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The journey to smart metering: Why half hourly settlement will be a difficult but essential step

When I woke up one morning there was a story on the news about smart metering providing “£8 billion of savings for UK PLC”. The story was full of big ideas like fridges that switch on and off at the optimum time making sure we’re not using expensive energy at times of high demand. However, this is only part of the story and there’s more to do than roll out smart meters and buy a new fridge.

One of the major missing pieces that is rarely mentioned – it’s perhaps a little low level for BBC breakfast – is half hourly settlement which, in my view and that of the recent CMA report, is a prerequisite to us enjoying the full benefits of the smart energy revolution.

What is half hourly settlement?
The settlement process is how the electricity industry decides how much the suppliers need to pay to each of the other industry participants for the energy and its transport that their customers use. Currently energy suppliers read domestic meters about every six months so have little idea who used what when. As a result the industry estimates this use for residential and small business consumers using some standard profiles.

Half hourly settlement is where, using half hourly readings from smart meters, the industry settles on the actual use of customers not profiles.

What are the benefits?
One of the main benefits of Smart is Demand Side Response (DSR) where consumers shift their usage to times where energy is cheaper. This is the key to enormous savings for the nation as a whole as the cost of providing energy for the peak times represents a disproportionate amount of the total.

The way that DSR will be delivered is through Time of Use tariffs which will charge different amounts at different times incentivising moving usage to cheaper periods. However, with the current settlement system there is little reason for suppliers to offer these tariffs as they will still have to pay based on the standard profiles.

Once these tariffs are introduced it is likely that they will result in reduced bills for customers who are able to move their usage, as well as cutting bills across the board as investment in the grid to cater for the peak is reduced.
In addition, the ability to offer products that have greater means of differentiation will allow suppliers to target different customer segments with different products potentially resulting in greater competition – something the CMA report highlighted.

Why not just do it?
Currently the Smart Energy Code mandates that suppliers gain their customer’s consent before reading their meter more than monthly, which betrays the sensitivity of consumer data in this area – half hourly data potentially giving an idea of your daily routine.

However, if a significant number of customers choose to “opt out” of half hourly reads then the benefits of the Smart will be diluted. This poses the ultimate modern question – how much personal data are we willing to exchange in order to reap the benefits of technology? Unfortunately we need to answer this if we are to gain the full benefit smart metering.

Only once these questions have been answered and we have made the transition to half hourly settlement can we really enjoy the true benefits of Smart with integrated homes, appliances, and enormous efficiency savings.

Back to April 2016

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