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Is mandating "smart meters" smart?

Author

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  • Léautier, Thomas-Olivier

Abstract

The advent of "smart meters" will make possible Real Time Pricing 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 Real Time Pricing. First, it derives this marginal value for a simple yet realistic specification of demand. Second, using data from the French power market, it estimates that, for the vast majority of residential customers whose peak demand is lower than 6 kV A, the net surplus from switching to Real Time Pricing is lower than 1 euro/year for low demand elasticity, 4 euros/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

  • Léautier, Thomas-Olivier, 2012. "Is mandating "smart meters" smart?," IDEI Working Papers 747, Institut d'Économie Industrielle (IDEI), Toulouse.
    • Handle: RePEc:ide:wpaper:26342
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    References listed on IDEAS

    as
    1. Paul Joskow & Jean Tirole, 2007. "Reliability and competitive electricity markets," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 60-84, March.
    2. Robert H. Patrick & Frank A. Wolak, 2001. "Estimating the Customer-Level Demand for Electricity Under Real-Time Market Prices," NBER Working Papers 8213, National Bureau of Economic Research, Inc.
    3. Allcott, Hunt, 2011. "Rethinking real-time electricity pricing," Resource and Energy Economics, Elsevier, vol. 33(4), pages 820-842.
    4. 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.
    5. Lijesen, Mark G., 2007. "The real-time price elasticity of electricity," Energy Economics, Elsevier, vol. 29(2), pages 249-258, March.
    6. repec:aen:journl:2005v26-03-a05 is not listed on IDEAS
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Are smart meters worth it?
      by Economic Logician in Economic Logic on 2012-12-04 21:35:00

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    Cited by:

    1. Thomas-Olivier Léautier, 2016. "The Visible Hand: Ensuring Optimal Investment in Electric Power Generation," The Energy Journal, , vol. 37(2), pages 89-109, April.

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    More about this item

    Keywords

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    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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