The Case for Smart Meters

We came across an article in the Wall Street Journal that explained some of the features of ‘Smart’ electricity meters. Unlike conventional meters that record the usage of electricity on an aggregate basis, smart meters measure consumption by time and day. Using a conventional meter means paying the average price for the month. Using a smart meter means paying spot prices on a continual basis. That means that electricity is more expensive between 4 and 6 pm than it is from 2 to 4 am, for example.


Peak load pricing is not a new thing. We see it in telephone service (discounted long distance after 7 pm), cell phones (free evening and weekends), parking (outrageous prices from 8 am to 5 pm and flat rates thereafter), movies (discount matinees), public transit and a host of others. These services typically have the same marginal cost and changes in demand or demand elasticity are responsible for the change in price, a change that is required for rationing.

Electricity is a little different. Currently the two cleanest sources of electricity available on a large scale are hydro and nuclear. They also have very low marginal costs of production. When the demand for electricity exceeds the capacity of our dams and nuclear generators we must turn on the generators that use fossil fuels – largely coal and natural gas. The increase in marginal cost implies an increase in the price of electricity at peak periods, in addition to the effects of demand and elasticity changes.

The implementation of smart meters gives buyers of electricity an incentive to shift their consumption, where possible, to periods where usage and therefore prices are lower. By doing so, the buyers can reduce their total electricity bill. Spreading consumption out more evenly throughout the day also reduces the need for fossil fuel generators at peak periods. An external benefit is that shifting consumption can lead to reductions in GHG emissions.

Until we have a change in technology that allows for the inexpensive, efficient storage of electricity, smart meters appear to offer the best economic incentive to reduce power usage during peak periods.

Interesting asides:

ScottishPower has an effective “battery” at is Cruachan facility.

BC Hydro had a press release on February 18, 2010 announcing their smart meter program

BC Premier Gordon Campbell announced on September 20, 2007 that smart meters were coming to BC. See Vancouver Sun article.

The Ontario government introduced legislation on Nov 3, 2005 to start the implementation of smart meters in that province. See the CBC News article.