Energy efficiency paradigm shift

Energy efficiency looks like restructuring

investCompanies invest to increase their revenues, to grow. Sometimes they invest to reduce production costs, into more modern machine tools for instance. Generally, such investments aim to increase production capacity at the same time, in order to get more revenues.

Energy efficiency does not match this business model. It corresponds to investment to reduce overhead costs in particular. It can also reduce production costs, when energy consumption is a main cost factor.

Reducing overhead costs… does it remind you of something? Yes! Restructuring a company, thanks to eliminating and scaling back production, employee layoffs, and salary and benefit reductions, for instance.

Wrong message to investors

reduce_billTherefore, on the balance-sheet, energy efficiency does not show a good image of the company. Communication efforts from management have to be deployed to explain to shareholders the interest of energy efficiency and its advantages over other possible investments. But, as shareholders want more, not less, they generally prefer growth. Energy efficiency then competes with difficulty against other type of investments.

The word to spread to shareholders

Spread_wordOnce an investment in Energy Efficiency is done, energy costs directly decrease without harming incomes and results, thus enabling more financial resources to be made available every year, for many years to come. Energy Efficiency is a mark of confidence in the future, providing a good basis for sustainable growth.

Return on investment is higher for the companies which are the worst in energy efficiency. With high specific consumption, it is easy to significantly reduce energy consumption with simple and cheap solutions. Oddly, it is then economically less interesting to invest in Energy Efficiency in environmentally conscious companies than in energy guzzler ones. It is then normally easier to convince the later. Then, just do it!

Gauthier Dupont
Dupont Energy Consulting GmbH

A dumb business model for smart meters

Smart meters? Why?

Utilities and suppliers hammer home the message that smart meter is useful. I do agree. They try also to convince private customers that it fits their personal needs and that it’s a good investment for them. I doubt it.

Let’s take an example. Given a household consumption of 4000 kWh/year at 0,23 EUR/kWh in Germany, 5% invoice decrease thanks to time-of-use (ToU) tariff, an additional monthly subscription of 2,50 EUR, and optimistic 10% of consumption savings, one can save up to about 100 EUR/year. But don’t forget that rates in Germany are amongst the highest in Europe. Average tariff in France is 0,13 EUR/kWh. Given a dual hourly rate resulting also in 5% invoice decrease, a customers information program to explain how to save the 10%, and an additional yearly subscription of 25 EUR, one saves more or less the same.

Does it justify an investment of several hundreds euros (smart meter price + installation costs)? No. The real justification is somewhere else.

As a consequence, the business model proposed by many utilities fails to convince customers in many countries. Customers are not dumb enough to pay for something they don’t really need. It is not the first time one try to sell useless devices. Sometimes with success, I have to admit. Many of us do not really need a smartphones, but at least it is a nice device that one can show to his friends. Invite a friend: “come with me in the cellar, I will show you my new smart meter, it’s fun”.

Private customers do not need smart meters

Utilities propound also non financial arguments (see for instance PG&E):

  • More reliable service: reliability is already high. In the last 10 years, I had only one supply interruption. It was planned and we get a post a few days before from the utility to warn us. How can be it be better? Utilities already do an excellent job.
  • See your daily energy use: who would do it daily? Ok, the first days it’s fun and somehow informative. But then. Why should we look at it every day? TV is much more exciting. Customers just want electricity when they need it. Switch on, light on. Not more.
  • Get Alerts About Your Usage: Same argument as above. Customers know when they need current. They don’t want a software telling them that their consumption habits are wrong.
  • More Choices in Pricing Plans: Being billed at different prices during different times of the day, is what utilities want, not customers. How would it be possible to compare utilities offers without knowing the price in advance? They will certainly sell us software to make the calculation for us. What is important for the customers is the yearly bill. The average cost of energy (EUR/kWh) shall be the smallest. This is the right financial objective.
  • Smart Devices and Smart Homes: Not only customers have to pay more for a smart meter, but they also have to invest in new appliances. The final bill could be difficult to digest.

There are more simple solutions to achieve the same goals. One can inform customers about good consumption habits. Thanks to dual hourly rate, many families turn on their washing machine in the evening since decades. When leaving a room, turn off the light. Etc. It is common sense. Smart customers do not need a smart meter for better managing their energy use. it can help, but it is not a must.

But utilities do

Smart meter is a good thing… for utilities.

  • Deregulation with market-driven pricing: Because of the deregulation of electricity generation sector, tariff paid by the utilities to the generation companies varies continuously. They would like to impact it to their customers. It would be easier.
  • Better Usage of Renewable Power: it is indeed a positive application of smart meters. But it is the responsibility of the government to encourage investment in renewable energies and of utilities to make the most of it. Not the customers.
  • Real-time load data: knowing the loads helps utilities to optimally operate their assets. Without the info, it would be difficult to supply millions of Electric Vehicles (EV), to smooth the load curve, to go beyond 20% of renewables, and to do it 24/24h 7/7 days without interruption. This is the major issue of smart meters.

What to do then?

My message to the utilities and their advisers: don’t lie to customers. Tell them that we, together, as a community, need smart meters. Our electrical appliances evolved and require better and safer supply (computers and electronics), new heavy loads are coming (EV), challenging the capacity and reliability of our aging infrastructure, mentality evolved (who is ready now to kindly accept interruptions lasting for hours). Smart meters are a piece of the puzzle of the grid of the future we need to build together to cope with our needs of the 21st century.

Gauthier Dupont
Dupont Energy Consulting GmbH