London, U.K. --- (METERING.COM) --- March 17, 2010 - The rollout of smart meters in Great Britain will open the door to new forms of “smart” tariffs and price incentives, which could help to support delivery of energy bill savings to consumers, economic benefits across the energy supply chain, carbon emissions reductions, and security of supply, but there are many consumer and cross-industry issues to consider, according to a new report from the think tank Sustainability First.

Today most customers in Britain pay for gas and electricity on either a standing charge tariff or a two-tier tariff. There is also a successful history of simple time-of-use off-peak electricity tariffs.

Smart tariffs used in other countries have been mainly time-of-use, designed to reduce peak demand for electricity, to help improve security of supply or to reduce the investment costs of meeting peak demand. There has been far less use of energy saving or overall demand reduction tariffs, such as rising block tariffs and so far there have been no trials of smart tariffs for gas, although Ireland is considering one.

Gas currently dominates space and water heating in Britain – around 80 percent – but demand is largely saturated and possibly starting to decline due to more efficient boilers, better controls and improved insulation. Household gas customers reduced their use by 12 percent overall from 2005 to 2007 in response to higher prices. However, in 2008, when the winter was colder, household gas use rose by 3 percent, despite prices rising in real terms. Therefore, there appears to be some available price response for household gas, but people will understandably choose extra heat rather save money if the weather is very cold.

Around 30 percent of household electricity is consumed by electric space heating and cooking and around 70 percent by appliances including lighting. Real price increases for electricity between 2005 and 2007 suggested a modest demand reduction in 2007. In 2008, despite real price increases, demand for domestic electricity rose by 2.4 percent. Around one fifth to one quarter of household electrical appliance load could be “discretionary” or price responsive – mainly wet appliances. Very significant new household electrical load from cars and from heat is likely only well into the 2020s, although there will be some new load from heat and cars before this.

In the light of these data, the report finds that for the foreseeable future, reducing household gas consumption through better insulation, heating controls and boilers and behavioral change is likely to be the most effective way of reducing household carbon emissions, although new approaches to pricing could support these measures.

At present the value of electricity demand side response and scope in the household sector may be rather modest. Many practical issues need to be addressed now, however, to facilitate realization of the longer term benefits if there is significant take-up of electric cars and new forms of electric heating. Electric cars and heat are only likely to be affordable if these appliances can be mostly charged at low price periods, so automation will be essential.

Further smart tariffs will be, and should be, optional for consumers. Consumers should not be “locked in” to punitive terms which might tie them to unsuitable tariffs. Consumers need enough information to make appropriate choices, and suppliers need to work with consumer groups and Ofgem to avoid over complexity in the range of tariffs they offer.

The report was authored by energy policy specialists Gill Owen and Judith Ward, who have published various reports on policy relating to smart metering in Britain.

“Price signals, tariffs and improved feedback will have a part to play in future, but the physical measures will need to be in place to make energy saving a practical and sustainable reality,” commented Ward.

“Environmental costs are a growing proportion of consumers’ bills,” added Owen. “We think there may be merit in relating these charges more closely to use – to reward low users and those who improve their energy efficiency. However, there would be a number of important issues to consider – particularly as so many low income households live in properties that are difficult or expensive to heat.”

For the full report “Smart tariffs and household demand response for Great Britain,” click here.

Other smart meter papers by Gill Owen and Judith Ward are available at www.sustainabilityfirst.org.uk