The most direct feedback available is the so-called in-house display. A graphical display
located in the consumer's living space connected to the metering or communication device
showing consumption data in real-time (ideally) and also showing information externally pro-
Alternatively to a dedicated in-house display, a web page showing the data may have the
similar effect. However, if a webpage is used, the data needs to leave the house and is
processed by the back-end systems. An in-house display directly connected to the meter
would allow for real-time information to the client, whilst at the same time data transmission
to the back-end would not need to be in real-time.
Depending on the objectives of smart metering deployment or the approach chosen, the in-
home display is not necessarily seen as a mandatory part of a smart metering infrastructure
in all cases.
A communication infrastructure connects the metering devices to the customers other de-
vices, e.g. the in-house display, and also to back-end systems of the metering provider. The
communication to the consumer's other appliances uses the home area network (HAN)
based communication technologies such as wireless/wired M-Bus, ZigBee, power line com-
munication (PLC) or the Internet Protocol (IP). Optionally, data can be transmitted to the
consumer only indirectly through the EDM system at the back-end. In the latter case the
information can be provided to the consumer using web portals, short message services or
the invoice. If real-time provision of meter data to the consumer is intended, the direct
transmission to consumers is preferable. Thus the transmission interval to the back-end can
be chosen depending on the needs, e.g. only daily, and possibly sensitive real-time data
may remain within the consumers sphere.
For communication between metering devices and the back-end system, typically the follow-
ing technologies are used:
When rolling out a smart metering infrastructure, the basic decision would be whether data is
transmitted directly from the consumers site to the EDM or bundled locally with a so-called
data concentrator and forwarded to the EDM from there.
Data concentrators are recommended in more densely populated areas when a massive roll-
out of smart metering takes place or is planned. In that case the individual metering installa-
tions are connected to data concentrators with PLC, with up to several hundred meters per
data concentrator. The data concentrator is for instance installed in a distribution substation
Energy Community Secretariat Final Report
Development of Best Practice Recommendations for February 24, 2012
Smart Meters Rollout in the Energy Community Page 13/107
and bundles, checks,9 processes and stores meter data, and transmits and receives data to
and from the back-end systems.
PLC
E-Meter GSM / GPRS
1 2 3 4 2
Source: KEMA
PLC is the collective name for techniques which enable telecommunication using the elec-
tricity distribution network as a communication channel. A common application of PLC is the
reading of metering data from energy consumers. For this purpose, equipment is installed in
the consumer's electricity meter which can transfer the recorded metering data to the data
concentrator.
The range of PLC is limited. It can only be used for local connections on the consumer's
premises or to the data concentrator. The range of PLC is limited by the fact that the data
cannot be transferred through power transformation. To connect a data concentrator to the
back-end alternative communication channels are required, e.g. mobile phone technology,
as depicted in the above figure. Alternatively ISDN or DSL technology may be used.
GSM (Global System for Mobile Communications) is a digital mobile telephone standard.
GPRS stands for General Packet Radio Service, which is an extension technology to the
existing GSM network. Universal Mobile Telecommunications Systems (UMTS), the next
generation technology also based on GSM standards achieves higher data transmission
rates. Data can be sent and received efficiently and rapidly using mobile phone networks.
9
For example for fraud detection a check could be made to determine if the sum of supplied energy (sum of all
individual meter readings) equals the sum of consumed energy (in total, measured at a substation).
Alternatively, the consumers broadband internet connection (DSL) can be used to transmit
meter data directly to the EDM. Modern electricity meters have TCP/IP output, in principle
allowing direct access to the worldwide internet. The metering data is then sent via the Inter-
net Protocol (IP).
TCP/IP
DSL Router 2
Meter Internet
EDM
1 2 3 4
Web-Portal/IHD
Source: KEMA
Such a solution does however require software and more processing power inside the meter
to allow communication to take place properly. If this solution is selected, no further hard-
ware is required beyond the consumers modem. Although this solution is dependent on the
existence of such an infrastructure at the consumer's premises and means that this infra-
structure is under control of the consumer itself, it is comparably cheap.
A web portal or an in-house display also using the IP communication may be connected to
the back-end through the internet or it may also display data directly received from the me-
ter.
10
I.e. the metering provider does not need substantial infrastructure; nevertheless a mobile communication net-
work is required.
In many cases the roll-out of smart metering is driven by the aim to achieve energy savings
and to reduce carbon dioxide emissions. In the European Union this political aim is ex-
pressed in the 20-20-20 target, finally approved by the European Parliament and Council in
December 2008.11 Smart metering will not necessarily save energy as such, but by using
smart metering, effective consumption feedback (including costs of used energy) can be
provided to the consumer. Additionally, new tariff schemes can easily be adopted. Thus,
changes in the consumer's behavior can be triggered.
As described above, the feedback can be provided in real-time using an in-house display or
less frequently, for instance with a monthly invoice based on real meter data. As the survey
on smart metering conducted by the Energy Community Regulatory Board (EnCRB) shows,
monthly meter reading (of conventional electricity meters) is already the rule in almost all
EnC contracting parties.12
Indirect feedback, e.g. through frequent invoicing based on actual meter readings,
e.g. enhanced with comparison values from peer groups, energy savings advice or
information on energy savings achieved so far
11
Cf. Commission welcomes adoption of climate and energy package, press release, IP/09/628, Brussels, 23
April 2009.
12
Energy Community Regulatory Board, A Review of Smart Meters Rollout for Electricity in the Energy Commu-
nity, 2010, Table 4.
13
A comprehensive overview of different types of feedback is for instance provided in Darby, Sarah, The Effec-
tiveness of Feedback on Energy Consumption, Oxford, 2006.
Source: CER
Direct feedback is characterized by simple access to the data, e.g. through an in-house dis-
play, as shown on the left side of the above figure, or a web-based portal which provides
real-time information. Direct feedback enables the consumer to monitor energy consumption
and associated costs constantly and to see immediately results of any changed behavior.
For direct real-time feedback to the consumer, it is not necessary to submit real-time infor-
mation to the back-end systems. Very simple systems measuring only the amount of elec-
tricity consumed and sending this information to an in-house display can be easily fixed to
the traditional electricity meter without deploying a full-scale smart metering infrastructure.14
Indirect feedback is typically based on data which is already processed, i.e. a first analysis is
already carried out by the metering operator or supplier. The usual invoice is a typical exam-
ple of indirect feedback. Smart metering can improve this indirect feedback by providing
accurate meter data, providing this data more frequently and by providing additional data
which can be used to enhance the invoice, enabling and motivating the consumer to take
action to decrease energy consumption, as shown on the right side of the above figure.15
Such an invoice may include an analysis regarding the time of day energy is typically used,
how much money could be saved by shifting parts of the demand to off-peak times, con-
sumption benchmarks or historical comparison data.
Long-time surveys show that direct feedback seems to lead to faster and higher energy sav-
ings but that the change in consumption behavior lessens over time once the novelty wears
14
Cf. for instance http://www.wattcher.nl/english, where a simple technical solution is offered.
15
The isolated impact of improved billing was for example tested in a Norwegian project, c.f. Wilhite, Harold,
Hoivik, Asbjorn, Olsen, Johan-Gemre, Advances in the use of consumption feedback information in energy bill-
ing: the experiences of a Norwegian energy utility, 1999.
Feedback, in direct or indirect form and supported by new tariff schemes, is crucial if
smart metering deployment should lead to energy savings by changes in consump-
tion behavior. The different feedback options of smart metering should be incorpo-
rated in the cost-benefit analysis.
As already indicated in section 2.1, the best way to define smart metering is to identify the
set of functionalities and services provided by the smart metering system. However, apart
from several basic features (e.g. bidirectional communication) there is no exhaustive list of
what smart metering must provide. In the European Union however, a common set of typical
standard functionalities is evolving. The processes and publications mentioned above are
relevant here, i.e. the standardization mandate M/441, ERGEG's GGP and the European
Commission's survey on common functional requirements. In this process a European set of
standard or required functionalities for smart metering seems to be emerging.
Basic requirements for any metering installation at EU level result from the Directive on
measuring instruments from 2004.17 In addition, six smart metering functionalities have been
identified under the standardization mandate M/441:18
16
European Commission, A joint contribution of DG ENER and DG INFSO towards the Digital Agenda, Action
73: Set of common functional requirements of the SMART METER, Full Report, October 2011.
17
Directive 2004/22/EC of the European Parliament and of the Council of 31 March 2004 on measuring instru-
ments.
18
Standardization mandate to CEN, CENELEC and ETSI in the field of measuring instruments for the develop-
ment of an open architecture for utility meters involving communication protocols enabling interoperability M/441,
SMART METERS CO-ORDINATION GROUP, FINAL REPORT.
The ERGEG GGP aim to be in line with the results of mandate M/441. They provide a list of
services which should be facilitated by smart metering (twelve for electricity and nine for
gas).
Customer services
Source: ERGEG19
19
EREGEG, Final Guideline of Good Practice on Regulatory Aspects of Smart Metering for Electricity and Gas,
Ref: E10-RMF-29-05, Brussels, 8 February 2011.
Provides readings from the meter to the customer and to the equipment he
may have installed
For the customer
Updates these readings frequently enough to allow the information to be used
to achieve energy savings
For the meter Provides two-way communication between the meter and external networks for
operator maintenance and control of the meter
Allows readings to be taken frequently enough to allow the information to be
used for network planning
For commercial Supports advanced tariff systems
aspects of energy
supply Allows remote ON/OFF control of the supply and/or flow or power limitation
To allow distri-
Provides Import / Export & Reactive Metering
buted generation
As can be observed when comparing the different lists, there is a very high redundancy in
ERGEG's list and the European Commission's survey. It is important to point out that in
practice not every metering device will or should necessarily support all these functions, it is
rather a non-exhaustive list of the direction in which developments are presently heading.
20
European Commission, A joint contribution of DG ENER and DG INFSO towards the Digital Agenda, Action
73: Set of common functional requirements of the SMART METER, Full Report, October 2011.
Prepayment function
Their application was also tested in the Commission's survey. From the results it becomes
clear that although not implemented by a large majority, these functionalities are included or
considered in many cases. Depending on the exact set-up no additional hardware compo-
nents would be required.
During a joint workshop held with the ECRB CWG and other representatives of the regulato-
ry authorities of the EnC Contracting Parties during the project, the possibility to install pre-
payment systems together with smart metering was highly welcomed.21
When national minimum functionalities are defined, it should be noted that whereas some of
the functionalities may be defined as mandatory, others could provide extra benefits but may
not be required in a basic set-up. In order to achieve a successful smart metering roll-out,
the necessary minimal functional requirements need to be set in line with the country's ob-
jectives to ensure an efficient and functional approach and to enable new services to maxim-
ize potential benefits. However, if requirements are set too high, the resulting benefits may
be achieved at high costs, because in several cases, more expensive hardware would be
required for more functionality.
21
In the EU prepayment meters are only used in the UK and in Belgium, only in the UK a considerable number of
customers are equipped with a prepayment meter. Currently around 11% of gas customers and 14% of electricity
customers are equipped with prepayment meters. In the UK, coin-in-the-slot meters were used until the 1980s,
since then they have been replaced by electronic forms of prepayment. Prepayment meters are mainly used for
customer groups with a high risk of defaulting payment. Prepayment meters prevent customers from being in
debt, however, the biggest concern with this form of prepayment is self-disconnection of customers when they
run out of credit. Subsequently, a discussion on consumer protection revolves around prepayment meters. Addi-
tionally, as prepayment meters are more expensive than normal meters, electricity tends to be more expensive
for those customers who use a prepayment meter, and who typically belong to poorer consumer segments any-
way. So far, Ofgem estimated additional costs for a prepayment meter of 65 to 85 GBP.
With smart metering, it is expected that extra-costs for prepayment meters can be driven down. With payments
being made for instance through the internet or via phone calls, no card reading systems within the meter are
required. If the smart meter provides for remote disconnection or load limitation anyway, no additional meter
hardware is required for prepayment metering. Prepayment metering would simply be included as a software
functionality of the meter. (c.f. Owen, Gill, Ward, Judith, Smart pre-payment in Great Britain, March 2010).
Two basic documents set the current EU legal framework for smart metering: the Directives
on the internal markets for electricity and gas (2009/72/EC & 2009/73/EC, the so-called
Third Package) and the Directive 2006/32/EC on energy end-use efficiency and energy ser-
vices. Although not mentioning smart metering directly, the requirements stemming from
Directive 2006/32/EC pave the road to metering systems which are at least more sophisti-
cated than traditional meters. In Article 13 the Directive requires that final customers are
provided with competitively priced individual meters that accurately reflect the final custom-
ers actual energy consumption and that provide information on actual time of use. Howev-
er, the requirement is subject to technical feasibility, financial viability and ability to potential
energy savings. At the same time, energy saving targets are set in Article 4. Moreover, the
energy services directive sets requirements for the level of detail and information to be pro-
vided to the electricity customer together with or in addition to the invoices. Invoicing is sup-
posed to be based on actual consumption and to be performed frequently enough to enable
customers to regulate their own energy consumption. Information on consumption should
also include information on energy consumption in the previous year and a reference value
of the consumer segment.22
Directive 2006/32/EC was transferred into the Member States' national legislation quite diffe-
rently and only in a few Member States has it led to a requirement to install smart meters.
In 2009 the so-called Third Package for the further liberalization of energy markets was le-
gislated in Directives 2009/72/EC for electricity and 2009/73/EC for gas. The requirement for
smart metering is stipulated in Annex I of both Directives. Annex I contains provisions to
promote smart metering requiring Member States to ensure the implementation of intelligent
metering systems []. The implementation of those metering systems may be subject to an
22
Directive 2006/32/EC of the European Parliament and of the Council of 5 April 2006 on energy end-use effi-
ciency and energy services and repealing Council Directive 93/76/EEC.
Shortly before passing the Third Package, the European Commission had already mandated
European standardization organizations to develop an open architecture hardware and soft-
ware standard for smart metering systems enabling interoperability of meters (Mandate
M/441 EN).25 This mandate already led to a list of functional requirements for smart meter-
ing, as described in section 2.4.
The European Regulators' Group for Electricity and Gas (ERGEG) launched a consultation
process of regulatory aspects of smart metering, covering questions on the cost-benefit as-
sessment, roll-out decision and functional requirements. In June 2010 ERGEG published
Draft Guidelines of Good Practice on Regulatory Aspects of Smart Metering for Electricity
and Gas 26, the final guidelines followed in February 2011.27 The Guidelines of Good Prac-
tice (GGP) define the minimum and optional services which smart metering should provide
to electricity and gas customers and make suggestions on the conduction of economic as-
sessment, the roll-out and on data security.
Whereas the Directives described above set the requirements for smart metering installation,
Directive 2004/22/EC on measuring instruments sets the general technical requirements for
metering appliances. As such, the Directive is also relevant for smart metering appliances. It
contains technical provisions for metering devices for electricity, gas, water and for other
23
Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules
for the internal market in electricity and repealing Directive 2003/54/EC, and Directive 2009/73/EC of the Euro-
pean Parliament and of the Council of13 July 2009 concerning common rules for the internal market in natural
gas and repealing Directive 2003/55/EC.
24
The question has been raised as to what exactly is meant by consumers - the number of consumers or the
consumed volume. The official documents refer only to the threshold of "80% of consumers", thus we would
expect that the number of consumers is meant. (c.f. Commission Staff Working Paper Interpretative Note on
Directive 2009/72/EC Retail Markets, Brussels, 22 January 2010, and Council of the European Union, Adden-
dum to "I/A" Item Note, Council document 10814/09).
25
European Commission, Standardization mandate to CEN, CENELEC and ETSI in the field of measuring in-
struments for the development of an open architecture for utility meters involving communication protocols enabl-
ing interoperability, M/441 EN, Brussels, 12 March 2009.
26
ERGEG, Public Consultation Paper on Draft Guidelines of Good Practice on Regulatory Aspects of Smart
Metering for Electricity and Gas, Ref: E10-RMF-23-03, Brussels, 10 June 2010.
27
ERGEG, Final Guideline of Good Practice on Regulatory Aspects of Smart Metering for Electricity and Gas,
Ref: E10-RMF-29-05, Brussels, 8 February 2011.
Although the pace for smart metering deployment is mainly set by the energy services Direc-
tive and the Third Package, other Directives also make reference to intelligent metering sys-
tems, thus encouraging (but not requiring) smart metering systems in order to promote ener-
gy savings and demand response (Directives 2005/89/EC and 2010/31/EC). Especially the
recent Directive on energy performance of buildings (2010/31/EC) is very specific: Member
States shall encourage the introduction of intelligent metering systems whenever a building
is constructed or undergoes major renovation, []. Whilst the energy services Directive and
the Third Package aim to promote intelligent metering throughout the buildings / metering
inventory, Directive 2010/31/EC explicitly refers to new buildings and those undergoing a
major renovation.
Although the Third Package sets a common target for the deployment of intelligent metering
systems in all EU Member States, the development is quite diverse, with different countries
applying different approaches in terms of market model, technologies and objectives.
So far, only two countries have completed a full roll-out of smart metering systems, i.e. Italy
and Sweden, and in both cases the degree of smartness of the metering systems tends
mostly to remain on the level of remote meter reading.
In other Member States, the decision for a mandated roll-out has been already taken, i.e.
France, Spain and the UK, and massive deployment is expected to start soon.
In the majority of Member States, so far no mandated full roll-out has been decided upon. In
some, smart metering deployment has been left at least until now to individual (volunta-
ry) decisions of market parties (e.g. Slovenia, Denmark) or is required only for specific con-
sumers as mandated by the Directive on energy performance of buildings (e.g. Germany), in
other countries the final roll-out decision is still pending (e.g. Austria).
Some countries have not considered smart metering at all, until now, whereas in others the
whole idea is subject to a very broad and public discussion, as for instance in the Nether-
lands where data privacy issues toppled the attempt to have a mandated roll-out.
Motivations behind a smart metering roll-out are also diverse. Although by now European
legal requirements are setting the pace of the process, Italy and Sweden have already ac-
complished a massive roll-out. The fundamental motivation from the European perspective is
In Italy, starting the roll-out already in 2000, the basic goal was to reduce non-technical
losses, which back then were a huge problem for Enel. In essence, many meters were re-
moved before they could be read. Subsequently, the focus of Enel was on remote meter
readings with sufficiently short intervals and anti-fraud mechanisms and less on consumption
feedback to consumers. In Sweden, the legal requirement to provide monthly invoices based
on actual meter readings from 2009 onwards provoked DSOs to roll-out smart meters, how-
ever, the main function to facilitate the goal was remote meter reading and many meters
installed at the beginning are probably not really smart meters. The roll-out decision and the
technical and regulatory framework is based on individual (policy) and local circumstances.
Sweden is not very densely populated, manual meter reading traditionally took place once a
year. Manual monthly meter reading would have been extremely cumbersome in the rural
areas of Sweden. In other countries, with high population density and/or a cheap labor force
available, manual monthly meter reading is quite common. This is also the common ap-
proach in many EnC Contractual Parties. The motivation for the roll-out and the local cir-
cumstances thus clearly influence the roll-out decision and thereby also the chosen technol-
ogies and required functionalities.
The following figure taken from the SmartRegions (a EU funded project to promote best
practices of innovative smart metering services) Landscape Report on the state of smart
metering in the European Union distinguishes five groups of countries, according to their
progress in smart metering implementation and the existence of a legal and regulatory
framework. The legal and regulatory framework in this context refers to whether the frame-
work not only provides clear guidelines for smart metering deployment but also whether
smart metering deployment aims at energy savings or peak load shifting.
The SmartRegions report gives the following classification of the five groups depicted above.
"Dynamic movers" are those countries in which the decision for a mandated full smart meter-
ing roll-out has already been taken or where major pilot projects are already in place and
should result in a mandated roll-out. The countries classified as "market drivers" leave the
deployment of smart metering to individual decisions of distribution system operators or sup-
pliers, either because of technical considerations or following customer demands. "Ambi-
guous movers" have the required framework largely in place but the roll-out has neverthe-
less not taken place in general. "Waverers" are those countries where the topic of smart
metering is already on the agenda but has not yet come to tangible results. The "laggards"
are the countries where smart metering is not yet under discussion, however due to the re-
quirements of the Third Package, these countries will have to make progress.
28
Renner et al., European Smart Metering Landscape Report, SmartRegions Deliverable 2.1, Vienna, February
2011.
3.3.1 Italy
Italy was the first EU Member State to opt for a large scale smart metering roll-out. At that
time no legal or regulatory framework for smart metering was in place. The decision for the
first major and (still) one of the largest roll-outs was taken by the incumbent energy supplier
Enel. Although Enel was formally privatized in the early 1990s, it has since been under gov-
ernment control.
As mentioned above, the basic motivation for smart metering deployment for Enel was a
reduction in non-technical losses, i.e. fraud. Additionally the roll-out was driven by expected
savings or revenues in the areas of purchasing and logistics, field operations and customer
services. In 2001 Enel started to deploy smart meters throughout its low-voltage customer
base, i.e. around 30 million meters, covering roughly 85% of the Italian household market.
For the Italian smart metering roll-out a smart meter was installed, already providing functio-
nalities like bidirectional communication, remote (dis-)connection and load limiting. The
smart metering set-up was based on power line communication between the smart meters
and data concentrators. For further communication towards the back-end, IP communication
was employed. The technology used, as well as interfaces and communication formats were
mainly proprietary, which later created issues with interoperability. The metering interval is
one hour.
In 2006, the regulatory authority monitored the developments and started to set up a legal
framework for smart metering along with a mandated roll-out, also setting minimum function-
al requirements. The justification for the full roll-out was different from the original Enels one
(Enel as well had to adapt its system to the new requirements). It was to have a tool to trans-
fer the price signal to end customers and to influence their consumption behavior by means
of a time dependent pricing. In order to achieve this, amendments to the existing load profil-
ing methodology had to be undertaken and could be done only by using smart metering on
national base.
The mandatory roll-out requirement was included in the Energy Law and the responsibility
for the metering roll-out was assigned to the DSOs. The mandatory roll-out was supposed to
start in 2008 and was targeted to achieve 95% by mid 2012.
To cover the costs for the roll-out, a separate metering charge has been levied since 2004,
although only granted to those DSOs who actually deploy smart meters. An additional incen-
29
Major legal references for each country mandating/regulating smart metering roll-out are provided in Appendix
1.
The roll-out is almost 100% complete. However, given the original aim to reduce fraud and
save on process costs, the whole set-up of metering and metering services is somewhat
lacking in customer feedback and thus will probably only limitedly incentivize consumers to
reduce their electricity consumption.
3.3.2 Sweden
The Swedish system is characterized by very high electricity consumption per capita
(>10,000 kWh) as electricity is also widely used for heating purposes. Around 2000, meter-
ing became an important topic on the political agenda in Sweden, caused by increasing
energy prices, power conservation, incomprehensible energy bills (which were inaccurate
and did not correspond to actual consumption), and the strong desire to have a correlation
between energy costs and energy consumption.
In May 2002, the Swedish regulatory authority performed a cost-benefit-analysis on the in-
troduction of monthly reading of electricity meters, which provided benefit estimations of
about 60 million per year, resulting from reduced electricity consumption due to improved
feedback to consumers. Total costs were estimated to be around 1 billion .30 Thereafter it
was decided that every user with an average annual energy consumption of more than 8,000
kWh should have their electricity meters read at least once a month by 2006. By July 1,
2009, all meters were legally required to be read monthly. With the previous practice of an-
nual meter reading and the large sparsely populated areas of Sweden, this resulted in the
deployment of smart metering. Smart metering (or in many cases more simple remote read-
ing of hourly values) is now deployed all over the country. When deployment of remote me-
ter reading started, some of the technologies currently available were not on the market at
that time. Nowadays, DSOs typically deploy smart meters and also assess additional bene-
fits from full-fledged smart metering. Around 10%-15% of the installed meters are in meter-
ing systems which are only capable of monthly remote meter reading. It is expected that
these meters will be replaced significantly before the end of their economic lifetime. Pilot
projects are evaluating the potential of real-time tariffs and new services.
30
Statens energimyndighet, Mnadsvis avlsning av elmtare, ER 12:2002, 2002,
http://www.energimarknadsinspektionen.se/upload/Rapporter/El/M%C3%A5nadsvis%20avl%C3%A4sning%20av
%20elm%C3%A4tare.pdf
3.3.3 Germany
In Germany, the metering market was liberalized in 2008, opening up the metering market to
competition. The consumer is entitled to choose its own metering service provider. However,
apart from cases where metering was now offered by new entrants on the supply market,
thus taking over the role of the metering service provider, the default responsibility for meter-
ing remained with the DSOs. In theory, the German legislative framework even distinguishes
two roles, the metering infrastructure operator and the service provider, but with regards to
smart metering, this distinction is not made. Basic requirements on where or when smart
metering needs to be deployed are set directly by the Energy Act.
With the metering sector liberalized, the introduction of smart metering in Germany was rely-
ing on the voluntary roll-out of smart metering by DSOs, suppliers or independent metering
providers. This approach has so far not been very fruitful. Smart meters were only deployed
in the beginning by DSOs in smaller or larger pilot projects (up to 100.000 meters). In 2009
only one offer for smart metering was commercially available throughout the country, offered
by one of the new entrants on the supply market (although affiliated to one of the large in-
cumbent suppliers/generators).
So far, although some cost-benefit analyses have been conducted by authorities, among
others by KEMA for the Ministry of Economics31, no assessment was meant to be the one
demanded by Annex I of Directive 2009/72/EC. Subsequently, a mandated roll-out has not
yet been decided upon. Taking into account the requirements of the Third Package though,
the Energy Act has since been changed and has increased the requirements for smart me-
tering. The cost-benefit analysis as defined by the Directive is expected to be awarded by
the regulatory authority during Q1/2012.
By now metering providers (i.e. in most cases the DSOs) have to install smart metering sys-
tems if technically possible in all buildings undergoing major renovations, at all electricity
consumers with an annual consumption of over 6,000 kWh (average household consumption
31
KEMA, Endenergieeinsparung durch den Einsatz intelligenter Messverfahren (Smart Metering), Endbericht,
Study for Federal Ministry of Economics and Technology, November 2009, Bonn.
Smart meters are offered in many cases by DSOs. However, as DSOs are free to charge
substantially higher fees for smart meters (installation fee plus metering fee), consumers
seem to be hesitant in demanding their installation.
A large assessment of running pilot projects from 2009 resulted in average electricity sav-
ings of around 6%. However, during this study it was entirely clear whether these were ac-
tual savings or rather savings expected, as parts of the pilot projects were still at very early
stages.32
3.3.4 Austria
Smart metering has been under discussion in Austria for a couple of years now, however, no
decision for a mandatory roll-out has yet been made. The starting point for the debate on
smart metering was the aim of reducing electricity consumption.
Already in 2008, the regulator published a report on potential measures to increase energy
efficiency.33 Among others, the report includes the recommendation of a full smart metering
roll-out by 2015. Smart metering was explicitly meant to result in a higher quality of invoices,
individualized tariff models and prompt information on consumption and thus together with
improved consumer education lead to a decrease in consumption.
Controversial discussions on the smart metering roll-out took place between the regulator
and the industry, mainly focused on the acknowledgement of costs for smart metering in
revenue regulation. Although the ordinance on system charges already includes an explicit
32
KEMA, Endenergieeinsparung durch den Einsatz intelligenter Messverfahren (Smart Metering), Endbericht,
Study for Federal Ministry of Economics and Technology, November 2009, Bonn.
33
E-Control, Grnbuch Energieeffizienz: Manahmenvorschlge zur Steigerung der Energieeffizienz, October
2008, Vienna.
34
PwC, Studie zur Analyse der Kosten-Nutzen einer sterreichweiten Einfhrung von Smart Metering, June
2010.
35
Capgemini, Analyse der Kosten Nutzen einer sterreichweiten Smart Meter Einfhrung, January 2010.
With the renewed Electricity Act from November 2010, the Ministry of Economics was autho-
rized to decree the deployment of smart metering after a cost-benefit assessment has been
carried out and the regulator and consumer advocates are consulted. So far, no roll-out de-
cision has been taken. Only recently, the regulatory authority published an ordinance setting
minimum requirements for smart metering, which are broadly in line with the requirements
set by ERGEG.36
With the technical ordinance in place, the ministerial ordinance mandating the roll-out itself is
expected to be published during the first months of 2012, with the full deployment to start
around 2014/2015.
Discussion about the introduction of smart metering in the UK has been taking place for sev-
eral years. From around 2005 there was no longer any real dissent on the question of
whether smart metering for the residential sector should be deployed. In October 2008 the
government announced the mandate of smart metering for the residential sector. This was
followed by an announcement in December 2009 that 50 million smart gas and electricity
meters are to be installed by 2020. In July 2010, the government's final plans for smart me-
tering deployment were published for consultation together with the most recent cost-benefit
analysis.37
The proposed roll-out requires a full set of functionalities including the option to switch the
meter to a prepayment scheme (which is already common in the UK). Other noticeable func-
tionalities are: (1) HAN communication via open standards and protocols, (2) real-time in-
formation provided on a connected in-home display, (3) load management capability, (4)
remote disconnection and a communication capability with on-site microgeneration. The
minimum information to be shown for the in-home display is also defined. The proposed roll-
out scheme stipulates further that communication for smart metering is provided by a single
company (DCC) and is to be used by all parties (central communications model) and that
suppliers are responsible for the deployment of the metering devices themselves, as is de-
picted in the figure below.
36
Verordnung der E-Control, mit der die Anforderungen an intelligente Messgerte bestimmt werden (Intelligente
Messgerte-AnforderungsVO 2011 IMA-VO 2011, October 2011.
37
DECC/OFGEM, Smart Metering Implementation Programme Prospectus, Consulting and Supporting Docu-
ments, July 2010, http://www.decc.gov.uk/en/content/cms/consultations/smart_mtr_imp/smart_mtr_imp.aspx
The overall responsibility for smart metering deployment is given to the Department of Ener-
gy and Climate Change (DECC), primarily working together with British regulator OFGEM
but also coordinating with other involved parties. The technical specifications for smart me-
tering in the UK were developed jointly with the industry in the first half of 2011 within the
Smart Metering Design Group, resulting in a draft technical design able to provide the re-
quired functionalities.
An earlier cost-benefit analysis conducted by DECC results in a net benefit (NPV) of 7.2
billion GBP (best estimate, in central communications model) for domestic and smaller non-
domestic customers over the next 21 years, mostly stemming from energy savings and cost
savings in industry processes. A best estimate for total costs is 9.7 billion GBP; total benefits
are estimated at 16.9 billion GBP. Broken down into the market parties, the total consumer
benefit for domestic and smaller non-domestic customers is given as 8.77 billion GBP, sup-
plier benefits as 6.71 billion GBP and other benefits as 1.4 billion GBP. The most recent
impact assessment conducted by DECC, published in August 2011, shows similar values
with a best estimate for the net benefit of around 5 billion GBP for the domestic sector and 2
billion GBP for the small and medium non-domestic sector, varying slightly for the different
policy options with regards to the integration of the communication interface into the meter.38
Regarding data privacy, it has been stipulated that customers should be able to decide
which information is used and by whom, except where data is required to fulfill regulated
duties. The government acknowledges positive consumer engagement as crucial for suc-
38
http://www.decc.gov.uk/en/content/cms/consultations/cons_smip/cons_smip.aspx
Apart from legal, regulatory and technical barriers which will be discussed in the next sec-
tions, consumer resistance may present a serious barrier to smart metering deployment. In
contrast to other barriers, consumer resistance is probably the most difficult barrier to miti-
gate.
Consumers may not perceive smart metering as positive, with consumer advocacy groups
opposing smart metering roll-out. Examples of consumers heavily opposing smart metering
deployment can for instance be found in the United States or in the Netherlands. In most
cases consumer resistance can be observed to be driven primarily by two reasons:
Consumers might fear that security and privacy of data gathered by smart metering
cannot be guaranteed and hence unauthorized parties might have access to private
data; they may also be against the authorized usage of the data.
Consumers might also fear that they would have to bear the costs for deploying a
smart metering infrastructure or that new (time-of-use) tariffs would lead to higher
energy costs, whereas consumers' benefits might prove to be overestimated.
The case of consumers opposing smart metering deployment due to the amount and level of
detail of personal data gathered is highly relevant. The amount of data collected possibly
allows very detailed conclusions on the lifestyle and daily routines of households, for in-
stance when someone is at home, or in extreme cases where typical demand profiles of
single appliances can identify what someone is doing. Many people may have concerns
regarding the availability of such detailed data for the energy supplier or network operator.
Additionally, the real-time transmission of this data from the consumers site to the supplier's
or network operator's back-end systems through the WAN (Wide Area Network) creates
As concerns regarding data security and consumer privacy can be easily understood, given
the nature and amount of data gathered, they should be taken seriously. Moreover, the time-
ly acknowledgement of concerns may be crucial in preventing issues endangering the suc-
cess of smart metering deployment and in creating the necessary public acceptance. In the
Netherlands for instance privacy concerns led to a serious delay in the roll-out scheme,
when in April 2009 the Dutch Senate rejected a proposal for mandatory smart metering dep-
loyment. In its renewed proposal for smart metering deployment the government was forced
to lessen the requirement for mandatory smart metering installation and to allow consumers
to decide against smart metering. The revised legal framework from 2010 stipulated only a
voluntary roll-out with various options for consumers to protect their data. Besides having a
smart meter which is fully integrated into smart metering systems, consumers are now al-
lowed the keep the traditional meter, to have a smart meter where no data is transmitted
automatically or to limit the automatic transmission to supplier changes, relocation, annual
billing and bi-monthly reading. The result of consumer resistance is a delay in the roll-out
process and a less efficient roll-out as potentially a significant number of consumers may
opt-out of smart metering and economies of scale and density may be lost.
It is hence very important that provisions are implemented to ensure that data is not ac-
cessed by unauthorized parties and that there are clear regulatory provisions on how data is
gathered, processed, stored and evaluated, and who has access to which data. In order to
protect the data against unauthorized access, adequate measures (encryption, digital signa-
tures) need to be taken. Data encryption is of particular importance when PLC technology is
used to transmit data from the consumers site to a data concentrator, as potentially every
user connected to the same power line is able to intercept the communication between me-
ter and data concentrator.
Personal data should in general be protected by privacy law. Within the European Union
certain requirements are set by Directives 95/46/EC and 2002/58/EC.39 However, special
attention should be given to smart metering as the amount of personal data collected (and
the potential harm which could be caused with it) is much greater than ever before. Privacy
standards and access rights should be in place before a smart metering roll-out is started.
As not only the example of the Netherlands but also recent publications and discussions
show, data protection and security are high on the agenda in discussions circling around
smart metering roll-out, first of all from the point of view of consumes' privacy, but also from
39
Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of
individuals with regard to the processing of personal data and on the free movement of such data; Directive
2002/58/EC of the European Parliament and of the Council of 12 July 2002 concerning the processing of person-
al data and the protection of privacy in the electronic communications sector.
As outlined out above, the second major concern consumers may have is the fear that smart
metering may lead to higher energy costs. There are two reasons for this concern. The first
reason is the cost attributed to smart metering deployment. A full smart metering roll-out is a
major investment in new metering and communication infrastructure. Although the extent of
costs passed through to the final consumer is very much dependent on regulation, the end
consumers may face an additional financial burden. It is the regulator's task to ensure that
only the justified efficient costs are passed through to consumers and that these costs are
shared with other parties gaining from smart metering deployment. Practice shows that one
of the major expected benefits, i.e. the effect of smart metering on energy savings, will be
felt by consumers. However, the potential energy savings may be rather uncertain and in
any case will be unequally distributed. Nevertheless, consumers may benefit most from
smart metering when they are given the means to reduce their energy consumption and to
increase energy efficiency by identifying areas of high energy consumption and energy sav-
ings potentials. Additionally, consumers may be advantaged by new time-of-use tariffs im-
posing lower charges in off-peak times.
If consumer benefits resulting from smart metering deployment are higher than the asso-
ciated costs, then passing efficient costs through to consumers is justified. To prevent con-
sumer resistance and to mitigate consumer concerns requires an effort to increase consum-
er awareness of energy savings potentials and to strengthen their confidence in the
proposed reforms in metering infrastructure. At the same time, political acceptance and so-
40
See for example Saurugg, Herbert, Cyper Security Austria, Smart Metering und mgliche Auswirkungen auf
die nationale Sicherheit (Smart Metering and possible impacts on national security), Vienna, July 2011.
The deployment of smart metering will naturally be accompanied by time-of-use tariff sys-
tems. Depending on tariff design and assuming low elasticity of consumption, higher energy
prices in peak periods may lead to an overall higher bill despite lower prices in off-peak
times. In the United States, it can be observed that much resistance stems from unexpected
increases in energy bills. This was mainly due to the fact that time-of-use tariffs were imple-
mented simultaneously with smart metering installations without properly preparing consum-
ers for the new system. The obvious lesson from the US experience is that the introduction
of new tariff schemes should allow sufficient time for consumers to prepare, and should be
accompanied by considerable consumer information campaigns. The campaigns should
provide information to consumers on the potential impact of tariff changes and explain how
to adjust consumption behavior in order to reduce energy bills.
We can conclude that strengthening consumer awareness, trust and knowledge is essential
to mitigate consumer resistance. Smart metering deployment should be accompanied by an
information campaign. This is particular relevant for the EnC Contractual Parties where in
many cases customers are not well informed due to simple disinterest and/or lack of orga-
nized information channels using customer associations or industry information centers.
The establishment of the smart metering deployment strategy should involve all
stakeholders and take their views and concerns into consideration at an early stage.
In addition, clear rules to safeguard data privacy should be set. If consumer benefits
resulting from smart metering deployment are higher than the associated costs, then
passing efficient costs through to consumers is justified. Regulators should ensure
the integration of efficient cost into price control while at the same time ensuring that
all parties benefiting from smart metering participate adequately in costs.
Full-scale smart metering deployment is mainly driven by political decisions, starting with the
high-level requirements of the Directives 2009/72/EC and 2009/73/EC and passing down to
national laws, ordinances and regulatory decrees. Successful smart metering deployment is
thus dependent on regulatory authorities, governmental and legislative bodies. These institu-
tions have to play a significant part in assessing costs and benefits of smart metering dep-
loyment, setting up the roll-out scheme and monitoring the actual implementation. Without a
Regulatory and legal barriers may stem essentially from two reasons:
The necessary legal and regulatory framework is not in place at all; and
The legal and regulatory framework will certainly have a decisive influence on the overall
costs and benefits. This is particularly true in the case of a mandatory roll-out where the
framework should set the responsibilities of market parties, time schedules, new tariff
schemes, and minimum functionalities. Several of these aspects are discussed in the sec-
tions below.
The lack of a consistent legal and regulatory framework sufficiently adjusted to foster a smart
metering roll-out and to promote energy savings will pose a major barrier to successful smart
metering deployment. The legal and regulatory framework should show commitment to the
smart metering roll-out by governmental and regulatory authorities. Moreover it should ex-
plain clearly how the investment and operating costs will be accommodated in tariff regula-
tion.
Several EnC Contracting Parties apply different forms of rate-of-return and incentive-based
regulation (usually revenue-cap regulation). Under these regimes, the regulator sets the
allowed revenue of the regulated entities for each year individually, or for the whole regulato-
ry period in advance, by assessing the capital and operating costs.
In the course of price reviews and revenue setting, the regulator may also incorporate effi-
ciency increase requirements in the allowed revenues. The use of such regulatory models
and the fact that metering business remains regulated (and typically is and will remain part of
the network operator) provide an appropriate platform for the integration of smart metering
costs in the network price control.
Setting up a smart metering infrastructure is a major investment. The responsible parties, i.e.
in most cases the network operators, will not be willing to invest in smart metering if they are
not certain that efficient net costs of the roll-out will be accommodated in their allowed reve-
nues. Thus, the willingness of network operators is crucially required for a successful smart
In some cases we observed that regulatory authorities have been reluctant to allow higher
tariffs in order to cover smart metering roll-out costs. However, this occurred in those cases
where the roll-out decision was not (yet) politically mandated but rather based on the volun-
tary efforts of network operators.
Normative pricing principles require primarily economic efficiency and cost recovery. How-
ever, introducing cost reflective tariffs often results in high price increases for small consum-
ers. While the computation of cost reflective tariffs is a quantitative effort and depends main-
ly on the quality of available data and professional knowledge, their implementation for all
customer categories has usually been a gradual process to achieve political acceptability
and address social affordability. While the social and political constraints are understandable
issues, in particular for the EnC Contracting Parties, it is a fact that non-cost reflective prices
cause distortions in price signals and consumer behavior. In the context of smart metering,
non-cost reflective prices may encourage energy consumption and undermine energy sav-
ings and the potential benefits. Therefore, it remains essential that regulators should strive to
adopt end-user prices as well as network tariffs that reflect the costs of providing regulated
services to specific groups of customers.
The legal and regulatory framework should be aligned with the national smart meter-
ing roll-out plan. Moreover, the framework should provide market parties with certain-
ty that efficient costs for building up and operating the required smart metering infra-
structure are incorporated in the tariff regulation in the areas where such regulation
applies.
Smart metering provides the technology to apply more sophisticated tariff schemes than
simple one-zone or two-zone tariffs (c.f. section 7.1). Typically, three-zone tariffs differentiat-
ing between working days and weekends are used, as is shown in the following figure with
an example from Canada where such tariff schemes are already widely applied. In theory,
tariffs with a higher granularity or even dynamic pricing schemes are technically possible.
Source: HydroOne
Time-of-use tariffs should result in a better match of demand and generation, thus reducing
the amount of peak capacity required and allowing for a more efficient use of available re-
newable energy sources. Dynamical pricing schemes may lead to even better results in sys-
tems with a very high share of intermittent generation. In addition, it seems that energy
saved in peak times is not in all cases shifted to off-peak periods, but that as a result of load
shifting the overall energy consumption decreases.
This is of particular relevance for many EnC Contractual Parties where retail price control
continues to exist and regulated tariffs are frequently applied (for captive customers). In a
liberalized electricity industry with functional competitive wholesale and retail markets where
suppliers are free to agree with customers on the level and structure of their prices, regula-
tion should focus on the monopoly network business only. The end-user prices would be
subject to monitoring and ex-post control by the national competition authorities.
Regulatory authorities are in charge of setting the allowed revenue and the rules for
cost allocation and tariff setting for distribution networks, and retail market rules
where markets are liberalized. Therefore, it is essential that regulatory authorities en-
courage and foster the development of innovative end-user tariff schemes by market
players and regulated entities alike.
Another regulatory obstacle may be found in the widely applied usage of standard load pro-
files. In a liberalized market environment, suppliers operating on the competitive retail mar-
kets typically use standard load profiles to schedule their energy purchases and network
usage.
With the implementation of smart metering, real-time data with high granularity will become
available. If regulatory and legal frameworks continue imposing obligations on suppliers to
procure and deliver energy into the network based on standard load profiles, the advantages
offered by smart metering will not be realized. This is particularly relevant for the application
of advanced pricing schemes (as discussed above) which can be supported by real-time
metering and flexible demand response. If instead based on the metered data, procurement
still has to be based on estimated standard load profiles, suppliers will not be advantaged by
procuring energy for smart metering clients and thus no benefits can be passed on to con-
sumers. Benefits could result where peak loads can be reduced or demand predictability is
improved.
Technical regulations which have evolved historically may not correspond to the new smart
metering technology or may no longer be in accordance with one other. If, for example, gas
and electricity meters have different calibration periods and hence replacement cycles, addi-
tional costs may occur in a multi-utility approach. Additional costs may also occur by not
aligning calibration periods of smart meters to the expected lifetime of communication mod-
ules.
Due to potential consumer concerns regarding data privacy and in order to ensure interope-
rability of hard- and software and to foster competition and avoid stranded investments in
case of supplier changes, clear rules on communication, data formats, security, handling and
access are required. Such technical regulations should encompass for instance encryption
standards, role-based data access, purge dates for gathered data but also regulations on
data formats, communication protocols, and hard- and software interfaces.
Especially the latter must not be defined in a legal or regulatory document but could also be
achieved by voluntary industry agreement (c.f. Open Meter Project). In addition, the current
development towards common standards at European level must be taken into account.
Manifold economic barriers have additional potential to delay smart metering deployment or
to reduce the net benefit. These barriers need to be dealt with in order to ensure a success-
ful and efficient smart metering deployment. One of the primary economic barriers is that
whereas costs for installing and operating a smart metering infrastructure can be very clearly
assessed, there is often high uncertainty regarding the benefits. Many benefits rely on as-
sumptions and forecasts, such as the amount of energy which might be saved by smart me-
tering. Other benefits are difficult to reliably quantify, such as a gain in leisure time for a con-
sumer due to fewer errors in invoices and hence less time spent on the customer service
hotline. Practical experience and historical data is not yet sufficient to enable a full evaluation
of the economic benefits of smart metering, although this information is becoming more
available compared to a few years ago. Apart from being in general ridden with uncertain-
ties, benefits from energy savings and increased energy efficiency will also be distributed
very unequally, depending on individual consumers' behavior, awareness, education, wil-
lingness and the consumers' leeway to reduce energy consumption.
Given the relatively high certainty with regards to costs of smart metering deployment and
the significantly lower certainty with regards to the benefits, a cost-benefit assessment car-
ried out with the appropriate due diligence may lead to a result where costs may be overes-
timated whereas benefits may be underestimated. Altogether, this would result in a cost-
benefit analysis which is biased against a smart metering roll-out. In addition, a cost-benefit
assessment from an individual perspective may lead to negative results as the scope of the
assessment is for instance limited to benefits within the scope of the individual.
Another serious economic barrier is a possible split between the cost bearing party and the
beneficiaries. This would for instance be the case if costs were fully borne by DSOs within
the existing network or metering charges, whereas energy savings as a major benefit occur
on the consumers side. Full-scale smart metering deployment is highly capital intensive and
may expose the responsible party to significant financial risk. In many countries, govern-
ments do not plan to provide direct subsidies for smart metering and network operators rely
solely on recovering their costs from regulated charges. Therefore regulators and govern-
ments should provide clear commitment and transparent arrangements. If the perceptions of
Finally, economic barriers may occur due to limited access to capital markets, if the network
operator cannot provide the necessary credentials (e.g. government guarantee, rating).
Economic barriers that may cause a delay in smart metering deployment should be
properly addressed when assessing a roll-out and in particular after the roll-out deci-
sion has been taken.
Besides the barriers discussed in the previous sections, technical barriers may also hamper
successful smart metering deployment and need to be addressed.
The main technical barrier with regards to smart metering deployment is the present lack of
standardization. Commercially available smart metering components often lack interoperabil-
ity due to highly proprietary solutions. Open hardware and communication standards are still
under discussion and development. However, progress was already made under Mandate
M/441, which was given to CEN, CENELEC and ETSI by the European Commission41, or
the Open Meter project, funded by the European Commission within the Seventh Framework
Programme.42 Established and open standards will enable a modular set-up of compatible
devices. This is of particular relevance if consumers want to change their suppliers in a libe-
ralized market, where incompatible metering components may result in barriers to supply
changes and thus hamper competition. In the worst case, the lack of standardization (also
with regards to new components installed at a later time) may even result in stranded in-
vestments.
Only a limited number of manufacturers offer smart metering hardware. So far, the market is
still small, but it has been developing rapidly in recent years. Hard- and software as well as
communication infrastructure providers are organized in the European Smart Metering In-
dustry Group (ESMIG). Many of the member companies are small, but also big players such
as Siemens, IBM and ABB are present. Due to an absence of standards, manufacturers
have developed a variety of proprietary solutions, while interoperability of devices produced
by different manufacturers may be lacking.
The existing industry structure and lack of standards lead to the following problems:
41
Standardization mandate to CEN, CENELEC and ETSI in the field of measuring instruments for the develop-
ment of an open architecture for utility meters involving communication protocols enabling interoperability M/441,
SMART METERS CO-ORDINATION GROUP, FINAL REPORT.
42
http://www.openmeter.com
Devices of different manufacturers are often incompatible. This carries the inherent
danger of stranded investment, e.g. if at a later stage a gas meter shall be integrated,
or if in the case of a supplier change, the meter is not compatible with the suppliers
infrastructure.
The lack of modularity is hindering the easy adaption of a smart metering infrastruc-
ture to the specific needs of an individual roll-out scheme. Specially designed solu-
tions are often needed to match individual requirements, resulting in higher specific
costs.
Cooperation between DSOs or Metering Service Providers and the smart metering
supply industry is weak; development of smart metering could clearly be improved by
better cooperation and a more goal-oriented component design.
Major costs associated with smart metering are the purchasing, installment and operating
costs of the smart meters as well as the investment costs for advanced data collection and
data communication tools. Major benefits typically associated with smart metering are ener-
gy savings due to increased efficiency or sufficiency and due to load shifting, reduced meter-
ing costs, improved security of supply and reduced non-technical losses. Figure 11 provides
an overview of possible benefits of smart metering to major stakeholders, namely distribution
network (or system) operators (DSOs), consumers, suppliers and society as a whole.
43
At present, a recommendation of the European Commission with regards to the preparations of a smart meter-
ing roll-out in accordance with Annex I of Directives 2009/72/EC and 2009/73/EC is in preparation. This recom-
mendation will also include guidance on the necessary steps in order to perform a cost-benefit analysis for the
roll-out of smart metering and potential parameters to be included in such analysis.
Note: The picture provides a generalized overview and assumes that metering is the re-
sponsibility of DSOs.
Source: KEMA
Costs and benefits of smart metering however very much depend on the technical specifica-
tions of the smart meters and the smart metering infrastructure rolled-out. More advanced
smart metering systems with a larger range of functionalities (as described in chapter 2)
could provide greater benefits and a larger range of benefits, but are also likely to be more
expensive than basic smart metering systems. The technical specifications of a smart meter-
ing infrastructure on the other hand are strongly determined by the policy objectives pursued
with the roll-out of smart metering. While it is possible to give a rough indication of the costs
of different smart meters, it is not meaningful to provide general numbers of the benefits of
smart metering per meter or customer, as these strongly depend on the individual specifica-
tions of the smart meters, the group of stakeholders concerned, country or regional specifics
and a range of other assumptions assessed in a cost-benefit analysis.
Drivers for implementing a smart metering infrastructure can be quite diverse. As described
in chapter 3.3, in Italy a reduction in energy theft and fraud (i.e. a reduction of commercial
losses) has been the main driver for a roll-out. A legal requirement to change from annual to
monthly invoicing based on actual meter readings was the trigger for the Swedish distribu-
tion network operators to (voluntarily) roll-out smart metering (reduction in metering costs). In
most European countries, the increase of energy efficiency (reduction of final energy con-
sumption) driven by climate policy is at the top of the agenda, whereas in the US, due to a
capacity shortage, demand side management and improved security of supply is the key
driver for smart metering deployment.
Energy Community Secretariat Final Report
Development of Best Practice Recommendations for February 24, 2012
Smart Meters Rollout in the Energy Community Page 46/107
The costs and benefits arising from a smart metering roll-out also strongly depend on the
local circumstances and the status quo of the electricity system. The potential of smart me-
tering to contribute to load shifting and energy savings is strongly related to the types of
energy consumption and the consumption patterns. Electricity used for heating and cooling
for example can be shifted easily. However, this will require automation, which is less likely
to be available for household consumers compared to industrial and larger commercial con-
sumers. With cooling and heating as loads which are relatively easy to shift, the percentage
of load which could be shifted is much higher in a country where for instance air-conditioning
is widely applied.
The ability to make energy savings also depends on the overall level of per capita energy
consumption. In countries with very high (careless) energy consumption, the potential to
significantly reduce energy consumption might be comparably high. Likewise, in countries
where household budgets are typically very limited and energy costs are consuming larger
shares of the budget, the incentive to realize cost cuttings, e.g. by energy savings or de-
mand response measures is much stronger. The latter might be relevant for many EnC Con-
tracting Parties. As a result, potential costs and benefits of smart metering can be quite va-
ried in different contexts and countries.
Most of the costs and some of the benefits related to smart metering can be estimated be-
fore making a roll-out decision. New services and functionalities likely to arise in the future
and provide additional benefits cannot however be properly estimated before the roll-out has
taken place. Manufacturers of products such as household appliances and the service indus-
try for example will adapt to smart metering technology and will develop and offer a wide
range of specially designed products and services, e.g. further increasing energy efficiency
by intelligent household control or enhancing consumer welfare with increased comfort.
The costs and benefits of smart metering may be unevenly distributed between the different
stakeholders. Clearly costs and benefits directly affect the network operator or the supplier
replacing the old meter with a smart meter and the customer whose old meter is replaced
with a smart meter. But costs and benefits also affect (indirectly) other market participants,
such as other network operators, generators, suppliers or customers and the society as a
whole. Different stakeholders are likely to benefit to different extents from a deployment of
smart metering. Costs might for example only be borne by one market participant (e.g. the
customer), whereas benefits might be split across a larger number of market participants
(network operators, suppliers, customers etc). Costs might also mostly arise in the short-
term, whereas some benefits of smart metering might only occur in the long-term.
A roll-out decision for smart metering requires a thorough assessment of costs and
benefits. Costs and benefits of smart metering however depend on a number of coun-
try specifics as well as the deployment strategy and objectives. A simple transfer of
cost benefit assessments from one Contractual Party to another is therefore not poss-
ible. Furthermore, the distributional effects, i.e. different stakeholders facing quite
different costs and benefits of a smart metering roll-out, also have to be taken into
account.
The categories of costs and benefits are identical to a significant extent for electricity
and gas. However, some of the most significant benefits of smart metering, such as
benefits from load shifting and energy savings, are much greater for electricity than
for gas.
Costs of smart metering include the costs for the smart meters and the costs of the commu-
nication and data processing infrastructure required to establish a true smart metering sys-
tem. The costs for additional applications which provide further benefits of smart meters
such as in-house displays, web portals or SMS notifications could also be considered as
costs of smart metering.44 Smart meters have to be procured, installed, read, serviced and
maintained resulting in substantial capital and operation costs. The costs of smart metering
strongly depend on the technical specifications of the smart meter and the communication
technology used. The costs of the communication infrastructure required for remote meter
reading such as Power Line Communication (PLC), GPRS/GSM or DSL depend on the ex-
isting communication infrastructure, the size of the network area and the customer density.
44
Costs of the cost-benefit analysis itself are not included in the cost-benefit analysis, as they arise in any of the
analyzed scenarios, including the scenario to keep the status-quo and not roll-out smart meters.
As indicated in the previous section, costs of smart metering not only depend on the tech-
nical specifications of the smart metering infrastructure, but also on a number of country
specific factors, such as the status quo of the existing local electricity system. Specifying the
costs of specific components of smart meters can therefore only be indicative. The cost data
presented below are obtained from pilot projects, manufacturers and energy suppliers, as
well as from other references and therefore may not present a consistent picture of the ex-
pected costs of introducing smart metering. One reason for the high bandwidth of cost ex-
pectations is the enormous development in the markets for electronic components and
communications infrastructure. In this study we assume that an increasing deployment of
smart metering will lead to continuing strong growth and significantly falling prices in the
future. Also the costs of owning and operating the communications infrastructure will further
decrease in future years. It seems reasonable to expect an annual costs saving potential of
5-10%.
Electronic meters are available on the market at a great variety of prices. These price differ-
ences result primarily from different functions (interfaces, data storage, etc.), particularly if
the communication unit is already integrated into the meter. Moreover, the number of pro-
cured meters has significant impact. As a result, prices of smart meters cannot be easily
found on price lists published by the manufacturers, but are rather dependent on the exact
specifications of the smart meters and a result of individual negotiations with the manufac-
turers. Recent KEMA studies showed average costs of 108-126 for smart metering devices
covering a more comprehensive set of functionalities. The costs for a simpler meter (primari-
ly limited a remote meter reading functionality) were estimated at 40-60 , for a standard
electronic meter 36 was assumed. But these simpler meters have no integrated communi-
cation module; hence they have to be connected with a communication unit, for example
with a Multi Utility Communication-Controller (MUC-C). The costs of a MUC-C are estimated
at about 60-150 .
In the medium term it is expected that the hardware of a smart meter may not be much more
costly than that of a conventional meter. Price differences between different types of smart
meters are however still likely to arise because of differences in the software capabilities of
the meters.45
45
Whereas for example almost all smart meters are able to measure at least some basic parameters of power
quality, further specifications in the smart metering software would be required to allow the network operator to
monitor power quality at end-user level.
A communication module which is already integrated into the meter (i.e. in most cases this is
the electricity meter, theoretically all other meters can also be used) can be acquired at low-
er costs than a separate communication module, if not several meters are connected to this
communication module. Different assumptions regarding the lifetime of the devices, multi-
utility strategies and different market expectations have resulted in different concepts being
applied in practice.
GPRS/GSM-enabled devices are more expensive than meters with a PLC communication,
because the modulation of a PLC signal is technically much easier than a GSM connection.
The price difference is about 35-50 per meter. For DSL compatible meters, the additional
costs are higher, as there is no broad market for this solution yet. It is expected that a signifi-
cant potential for economies of scale exists, for DSL as well as for GSM devices. The majori-
ty of the currently installed units are PLC devices. Regarding the operational costs of DSL,
costs of disturbances have to be considered. By using parts of the customers infrastructure
for the DSL based communication, it is likely that more intensive customer support will be
required when the customers internet connection is disturbed, irrespective of the reason for
the disturbance.
KEMAs observation of the European market is that most utilities consider comprehensive
PLC as the most cost effective option, requiring a significant market penetration (30-70% are
considered significant). Only for isolated buildings (e.g. in rural areas) does GSM seem to be
the most cost effective option.
The following table shows the costs of the technical infrastructure for smart metering:
Source: KEMA
Major costs associated with smart metering are the purchasing, installment and oper-
ating costs of the smart meters and the investment costs for advanced data collection
and data communication infrastructure.
Smart metering has several benefits for network operators. A wide deployment of smart me-
tering provides a network operator with precise information on the actual consumption and
feed-in at specific sites of its low voltage distribution network, offering a range of potential
savings directly to the network operator. System-wide benefits arise from optimized distribu-
Potential benefits of smart metering for network operators include improvements in the secu-
rity of supply by a faster fault location and power restoration, improved monitoring of voltage
quality, the ability for quick remote disconnection or reconnection of customers and the abili-
ty for remote reduction or restoration of power.46
Smart metering can help network operators to detect and locate faults and power outages
more quickly. Reducing the time period between the time the fault occurs and the time the
grid operators control centre receives this information (automatically) via the smart metering
communication infrastructure allows the network operator to immediately dispatch the tech-
nicians required to restore the fault. By identifying fault locations more quickly, the outage
time can be reduced. This provides an obvious benefit to consumers and savings to the dis-
tributor from reduced costs by more accurately dispatching crews. When a regulatory
scheme for quality of supply is applied linking the actual network reliability (number and
duration of outages) to quality standards and penalties or a quality incentive scheme net-
work operators can also benefit from higher revenues following reduced outage duration
times. Quality of supply regulation is being increasingly introduced in the European Union
in particular for electricity distribution network operators and also considered or developed
in a number of EnC Contracting Parties such as Serbia and Macedonia.
Smart metering generates real-time, accurate and comprehensive information on the distri-
bution network (e.g. voltage quality, losses), which allows more accurate prediction of elec-
tricity flows to be used for improved network and maintenance planning. Detailed information
on the current status of the network also provides a basis for sound investment planning.
Smart metering together with the application of time-of-use tariffs can provide customers
with information on consumption and prices and encourage them to shift their energy con-
sumption into times when energy prices are at a lower level. Smart metering can thus reduce
the demand at peak times and thereby reduce the maximum network capacities required to
distribute electricity at peak load, which in turn reduces the need for network investments.
Integrating smart meters into the IT infrastructure of the network operator can also help to
optimize processes and reduce operational costs (process optimization). Further benefits
can also be gained from a multi-utility approach integrating gas, district heating or drinking
water metering.
46
Remote dis-/reconnection of gas supply is theoretically also possible, however if applied, it is subject to much
tighter security provisions. For gas, before reconnection of supply all appliances and valves must be checked in
order to guarantee safety. This can be done by the consumer with the necessary instructions provided via smart
metering.
In most countries as is the case in the EnC Contracting Parties the metering function is
also provided by the distribution network operator. Depending on the market model (see
chapter 6), the operation and the reading of the meters (metering services) could also be
carried out by the supplier or a separate metering company. Potential benefits of meter op-
erators may include reduced costs of manual meter reading and reduced costs through re-
mote disconnection or reconnection. With smart metering, digital meter data are automatical-
ly submitted to the metering operator's data centre. Manual meter readings and manual
entering of meter data into data management systems are therefore no longer required. Data
can be easily processed and evaluated and meter-to-bill operations can be significantly im-
proved. Furthermore, not only the meter reading, but also the disconnection and reconnec-
tion of customers can be handled remotely and (partly) automatically, reducing the need to
send out technicians to customer sites to suspend and resume electricity supply. Additional
benefits can arise in the case of a multi-utility approach, integrating metering for gas, district
heat and/or water. Whether these cost savings represent a benefit to the customer as well
as the meter operator depends on the ability of the metering service provider to pass-
through all efficient and justified meter related costs directly to the customers.
Where a large labor force is employed for manual monthly meter readings as in many of
the EnC Contracting Parties automated meter reading might however have a substantial
negative effect on employment. Also when labor costs are relatively low, benefits from a
reduction in labor costs (operating costs) with smart metering might be lower compared to
the high capital costs resulting from investments in a smart metering infrastructure.
47
Reduction of fraud is not an immediate economic benefit from a societal perspective, as consumption is not
directly influenced and no additional welfare is generated. Nevertheless, if payment discipline can be improved,
energy savings are also likely to be triggered.
Meter operators (which in most case are the distribution network operators) can bene-
fit from reduced metering costs (reduced costs of manual meter reading and remote
disconnection/reconnection).
Following the unbundling requirements specified in the internal market Directives of the Eu-
ropean Union (and their implementation in the Energy Community), network operation and
(end-user) supply have to be unbundled into two separate business activities or entities (in
the case of legal unbundling). Therefore separate benefits of a roll-out of smart metering for
the supplier could and should also be identified.
Smart metering can, for example, reduce the likelihood of incorrectly read or entered meter
data leading to faulty invoices, which in turn reduces the number and costs of customer
complaints (including reduced customer service centre staff).48 The integration of smart me-
ters in the IT infrastructure of the supplier and the further automation of the data processing
and invoicing process can also result in reduced costs of the meter-to-bill operations
(process optimization). The possibility of remote and instant disconnection of customers by
the meter operator can also help to reduce the risk of payment default for the supplier.
Smart metering also enables suppliers to offer new tariffs and services arising from detailed
information on individual end-user's consumption patterns. Such new services could for ex-
ample help the customer to become more energy efficient (see also chapter 7). Suppliers
also have the opportunity to offer customized contracts reflecting individual consumption
patterns. These contracts may include time-of-use or more sophisticated tariff elements and
might also provide for automatic demand side management. Furthermore smart metering
might allow the supplier to use actual load profiles of individual customers rather than stan-
dard customer load profiles. Through improved load profiling and forecasting suppliers are
48
Even if metering is provided by a separate entity, invoicing is carried out by the supplier, hence complaints due
to faulty readings are generally directed to the supplier.
Smart metering may also provide benefits to electricity suppliers by improved customer sa-
tisfaction resulting in a higher willingness to pay and higher customer retention. Customers
could benefit, for example, from more frequent and detailed metering and more accurate
billing49 or from easier and quicker customer switching procedures due to real-time metering,
allowing customers to change their supplier (at least theoretically) in real-time or at very
short notice and on any chosen date.50
Suppliers can benefit from smart metering through improved invoicing processes
(more accurate and frequent billing), resulting in higher customer satisfaction and
retention and reduced payment default (via remote disconnection). Smart metering
may also allow suppliers to reduce their energy purchasing costs through improved
load profiling and forecasting.
Smart meters can provide consumers with detailed information on their consumption beha-
vior during different periods of the day. Actual and historic consumption data can, for exam-
ple, be shown on an in-home display or on a computer screen, either provided by a direct
data link or on a web page fed with the meter data. Smart metering together with price
signals can therefore make the overall costs of electricity consumption and individual con-
sumption patterns more transparent to the customers. Thereby customers are for example
able to understand the impact of individual electricity devices or a certain consumption be-
havior on their energy bill. Such detailed information might also make the environmental
effects of consumption behavior, such as the resulting greenhouse gas emissions, more
transparent for customers.
Constant feedback on consumption and associated costs will increase the consumers
awareness and willingness to save energy. It allows customers for example to decide when
and for how long to connect or disconnect some of their electric devices. Several previous
studies show a broad range of potential savings. Recent comprehensive studies as well as
49
A higher frequency of actual meter readings provides however a smaller benefit to most of the Contracting
Parties of the Energy Community where monthly meter readings are already a common practice, whereas in
most EU member states annual actual meter readings are more commonly carried out.
50
Whether improved customer switching is only beneficial for customers and not for suppliers depends on the
possibilities of the supplier to gain new customers outside its incumbent service territory. For large incumbent
suppliers, easier and quicker customer switching may accelerate the loss of customers in the incumbent territory
which is not compensated by new customers in other areas and therefore may result in more costs than benefits.
Achieving energy savings with smart metering is however highly dependent on the effective-
ness of the feedback on energy use given to consumers and the willingness and ability of
the consumers to respond to this feedback. The ability and willingness of customers to real-
ize energy savings also depends on the level of the end-user tariffs and the percentage of
the monthly income spent on electricity expenses, whereas higher tariffs or a higher share of
income spent on electricity consumption clearly set stronger incentives for energy savings.
Also the range of electricity devices used by a customer and the customer's ability to replace
old devices with more energy efficient equipment influence the scope of customers to realize
reductions in electricity consumption.
However not all consumers may be able or prepared to shift or reduce their demand. Accor-
dingly some of them may even face higher energy bills. Consumer education is necessary to
achieve changes in consumption behavior. The existence of the smart meter or some sort of
consumption feedback itself will not necessarily result in substantial energy savings. The
consumer needs to be taught how to use this new information in order to really achieve sus-
tainable energy savings.
Customers can further contribute to energy savings if they are offered time-of-use or load-
variable tariffs enabling them to save on their energy bills by shifting certain usage (e.g. dis-
hwasher, heating, cooling) to cheaper periods (requiring less generation capacities and pro-
duction during peak-load periods).
The possibility to offer real-time pricing and innovative tariffs, as well as interfaces between
smart metering and household appliances could result in various new types of energy ser-
vices being available to customers to help manage consumption (and costs) and to pro-
mote more energy efficient and green energy networks (such as demand side manage-
ment, i.e. the direct control of household appliances, see also chapter 7). Smart metering
can also facilitate pre-payment options which allow customers to pay in advance and hence
to better manage their budgets.
In addition to energy savings, customers may also benefit from more frequent and detailed
meter reading and more accurate invoices reflecting actual consumption. With smart meter-
ing, invoicing is based on real meter data rather than estimated consumption (applies only
where manual meter reading does not take place monthly so less relevant for most of the
EnC Contacting Parties). Customers would no longer face imposed under/over payments
which might require settling at a later date. This could help to improve customer satisfaction
51
Cf. for instance Darby, Sarah, The Effectiveness of Feedback on Energy Consumption, Oxford, 2006, KEMA,
Endenergieeinsparungen durch den Einsatz intelligenter Messverfahren (Smart Metering), Final Report, Bonn,
June 2009 and Van Dam, S. S. , Bakker, C. A. and Van Hal, J. D. M., Home energy monitors: impact over the
medium-term, Building Research & Information, 38: 5, 458 469.
Smart metering can also have a strong impact in simplifying customer switching procedures
as smart meters can be easily read at any time on request. Automation and simplification of
data exchange through smart metering should speed up the process for changing suppliers
and simplify the action required from the customer to make the change. The transparency of
individual electricity consumption patterns and costs provided to the customer by smart me-
tering also allow the customers to make more informed decisions on the selection of the
most convenient supplier, further facilitating customer switching.
Customers may furthermore benefit from reduced metering and operational costs
through remote meter reading and remote dis- or reconnection of customers, if the cost sav-
ings made by the meter operator (or network operator) are passed on to the customers. De-
pending on the location of the conventional meters (whether located outside a building or
inside) smart metering may have also the additional benefit that it requires no more home
intrusions by meter readers.
Smart meters can provide improved information and/or price signals, making the
costs of energy consumption more transparent to consumers, resulting in reduced
consumption and/or shifting of load to periods with lower tariffs. Consumers may also
benefit from more accurate meter reading and invoices and easier switching proce-
dures.
Depending on the type of smart meters, the tariff schemes offered and the market environ-
ment, smart meters can facilitate energy savings, demand response and direct load control
and thereby reduce demand at peak (and off-peak) times, resulting in lower wholesale prices
and reducing the need for investments in generation, transmission and distribution capacities
(avoided costs). With a contribution to increased energy efficiency and reduced carbon
emissions, through reduced consumption and the facilitated integration of distributed genera-
tion, smart metering can also play a role in mitigating the effects of climate change. A large
investment program, such as deploying a full-scale smart metering infrastructure might also
have a positive impact on economic development and employment.
Regulatory authorities can use smart metering to improve quality of supply regulation, in
terms of reliability and voltage quality, as smart metering provides the regulator with more
precise and detailed statistics on reliability performance (number and duration of outages).
Energy Community Secretariat Final Report
Development of Best Practice Recommendations for February 24, 2012
Smart Meters Rollout in the Energy Community Page 57/107
With smart metering all outages can be recorded, regardless of the outage duration and the
voltage level(s) affected.52 The data gathered with smart metering can therefore also be
used to design more advanced incentive schemes for quality regulation resulting in higher
levels of quality of supply. Additionally smart metering enables improved monitoring of vol-
tage quality (voltage levels, dips). To perform this task meters (or a certain share of them)
should be equipped to carry out such monitoring functions.
Depending on the type of smart meters, the tariff schemes offered and the market
environment, society as a whole may also benefit from reduced peak demand (result-
ing in lower wholesale prices), lower investments needs in generation, transmission
and distribution capacities (future avoided costs) and from reduced carbon emis-
sions. Regulatory authorities and electricity users may also benefit from the im-
provements in quality of supply regulation that smart metering is facilitating.
The decision for a nationwide smart-metering roll-out should be based on sound economic
analysis of the costs and benefits. If such an assessment results in a positive net benefit of
smart metering deployment, EU Member States are obliged to ensure that electricity meters
are rolled-out in a period of ten years and that a schedule for the roll-out of smart metering in
the gas sector is decided upon (Annex I of Directives 2009/72/EC and 2009/73/EC).53 The
major element of such an economic assessment is a social cost-benefit analysis. Within the
Energy Community all Contracting Parties are expected to carry out such an assessment by
January 1, 2014.54 The EnC Contracting Parties have therefore slightly more time to carry
out a cost-benefit analysis for smart metering than EU member states.55 According to the
Ministerial Decision however no extension for the roll-out of smart metering deploying at
least 80% of customers with smart metering by 2020 after a positive assessment of costs
and benefits is given to the EnC Contracting Parties. They face therefore a tight timetable
for an assessment and possible roll-out of smart metering.
52
Traditionally, automatic fault monitoring extends only to the medium voltage level, whereas faults on the low
voltage level often go unnoticed until consumers alert the distribution network operator.
53
One of the main tasks of such economic assessment might be not only to identify costs and benefits but also
which configuration, deployment strategy and schedule will provide the highest benefit.
54
Decision of the Ministerial Council of the Energy Community, D/2011/02/MC-EnC: Decision on the implementa-
tion of Directive 2009/72/EC, Directive 2009/73/EC, Regulation (EC) No 714/2009, Regulation (EC) No 715/2009
and amending Articles 11 and 59 of the Energy Community Treaty.
55
Directive 2009/72/EC states that a cost-benefit analysis has to be conducted by September 3, 2012.
Assumptions on the future development of input data and definition of expected min-
imum, maximum and base (average) values of the input parameters
Definition of alternative (smart metering roll-out) scenarios (e.g. regarding the dep-
loyment strategies and type(s) of smart meters)
Assessment of the monetary effects (financial and monetized indirect (external) ef-
fects) of a smart metering roll-out on other stakeholders (economic analysis)
Calculation of the total net benefit for different scenarios discounting future costs and
benefits with an appropriate rate
56
Third parties in this context include parties who are neither the network operator/meter operator carrying out a
smart metering roll-out, nor the end-user on whose premises a smart meter is installed. Such third parties could
be, for example, other network operators, end-users or generators, who could also benefit from a smart metering
roll-out (as regards for example an increase in system stability), but who could also face costs from a smart me-
tering roll-out (for example if the installation costs of smart metering are to be covered by all network users or if a
potential reduction in consumption leads to losses for the electricity generators).
57
A cost-benefit analysis from the perspective of a private investor would assess the financial effect (net benefit)
of a smart metering roll-out in a similar way except that all external and macroeconomic effects would clearly (as
pointed out above) not be included in the analysis, i.e. the fourth, fifth and sixth bullet in the above list.
The selection and definition of input data to be considered in the assessment of costs and
benefits and the assumptions on their future development can already predetermine the
outcome of a cost-benefit analysis (CBA). It is therefore of particular importance that no bias
is shown in data selection and definition at this stage of a CBA, a task for which an indepen-
dent regulatory authority should be particularly well positioned to carry out. Assumptions on
the future development of the input parameters determine the future occurrence and extent
of the costs and benefits of smart metering discussed in the previous sections. Assumptions
on input data often used in cost-benefit analysis for a smart metering roll-out may for exam-
ple be made on the:
Development of procurement costs for smart meters and smart metering infrastruc-
ture
Future development of average, peak- and base-load end-user tariffs for households
and small commercial customers and of wholesale prices
Future average carbon emissions per household and per small commercial customer
The assumptions on the future development of input data should also include the definition
of maximum, minimum and base (average) levels for each parameter, so that their impact on
the final outcome of the CBA can be assessed in a sensitivity analysis.
Future benefits or revenues and costs of smart metering may not have the same value as
present benefits and costs. Future values have therefore to be converted into their value
today (their present value) by an appropriate discount rate, so that they can be meaningfully
used for comparison/evaluation purposes. The discount rate represents the minimum return
that an investment project must earn to be economically feasible. In other words, selecting a
high discount rate expresses a higher demand to the profitability of the investment. High
discount rates can also be applied to express that benefits and costs achieved in periods
closer to the (smart metering) investment have a higher value to the stakeholders than those
occurring further in the future. Whereas a private financial investor would select a financial
discount rate that considers the actual cost of borrowing and actual returns on alternative
investments in the market (financial analysis), a social CBA would require a social discount
rate (reflecting society's point of view). Such a social discount rate could be derived from the
predicted long-term growth in the economy, considering the preference for benefits over time
(taking into account the expectations on increased income, or consumption, or public ex-
penditure (social time preference approach). A social discount rate commonly applied is the
one calculated and published by the Directorate General for Regional Policy of the European
Commission for individual European countries.58
58
European Commission, Directorate General Regional Policy (2008): Guide to Cost Benefit Analysis of Invest-
ment Projects.
A sound CBA should not assess the net benefits of a single roll-out scenario but compare
different scenarios regarding their total net benefits. The scenarios should assess the incre-
mental impact of the roll-out against a continuation of the status quo, i.e. not carrying out a
smart metering roll-out, but continuing to use conventional meters. It is however important
that the status quo reference case (continuing use of conventional meters) is not regarded
as a static case, but that it also based on the same assumptions on future development of
the input parameters made in the roll-out scenarios of the CBA. The scenarios should be
based on technically and legally feasible alternative options. Furthermore, it should also be
considered that some of the benefits of a smart metering roll-out might be achieved by other
alternative measures that do not require a roll-out of smart metering; that is for example car-
rying out other measures to increase energy efficiency or to improve the metering process.
Scenarios for a roll-out of smart metering should include at least a realistic base case, an
optimistic best case and a pessimistic worst case. They can be characterized by several
parameters:
Specification of the smart meters (in particular regarding the ability to support addi-
tional services and the purchase costs)
A sound cost-benefit analysis requires the definition and comparison of several feas-
ible alternative scenarios, and should measure the incremental impact towards a con-
tinuation of the status quo without rolling-out smart metering.
59
For a further overview on different deployment strategies see chapter 6.2.
As mentioned above, a CBA would require capturing and assessing all direct and indirect
costs and benefits of smart metering for the respective participants (network or metering
operator, consumers, suppliers). Furthermore a complete assessment of all possible costs
and benefits would also include the external effects on other stakeholders.
Direct effects include for example the costs for the smart metering infrastructure or the sav-
ings for manual meter readings which are no longer required. Indirect effects result from
other effects triggered by smart metering, such as a reduction in the individual energy con-
sumption due to the feedback provided to consumers with smart metering. External effects
of smart metering take account the indirect effects on other parties such as reduced electrici-
ty wholesale prices or a reduced need for investments in generation, transmission and distri-
bution capacities, resulting from reductions in peak demand and increases in energy effi-
ciency (facilitated by smart metering). Direct effects can be quantified relatively easily, for
example the cost of installing a smart metering infrastructure. However indirect and external
effects (such as a reduction of greenhouse gas emissions) may not be directly observable in
the market prices. Moreover they may depend on the expected response and behavioral
changes of the affected parties.
Many of the external costs and benefits (positive and negative) generated by a project (such
as a smart metering roll-out) may be easy to identify. It can however be challenging to quan-
tify and monetize precisely these effects. When external benefits or costs (such as the car-
bon emissions resulting from fossil-fueled electricity generation) are already internalized (i.e.
included in the investment costs and in the operation and maintenance costs), eventual ben-
efits (such as reduced carbon emissions) would automatically be accounted for via the
avoided costs. When this is however not the case, the social and environmental impacts of a
project on a particular stakeholder have to be assessed.
Besides major environmental effects, the macroeconomic effects of a smart metering in-
vestment on the gross domestic product and employment may also be considered.
To improve the quantification of costs and benefits (and also to test available technology)
pilot projects can be conducted. Such pilot projects have already been carried out in most
EU countries as well as in the EnC Contracting Parties. However, given the particular coun-
try and project specifics, results of pilot projects in other countries should be carefully as-
sessed before transferring them to another country. It is therefore advisable to support a
social CBA with the results from a countrys own pilot projects. Quantifying benefits from pilot
projects, e.g. from energy savings or load shifting, can be difficult as pilot projects may not
cover enough smart meters and customers and a sufficiently long timeframe to comply with
statistical minimum requirements for a long-term assessment of these effects.
The willingness of a stakeholder to pay for or to accept (e.g. noise pollution), deter-
mined by observing consumers behavior in a similar market or a using surveys, or
The assumptions used to quantify external and indirect effects may often be arguable.
Therefore their impact and the resulting uncertainties should be carefully assessed through a
sensitivity analysis.
To keep the effort and the costs of a CBA reasonable, only costs and benefits with material
impact may be explicitly studied. Potentially small effects could be approximated by a fixed
value in the same way as effects after a certain point of time are assessed on an aggre-
gated basis. The level of detail up to which indirect and external effects of smart metering
may be considered, should also be based on the objectives of the CBA as well as the vo-
lumes of evaluated investments. The degree of complexity, comprehensiveness, efforts and
costs of a CBA for a limited number of meters and low investment volumes should be ade-
quate to the project scale.
Ideally all costs and benefits of a smart metering roll-out should be assessed and
incorporated into the cost-benefit analysis, including those affecting other parties. To
keep the effort and the costs of a CBA reasonable, only costs and benefits with ma-
terial may be explicitly studied. Pilot projects on smart metering may contribute to a
better quantification of costs and benefits.
The social CBA applies dynamic investment appraisal methods commonly used in the finan-
cial analysis of an investment project, such as the Net Present Value (NPV) and (less com-
monly) the Internal Rate of Return (IRR).60 The calculation of the economic NPV of all costs
60
In the investment analysis the NPV takes all cash flows associated with a project and reduces (discounts) them
to a common denominator (present value) by using an appropriate interest rate (sometimes called the cost of
capital or the cost of finance) to take into account the time value of money. The assessment of an investment
project is positive if the NPV is positive (NPV > 0), i.e. it has a return which is greater than the interest rate (cost
of capital) applied. The IRR calculates the rate of interest (discount rate) at which the expected future cash flows
must be discounted to equate them with the initial project cost, i.e. to produce a NPV of zero; in other words the
interest rate at which the project will exactly break even. The assessment of an investment project with the IRR is
positive if the opportunity cost of capital (also known as hurdle rate) is less than the calculated internal rate of
return.
The economic NPV is then the difference between all discounted social benefits and costs of
smart metering over the projects life time.
The economic assessment of a smart metering roll-out (for society as a whole) would be
positive if the NPV is positive (i.e. if the NPV > 0). When comparing different scenarios for a
smart metering roll-out in a CBA, as discussed above, the scenario with the highest NPV
should be selected (which could also be the scenario not to invest in smart metering as
pointed out in section 5.7.2).61 The calculation of the NPV only includes monetized costs and
benefits. If other positive or negative impacts are identified which cannot be easily mone-
tized, an estimation / assumption on their monetary value has to be made. Adding additional
qualitative assessment criteria to the NPV might result (at least if they are not reasonably
quantified) in subjective or biased results.
The cost-benefit analysis should use dynamic investment analysis based on the as-
sessment of the Net Present Value (NPV). The economic assessment of a smart me-
tering roll-out would be positive if the NPV is positive (i.e. if the NPV > 0). When com-
paring different scenarios for a smart metering roll-out in a cost-benefit analysis, the
scenario with the highest NPV should be selected.
When selecting and defining input parameters and cost and benefit categories realistic min-
imum and maximum (as well as average) values should be defined. In the sensitivity analy-
sis NPVs are (re-)calculated assigning the minimum and maximum values for individual input
parameters of the model. Following this approach the sensitivity analysis assesses the sen-
sitivity of the NPV results on variations in the input data and therefore allows the determina-
tion of critical input variables or parameters of the model. The results can be pictured in a
Tornado-Diagram showing the sensitivity of single parameters. The sensitivity analysis
should not be used to calibrate the input parameters in a way that a "preferred" outcome
(such as the highest NPV for a specific preselected smart metering scenario) is achieved.
61
The financial feasibility of a project (i.e. a positive financial NPV) is an essential condition for the viability of a
project. In principle the NPV of the selected option should therefore also have a positive value. If, however, the
scenario of keeping the status quo is also included in the CBA as should always be the case and this scena-
rio as all other scenarios provides a negative NPV, then the scenario with the smallest negative NPV should be
selected.
Ideally all input parameters should be assessed in a sensitivity analysis in order to avoid a
bias towards specific model parameters and outcomes. In most cost-benefit analyses how-
ever, only selected parameters have been tested. For example the assumptions on the
amount of energy savings by customers have been identified as one of the most critical input
parameters in the sensitivity analysis.
Ideally all direct and indirect costs and benefits of smart metering should be monetized and
included in a CBA. However, before carrying out the CBA decisions have to be made on the
timeframe (modeling period) within which costs and benefits will be considered and the level
of detail to which the costs and benefits will be precisely assessed. Costs and benefits that
only have a minor impact on the overall results may for example not justify efforts for their
monetization. Such costs and benefits could instead be approximated by a fixed value.
Further important issues that should be carefully analyzed when deciding on a roll-out are
the effects of smart metering on competition in the energy market and customer support for
smart metering. As discussed, since for example data protection could be a very sensitive
issue for customers, support from customers which is a key requirement for a successful
roll-out could be lacking if this issue is not addressed properly in consultations. Also the
ownership of the (conventional) meters if assigned to the customers or to different parties
than those responsible for the roll-out of smart metering can be a critical factor to be taken
into account when interpreting the results of a CBA.
The social cost-benefit analysis should study the impact on welfare for all parties affected by
the project (i.e. society as a whole). If the total welfare is maximized (i.e. the project will bring
maximum net benefits), then society as a whole will be better off as a result of the project.
Different stakeholders however typically benefit to a different extent from a smart metering
deployment. As pointed out earlier, addressing such welfare distribution effects separately
can be crucial for the public support of a smart meter roll-out (particularly if the roll-out is
made mandatory). The installation of the smart metering infrastructure for instance is typical-
ly paid by the DSO or the party responsible for metering, whereas major benefits may be on
the consumers side due to energy savings. Besides the overall net benefits of a smart me-
tering roll-out, the net benefit results for different market participants (e.g. customers, net-
work operators, suppliers) should also be calculated separately.
Finally, the result of a social CBA on the roll-out of smart metering does not always need to
be positive. A negative NPV of a smart metering roll-out may not be unlikely if the potential
for energy savings resulting from a smart metering deployment is expected to be small and /
or the current metering system already provides frequent and accurate meter readings at
relatively low costs (because for example labor costs are low). In order to achieve meaning-
ful results with a CBA it is important to define and compare several realistic and feasible
scenarios and to define the input parameters without a bias towards a specific outcome.
Guaranteeing such an independent and open assessment of the costs and benefits of smart
metering could be a natural task of the regulatory authority.
The results of the cost-benefit analysis of smart metering will strongly depend on the
country specifics, the assumed timeframe and the level of detail to be considered.
By January 1, 2011 eleven EU Member States had already conducted a CBA for electricity
smart metering and six had done so for smart metering in the gas sector. From these as-
sessments of costs and benefits, seven provided a positive result for a roll-out of smart me-
tering for electricity, and five for gas. Negative results (i.e. negative NPVs) for a roll-out of
smart metering in electricity had for example been calculated for the region of Flanders in
Belgium, for Denmark and for Norway (in the first CBA). Several countries have also already
carried out or are considering conducting a second (or an update of the) CBA on smart me-
tering, taking into account for example advanced functionalities of smart meters, changes in
the procurement costs of smart meters or a wider range of stakeholders.62 In a number of
further EU member states CBAs (at least for electricity) are already underway or planned.
However several countries have not yet published the results of a CBA for smart metering as
requested by the European Directives 2009/72/EC and 2009/73/EC, in particular for gas. In
some countries an alternative CBA has been conducted by the industry or large DSOs. Fur-
thermore, a few countries such as Italy, Spain and Finland have also made a (positive) deci-
sion to go ahead with a roll-out of smart metering without conducting a CBA. While several
62
Updates or second CBAs have for example been conducted or are planned in France, Hungary, Poland, Por-
tugal, Denmark, Norway, Austria and the Flemish region of Belgium.
Depending on the national specifics and the competencies of the regulatory authorities de-
fined in the legislation, CBAs are either carried out by the regulatory authority or the respec-
tive government department. In Belgium, France, Hungary and Ireland CBAs have been
carried out by the regulatory authorities, in the Netherlands, Slovenia and the UK CBAs have
been conducted by the respective government departments (ministries). In some countries
such as Austria the regulator as well as the government have carried out CBAs following a
change in legislation, the responsibility for a CBA on smart metering has been handed over
to the Ministry of Economy. Although the Austrian regulator as well as other regulators do
not have the authority to assess the deployment of smart metering through a CBA (and to
decide on a roll-out), they may still be responsible for the definition of functionalities and data
requirements of a smart metering system. As pointed out earlier, regulatory authorities
should naturally be in a good position to objectively assess the costs and benefits of a smart
metering roll-out in a CBA.
Source: ERGEG (2011): Summary of Member State experiences on cost benefit analysis
(CBA) of smart meters, Ref: C11-RMC-44-03
63
Council of European Energy Regulators (CEER) = 27 EU Member States, Norway and Iceland.
A positive result of the cost-benefit analysis has also been calculated for the Netherlands
(both in the original cost-benefit analysis in 2005 as well as in the review in 2010). In the
2010 update on the cost-benefit analysis a maximum net present value of 1.175 billion had
been calculated among eight analyzed scenarios. The calculation for the Netherlands in-
cluded a roll-out of 7 million smart meters and a model period of 50 years. As 95% of all
customers are supplied with electricity and gas, the cost-benefit analysis was carried out
jointly for electricity and gas. The model scenarios included analysis of the different roll-out
periods, communication infrastructures and increases in energy costs. The largest benefits
in the model resulted from reduced energy consumption (between 3.2% and 6.4% for elec-
tricity and 3.7% and 5.1% for gas), increased (retail) competition, consumer management
and reduced meter reading costs.
To address the distributional effects of smart metering costs and benefits among different
stakeholders the net present values for different groups have also been calculated separate-
ly in the Netherlands. As the following figure shows, positive and large net present values
(net benefits) have been calculated for the consumers (households) and (also positive but
smaller) for the metering companies (carrying out the meter reading). Network operators,
who have to cover the investment costs of smart metering face a negative net present value.
In addition, as less electricity is consumed by end-users, network operators will transmit and
distribute less electricity and will therefore receive less network fees. In the same way power
producers and retail suppliers will sell less electricity and the government will receive accor-
dingly less taxes, resulting in a negative net present value (net costs) for these stakeholders.
In conclusion, as has also been identified in the cost-benefit analysis in Austria, distribution
network operators and retail suppliers face a negative net present value, while customers
clearly see a large benefit in the roll-out of smart metering.64
64
Again, it must be noted that the results of a cost-benefit analysis for all stakeholders as well as at individual
stakeholder level strongly depend on the model assumptions and country specifics, so that these results cannot
be simply transferred to the Contracting Parties of the Energy Community.
Source: KEMA
In the UK several assessments on the costs and benefits of smart metering have been made
for electricity and gas between 2008 and 2011 (29 million electricity and 21 million gas me-
ters sharing the same communication infrastructure). For a full scale roll-out between 2013
and 2020 and assumed reduction in energy consumption of 1.5% and 4% for electricity and
1% and 3% for gas, estimated costs of approximately 8.6 billion , benefits of approximately
14.6 billion and a total net present value of approximately 6 billion have been calculated.
As main benefits besides the reduction in consumption, the reduced costs of site visits, ben-
efits of easier supplier switching and reduced costs with customer management have been
identified.
In the cost-benefit analysis carried out in Austria by the regulatory authority in 2010 esti-
mated costs between 3.3 billion and 4.4 billion , estimated benefits between 3.6 billion
and 4.9 billion and an estimated net present value between 291 million and 556 million
have been calculated for a roll-out of smart metering for electricity and gas. Here four differ-
ent roll-out scenarios with different roll-out periods and penetration rates had been investi-
gated. As model period, the expected technical lifetime of a smart meter was considered (15
years for electricity and 12 years for gas smart meters). It was further calculated that the
highest net present value could be achieved in the scenario with the fastest and most wide-
spread roll-out of smart metering in Austria.
The country specifics as well as the model specifics and the range of considered
stakeholders can have a strong influence on the results of a cost-benefit analysis. A
simple transfer of the results of a cost-benefit analysis from one country to another is
therefore not possible and comparisons have to be treated with caution and under-
standing. The results presented above also show that the cost-benefit analysis of a
smart metering roll-out can lead to a negative result, indicating that smart metering
should (at least at the time of conducting the analysis) not be rolled-out.
When deciding on a smart metering roll-out, the market model for the metering services has
to be taken into account, as the principle market structure of the metering business not only
determines some of the deployment options, but also influences the overall costs associated
with a roll-out of smart metering and determines which market actor covers the costs.
Traditionally metering has been carried out as part of the distribution and supply activities of
a vertically integrated utility. In such regimes the customer has (had) a single point of contact
for network connection, supply, meter (installing, maintaining and reading) and invoicing (full
vertical integration model). Following the European Directives for the internal market for
electricity and gas and their implementation in the Energy Community distribution net-
work operators (DSOs) are now subject to unbundling provisions separating regulated net-
work activities form competitive supply activities. This as a consequence has also led to
different models for organizing the metering sector.
In an unbundled environment the metering services could either be carried out by the distri-
bution system operator as part of its regulated activities (DSO-model), by a separate meter-
ing company independent of the distribution and supply companies (unbundled metering
company) or as an additional competitive service area of the supplier (supplier model).
Figure 13: Possible Options for the Structuring of the Metering Sector
Source: KEMA
In addition to this general structure of the metering market, the provision and operation of
meters could be further broken down into several tasks that can be carried out by different
market participants. Figure 13 shows that all tasks except the invoicing of customers and
the handling of customer complaints regarding the billing which are either performed by the
supplier or by an independent third party could principally be carried out by the distribution
system operator. Meter reading is sometimes carried out by the customer (who could also be
the owner of the meter and even be responsible for installation and maintenance as is partly
the case in Ukraine and Turkey)65. The role of the independent metering company could
further be separated into a metering asset provider (MAP) and a metering service provider
(MSP). The independent metering asset provider carries out the installation of the meters
and the installation (and operation) of the smart metering communication infrastructure (as
well as the ownership of the meters). Maintenance and reading of meters as well as the
handling of customer complaints regarding the reading of meters, and the installation and
operation of smart metering communication infrastructure and accompanying management
of the meter data are possible tasks of a metering service provider. The latter two tasks as
well as the invoicing and billing procedures could also be carried out by an independent
third party, for example by a subsidiary of a telecommunication company. It is also possible
that different market participants carry out the same task for different customers within a
country.
65
Energy Community Regulatory Board (2010): A Review of Smart Meters Rollout for Electricity in the Energy
Community; available at: http://www.energy-community.org/pls/portal/docs/744178.PDF
Invoicing of customers X X
Handling of customer
X X
complaints regarding billing
Installation and operation of
smart metering X X X X
communication infrastructure
Data collector and distributor
X X X
of (smart) meter data
Figure 14: Tasks and Responsibilities of Possible Market Participants in the Metering
Sector
Source: KEMA
Related to the issue of which market participant is carrying out which metering services is
the question of whether metering is to be provided in a liberalized metering market with me-
tering services open to competition or in a regulated metering market with designated com-
panies operating under a regulatory framework. In most regulated markets metering is either
carried out by the DSO or the supplier, whereas in a competitive market, independent meter-
ing asset or service providers (or other third parties) can also carry out at least part of the
metering services. When the metering service is a monopoly business carried out by the
DSO, it is paid by the customer either as part of a regulated metering tariff or a part of the
regulated network tariff (in both cases determined by the regulatory authority). When meter-
ing services are provided in a competitive market, the amount paid by the customer for me-
tering services is also determined by the competitive process.
Within the European Union two types of electricity metering market models can generally be
distinguished:
A liberalized metering market, where the metering sector is open for competition re-
sulting (possibly) in new market entry, for instance by specialized metering asset
and service providers, suppliers, telecom companies and others, or
So far only a few countries have unbundled the metering business from other DSO or supply
activities and opened it for competition, such as Germany, the UK and the Netherlands. 66
The motivation of the German government to open the metering market for competition was
for example the hope that competition between metering service providers would help to
reduce metering costs. So far though, no independent metering service provider has been
able to compete against the incumbent DSOs in these countries. However suppliers have
sometimes taken up metering services (also outside the affiliated DSO home territory), trying
to strengthen customer relationships by offering for example smart meters. The model of a
monopoly metering service provider at regional or national level (independent from the
DSOs and the suppliers) had been under discussion (but finally not implemented) in the UK
and in Hungary.67
In almost all EnC Contracting Parties metering services (currently) remain part of the regu-
lated DSO functions, although sometimes consumers, suppliers and even metering compa-
nies are involved.68 The costs of meters are recovered via the regulated network charges,
and investments in metering equipment are subject to regulatory approval. Although the
regulatory regimes vary from Contractual Party to Contractual Party in the Energy Communi-
ty, all regulatory regimes known to us apply an ex-ante regulatory review and explicit ap-
proval of investments before inclusion of costs in the allowed revenue.
From the different metering market models described above three basic options could be
applied in the Contracting Parties of the Energy Community, as the full vertical integration of
the metering business with distribution and supply would not be in line with the legal re-
quirements of unbundling (at least for DSOs with more than 100,000 or more connected
customers):
1. The DSO owns and operates the metering infrastructure and performs the metering
services
66
Although in the Netherlands the metering market model has shifted back to a regulated market model again,
due, amongst other things, to the smart metering deployment strategy.
67
In the UK such an approach was discussed under the name Regional Franchise Model. The final roll-out deci-
sion however put the responsibility on suppliers.
68
The exceptions being: Albania, where the supplier is in charge of the data management; Bosnia and Herzego-
vina, where the customers not only are partly involved in meter reading but also in meter maintenance; Ukraine,
where customers carry out some of the meter installation, maintenance and meter reading tasks and metering
companies are also involved in meter reading and data management; and Turkey, where meter installation and
maintenance is only carried out by the customers. See: Energy Community Regulatory Board (2010): A Review
of Smart Meters Rollout for Electricity in the Energy Community; available at: http://www.energy-
community.org/pls/portal/docs/744178.PDF
In the traditional and most common market model the metering functions are carried
out by the DSO. Certain tasks and responsibilities can however also be carried out by
metering asset providers, metering service providers, suppliers, customers or other
third parties.
Before a roll-out of smart metering is carried out, three major questions have to be
addressed by the responsible authorities:
Which market party should be responsible for (which) smart metering services?
In the traditional market model where all metering functions remain within the DSO (DSO-
model), no unbundling of the metering business is required to take place. A roll-out of smart
metering by the DSO could therefore be easily implemented into the existing industry struc-
tures within the Energy Community. Moreover, as smart metering might be seen as the natu-
ral precursor of the smart grid, it makes great sense for the DSO to take up responsibility for
smart metering. In cases where legal unbundling (or accounting unbundling if less than
100,000 customers are connected) has not yet been fully implemented, a separation of
supply and distribution activities would be even more strongly recommended in the context
of a smart metering roll-out. If the DSO remains active in supply, for example as the default
supplier, and also carries out the metering services, he would have strong incentive for ab-
usive and discriminatory behavior against any competing suppliers. Other (new) suppliers
however would depend on the DSO forwarding meter data for invoicing purposes and
transmitting price data or control commands for demand response schemes from the suppli-
er to the customer. Separating the metering business from an otherwise completely vertically
In the DSO model, ownership of the metering infrastructure is generally with the DSO. In a
multi-utility environment a decision needs to be made as to which assets should be owned
(and managed) by which DSO. The most practicable approach would be to provide the lead-
ing (electricity) DSO with ownership of metering infrastructure including the multi-utility
communication controller, whereas the other DSOs own only their metering device. The
capital costs for the metering infrastructure would then depending on the concrete contrac-
tual set-up be partly rolled-into the service fee charged by the leading DSO to the other
DSOs, the suppliers or the customer itself.
If the supplier is carrying out the metering services (supplier model), meter operation would
shift from one supplier to another with every change in supply by the customer. Even with
hard- and software standards widely established, it is possible that the new supplier would
require a different meter to be installed resulting in inefficiently high transaction costs and
stranded investment. A suppliers responsibility would thus pose a barrier to changing the
supplier and subsequently hinder competition. The ability to provide smart metering services
69
Vertical integration between distribution and supply is however not a possible option provided in the legislation
of the European Union and the Energy Community.
A fundamentally different approach would be to unbundle (part of) the metering business
from the network and the supply functions (the unbundled metering company model men-
tioned above) and to create an independent metering company. The metering infrastructure
could either be owned by the metering company (or MAP) or the DSO. To facilitate the roll-
out of smart metering, it makes sense however to leave the ownership and thus also installa-
tion and maintenance of the meters with the DSO, as the DSO already has the necessary
technical resources and personnel in place. If ownership, installation and maintenance of the
metering infrastructure were handed over to a newly founded MAP, such resources would
need to be relocated to the MAP and contractual arrangements would also be required for
use of the DSOs assets (e.g. for PLC). This would not only be time consuming and costly,
but may also depending on the existing market structures require the DSOs voluntary
participation. To avoid such problems, the metering company could only be responsible for
meter reading, data processing and management and provision of data to all authorized
stakeholders (lean metering company or MSP). Authorized stakeholders would have role-
based access to all the relevant data, i.e. the gas supplier would only have the individual gas
consumption data relevant for billing purposes, whereas the electricity DSO would only have
access to relevant network data, e.g. power quality and outage data or accumulated con-
sumption data.
A separate independent metering company (MAP and / or MSP) could either act as a mono-
polized, regulated, national (or regional) metering entity or as a competitive metering entity,
being in competition with other metering companies and / or the metering business of the
DSO and / or suppliers. Assigning a single MSP (or a small number of large regional MSPs)
with the metering tasks in a country where there are a large number of DSOs could have the
advantage of facilitating the roll-out of smart metering and the communication of metering
data by reducing the number of entities with whom a supplier (and a switching customer) has
to interact.70 In a monopolized metering market, the national/regional metering asset and
service provider (or the DSO) also selects the type of smart meter, which limits customer
choice and innovation, but also promotes a roll-out of smart metering to all customers.
70
On the other hand, assigning independent MSPs (and MAPs) in a country where only a single DSO or very few
are operating would increase the number of parties involved in the metering process and hamper the roll-out of
smart metering.
The metering infrastructure is generally either owned by the DSO, the supplier or a metering
company. In some countries including some of the Contracting Parties of the Energy
Community individual metering devices are however (at least partly) owned by the con-
sumers. This is for instance the case in Poland, Romania or Slovenia. Such a constellation
could be a barrier to the deployment of smart metering, as the consumer owning the conven-
tional meter might be hesitant to invest in a new (smart) meter, bearing the cost of a
stranded investment. Such issues would even be more complicated in countries such as
Ukraine, Turkey or Bosnia and Herzegovina, where customers also partly carry out some of
the meter installation and maintenance tasks.72 In order to achieve customer support for a
roll-out of smart metering in such circumstances the roll-out can only be voluntary. Incentive
schemes to promote investment in smart meters and sound technological standards guaran-
teeing interoperability of smart meters if consumers change their supplier (preventing
stranded investment) can further facilitate a smart metering roll-out when the customer is the
owner of the meter.
High coordination costs and stranded investments when customers switch their supplier
generate a high potential for inefficiencies in the supplier model. Also a multi-utility approach
seems barely imaginable with the supplier model. The DSO and the MSP models may both
71
This is in fact a further case of the general economic consideration that competitive (electricity) markets require
the unbundling of competitive services from regulated services, if provided by a single (vertically integrated)
company, for example between the (retail) supply activities and the network activities of a utility.
72
Energy Community Regulatory Board (2010): A Review of Smart Meters Rollout for Electricity in the Energy
Community; available at: http://www.energy-community.org/pls/portal/docs/744178.PDF
For a fast track smart metering roll-out focused on electricity the DSO model with
the DSO being responsible for smart metering might have significant advantages. In
a multi-utility approach the model of an independent metering service provider (MSP)
might be better suited to ensure the successful implementation of smart metering.
Alternative options with the supplier or a metering asset provider (MAP) being (partly)
in charge for a smart metering deployment may cause high coordination costs and
stranded investments and are therefore generally not recommended. As smart meter-
ing further increases the potential for discriminatory behavior of the DSO against
competing suppliers, sufficient and functional unbundling between distribution and
(retail) supply is of particular importance.
The decision on the smart metering deployment strategy should be based on the objectives
targeted, the existing market structure and infrastructure, the timeframe (or speed) of the
smart metering roll-out and the targeted penetration rate. The two principal deployment
strategies (intertwined with the market model) could be:
A mandatory roll-out, where all meters are to be replaced by smart meters in a given
timeframe, resulting in 100% market penetration
A voluntary roll-out, where customers in a liberalized metering market can decide for
themselves which kind of smart and conventional meter to use, resulting in an uncer-
tain market penetration
Other decisions have to be made regarding the technological choices and the accompanying
measures, such as consumer awareness programs.
73
In particular if the DSO is still part of an integrated utility, although in that case such safeguards are always
necessary.
The timeframe for a smart metering roll-out and the target penetration rate for smart meters
may have a significant impact on the costs and benefits. The period of time by which a full
smart metering deployment has to be achieved for all customers can have a significant im-
pact on the
Necessity to operate two systems in parallel as long as old conventional meters are
in existence
Peaking demand for qualified personnel installing the smart metering infrastructure
Peaking demand for metering and communications hardware and installation equip-
ment, and
Stranded investments if old meters are replaced before reaching the end of their
economic lifetime.
The benefits of smart metering can be roughly divided into benefits achieved with every indi-
vidual smart meter installed, e.g. reduction in final energy consumption, and benefits result-
ing from the establishment of a smart metering infrastructure. Individual benefits can be
generated from installing the first smart meter onwards and be quantified as a multiplica-
tion of the average benefits per meter/household and the number of meters installed. Gen-
eral benefits of a smart metering infrastructure however may only be realized after a certain
threshold of installed meters is reached. The timing of smart metering investments and the
penetration rate may also influence the benefits of certain technological choices. While for
example a connection of the first smart meters via DSL or GPRS/GSM could be less costly,
PLC could be the least cost option in urban areas once a high penetration rate has been
The timeframe for a full roll-out of smart metering to all customers is also determined by the
approach towards meter replacement (regardless of being mandatory or voluntary). Smart
meters could, for example, only be deployed in cases where conventional meters are due to
be replaced anyway, or (in a more progressive roll-out) conventional meters that have not
yet reached the end of their economic lifetime could also be replaced. Running two metering
systems in parallel (conventional and smart) would however also require two separate sys-
tems for collecting and processing meter data. Two different invoicing schemes would also
probably be required and technical personnel would need to deal with traditional and new
meters. As long as old and new metering infrastructures co-exist, additional costs are likely
to arise that could be reduced if a quick full scale deployment to all customers is chosen.
A fast-paced roll-out on the other hand would result in peaking demand for qualified person-
nel and for metering and communications hardware and installation equipment, which could
drive up prices making the roll-out more costly than a slower roll-out pace. Depending on the
age pattern of the existing metering infrastructure a fast-paced roll-out of smart metering
could also result in significant stranded investment. A more gradual roll-out could also ease
the financial burden and could ensure political support for smart metering deployment, as
benefits from new technologies and decreasing prices could be more easily accommodated.
Furthermore a more gradual roll-out could also allow the targeting of regions and business
sectors first where the highest benefits from smart metering are expected. This could, for
example, be urban areas with a dense population and in many cases comparably higher per-
capita energy consumption. Rural areas, sparsely populated and characterized by a lower
energy demand from consumers would then be fitted with smart metering last. Also different
technological approaches are likely to be required for different regions. While in rural areas
smart meters are typically connected via DSL or GPRS/GSM, PLC is often the preferred
option in urban areas.74
74
This would however depend on the existence of broadband internet connections or a well developed mobile
communications network in these areas.
A voluntary roll-out would be based on the individual decisions of metering providers (re-
gardless of who is responsible for metering) to offer smart meters to customers and to build
up a smart metering infrastructure. As significant investment in the communication and data
processing infrastructure would be required for a roll-out of smart metering, such a decision
would be based on an individual positive business case for the company (e.g. the DSO, a
metering company or the supplier) voluntarily rolling out smart metering. With a voluntary
roll-out of smart metering the trade-off and decision on the roll-out speed would also be sub-
ject to internal optimization of the party deciding on the deployment. Depending on the ap-
proach decided on by the metering provider, smart meter installation might also require the
individual decision of final customers to choose smart rather than conventional meters. The
meter provider could, for example, decide to roll-out smart meters to all its customers, or it
could offer smart metering services as an additional option besides traditional meters. Dep-
loyment of smart metering may be slow if left to the customers; at first only so-called innova-
tors and early adopters among the consumers are likely to opt for the use of a smart meter.
A voluntary roll-out of smart metering could either be the result of a decision by the metering
responsible party (for example the DSO) to deploy smart meters to its customers or the re-
sult of a decision by the government to promote the deployment of smart metering, but leav-
ing the metering providers and the customers to select smart or conventional meters.
The deployment of smart metering in Italy for example was at the beginning a voluntary de-
cision by Enel (covering 85% of low-voltage customers) in 2001. Important reasons for
Enels decision were the expected savings or revenues in the areas of purchasing and logis-
tics, field operations, customer services and revenue protection. Fraud (i.e. theft of electrici-
ty) in particular was a very widespread problem in Italy. Later in 2007 a mandatory roll-out
decision was made by the Italian regulator, requiring 95% of all low-voltage customers to be
equipped with smart meters by 2012 and also setting minimum functional requirements.
In Sweden, where already 100% of customers are provided with smart meters, the roll-out
decision was made by the DSOs, who were being pushed by a requirement for monthly ra-
A voluntary roll-out of smart metering may increase customer participation and public
support for a deployment as it eases ownership, data privacy and security and cost
allocation issues. Deployment of smart metering may however be slow. Throughout
Europe voluntary roll-out plans have been only followed in competitive metering mar-
kets and in countries where the roll-out has been initiated by the DSO(s).
Under a mandatory roll-out the metering provider (DSO, metering company or supplier)
would be obliged to build up a smart metering infrastructure and to replace all existing me-
ters with smart meters within a given timeframe. Such a roll-out decision would not be based
on the economic assessment of an individual player; but requires instead a social cost-
benefit analysis, assessing costs and benefits for the society as a whole. If the overall net
benefit is assessed as positive, a mandatory roll-out would follow.
A mandatory national roll-out of smart metering for electricity within a given timeframe is also
implied by the Directive 2009/72/EC and the 2011 amendment of the Energy Treaty. If a
social cost-benefit analysis shows an overall positive net benefit of smart metering, a roll-out
would have to be completed ten years after this assessment, with 80% of customers to be
supplied with smart metering by 2020. The Directive itself does not actually demand that
Member States implement a mandatory roll-out scheme, but given the very ambitious time-
frame, it is doubtful whether a voluntary roll-out approach would be feasible.
The problems of a fast-paced roll-out mentioned in the previous section (stranded invest-
ments and peaking demand for resources) would be even greater in the case of a national
roll-out. National targets to be reached within a short timeframe would, for example, limit the
ability to deploy smart metering to those customers with the largest benefits first and to take
the state of the existing metering infrastructure into account (e.g. replacing the oldest con-
ventional meters first). A national roll-out scheme should take this into account and leave
either enough degree of freedom, or create the necessary incentives and arguably even
subsidies to mitigate the negative impact on parts of the market.
75
In some cases, though, the rolled-out meters fulfill only simpler remote meter reading functionalities and might
not be considered as smart metering (even when the meter device itself could be considered as a smart meter).
Major tasks of regulatory authorities in connection with smart metering typically include:
Recognition of the efficient investment costs of smart metering in the price control
process
Protecting the privacy of consumers and their energy usage data by developing a
privacy policy and data security standards to ensure customer energy consumption
data is not accessed by unauthorized parties or misused77
Depending on the set-up of the regulatory authority and its tasks and responsibilities
regulation may also address further areas of smart metering, such as educating consumers
in advance about smart meter installation, the changes that smart meters will bring and how
to adjust to them. Furthermore regulation may also use the additional information provided
76
Energy Community Regulatory Board (2010): A Review of Smart Meters Rollout for Electricity in the Energy
Community; available at: http://www.energy-community.org/pls/portal/docs/744178.PDF
77
Also the topic of cyber security is gaining increasing attention, especially in the USA. An interconnected smart
metering infrastructure with data transmitted through the public internet might be a target for cyber attacks. The
increased potential to be informed about the supply systems state and to control the system may come at the
cost of increased vulnerability against outside attacks. Security standards need to be set up and enforced to
mitigate this danger.
The division of tasks between the regulatory authority and the ministry responsible for the
energy sector generally depends on the national specifics and the competencies of the regu-
lator. Whereas decisions on the general metering market model and the final decision on a
voluntary or mandatory roll-out of smart metering are made at government level (and speci-
fied in the legislation) in most European countries, the cost-benefit analysis and more de-
tailed decisions on the specifications of the smart meters, the roll-out timeframe and proce-
dures are often made by the regulatory authorities.
Regulatory authorities may be naturally in the position to assess the different options of a
smart metering roll-out and to set up a national deployment plan and should therefore play a
central role in the smart metering deployment. As a first step (as described in chapter 5) this
means carrying out or commissioning a social cost-benefit analysis, ideally after initial sup-
porting pilot projects testing technical possibilities and assessing expectable costs and bene-
fits. Regulators can play an important role in accompanying and supporting such pilot stu-
dies. If the net benefit of a smart metering roll-out is assessed as positive in a social cost-
benefit analysis, EU Member States as well as Contracting Parties of the Energy Community
need to fulfill the roll-out obligation stemming from Annex I of Directives 2009/72/EC and
2009/73/EC (see chapter 3).
When devising a deployment plan for smart metering, the specifics of the existing metering
system and infrastructure and the policy objectives of a roll-out need to be taken into ac-
count. In addition, the following issues need to be decided by the regulator (or the respective
government department in charge):
Before pursuing the deployment of smart metering it is also necessary to analyze the poten-
tial barriers to a successful smart metering roll-out. Furthermore, while it is a principal task of
regulation to ensure the overall efficiency of the national deployment strategy, it is also im-
portant to take the distributional effects for different regions or geographical areas and for
different stakeholders into account. It is the task of the regulator to assess such differences,
After fundamental decisions on the deployment of smart metering are made, it is the role of
regulation to ensure that the targeted objectives are actually achieved. This can include for
example:78
The treatment of (new) investments in the allowed revenue is a classical role of any regula-
tory authority in the price control process. Any regulatory regime must address the question
of which capital and operating costs should be included in the revenue requirements (al-
lowed costs) and whether specific incentives to promote (or acknowledge) investments
should be applied.
When the metering business is a regulated (monopoly) activity, a key question for the regu-
latory authority is how much of the smart metering roll-out should be covered by whom. If the
network operator (or the meter operator) benefits significantly from reduced commercial
losses and improved system information and security of supply, allowing him to improve
internal efficiency and reduce his costs, then he should rightly (at least partly) cover some of
the costs himself. By determining the allowed costs or revenue levels of the network opera-
tor, the regulator is in a position to decide which costs can be included in the regulated net-
78
See also: ERGEG, Final Guidelines of Good Practice on Regulatory Aspects of Smart Metering for Electricity
and Gas, Ref: E10-RMF-29-05, Brussels, 8 February 2011.
To the extent that customers benefit from increased transparency and accuracy of bills and
consumption, easier switching procedures or new services and tariffs, customers should
contribute to the recovery of the smart metering costs.
In a competitive retail market with a voluntary roll-out of smart metering the suppliers can
also have an incentive to make a payment to the meter operator for an increased roll-out of
smart metering, if it allows them for example to introduce new tariffs and services that in-
crease the retention of their customers. Furthermore, if the benefits of improved energy effi-
ciency, reduced carbon emissions and improved security of supply following a roll-out of
smart metering are regarded as significantly large by the government, subsidies to smart
metering investors could be considered by the government.
So far regulatory authorities across Europe have taken different standpoints on if and how
investments in smart metering infrastructure (and pilot projects) should be accommodated in
the metering and/or network usage charges. In many EU Member States, regulators are
however hesitant to allow for higher user charges to accommodate investments in smart
metering. Regulators in many countries have therefore taken the position that cost coverage
should essentially come from existing revenues. Nonetheless, such topics are still under
discussion in many countries and often an issue of dispute between the network operators
and the regulator. In Spain for instance, where a national roll-out has already been decided,
an increase in the monthly metering fee of around 0.3 is allowed. In Austria, the metering
charge for smart metering was set equal to that of conventional metering. However, the Aus-
trian regulator also asks all network operators to provide further detailed information on their
investments in smart metering and grids as well as on the research and development
projects in the cost data templates each year. In Italy a separate metering tariff is used which
should cover costs of smart metering deployment. Italian DSOs who do not meet the sche-
duled roll-out targets are penalized by reducing the allowed metering revenue. In several
other countries investment in smart metering was acknowledged in revenue control, as long
as these costs were deemed efficient, as for instance in Germany.
It could be argued that the costs of smart metering should not be considered to their full ex-
tent in the allowed revenues, as the company rolling out the infrastructure (in most cases the
DSO) may already benefit from cost savings it generates itself through smart metering, e.g.
due to improved processes, obsolete manual meter readings, less theft and improved asset
79
While retail suppliers, producers and other stakeholders in the energy sector also benefit from smart metering
(as described in chapter 5), for practical reasons costs are mainly only distributed between the distribution net-
work operator (or the meter asset or service provider) and the end-user.
The inclusion of the investment (and operational) costs of smart metering in the al-
lowed revenues is a key task of any regulatory authority. Normative regulatory prin-
ciples would require the full acknowledgement of all efficient costs netted of the bene-
fits that arise directly for the network operator (or the metering provider) in the
allowed revenues. On the other hand, insufficient possibilities for network operators
or metering providers to pass on these costs may hinder the deployment of smart
metering. Social or political constraints related to the cost pass-through arrange-
ments and tariff impact should also be taken into account by the regulator.
End-user tariffs within the European Union and the Energy Community should be unregu-
lated according to the Directives 2009/72/EC and 2009/73/EC. In order to maximize benefits
from smart metering, the market rules, tariff schemes, technical codes, procedures and
processes need however to be adjusted to smart metering.
The reduction of final energy consumption through increased transparency of actual con-
sumption patterns to customers can be further promoted through the application of new time-
of-use tariff schemes. Rather than applying single or two-period (day-night) tariffs, smart
metering allows the distinction between three or even more tariff periods during a day. Tariff
schemes that raise prices in peak periods and decrease prices in off-peak periods may only
lead to substantial cost savings for consumers if price elasticity81 is sufficiently high. This is
more likely the case if end-user tariffs represent a cost-reflective level, which is currently not
the case in every Contracting Party of the Energy Community.82
Rather than continuing to apply flat tariffs for use of networks, also time and load dependent
network tariffs might be applied together with time-of-use tariffs for final customers. This will
provide an additional leverage for shifting or reducing demand. Implementing such schemes
would however will increase the complexity of the network pricing.
80
For a more detailed description of costs and benefits for the different market actors see chapter 5.
81
The price elasticity of demand describes the dependency between a price change and the quantity demanded.
High price elasticity means that demand is more strongly influenced by price changes, i.e. if the price increases,
demand will decrease noticeably.
82
If customers are however not able to adjust their consumption to such changes in tariff schemes, these might
easily lead to higher costs (that not all customers may be able to pay).
Smart metering can be especially valuable if a quality of supply regulation scheme is applied
or needs to be set-up. Such a regulatory scheme is typically based on an incentive regula-
tion regime but includes quality of supply as one of the output factors measured, either as an
integrated part of a general efficiency assessment, or as a separate element of the revenue
control formula.
Voltage quality and reliability can accurately and timely be provided and monitored when
smart metering is widely deployed. 83 Short interruptions on low voltage level for example are
often not recorded in the existing systems. Smart metering would thus provide the basis to
significantly improve the regulators data basis and increase feasibility of quality regulation
schemes. As full-scale roll-outs have only been completed in a very small number of coun-
tries, power quality and reliability monitoring functions of smart metering have not yet been
implemented in quality of supply regulation.
As smart metering also enables network operators to improve their quality of supply, for in-
stance by faster outage detection, it can also be a regulatory tool for generally improving
quality of supply. In Italy, for example, the regulator created an incentive for DSOs to actively
use smart metering to improve quality of supply. Subject to the provision that DSOs also
deploy smart metering faster than originally scheduled, the network operator receives via
the price control regimes an incentive of 15 per customer when using smart meters to
record unplanned interruptions longer than three minutes.84
Smart metering can help to improve and facilitate quality of supply regulation as it
can provide the regulator with improved data on voltage quality and reliability.
83
As smart meters basically measure voltage, current and time, and load as well as energy, data is calculated
based on these basic parameters. Monitoring voltage quality can be implemented easily into a smart metering
system.
84
From 2008 (gradually, depending on the size of the network operators), the distribution network operators are
obliged to keep records of all low voltage customers that experienced unplanned interruptions longer than 3
minutes. The network operators may choose information systems (GIS) that comply with minimum standards set
by the regulator, or they may choose smart meters. If they choose to install smart meters they receive a financial
incentive of 15 per customer. To qualify for this incentive the network operator should deploy smart metering
faster than originally scheduled. See Jorge Vasconcelos: Survey of Regulatory and Technological Developments
Concerning Smart Metering in the European Union Electricity Market, RSCAS Policy Paper, P. 49 (2008).
The technical infrastructure installed when smart metering is deployed will most certainly
open up markets for new services. Some services are already offered commercially or tested
in pilot projects, whereas other services emerging in the future may not yet have been antic-
ipated. Obvious new services based on smart metering deployment are new tariff designs,
demand response and those in the field of home automation. Many projects are already
ongoing in the fields of new tariff schemes and automated demand response. The SmartRe-
gions report on the European smart metering landscape includes a long list of various
projects all over Europe.85
85
Renner et al., European Smart Metering Landscape Report, SmartRegions Deliverable 2.1, Vienna, February
2011
86
New tariff schemes make the most sense for electricity, as the system is more fragile with respect to the exact
balance between supply and demand and there is a clear intra-day peaking characteristic in consumption pat-
terns. For gas and heat demand, tariff schemes to optimize the point in time of consumption would not lead to
equally useful results, as for instance final consumer demand cannot be shifted to flatten the peak in the annual
profile. On the other hand, significant storage capacities are available for gas at economically efficient costs,
which is not the case for electricity.
With smart meters time-of-use tariffs are more easily applied, as first of all a single meter will
be available to provide multi-tariff metering. Smart metering based time-of-use tariffs thus
often apply more complicated tariff schemes than simple two-zone schemes, e.g. distin-
guishing at least between peak, off-peak and shoulder periods and also between normal
working days and weekends or public holidays (see section 6.3.3). In a further step, dynamic
tariff schemes could be linked to real-time spot prices, enabling consumers to benefit even
further from an adaption of consumption patterns to the system state.
With smart metering, a real-time price signal could be submitted to the consumer, providing
full information on costs actually incurred and the savings potential if consumption is ad-
justed. Assuming a sufficient level of demand elasticity, first of all dynamic pricing will not
lead to decreased consumption but primarily to a load shift into more favorable periods (from
the system perspective). However, depending on the kind of load shed in high price periods,
it will not be compensated necessarily to its full extent in low price periods, resulting in ener-
gy savings, for instance an air conditioner deliberately switched off during the day will not
use the amount of electricity when switched on again in the evening.
The impact of time-of-use and dynamic tariff schemes is highly dependent on the consum-
er's individual situation, i.e. its demand structure, elasticity, willingness to change consump-
tion behavior and also on structural circumstances in a country. The changes of consump-
tion behavior in line with new tariff schemes are much easier facilitated in cases where
consumers can adopt their demand automatically to price changes using home automation
systems and smart appliances, as is discussed in the following section.
New tariff schemes can cause irritations if as a result consumers face higher energy bills,
because of a larger portion of consumption taking place in more expensive peak-times. For a
detailed elaboration on this issue c.f. section 0, in particular section 4.1.
Together with new tariff schemes, new payment schemes will also emerge. Smart metering
can enable or simplify a wide variety of possible payment schemes, such as for instance
prepayment schemes. In the Netherlands and the UK, prepayment schemes are already
fairly common, especially for bad creditors. As in these payment schemes, feedback on the
level of consumption and associated costs is given in a very direct way, and energy saving
incentives are comparably strong. Prepayment tariff schemes with a variety of cashless
payment options are much easier facilitated with smart metering, in particular in combination
with remote switching or load-limitation functionalities.
Consumers can further benefit from new tariff schemes if they do not need to manually adapt
to price signals. Home-automation technology will provide consumers with the necessary
means to automatically adapt to real-time price signals and optimize energy consumption.
Possibly such services will be offered by several parties, e.g. manufacturers of household
appliances, electricity suppliers or independent service providers. A supplier could for exam-
ple offer electricity supply at comparably low prices together with the right to curtail custom-
ers consumption by remotely controlling certain appliances. It seems obvious that new tariff
schemes are more successful if an individual consumer needs to do less to manage his con-
sumption, while at the same time comfort should not be affected beyond a certain level.
As a lack of manual reaction to price signals could lead to higher energy bills if time-of-use
or dynamic tariffs are implemented, automated demand response could result in a higher
level of acceptance if such tariffs are offered.
If distributed generation facilities are installed at consumers' premises, the electricity gener-
ated and injected into the grid will also be metered by the smart meter, saving the costs for
additional meters. Moreover, smart metering can also enable the active participation of con-
sumers on the ancillary and system services market, if the ability to shift load created by
smart metering is bundled by a service provider for a large group of consumers and then
offered on the market.87 In these cases not only consumer load but also available generation
87
To take availability factors into account, the capacity firmly offered on the market would be in the magnitude of
10% to 25% of the total movable load.
All these services concerning tariffs and home automation target some kind of demand side
management or demand response in order to reduce peak loads, thus avoiding investments
in expensive peak load generation capacity (often gas turbines with low levels of full-load
hours) and possibly also network capacity. In the USA, demand response has already been
on the agenda for some years,88 whereas in Europe it is only slowly gaining momentum. The
key driver for demand response in the USA is the compared to Europe very tight genera-
tion situation, which, among other things, led to the spectacular outages in California and on
the East Coast a few years ago. For the USA, the potential for demand response is esti-
mated as 5% of the annual system peak load. For Europe, the estimations are somewhat
lower at around 3%.89 However, in most European countries, demand response was not
considered to be so important in recent years, although this is slowly changing with the dis-
cussions about the integration of large shares of renewable energies and the need for a
smarter grid. An increasing share of intermittent generation capacities (solar, wind) will re-
quire a paradigm shift regarding system operations. Traditionally, electricity is produced
when required, with the network frequency as the ultimate real-time control signal to system
dispatch and generation units. However, it will be extremely difficult to maintain this with a
high share of intermittent generation, requiring a vast amount of reserve capacity. In order to
utilize the system more efficiently and given the limited options to store electricity, load will
have to follow generation patterns.
In addition to the services described, other services enabled by the existence of the smart
metering communication infrastructure may be developed. These services which could
emerge in a smart metering environment will not necessarily be associated with energy con-
sumption. Instead, they will simply be piggybacked on the existing communication infrastruc-
ture, providing a direct communications channel with the consumers' premises.
Thus, for many of these services smart metering will not be a crucial requirement but rather
an opportunity; probably every other reliable communication infrastructure could also be
88
Cf. e.g. Borenstein, S., Jaske, M., Rosenfeld, A., Dynamic Pricing, Advanced Metering, and Demand Re-
sponse in Electricity Markets, 2002.
89
Vasconcelos, Jorge, Survey of Regulatory and Technological Developments Concerning Smart Metering in the
European Union Electricity Market, RSCAS Policy Papers 2008/01, Florence, 2008
Assuming that smart metering will have at least a positive effect for certain consumer
groups, e.g. those with an annual consumption above a certain amount, it seems unlikely
that the cost-benefit assessment will justify a decision against at least a partial smart meter
roll-out. Furthermore, it can be assumed that if a cost-benefit assessment were to be used
as an argument against a full roll-out, the assessment would be closely scrutinized by mar-
ket parties in favor of smart metering and probably also by the European Commission.
Thus, with the assumption that a (partial) roll-out will in any case be required, and need to be
well in progress by 2020, Member States will be required to set-up a smart metering dep-
loyment schedule for those consumer groups where smart metering has been assessed as
positive. The Directives direct the responsibility for the deployment plan to the Member
States or any competent authority designated. In many Member States the responsibility is
given to the national regulatory authorities.
The deployment schedule has two basic starting points, the first is exogenously given by the
Directive, requiring 80% fulfillment of the targeted roll-out by 2020 (electricity only, for gas
the Commission's Interpretative Note refers vaguely to a "reasonable period of time"). The
second is the result from the cost-benefit assessment, i.e. the identification of those con-
sumer groups where a roll-out has been assessed as positive, as for these consumer groups
the roll-out is mandatory. These two factors set the framework, which is "how many smart
meters in total" and "to whom".
If we look at examples of smart metering roll-out plans, we can observe many similarities
between these plans and also with the usual approach in large investment programs. The
90
European Commission, Commission Staff Working Paper, Interpretative Note On Directive 2009/72/EC Con-
cerning Common Rules For The Internal Market In Electricity And Directive 2009/73/EC Concerning Common
Rules For The Internal Market In Natural Gas, Retail Markets, Brussels, 22.01.2010
Source: ERDF
If the early schedule is compared with the actual situation, we can see that the original plans
have been somewhat delayed. However, France still plans to deploy 35 million smart meters
by 2018, with the large-scale roll-out starting in 2013.
At the beginning, the roll-out plan starts with a preparatory phase. During this phase
the necessary legal provisions (e.g. regulations requiring DSOs to roll-out smart me-
tering) are put into place, the technical specifications (hardware, software, communi-
cation) are established and detailed planning of the next roll-out phase is con-
ducted.
In order to avoid rushing into a large scale roll-out, a 'real' roll-out is typically pre-
ceded by a pilot phase. During this phase the technology is tested and consumers'
behavior is observed. Pilot projects can also be conducted in parallel during the first
phase. They results can be integrated into the specifications, the cost-benefit as-
sessment, and the planning of the full roll-out. Also an integral part of this phase (or
the beginning of the next phase) would be the tendering for a supplier or several
suppliers of the smart metering infrastructure. Depending on whether there is a sin-
gle entity responsible for conducting the roll-out within a country or individual entities
Source: ENDESA
As can be seen from the depicted examples, the roll-put plans include clear and verifiable
milestones. Additionally, such a roll-out needs to include clearly defined responsibilities dur-
ing the project phases, as for instance the responsibilities for the go-decision in the first fig-
ure above.
Given that the same 80% target by 2020 applies for the Energy Community, even if the
deadline to provide the smart metering roll-out plan is postponed to 2014 (see chapter Error!
Reference source not found.), the EnC Contracting Parties face a tight time schedule. As
can be seen from the two examples of France and Spain, a full smart metering roll-out may
easily take up to ten years. Given that resources for hardware provision and installation of
smart metering systems may be limited, and that EU countries and EnC Contracting Parties
may compete for potentially scarce resources in order to achieve the 2020 targets, it seems
of utmost importance to pursue the roll-out without undue delay. Subsequently, it could be
considered to achieve the 80% target with as little effort as possible, e.g. starting the roll-out
The smart metering roll-out plan should cover the required roll-out, both in terms of
time and volume of meters to be distributed. During the preparation phase and at the
beginning of the roll-out, the plan may be amended to consider any new knowledge,
technological progress and unforeseen developments. The plan must include clearly
defined milestones and responsibilities and should serve as the common point of
reference for all involved market parties alike. Given the tight time schedule, any un-
due delay should be avoided.
The benefits of smart metering deployment are dominated by the potential for energy sav-
ings driven by changes in consumption behavior. Feedback mechanisms providing custom-
ers with information on their actual consumption are therefore of particular importance for a
successful roll-out.
The establishment of the smart metering deployment strategy should involve all stakeholders
and take their views and concerns into consideration at an early stage. In addition, clear
rules to safeguard data privacy should be set. The legal and regulatory framework should be
aligned with the national smart metering roll-out plans. Moreover, the framework should pro-
vide market parties with the certainty that efficient costs for building up and operating the
required smart metering infrastructure are incorporated in the tariff regulation in the areas
where such regulation applies. It is furthermore important that all potential costs and benefits
(including their distribution among stakeholders) of smart metering are properly assessed
when evaluating a roll-out.
National technical norms and regulations, for instance the general legal framework for meter-
ing and measurement, should be reviewed and if necessary amended to account for the
requirements of the new technology.
Major costs associated with smart metering are the purchasing, installment and operating
costs of the smart meters and the investment costs for advanced data collection and data
communication infrastructure.
Potential benefits of smart metering for network operators include improvements in the secu-
rity of supply by a faster fault location and power restoration, improved monitoring of voltage
quality and the ability for quick remote disconnection or reconnection of customers or power.
Further benefits can arise from reduced operational costs (through integration of smart me-
ters in the IT infrastructure of the network operator) and improved network and maintenance
planning (utilizing the more accurate prediction of electricity flows provided by smart meter-
ing).
Meter operators (which in most cases is the distribution network operator) can benefit from
reduced metering costs (reduced costs of manual meter reading and remote disconnec-
tion/reconnection).
Suppliers can benefit from smart metering through improved invoicing processes (more ac-
curate and frequent billing), resulting in higher customer satisfaction and retention and re-
duced payment default (via remote disconnection). Smart metering may also allow suppliers
to reduce their energy purchasing costs through improved load profiling and forecasting.
Smart meters can provide improved information and/or price signals, making the costs of
energy consumption more transparent to consumers, resulting in reduced consumption
and/or shifting of load to periods with lower tariffs. Consumers may also benefit from more
accurate meter reading and invoices and easier switching procedures.
Depending on the type of smart meters, the tariff schemes offered and the market environ-
ment, society as a whole may also benefit from reduced peak demand (resulting in lower
wholesale prices), lower investment needs in generation, transmission and distribution ca-
pacities (future avoided costs) and from reduced carbon emissions. Regulatory authorities
and electricity users may also benefit from the improvements in quality of supply regulation
facilitated by smart metering.
The categories of costs and benefits are largely identical for electricity and gas. However,
some of the most significant benefits of smart metering, such as benefits from load shifting
and energy savings, are greater for electricity than for gas.
A cost-benefit analysis furthermore requires the definition and comparison of several feasible
alternative scenarios. The analysis should study the incremental impacts of implementing
smart metering towards continuing the status quo without a smart metering roll-out.
Costs and benefits associated with smart metering roll-out should be assessed and incorpo-
rated into the cost-benefit analysis, including those affecting other external parties (external
effects). As the analysis is conducted in financial terms, the costs and benefits have to be
first quantified in physical terms and then monetized. Pilot projects on smart metering may
contribute to the better quantification of costs and benefits.
The cost-benefit analysis should use dynamic investment analysis based on the assessment
of the Net Present Value (NPV). The economic assessment of a smart metering roll-out is
positive if the NPV is positive (i.e. if the NPV > 0). When comparing different scenarios for a
smart metering roll-out in a cost-benefit analysis, the scenario with the highest NPV should
be selected. The results of the cost-benefit analysis should be further substantiated by a
sensitivity analysis, which allows the quantification of the impact of critical input variables.
The results of the cost-benefit analysis of smart metering may be strongly influenced by the
country specifics, the timeframe, the range of considered stakeholders and the level of detail
assessed. A simple transfer of the results of a cost-benefit analysis from one country to
another is therefore not possible and comparisons have to be treated with caution. The re-
sults of previous cost-benefit analyses presented in the report also show that such an as-
sessment of all costs and benefits of a smart metering roll-out can lead to a negative result,
indicating that smart metering should (at least at the time of conducting the analysis) not be
rolled-out.
In the traditional and most common market model all metering functions are carried out by
the DSO. Certain tasks and responsibilities can however also be carried out by metering
asset providers, metering service providers, suppliers, customers or other third parties. Be-
fore a roll-out of smart metering is carried out three major questions have to be addressed
by the responsible authorities:
Which market party should be responsible for (which) smart metering services?
Who should own the (smart) metering assets?
Deployment Strategies
For a fast track smart metering roll-out focused on electricity the DSO model with the DSO
responsible for smart metering might have significant advantages (as this may not require
further unbundling measures and allows the integration of smart metering into the develop-
ment of smart grids). In a multi-utility approach, the model of an independent metering ser-
vice provider (MSP) might be better suited to ensure the successful implementation of smart
metering (as this could reduce unbundling and coordination problems).
Alternative options with the supplier or a metering asset provider (MAP) being (partly) in
charge of a smart metering deployment may create high coordination costs and stranded
investments and are therefore generally not recommended. As smart metering further in-
creases the potential for discriminatory behavior of the DSO against competing suppliers,
sufficient unbundling between distribution and (retail) supply is of particular importance.
The timeframe for a smart metering roll-out and the targeted penetration rate for smart me-
ters may have a significant impact on the costs and benefits. They may result in parallel
operation of two (conventional and smart metering) systems (slow-paced roll-out) or in a
high demand for qualified personnel and equipment in metering and communication infra-
structure (fast-paced roll-out). The speed of the smart metering roll-out may also influence
the technological choices and/or assets stranding if old meters are replaced before reaching
the end of their economic lifetime.
A voluntary roll-out of smart metering may increase customer participation and public sup-
port for deployment as it eases ownership, data privacy and security and cost allocation
issues. Deployment of smart metering may however be slow. Throughout Europe voluntary
roll-out plans have only been followed in competitive metering markets and in countries
where the roll-out has been initiated by the DSO(s).
A mandatory roll-out of smart metering is likely to result in a much faster deployment, but
may result in higher costs. Achieving the 80% deployment targets by 2020 as set by Euro-
pean legislation seems however only possible with a national mandatory deployment plan.
Role of Regulation
Depending on the national specifics and competencies, regulatory authorities or the respec-
tive government department(s) has(have) to assess the different options of a smart metering
roll-out (including a cost-benefit analysis) and set up a national deployment plan. Further-
more, regulation can play an active role in ensuring that the targeted objectives are actually
The inclusion of the investment (and operational) costs of smart metering in the allowed
revenues is a key task of any regulatory authority. Normative regulatory principles would
require the acknowledgement of the efficient costs netted of the benefits that arise directly
for the network operator (or the metering provider) in the allowed revenues. On the other
hand, insufficient possibilities for network operators or metering providers to pass these
costs may hinder the deployment of smart metering. Social or political constraints related to
the cost pass-through arrangements and tariff impact should also be taken into account by
the regulator.
It is not the task of regulatory authorities to set end-user tariffs when retail supply is not sub-
ject to tariff regulation as required by legislation. Regulators may however play a central
role in adjusting market rules, tariff schemes, technical codes, procedures and processes to
the requirements of smart metering.
Smart metering can also help to improve and facilitate quality of supply regulation as it can
provide the regulator with improved data on voltage quality and reliability.
Regulatory authorities should pay special attention to data protection and security issues in
order to ensure secure data communication and protection of consumers' private data
against unauthorized access.
New Services
Several benefits expected from smart metering may be provided by new services offered to
consumers with or after a roll-out of smart metering, giving for example a further increase to
energy savings and energy efficiency efforts and providing additional added value to con-
sumers. This may include new end-user tariffs (such as time-of-use or dynamical pricing) or
new (pre-) payment schemes that can be easily implemented based on smart metering. With
smart metering home automation services could also be offered in a variety of different ap-
proaches, involving appliances from several manufacturers and several service providers,
supporting energy savings and increased energy efficiency. To encourage the development
and implementation of such new services, a standardization of smart metering hard- and
software and adjustments to the respective regulatory and legal framework are required. The
potential benefits of new services should also be incorporated in the different scenarios of
the cost-benefit analysis.
The smart metering roll-out plan should cover the required roll-out, both in terms of time and
volume of meters to be distributed. During the preparation phase and at the beginning of the
Energy Community Secretariat Final Report
Development of Best Practice Recommendations for February 24, 2012
Smart Meters Rollout in the Energy Community Page 104/107
roll-out, the plan may be amended to consider the new knowledge, technological progress
and unforeseen developments. The plan must include clearly defined milestones and re-
sponsibilities and should serve as the common point of reference for all involved market
parties alike. Given the tight time schedule, any undue delay should be avoided.
Italy
Basic requirements for smart meter installation are stipulated by Regulatory Order 262/06,
later amended by Regulatory Order 235/07.
Sweden
Basic requirements with regards to metering are laid down in the Swedish Electricity Act
(Ellag (1997:857): http://www.notisum.se/rnp/sls/lag/19970857.htm.
Additional detailed requirements with regards to metering are laid out in a supplement to the
Electricity Market Handbook:
http://www.svenskenergi.se/upload/Produktwebbar/Elmarknadsutveckling/Blandat/emhb-
suppl.pdf
Mtfreskrifterna Supplement till Elmarknadshandboken
Germany
Basic requirements for smart meter installation are stipulated by the German Energy Act
(Energiewirtschaftsgesetz): http://www.gesetze-im-internet.de/enwg_2005/
Additional provisions with regards to metering are laid out in the Measuring Ordinance
(MessZV): http://www.gesetze-im-internet.de/messzv/index.html
Verordnung ber Rahmenbedingungen fr den Messstellenbetrieb und die Messung im Be-
reich der leitungsgebundenen Elektrizitts- und Gasversorgung
The basic regulations with regards to smart metering are stipulated in the Energy Act 2008,
amended by the Energy Act 2011.
Responsibilities are transferred to the Secretary of State and the Department of Energy and
Climate Change (DECC).
DECC is for instance responsible for setting up the process to create the necessary frame-
work for smart metering:
http://www.decc.gov.uk/en/content/cms/tackling/smart_meters/regulation/regulation.aspx