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Is Mandating "Smart Meters" Smart?

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  • Thomas-Olivier Leautier

Abstract

The advent of "smart meters" will make possible Real Time Pricing (RTP) of electricity: customers will face and react to wholesale spot prices, thus consumption of electric power will be aligned with its opportunity cost. This article determines the marginal value of a fraction of demand (or a consumer) switching to RTP, conditional on smart meters installation. First, it establishes sufficient conditions for the marginal value of RTP to be decreasing as the fraction of customers on RTP increases. Second, it derives this marginal value for a simple yet realistic specification of demand. Finally, using data from the French power market, it estimates that, for the vast majority of residential customers whose peak demand is lower than 6 kVA, the net surplus from switching to RTP is lower than 1 €/year for low demand elasticity, 4 €/year for high demand elasticity. This finding casts a doubt on the economic value of rolling out smart meters to all residential customers, for both policy makers and power suppliers.

Suggested Citation

  • Thomas-Olivier Leautier, 2014. "Is Mandating "Smart Meters" Smart?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    • Handle: RePEc:aen:journl:ej35-4-06
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Are smart meters worth it?
      by Economic Logician in Economic Logic on 2012-12-04 21:35:00

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    Cited by:

    1. Léautier, Thomas-Olivier, 2014. "The "demand side" effect of price caps: uncertainty, imperfect competition, and rationing," IDEI Working Papers 815, Institut d'Économie Industrielle (IDEI), Toulouse.
    2. Silvia Concettini & Anna Creti, 2013. "Liberalization of electricity retailing in Europe: coming back or going forth?," Working Papers hal-00915924, HAL.
    3. Thomas-Olivier Léautier, 2016. "The Visible Hand: Ensuring Optimal Investment in Electric Power Generation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    4. Christian Gambardella & Michael Pahle & Wolf-Peter Schill, 2020. "Do Benefits from Dynamic Tariffing Rise? Welfare Effects of Real-Time Retail Pricing Under Carbon Taxation and Variable Renewable Electricity Supply," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 75(1), pages 183-213, January.
    5. Gambardella, Christian & Pahle, Michael, 2018. "Time-varying electricity pricing and consumer heterogeneity: Welfare and distributional effects with variable renewable supply," Energy Economics, Elsevier, vol. 76(C), pages 257-273.
    6. Christian Gambardella & Michael Pahle & Wolf-Peter Schill, 2016. "Do Benefits from Dynamic Tariffing Rise? Welfare Effects of Real-Time Pricing under Carbon-Tax-Induced Variable Renewable Energy Supply," Discussion Papers of DIW Berlin 1621, DIW Berlin, German Institute for Economic Research.
    7. Michael Pahle, Wolf-Peter Schill, Christian Gambardella, and Oliver Tietjen, 2016. "Renewable Energy Support, Negative Prices, and Real-time Pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Sustainab).
    8. Stefan Ambec & Claude Crampes, 2019. "Decarbonizing Electricity Generation with Intermittent Sources of Energy," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 6(6), pages 1105-1134.
    9. Léautier, Thomas-Olivier, 2014. "The "demand side" effect of price caps: uncertainty, imperfect competition, and ration," TSE Working Papers 14-460, Toulouse School of Economics (TSE).
    10. Dato, Prudence & Durmaz, Tunç & Pommeret, Aude, 2020. "Smart grids and renewable electricity generation by households," Energy Economics, Elsevier, vol. 86(C).
    11. Fadoua Chiba & Sébastien Rouillon, 2020. "Intermittent Electric Generation Technologies and Smart Meters: Substitutes or Complements," Revue d'économie politique, Dalloz, vol. 130(4), pages 573-613.
    12. Anette Boom & Sebastian Schwenen, 2021. "Is real-time pricing smart for consumers?," Journal of Regulatory Economics, Springer, vol. 60(2), pages 193-213, December.
    13. Cédric Clastres & Haikel Khalfallah, 2021. "Dynamic pricing efficiency with strategic retailers and consumers: An analytical analysis of short-term market interactions," Post-Print hal-03193212, HAL.
    14. Michael Pahle, Wolf-Peter Schill, Christian Gambardella, and Oliver Tietjen, 2016. "Renewable Energy Support, Negative Prices, and Real-time Pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Sustainab).
    15. Cédric Clastres & Haikel Khalfallah, 2020. "Retailers' strategies facing demand response and markets interactions," Working Papers hal-03167543, HAL.
    16. Clastres, Cédric & Khalfallah, Haikel, 2021. "Dynamic pricing efficiency with strategic retailers and consumers: An analytical analysis of short-term market interactions," Energy Economics, Elsevier, vol. 98(C).
    17. Dahlke, Steven & Prorok, Matt, 2018. "Consumer savings, price, and emissions impacts of increasing demand response in the Midcontinent electricity market," OSF Preprints d83bu, Center for Open Science.
    18. Tunç Durmaz & Aude Pommeret & Ian Ridley, 2017. "Willingness to Pay for Solar Panels and Smart Grids," Working Papers 2017.24, Fondazione Eni Enrico Mattei.
    19. Clastres, Cédric & Khalfallah, Haikel, 2015. "An analytical approach to activating demand elasticity with a demand response mechanism," Energy Economics, Elsevier, vol. 52(PA), pages 195-206.
    20. Leautier, Thomas-Olivier, 2018. "On the long-term impact price caps: Investment, uncertainty, imperfect competition, and rationing," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 53-95.
    21. Cédric Clastres & Haikel Khalfallah, 2015. "An Analytical Approach to Activating Demand Elasticity with a Demand Response Mechanism," Post-Print hal-01222582, HAL.

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