Do smart meters actually save energy?

A long-delayed UK government announcement on smart meters has finally been delivered – albeit with some detail yet to be filled in.

But will they actually lead to reductions in energy use?

The short answer is yes, but not in the way that you’d think.

Summarising the various studies into the impact of smart metering in homes is a challenge – the picture is somewhat confused. A 2006 study for Defra (the UK Government’s environment department) by the University of Oxford’s Environmental Change Institute suggests energy savings of 5-15 per cent. This is challenged by the Government’s own energy regulator, Ofgem, which back in 2006 offered a “conservative assumption of a 1 per cent reduction”, and which now recommends a Department of Energy and Climate Change (DECC) assessment of 2.8 per cent savings for electricity and 4.5 per cent for gas.

Why such variation?

The answer is that smart meters are only ever half the story. They supply real-time, accurate figures on a household’s energy use both to the consumer and to the supplier. Whether or not any energy is saved depends on whether the consumer acts on the information that the meter supplies.

Perhaps unsurprisngly, consumers will act if it saves them money. A Californian pilot noted that households reduced their energy demand by up to 5 per cent at peak times if that peak energy was three times more expensive than off-peak energy. In Ireland the ‘evening peak’ of energy usage was reduced by 10 per cent in a similar trial.

This shift in demand away from peak times does not tend to reduce a household’s overall energy use very much; consumers just shift their energy use to the cheaper hours. You might run your dishwasher overnight instead of just after dinner, but you will still run it. This is perhaps why Ofgem only came up with a 1 per cent saving.

So if households are still using almost the same amount of energy overall, how do smart meters help?

It turns out that by flattening the spikes in energy usage, overall energy demand drops. The reason is that many of the UK’s power stations are ‘always on’ to cope with peak demand. This is an inefficient system, because at off-peak times this energy production is wasted. Reducing peak demand levels and spreading energy use more evenly makes the system more efficient, meaning that the UK needs to build fewer power stations. General Electric, a which sells smart meter and smart grid infrastructure products, estimates that this process can reduce overall energy demand by 5 per cent.

It’s also worth bearing in mind the sums we are discussing here. Smart meters are estimated to cost from £30-£150, depending on how ‘smart’ they are, and incorporating economies of scale from a mass roll-out. Assuming a 20-year life for the more expensive meters, this works out at under £10/year. Taking DECC’s assessment of energy savings (2.8 per cent for electricity, 4.5 per cent for gas), consumers would save £50/year on the average household bill. Energy companies will benefit too, particularly if they can reduce spikes in demand through variable pricing.

The conclusion? Smart meters will help to reduce energy demand in the UK, and make financial sense. But for them to have a real impact on the UK’s energy use, energy companies need to be allowed to introduce variable energy pricing, charging more for it at peak times to reflect their higher costs. Smart meters, conveniently placed in a kitchen or hall, will inform consumers that their energy has got more or less expensive, which will encourage them to change their behaviour accordingly.

Apparently, it is even possible to get your home to tweet its energy use to you. Which raises the prospect of a fad of compulsive energy saving. A million people following Stephen Fry’s energy consumption, perhaps?

Related links:

Every UK home to be fitted with ‘smart’ meters (09/05/09)