By Dr. Thomas Haller and Mark-Daniel Rentschler

Following the decision of the German Bundestag and Bundesrat to introduce smart power and gas meters for all new buildings from 2010 as part of the liberalisation of metering and measurement for power and gas, smart metering has become a key issue for utility companies across the country.

This article outlines the market situation in the household customer segment and possible product options arising from the use of new electronic meters for power and gas suppliers in Germany. It is based on a quantitative study conducted in August 2008 in Germany [Simon-Kucher & Partners – Energy Market Monitor 2008], the authors’ project experience in the field of product development and smart metering, and interviews with energy companies.

MARKET SITUATION IN GERMANY
Legal regulations are without doubt the main factor driving smart metering for power and gas. Utility companies are addressing the issue primarily in response to new German and European legislation.

Another important driver is the current public debate on climate change and reducing CO2 emissions. Growing awareness of climate and efficiency issues is increasing the pressure on utility companies to actively address the subject of energy efficiency. Therefore, smart metering currently has a high priority at German utility companies — not only in solving the technical issues but also in developing customer-oriented smart meter products. The introduction of specific smart meter products has not yet started.

The current German legislation does not stipulate any particular standards for the new smart power and gas meters that are to be introduced in all new buildings at the beginning of 2010. This has led to extensive discussions among the utility companies, which are calling for amendments to the legislation in order to secure worthwhile investments instead of potential sunk costs. [www.ksta.de (March 2009)]. Nevertheless, most utility companies are addressing the issue and some of them are actively testing smart metering in pilot projects.

CURRENT PRODUCTS AND PILOT PROJECTS IN THE GERMAN SMART GAS METER MARKET
Despite the liberal market environment, YelloStrom (a wholly owned subsidiary of EnBW) is currently the only utility company to provide a commercial offer for smart gas meters. It has been offering gas in combination with a smart gas meter since October 2007. This product is still restricted to two German cities, and can therefore also be regarded as a sort of a pilot project [www.yellostrom.de]. Currently, all major utility companies are conducting pilot projects with smart gas meters, too. Most pilots focus on the technical side and involve the multi-utility approach. EWE, one of Germany’s top ten utility companies, has introduced the concept of the “EWE-Box”, which includes a communication device to read and steer power and gas consumption. The pilot project involves 400 customers.

EWE wants to find out what the customers think about the product and how much their energy consumption decreases when they have a smart meter installed. It also aims to achieve greater transparency with the help of a real-time consumption overview on the internet [www.ewe.de].

E.ON Bayern, a regional subsidy of E.ON, is testing 10,000 smart meters for power and gas throughout Bavaria which were all out of stock within three days of the offer being announced to customers. The pilot project covers technical as well as retail aspects. For E.ON Bayern, one main focus lies on finding the most effective data transfer communication system for each situation, such as within a city with many customers close by, or in the countryside with only a few customers. Secondly, the company is testing the possibility of levelling out and steering the net capacity if decentralised energy supply is integrated in the future.

The retail aspects focus on product development issues: Which tariffs do the customers accept? Which ways of displaying the gas consumption and costs are preferred? How much gas and money can customers save through smart metering? In the first phase, E.ON Bayern is providing the customers with details of their hourly gas consumption and costs via its password-protected internet portal. In the second phase, product options such as a monthly invoice might be offered. The pilot project is being accompanied by a market survey in order to track the customers’ desires.

Mr. Pfluegl, project leader of the pilot in Bavaria, summarises the first results: “Due to several gas price reductions this year we are able to send the pilot customers precise invoices based on actual consumption, not estimates. Besides that, we have already received some very positive customer feedback about energy savings thanks to the new awareness of how much energy is consumed and how much it costs hour for hour. We are very keen to see how much energy and money the customers will ultimately save as a result of the improved transparency.”

E.ON Bayern’s pilot project will continue until the end of the year. One prediction can already be made: installing a smart gas meter without a compatible smart power meter will be difficult due to the lack of technical standards and development in communication technology of smart gas meters [E.ON Bayern, interview with Mr. Pfluegl, project leader (April 2009)].

Given this market situation, it is becoming increasingly important to come up with offers and solutions that are in line with the customers’ wants and needs. In general, a smart meter device opens up several options for new products that would otherwise not be possible.

New smart1

NEW PRODUCT OPTIONS WITH SMART METERING
Product options resulting from the use of smart meters can be divided into four groups (see fig. 1): 

  1. Monthly bills for the exact amount consumed 
  2. New time- based, volume- based or indicator- based tariffs 
  3. Consumption and cost visualisation 
  4. Additional services.

We will now briefly describe these four groups, with a focus on structuring new tariff models. 

  1. Simply replacing a mechanical meter with an electronic meter that can be read remotely opens up numerous options that were previously too expensive, impractical or impossible. One example is the introduction of monthly bills for the exact amount consumed, which offer customers greater transparency about how much gas or power they are using. Interim readings can also be taken, thereby eliminating the need for estimates when prices are adjusted during the year. In addition, remote readings can be taken at any point in the year, such as when a customer moves house. Especially for smart gas meters, companies need to ascertain which customers would prefer monthly payments for the exact volume consumed, and which would prefer equal monthly instalments, as is currently the case in Germany. A monthly payment of the exact amount consumed would lead to very large payments during the heating period and almost no payments in summer time. 
  2. Independently of offering a consumption breakdown, utility companies can launch new tariff models for standard customers that extend beyond an off-peak tariff (see fig. 2). Time-based tariffs can be broken down into more than two time periods. Two aspects must be taken into account here: the needs of the customers, and the needs of the utility companies, such as cutting consumption at peak times. Different tariffs can be offered to different customer segments: weekend tariffs, for example, or tariffs that vary according to the time of day or the season of the year. The options for the energy suppliers are virtually unlimited here. To be successful, however, the customers’ needs and demands must be borne in mind as early as the product development stage. In volume-based tariffs, the prices are based on the amount of power or gas consumed. In indicator-based tariffs, the gas or power price is based on an exogenous indicator such as the price of gas (or oil), the current temperature, or the volume of regenerative energy (e.g. natural gas) being fed into the grid. 
  3. As the smart meter can be read remotely, current meter readings can be sent at any time to a control station or a customer terminal. One obvious option is to provide an online breakdown of consumption data, a service that many utility companies are currently testing. Gas or power customers can view their consumption levels at a password-protected website, just like they can follow their account balance with online banking. The bitrates associated with the technology do not allow consumption to be tracked in real time, however. Direct wireless connections or an in-house PLC system from the meter to a portable display unit or a computer can help to alleviate this problem. Cell phones, PDAs and televisions can also be used to show the meter readings. Depending on the medium, the data can be broken down by year, month, week, day or minute — but that is not all. The current tariff, the costs of the previous 12 months, or the estimated refunds or additional payments can also be calculated and shown, as can other information such as energy-saving tips or special offers from the utility company. This link with the internet offers options for non-energy companies such as Microsoft and Google to enter the service market — for example, by cooperating with energy suppliers or metering companies [www.yellostrom.de: cooperation of YelloStrom and Microsoft (April 2008); www.usnews.com: Google announces smart metering software development (February 2009)]. 
  4. Smart metering also opens up a range of additional services. These can be free of charge or subject to a fee, depending on the aims of the utility company and the needs of the customer segment in question. If, for instance, it seems likely that certain gas customers will have to pay extra at the end of the year, they can be given the option to increase their monthly payments voluntarily at any time. It is also possible to incorporate an alarm system that warns of over- or underconsumption.
New smart2

INTERNAL BENEFITS AND OPPORTUNITIES FOR NEW PRODUCTS
The above mentioned product options open up various new sales opportunities for energy and metering companies. In summary, the main advantages of smart metering lie in the resulting internal process improvements, sales benefits and image boosting opportunities. From the utility companies’ point of view, these benefits must be weighed up against the higher investment costs for meters, remote reading, display units, product development and the products themselves. Added to these costs are the running expenses for operating control centres and conducting marketing activities, for example. Each utility company must carefully assess whether smart metering will pay off from a business perspective.

Smart metering also opens up numerous opportunities for new products for the mass customer business. Neglecting the sales perspective would significantly diminish the possibilities relating to the use of smart meters, as well as offering no (or few) benefits to the customers.

Finally, smart gas meters should not be viewed as separate entities. Instead, they should be embedded into a comprehensive multi-utility strategy in order to gain the most benefit for both the utility company and the customers. A customer-oriented product development process is key to market success.