Smart GridSmart Meter

Smart Meter – The German ´Sonderweg´ at a crossroads

Will Germany be the next ´failed state´ in rolling out smart meters? Already massively delayed, concerns grow that the German “super smart meter” will not live up to the high expectations, especially regarding its pioneering use in prosumer installations for grid services. The responsible institutions shilly-shally over the rollout start for fear of a technical, economic and communication disaster – not unfounded: the justification for the forced rollout, financed through high metering fees, are highly questionable personal and economic benefits identified by a cost-benefit-analysis that even the authors themselves now consider unrealistic. Instead of panic rescue attempts with light versions of the “super smart meter” both, the European Commission and Germany should step on the emergency brake for a thorough revision. A positive example for a successful smart meter rollout is strongly needed.

Reality check: Poor energy savings, costly technical issues
The European Commission kicked-off smart meter-rollouts across the EU years ago, at a time when their potential to significantly lower electricity bills was still common sense. Years and a lot of rollouts in „pioneering“ countries later the results are disillusioning. In Italy, smart Meters are abused as anti-theft measures by a grid operator that does not even have the courage to assess the results. Sweden and the Netherlands have done honest assessments – with poor results. And most recently, the UK is thrilling the smart meter community with a high frequency of bad news: the rollout has been plagued by problems and been massively delayed, the benefits have been overstated and the savings they could bring consumers are at risk. These multiple failings threaten to add nearly £3billion to the cost paid for by consumers through higher energy bills. Hence, the – even by experts – often heard argument “Other EU countries have long rolled out smart meters” to push the rollout in Germany is rather a warning not to do so.

German ´Sonderweg´ 1: Metering system
With the Smart Meter Act (officially: Act on the Digitisation of the Energy Transition) Germany wants to do it different and better, probably in the hope of an export hit. Firstly and hardware-wise, Germany bets on a metering system that consists of a digital electricity meter connected to a communication unit, the so-called Smart Meter Gateway (SMGW). The SMGW, that needs certification by the Federal Office for Information Security (BSI), is to connect meters to the smart grid ensuring data protection and data security. It shall enable in-house communication with other meters and smart devices as well as communication with “external” eligible third parties, such as grid operators, utilities, balancing responsible parties or any other third party that has got the consumers´ consent.

German ´Sonderweg´ 2: New application area in prosumer installations for grid services
Secondly, a new application area for smart meters: metering systems are not only used as metering device in households for energy efficiency, demand response or dynamic tariffs but also in all small and large-scale photovoltaic installations (and later on in other dispatchable appliances such as CHP, heat pump, electric heating, electric vehicles, etc) to enable grid services: grid information (feeding-in, loading or storing) and grid measures (especially feed-in management in case of overload). This new application area saved the positive outcome of the German cost-benefit-analysis as the economic benefit of smart meter-based grid services was estimated at 2,9 billion Euros. Without this new application area, the German cba would not have been positive.

German ´Sonderweg´ 3: Tiered approach on hardware, roadmap and financing
Thirdly, Germany opted for a tiered approach on hardware, roadmap and financing.

  • Hardware

The two-tiered approach consists of a basic digital meter and the metering system (basic digital meter + SMGW). Consumers with higher consumption (>6.000 kWh/a) will get metering systems, consumers with low consumption (<4.000 kWh/a) only the basic digital meter. Regarding households with a consumption between 4.000 – 6.000 kWh/a it is up to the responsible grid operator to decide whether to install a digital meter or the metering system – without any right for the consumers to co-decide or opt-out. For PV installations >7 kW, metering systems are mandatory. Between 1 to 7 kW it is again up to the grid operator to decide whether to install a digital meter or the metering system, prosumers do not have any right to co-decide or opt-out.

  • Roadmap

Consumers with a high consumption will be equipped first with metering systems. Regarding prosumers it is vice versa: small prosumers will get metering systems first (see roadmap below).

  • Financing

The tiered approach consists of different price caps for different consumer and prosumer groups: the higher the consumption or power, the higher the annual metering fee.

Design fault 1: Unreliable cost-benefit-analysis (cba)
The German smart meter rollout lacks a reliable cba. It starts with a questionable process: normally such a complex cba should be carried out by multiple partners, for example for the legal, economic and IT subjects. But the German cba has been carried out entirely by only one consultancy (Ernst & Young) headed by a manager who has a long working history at German heavyweights such as RWE. The cba is the fundamental defect of the German smart meter-rollout as the following sensitivities show.

Design fault 2: Forced rollout instead of voluntary, market-based approach
Why have consumers not installed smart meters voluntarily yet? Because they are not convinced of their benefits. Now consumers are forced to install smart meters. A voluntary approach is much more promising, respectively less dangerous for the institutions. The exclusive right for grid/metering operators to dictate households between 4.000-6.000 kWh/a and prosumers between 1-7 kW to install the costly metering system makes it even worse. The German government, the parliament and especially the Ministry for Economics have to take full responsibility for their approach.

Design fault 3: Estimated saving potential included in higher metering fees
It is common sense now that the smart meters´ potential for energy savings is (a lot) lower than expected and that no rollout of costly smart meters can be based only on energy savings anymore. Nevertheless, the higher metering fees for the digital meters and metering systems include the unrealistic saving potential estimated in the cba. Consumers pay „their“ potential on top of the business-as-usual metering fee for old meters. For example: a household with 4.100 kWh/a will now have to pay 60 € per year: 20 € business-as-usual costs plus 40 € that the cba estimates as savings potential. Consequently, these households need to save 40 € per year only to reach a break-even. Households with a consumption >6.000 kWh/a will have to pay a metering fee of 100 €/a: 20 € business-as-usual costs plus the 80 € savings potential estimated in the cba.

Design fault 4: Unrealistic economic benefits from use in prosumer installations
Regarding prosumers the assessment is even worse. To make it clear: The installation of metering systems in PV installations is officially not meant to create any personal benefits for the prosumers themselves. It is all about economic (societal) benefits from smart meter-enabled grid services. Prosumers with PV installations between 1-7 kW will have to pay a metering fee of 60 € per year. Over 7 kW the metering fee is 100 € per year, over 15 kW it is 130 €. These costs put the profitability of small-scale projects at risk. But worse: it is highly questionable whether small-scale PV is of any relevance for the grid operators´ portfolio of grid services. In a survey most of them confirmed that they will never need to shut down small-scale PV to guarantee grid security. On the contrary, they criticize their obligation to include small-scale PV as overstraining regarding staff and technology.

Issue 1: Massive delay
The official roadmap is outdated, mainly do to the requirement set by the Smart Meter Act that the rollout can only start when three Smart Meter Gateways by different manufacturers have been certified in accordance with the technical rules. The first certification has been announced only recently. The missing two are expected to follow in Q1 2019.

Issue 2: 1st generation of metering systems is not smart
But despite the three certified SMGW there is a discussion on whether the rollout can start now due to the very limited scope of functionalities of 1st generation metering systems. Out of thirteen so called technical application areas (“Technische Anwendungsfälle”, TAF) only four are mandatory for the certification of 1st generation metering systems (highlighted green below). To put it brief: the 1st generation of the German “super smart meter” does not enable more applications (data!) than normal/current smart meters do.

And now the the BSI might even switch „Time-of-use tariffs” from mandatory to “optional” so that the German “super smart meter” will only enable three out of 13 functionalities. The remaining functionalities hardly create benefits for electricity consumers.

Issue 3: No smart meter-enabled grid services in the long term
The first generation of metering systems cannot enable any kind of grid services (TAF 9, 10, 11). Grid services will be “offline” for years. In a nutshell: small-scale prosumers have to pay threatening metering fees because of highly questionable theoretical economic benefits from grid services that are technically not feasible for a long time. The German cba estimated the economic benefits from smart meter-enabled grid services at 2,9 billion € (see sensitivities). These 2,9 billion € are now missing. Hence, the German cba is not positive anymore, it is collapsing.

To rollout or not to rollout “stupid” smart meters – that is no question!
Currently, the discussion is about starting the rollout with “1st generation metering systems” that are not smart. No way! There are only two options. First, start the rollout but adapt the metering fees to the limited functionalities. Consumers and prosumers must not pay the full fee for a metering system with limited functionalities. Secondly, no rollout until the metering systems enable a lot more functionalities so that „some“ benefits for consumers are at least likely. The latter is the one. The forced rollout is a heavy infringement of consumer (constitutional) rights, e.g. regarding costs, privacy, that is already more than questionable considering the best case that the metering systems enable all application areas. With only 3 of 13 functionalities and a negative cba the forced rollout would be disproportionate – and probably unconstitutional.
The rollout in the UK is an instructive example: What to do with first generation metering systems when second generation metering systems are ready? It is likely that the missing functionalities cannot be added by a software update. This means: costly replacement. The UK is going through this with tremendous additional costs for consumers.

European Commission and Germany must restart
The German smart meter-rollout is heavily delayed. That is tough for manufacturers and service providers that have already invested a lot and have not done anything wrong. But the delay enables the responsible parties to avoid a disaster and do the necessary revision of the German Smart Meter Act and the cost-benefit-analysis. The European Commission cannot afford a failure. And Germany cannot afford it either. German consumers and prosumers already (and still willingly) burden the costs for the energy transition. Their acceptance must not be destroyed by an obviously false cost-benefit-analysis. It’s time to replan with industry and consumer groups to ensure people get the maximum benefit at the minimum cost.

Holger Schneidewindt

About Holger Schneidewindt

Holger Schneidewindt is an energy lawyer and policy advisor. He has a decade of experience in energy policy with particular interest and expertise in prosumer subjects, especially related to alternative and renewable energies. As consultant for a German energy consumer NGO, he worked on the “Birth and Rise of Prosumers” along Germany’s pioneering energy transition.

Leave a Reply