New guidelines for cost benefit analysis of smart meters
As more EU countries progress in the launch of smart meters, the JRC now provides common guidelines to ensure that the cost benefit analysis is comparable, relevant and based on comprehensive and realistic deployment action plans.
This study has been used as the technical basis for the Recommendation on smart metering deployment that the European Commission has adopted today.
The new guidelines allow to tailor assumptions and parameters to local conditions, to identify and monetise benefits and costs and to perform sensitivity analysis of most critical variables.
They intend to facilitate EU countries in fulfilling the provision of the Directive on the internal markets 2009/72/EC, which encourages Member States to deploy Smart Grids and smart metering systems.
Different roll-out scenarios can be envisaged, by setting the percentage of smart meters to be installed (e.g. 80%), the roll-out time (e.g. 2020) and the functionalities of the smart metering system.
For each scenario, this study proposes 10 guidelines to carry out a cost-benefit analysis:
- define assumptions and set critical parameters (such as discount rates, technology maturity or carbon costs…)
- review and describe the technologies, elements and goals of the project
- map assets into functionalities
- map functionalities into benefits
- establish the baseline
- monetise benefits and identify beneficiaries
- identify and quantify costs
- compare costs and benefits
- perform a sensitivity analysis
- assess deployment merit (performance assessment), externalities and social impact
Provisions of the Electricity and Gas Directives set up the framework for the roll-out of smart metering systems and foresee that it may be subject to an economic assessment of all the long-term costs and benefits to the market and the individual consumer. In that case, the cost benefit analysis should be carried out before 3 September 2012.
For the electricity sector, at least 80% of those consumers who have been assessed positively, have to be equipped with smart metering systems by 2020
Smart meters represent a piece of a larger smart grid proposition and synergies between both can significantly enhance the impact of the smart meters and promote their business case. In setting up the guidelines, a more general target is an economic-oriented cost benefit analysis of smart grid projects, as integrating the smart meters can be much more costly if the smart grid option has not been considered.
The proposed approach also recognises that the impact of the smart metering deployment goes beyond what can be captured in monetary terms. Some of the impacts can be quantified and included in a cost-benefit analysis, whereas others, like social acceptance and consumer inclusion, need to be included among externalities and addressed qualitatively.