Every industry observer is well aware that intelligent metering is taking hold of an increasing part of the European market. Sweden is on track with the implementation of remote meter reading for all electricity customers by July 2009. The legislative text was finally adopted by the Swedish government at the end of December 2006.
According to the Swedish Energy Authority, 20% of the household meters had been replaced by October 2006. early 4.3 million units will, however, still need to be installed over the coming two-year period. There have been some warnings that shortages of authorised installation personnel may disturb this process. Electricity distribution network operators in Denmark, Finland and Norway are now clearly seen to be following their Nordic neighbour in the adoption of intelligent metering.
Even though no legislation has been proposed in any of these countries, the leading energy industry players all seem to have arrived at the conclusion that their billing processes have to be brought up to date with the liberalised energy markets. Market forces apparently do the job that not even the most vigorous AMR marketing campaign has ever accomplished. Local Nordic players such as Telenor Cinclus, Enermet, Kamstrup and Metrima are benefiting from strong demand from the regional market, but also face stern competition from internationals such as Echelon, Iskraemeco and EDMI. Italy, of course, is coming ever closer to achieving complete market penetration for remote metering solutions in the electricity sector.
The Netherlands is also heading in the same direction. After a thorough public investigation, the Dutch authorities have arrived at the same conclusions as their Swedish counterparts, namely that accurate individual energy bills will benefit the national economy. A Dutch law requiring frequent reading of all electricity meters is expected to become a reality in the near-to-medium term, even though all the details have not yet been fully worked out. Curiously, the British authorities are of a different opinion. For them legislation is not the way to create incentives for end-customers to reduce their energy consumption.
Even though accurate, individual energy bills are regarded as a good thing in principle, there are serious reservations regarding the cost of implementation and fears that large-scale rollouts may cement an unfavourable, uncompetitive structure in the metering industry for decades to come. Amid this uncertainty, commercial players are naturally reluctant to make major investments before any final decisions are made. In the meantime low-tech, low cost metering easily drives advanced solutions out of competition.
A EUROPEAN MARKET TREND?
Why are all the markets evolving in different ways? After all everyone uses the same kind of electricity. Could there ever be a coherent European market trend? The answer is probably ‘no’ in the short term but gradually leaning towards a ‘yes’ in the longer term. Even though there is a European Union that is on its way to forming a common electricity wholesale market, there is no sign of any homogenous European electricity consumer market. To start with, European countries have completely different energy systems and infrastructure. Some, such as the UK and the Netherlands, have near total penetration of natural gas among households.
In the Nordic countries this share is below 4%. Norway, with some of the largest deposits of natural gas on the whole continent, does not even have a domestic household gas network. Instead the country exports this natural resource to its neighbours. Additional differences are seen in the consumption patterns for electricity. The EU average quota per customer is about 4,500 kWh annually. Norwegian households use not less than 15,200 kWh per year. Swedes and Finns use 9,200 kWh and 8,600 kWh respectively.
In Poland, Latvia and Lithuania the average is less than 2,000 kWh annually. Finally there are taxes that have a large impact on retail prices. According to statistics for 2005 published by Eurostat, taxes constitute anything from 5% to 58% of the retail price for electricity in the EU. Denmark has the highest tax level, followed by the Netherlands. At the other end of the scale are the UK and Portugal. Excluding taxes, the average retail price for electricity was about €10.10 per 100 kWh in 2005. Individual countries were, however, spread out in a large span of +/-50%. With taxes included the span widens to +/- 70%.
Obviously there is a significant variance in the value of measuring the consumption of 100 kWh if it is going to cost €23.62 as is the case in Denmark or €7.00 as in Greece. Differences in wholesale prices should be expected to level out over time. If perfect market conditions were in place today, the wholesale prices in Italy and Germany would in theory drop by 50% and 30% respectively, whereas price levels in Greece and Finland would increase by 60% and 30% respectively.
But as long as national tax levels remain unchanged, not even a harmonised wholesale price would do much to close the 120% gap between electricity retail prices in Denmark and the UK. Energy taxation remains a national issue and any attempts to impose harmonisation from Brussels are highly unlikely, let alone that such proposals would hardly be approved by the EU member states. So what has this theoretical economical exercise got to do with metering? Very much indeed it seems.
Market research conducted by Berg Insight has identified a clear empirical correlation between the average energy expenditure and the adoption of remote meter reading. The most mature European markets for AMR/AMM solutions share one common trait, namely that household electricity expenditure is significantly above the EU average. This is either due to high consumption, high taxes, high wholesale prices, or a combination of these factors. As explained above, Norway, Sweden and Finland are exceptionally large users of electricity for, among other things, heating.
Denmark and the Netherlands have uniquely high energy taxes. Italy is characterised by exceptionally high wholesale prices. These are exactly the countries that lead the adoption of intelligent metering in Europe. In the graph of electricity retail price and household electricity consumption they are found at either of the extremes of the two axes (Figure 1).
The UK, which so far has been unable to identify sufficient benefits with remote meter reading to justify full-scale implementation, has both the lowest taxes on electricity in the EU and an average consumption that is below average due to the widespread use of natural gas. In the graph, the UK is positioned close to the intersection, which is a sign of a limited commercial potential for remote meter reading in the country. According to this model, two parallel trends will impact the economics of intelligent metering in Europe over time.
Firstly, higher energy prices will push more countries towards the price levels currently experienced in Denmark, Italy and the Netherlands. Germany is currently closest to this point with only slightly lower prices than its northern neighbours. Even though the energy market liberalisation is expected to create competitive pressures on general price levels, this effect will undoubtedly be overrun by higher taxes on carbon dioxide emissions and the higher production costs for renewable energy.
Secondly technology development will decrease the price of smart meters and thus make them commercially viable on additional markets. Component prices for PLC as well as GPRS communication modules are sliding rapidly as market volumes increase. As discussed above, the financial incentives, however, differ significantly between markets
Legislation is no doubt also impacted, since it can hardly be a coincidence that two of the countries with the highest consumer expenditure on electricity have taken this direction whereas others do not see any reason to do so. So for now, the most accurate forecast for the European intelligent metering market is slow but steady progress on a country-by-country basis.