Price signals and advanced metering
Price signals need to be complemented by the consumer’s ability to understand and respond to those signals. A more cost-reflective tariff arrangement is one where prices are based on the cost to supply electricity at the time it is used, which requires advanced household electricity meters (smart meters or, at a minimum, interval meters that track usage over time). Effective and timely consumer access to their own data from these meters (either directly or through an authorised agent) is critical to enable a more sophisticated response to cost-reflective tariffs and help consumers select the best services for their needs. Access to a consumer’s consumption profile must be readily available (for example, online) and accessible, if authorised by the consumer, to service providers and third parties to support consumer decision-making.
Some stakeholders support a mandated rollout of advanced meters. Advanced meters allow consumers to gain the full benefits of demand-side measures, such as cost‑reflective tariffs and energy efficiency technologies, to manage their energy use. Other stakeholders assert that metering should be at a customer’s choice because some customers will be unable to change their use patterns in response to information on their energy use from a meter and associated price signals from cost-reflective pricing. The Australian Government supports competitive and voluntary metering services, where the benefits exceed the costs, because they will drive the efficient rollout of advanced meters, based on the value they provide to consumers and market participants.
Case study: Smart meters
Smart meters offer more functions than are possible with traditional meters. A smart meter measures electricity use continuously and records consumption every half hour while a traditional meter only measures total energy consumption. A smart meter provides secure communication capabilities, can work with different household technologies such as online portals and in-home displays, and is required to support technologies that report information on particular appliances. Smart meters support the development of innovative products and services, such as load management, which can help consumers manage their bills. This is different to a traditional meter, which only measures the total consumption between any two points in time. Smart meters come in different types and models, feature digital displays in place of a dial, and are similar in size to a traditional meter.
The Australian Government supports a market-driven approach to demand response arrangements for large energy users that gives them options to effectively respond to cost-reflective price signals and manage their costs. The Government also supports greater competition and choice in how energy users can respond to high wholesale price signals.
Under a demand response mechanism, consumers participating in the wholesale market would be able to make the decision to continue consumption or reduce their consumption by a certain amount in response to high spot prices. They would be paid according to the amount of ‘demand response’ delivered to the market, which is calculated as the difference between their estimated ‘baseline consumption’ and their actual metered consumption for the demand response interval. While it would mainly assist large electricity users initially, in the future it could be adapted to demand responses from residential consumers who have the appropriate metering technology in place.The Paper goes on to state (at p32) that -
Improved energy productivity will reduce household and business energy costs and encourage economic growth. Energy productivity aims to lower the ratio of energy costs to the value of output received from the use of that energy. Energy productivity can be improved through energy market reforms such as increased competition and cost-reflective pricing that are aimed at lowering costs as well as energy efficiency measures.
The productive use of energy can lower energy costs by improving both the output and benefit received per unit of energy consumed. The more productive use of energy can delay the need for new energy supply infrastructure, which in turn relieves the need for price increases to recover that investment.
Increasing Australia’s energy productivity relies on the energy market reforms outlined in Chapter 1, particularly those that increase choice in energy services. Increased competition and flexible tariff structures provide this choice. Choice needs to be complemented by equipping consumers with appropriate information and decision‑making tools to select the services that benefit them (for example, ensuring they select the best tariff to save them money, rather than one that might increase their bills). There are significant barriers to the timely access to and sharing of consumers’ own data, particularly in developing new systems to support smart meters. There is a role for Government to ensure energy consumers have access to the information and tools they need to make informed choices. Other barriers, such as split incentives (for example, in cases where building owners may be less motivated to make improvements than their tenants who pay for the energy consumed) will also need to be addressed.