Presentation to the Commerce Select Committee on Smart meters and smart grid

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1 1 Presentation to the Commerce Select Committee on Smart meters and smart grid Dr Jan Wright Parliamentary Commissioner for the Environment 11 August 2011

2 1 Introduction Thank you for the opportunity to come back and update you on my views on smart meters. It s a year and a half since I last spoke to you on this subject and I have been following developments over that time. It has become clear that thinking about smart meters needs to be expanded from just about meters to the wider area of building a smart grid in New Zealand. As you know smart meters are a key component of a smart grid and it makes sense to think about this bigger picture. So that s why I m talking about a smart grid as well as smart meters. I m going to begin by first talking about why I as Environment Commissioner care about electricity. Then briefly describe the players in the electricity sector and the rollout of new meters. Then I will refresh your memories about my main concerns and update you on what has happened since. I will finish by talking about a smart grid. Why do I care? So why do I, as Environment Commissioner, care about electricity? I care because energy and environment are closely linked. I care because the more the demand for electricity grows, the more power plants we have to build. And all new power plants -- whether renewable or not -- have environmental impacts. I care because around a quarter of our greenhouse gas emissions from the energy sector come from burning coal and gas in power plants. I care because of the need to shift to low carbon renewable energy. And I note that the Government has a goal of 90% renewable electricity by I care particularly about peak electricity. Because the higher the peak, the more power plants. And the more investment in lines to carry the power. And at peak times, the power plants that burn gas and coal and emit carbon dioxide are likely to all be going flat out. The annual peak for the whole country occurs on the coldest day of winter -- this year that will probably be the Monday of the big snow last month. 1

3 Daily peaks occur around 6 pm when people get home from work and switch everything on. The result is that peak electricity is very expensive. Increasingly we will see time-of-use pricing consumers paying the highest price at peak times and the lowest price at nights and weekends. And higher prices in winter than in summer. Mercury Energy is trialling a time-of-use tariff and I was really surprised by how big the price differences are. In Christchurch: At nights and weekends a very cheap 9 cents a unit. Monday to Friday peak time 39 cents a unit. That s more than four times as expensive and gives the consumer a strong incentive to reduce power use at peak times. Smart meters -- and a smart grid -- can help reduce power use at peak times. And this is good for consumers. And it s good for lines companies. It s good for the economy. And it s good for the environment which is why I m here. The electricity sector In order to really understand arguments around smart meters and smart grids, it s useful to step back and look at how the system is set up and who the players are. The players all have their own motivations. The electricity sector is very confusing. There are five levels. Generator Transmitter Lines (Distribution) Retailer Consumer Generators own the power plants. The transmission company, Transpower carries the electricity around the country on big cables. The lines companies deliver the electricity to consumers. The retailers sell the electricity to consumers. In thinking about smart meters, we need to focus on the last three lines companies, retailers and consumers. Some meters are owned by lines companies, some are owned by retailers, and some are owned by meter companies. 2

4 3 All three are driven by different incentives and needs. All doing their own thing. My main message today is that meters don t need to be identical in every respect, but some standardisation is urgently needed. Moving to digital meters So what s going on? Across the country old electricity meters are being replaced by electronic digital meters. Some of you will have them in your homes. My understanding is that part of the impetus was a regulation requiring that all meters be certified by Meaning they must have been inspected, sealed, be safe and be accurate within a certain range. Some old meters are not accurate they under-read because the rotating disks that turn as electricity is used often slow down with time. There is a mass replacement of old meters with new electronic digital meters going on. This of course was the motivation for my original report. This mass replacement or roll-out as it is called has been undertaken so far by the retailers. The benefits to retailers from the new meters are accurate billing, remote meter reading, and remote connection and disconnection. But the opportunity to add communication and other features to the new meters that would benefit lines companies has not been taken. And the kind of communication features that should be put in these meters wouldn t just benefit lines companies; it would also benefit consumers and the environment. My main message two years ago Two years ago I said that the so-called smart meters being rapidly rolled out across the country were not as smart as they could be and should be. I called them dumb which is a little unfair because they are much better than the old meters they are replacing. But dumb is not such a bad word because their ability to communicate is limited. 3

5 I said that the new meters should be able to be linked into a home area network a network that connects the devices in the home that use energy. A home area network is called a HAN. I said that not putting HAN into the new meters was missing a huge opportunity an opportunity to get us in step with where the rest of the world is going. I also said that the language used on a home area network the way in which different devices communicate with each other should be open access. Open access so we don t end up with a Microsoft situation where one company gets to call all the shots. I have spoken to you before about one of these languages an open access communication protocol called ZigBee. Many millions of new meters in other countries contain ZigBee chips. I said that providing home area networks would enable: Real time information on electricity prices to consumers especially important with the move toward time-of-use pricing. You need to know you are now paying 39 cents a unit! The introduction of smart appliances. A smart refrigerator, for instance, would know to defrost itself at night when the electricity price is 9 cents a unit. Preparing for plug-in electric cars. We need to think about people coming home at night and plugging in their cars to charge at peak times. Mitsubishi launched their electric car on to the New Zealand market last month. What has happened since? So what has happened since my report? The retailers have continued to roll out dumb meters there are over half a million now installed in households. The Electricity Authority and before them the Electricity Commission will tell you that the meters being installed are OK. They will tell you that these meters are not dumb because they are home area network capable -- HAN-capable. This is true -- the majority are HAN-capable. But that is not the same as HAN-functional. There is real confusion over these two terms. Capable is not functional. But they sound the same to our ears, enabling some to muddy the waters. 4

6 5 A meter that is HAN-capable can be retrofitted with HAN. For example, a module containing ZigBee could be plugged into most of the new meters. But to do this a technician would need to visit the house and that s not cheap. In contrast, a meter that is HAN-functional will have the HAN component built into it during manufacture a much cheaper way to go. Retailers are continuing to roll out meters that are only HAN-capable. But not HAN-functional without expensive retrofit. I know of one case where a lines company is now adding another device to households in a large part of its network to add the communication features (including ZigBee) that could have been included in the dumb meters already rolled out by retailers. However, retailers are now not the only companies installing new meters. Now the lines companies have entered the game. A group of 14 lines companies are working together under the name of SmartCo. SmartCo has developed a plan to roll out over half a million -- and possibly up to three-quarters of a million -- HAN-functional smart meters across much of the country. I understand that this planned roll-out will include ZigBee chips in the meters and other features that lines companies need. And that can benefit consumers and the environment. This is good news. But now we will have households in some parts of the country with really smart meters and households elsewhere left with dumb meters. It s a mess. And a great opportunity lost for lack of leadership. Isn t it premature to go with HAN? The Electricity Commission took the position that it was premature to advocate HAN-functional meters that it was too soon to move. The Electricity Authority is also taking a hands-off stance. I disagree and I am not a lone voice. When I spoke to you last I said that ZigBee was looking like a clear winner internationally. A lot of work around the world has gone into setting standards based on ZigBee. In Australia, the Federal Government has regulated that all smart meters must contain ZigBee -- not just in smart electricity meters but in smart water meters. 5

7 The UK is reportedly going the same way. But there are other options. The important thing is to standardise the communication interface to make it straightforward for different devices to talk to each other. As we did by setting voltage to 220 volts, frequency to 50 Hertz, and plugs to three flat pins. What is a smart grid? As I mentioned at the start smart meters are a key component of a smart grid. In 2009 the International Smart Grid Action Network was founded to accelerate the development of smart electricity grids around the world. There are 20 countries in this working group including Australia, the UK, the United States and China. But New Zealand is not currently a participant. I do not understand why. The US National Institute of Standards and Technology lists the goals of a smart grid as: 1. Reducing energy use and increasing grid efficiency 2. Increasing renewables 3. Supporting the shift to electric vehicles 4. Making the electricity system more reliable and secure I will talk about each of these in turn. First: Reducing energy use and increasing grid efficiency. Reducing energy use is addressed in my smart meters report. Increasing grid efficiency this is about getting the most out of the grid. If peak power can be flattened, new expensive investment in lines can be deferred. Second: Increasing renewables. New Zealand has the best wind in the world I see us as making more use of this resource. The incentive for developing renewables has become very strong with the bad press nuclear energy is getting following the situation in Japan. The price of photovoltaic cells continues to fall with big advances made in China. 6

8 7 Photovoltaic cells on roofs converting sunlight to electricity at a reasonable price may come sooner than we think. Photovoltaic cells feeding excess power back into the grid is called distributed generation. Distributed generation will require much more sophisticated grid management a much smarter grid. I understand that they have already had problems managing this in Western Australia. And are able to resolve these problems using ZigBee-enabled meters. Third: Support the shift to electric vehicles. Plug-in electric cars are about to enter the New Zealand with Mitsubishi having launched theirs last month. Lines companies will need to have a lot of control over the charging of electric cars. Imagine if people drove home from work, plugged their cars in about 6.00 pm, and they all started drawing power. Charging the new Mitsubishi will be something like a clothes dryer on full blast for seven hours. Charge times will need to be staggered through the night. And seven hours is a slow charge. The rapid chargers being developed overseas demand about 7 kw of power. This is about the same as the current peak demand of an average house. In the UK a recent study showed that if all cars in the UK were replaced by electric vehicles tomorrow, electricity use would only rise by 20%, but peak demand would rise by 400%. Fourth: Making the electricity system more reliable and secure. A lines company recently showed me a photo of a transformer on fire. One of those olive green metal boxes you see on the roadside. The transformer served a number of houses. It got overloaded lots of appliances switched on at the same time it couldn t cope with the peak. And it caught on fire. The lines company had no idea this had happened until customers began phoning in saying they had no power. 7

9 Because the grid isn t smart if the grid was smart, they would know straight away. And they would know which houses had lost power. In this case 66 households lost power for up to 18 hours and many others were affected. All over the developed world, smarter electricity grids are being developed. It could be argued that this is particularly important in New Zealand our long thin country can t trade electricity with other countries and so our electricity system is particularly vulnerable. We have been innovative in the past 60 years ago we developed ripple control on water heating. Our electricity infrastructure is ageing and increasingly greater demands are being placed on it. When it fails -- as it did for five weeks in the Auckland CBD in 1998 the economic costs can be huge. It is estimated that 400 businesses fell victim to that long blackout. In conclusion Lying beneath this kerfuffle about smart meters and smart grids is a battle between retail companies and lines companies over who should be in control. We have progressively fragmented our electricity sector in this country with a confusing number of companies all doing their own thing. Hands-off isn t always efficient. I am not advocating regulating and standardising every aspect of smart meters and smart grids. But where communication interoperability between devices is required, doing your own thing cannot be the best way to go. What I am advocating for is that New Zealand lifts its game. That we stop assuming that other countries are getting it wrong. I suggest that this committee take a close look at what the UK is doing because what they are doing makes a lot of sense. I am not completely pessimistic about what is going on here -- the emergence of SmartCo is very encouraging. But until there is some real leadership in this sector, the frustration will continue. What we need are really smart meters and a smart grid that will serve retail companies and lines companies and consumers and the environment. That is the challenge. 8

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