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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, , vol. 35(4), pages 135-158, October.
    • Handle: RePEc:sae:enejou:v:35:y:2014:i:4:p:135-158
    DOI: 10.5547/01956574.35.4.6
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    References listed on IDEAS

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    1. Severin Borenstein & Stephen Holland, 2005. "On the Efficiency of Competitive Electricity Markets with Time-Invariant Retail Prices," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 469-493, Autumn.
    2. Stephen P. Holland & Erin T. Mansur, 2006. "The Short-Run Effects of Time-Varying Prices in Competitive Electricity Markets," The Energy Journal, , vol. 27(4), pages 127-156, October.
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    Cited by:

    1. Ambec, Stefan & Crampes, Claude, 2021. "Real-time electricity pricing to balance green energy intermittency," Energy Economics, Elsevier, vol. 94(C).

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