By Cameron O’Reilly

At a meeting of the Ministerial Council on Energy (MCE) in Canberra on the rather ominous date of Friday, 13 June 2008 Australia’s energy ministers committed themselves to the development of a consistent national framework for smart meters throughout the National Electricity Market (NEM).

As is common in our fragmented federation, the various state governments have in mind different timeframes for the rollout of smart meters, with the largest in terms of population, New South Wales (NSW) and Victoria, aiming for a deployment of five million meters by 2017.

In many respects, the MCE decision was clearer about what it wanted to avoid, rather than what it aims to achieve. Ministers clearly do not want to see a repeat of Australia’s infamous problem with different rail gauges in different states, something that impacted on interstate trade for a century. Hence the emphasis on a national approach to technical standards. The desire for national consistency may also have led them to enshrine an uncontested role for distributors in rolling out the meters.

While the latter point may be a bone of contention for some retailers who see advantages in the competitive tension that would arise from contestability, the bigger issue is whether decisions made in relation to metering are consistent with other policy steps taken by governments. The most critical of these is the removal of distorting retail price caps. These caps stand between the price signal to customers and the demand side response which is critical to sustaining the business case for rolling out smart meters.

In this regard, while NSW and Victoria may be in step on smart meters, they are on opposite pages when it comes to price regulation. Having developed a retail energy market, which according to VaasaETT, is the most competitive in the world in terms of customer switching, Victoria looks likely to phase out retail price caps for all customers from 1 January 2009. With over a dozen retailers active in the Victorian market, smart meters may well be one of the catalysts for the introduction of a range of new market products that will accompany the deregulation of pricing.

By contrast, NSW, has a far less competitive retail market. Worse still, as part of a current plan to privatise government owned retailers and generators, the NSW government has committed to extending retail price regulation until 2013.

A 2007 report by Frontier Economics for the Energy Retailers Association of Australia (ERAA) identified significant costs to retailers from a smart meter rollout, particularly in the areas of data management and billing system enhancements. Only if there is a noticeable customer response to price signals delivered through new metering technology can such expense be justified. As far as retailers are concerned, the jury is out on whether Australia’s energy ministers have taken a bold initiative, or are engaged in an expensive folly.