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IBM recently published a case study on "smart" power meters. Those power meters read consumption data many times a day and record that data so that it can be analyzed. IBM claims

[cool stuff]Giving consumers more visibility into their energy consumption and utility companies a deeper understanding of how energy is being used.

Please note that these meters are household units - one installed on the consumer side.

Okay, consumers can analyze their usage patterns better - great. But what about utility companies? Don't they already have beefy measurement equipment installed on beefy wires going from their facilities? Will such meters really give something new to the utility companies?

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A few parts to this.

  1. Many electricity companies have no way, without a smart meter, to monitor your usage. They will simply send someone to read your meter every 3 months or so and average out your consumption over a year.

    At ScottishPower we’re always looking at ways to make it easier for you to manage your energy account.

    Having online access to your energy account allows you to be in control at all times.
    You’ll be able to:

    • Input your own meter readings
    • ...

    source

    Clearly not having a huge number of meters to read is an economical advantage.

  2. Energy companies plan and buy in advance energy, fuel, coal, emissions, etc. on Energy commodities markets. Being able to predict exactly how much energy or prime materials they need allows them to speculate better on the markets.

    See for example http://www.eon-energy-trading.com/cms/en/index.jsp, the trading branch of e-on.

Surprisingly enough, these "branches" make energy companies more revenue than actually selling energy on the consumer market.

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    The branching happened around the turn of the century when the power dereguation happened. Energy companies like Dynegy "Merged" with distrubition power houses like "Illinios Power" in theory to leverage the power generation and distribution capabilities each had. In practice as soon as the required 5 years was up Dynegy sold the IP distribution to Ameren who is specializing in distribution. This happened pretty consistantly through out the energy sector. I know the Dynegy part because I worked there. – Chad Jul 28 '11 at 13:45
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    And the result is that distibution companies now make more money from maintaining the infrastructure than selling the power. So if they can manage the power distribtion more effieciently they can make more money. – Chad Jul 28 '11 at 13:49
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Smart meters would allow to better predict energy usage peaks. Energy companies have 3 ways of dealing with peak demand:

Each of these options means considerable cost to the power company, so if they can do it only when as needed and when needed, they would save significant part of that cost.

Smart meters are part of wider idea called smart grid.

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    Why do they need per-household smart meters for that? Why isn't a huge per-company meter enough? – sharptooth Jul 28 '11 at 14:12
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    @sharptooth - because the grid doesnt have a single termination. It consists of lines that connect with substations that transmit power to locations. And by the time they realize they are beyond their limit at these points they are having failures elsewhere. Not to mention they want to charge you for the power you use. And I dont want to pay for my neighbors power hungry welder. – Chad Jul 28 '11 at 14:53
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Smart meters are useful to utilities for two very specific, immediately practical reasons:

  1. They reduce labor needed for meter readings and home visits.

  2. They give time of use data, which allows the utility to set prices for the customer that change based on time of day or the season, effectively discouraging electricity use when prices are really high.

Smart meters actually don't have much of an effect on trading or hedging strategy. Utilities already have real-time customer demand data at aggregated levels. If they didn't, they wouldn't be able to constantly supply the right amount of power to their customers -- electricity can't be stored, so there's a constant balancing act between demand and supply. When demand goes up, the price of power goes up.

Utilities don't want customers to use electricity when electricity prices on the wholesale market are really high because they end up with lower profit margins, or even end up paying more for the electricity than they're billing the customer. Smart meters help change that by giving the utility the means to charge more when price are usually higher. They also deter customers from using electricity during times there may be major price spikes incidents that utilities can't reasonably pass on to the customer.


This is a pretty short explanation, and I've purposefully left out mention of residential demand response because that involves more than just a smart meter. You may also take issue with a couple simplified concepts; for example, utilities aren't necessarily losing money when real-time prices are really high, because they might be able to cover demand just by running the plants they already own. However, they're losing the opportunity to sell their own electricity onto the market at very high prices. Essentially, it's still lost money.

The facts in this answer (that smart meters send real-time or near-to-real-time data, that electricity can't be stored, that utilities didn't used to know what time of day customers were using electricity, that there can be a lot of volatility in wholesale electricity markets) are probably too basic to need a citation? I'm still trying to get a feel for what the standards are at the Stack Exchange community... I think this just building a framework around the facts that have already been established in this thread.

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