BUCHAREST UNIVERSITY OF ECONOMICS STUDIES [308132]

BUCHAREST UNIVERSITY OF ECONOMICS STUDIES

FACULTY OF BUSINESS ADMINISTRATION IN FOREIGN LANGUAGES

ENERGY MBA

SMART METERING IMPLEMENTATION

STUDY CASE SCENARIO FROM THE DISTRIBUTION SYSTEM OPERATOR PERSPECTIVE

Master Thesis

Scientific Coordinator:

Prof. Dr. Dr. Adrian Dumitru Tanțău

Stundent:

Nicoleta Ionela Poenaru

Bucharest

2017

Table of content:

List of Abbreviations…………………………………………………………………1

Introduction……………………………………………………….…………………..2

Chapter I. Smart metering implementation………………………………….…..……..4

1.1 [anonimizat], [anonimizat].…………………..…….……4

1.2 Legal framework for smart metering implementation…………….……………………………..13

1.3 Challenges, arguments and risks in smart metering implementation………….……………….…15

1.4 Benefits and barriers in smart metering implementation………………………….……………..17

1.5 Smart metering implementation landscape in European countries………………………………20

Chapter II. Methodology of Cost benefit analysis…………………………………22

2.1 [anonimizat]………………………………………………………………..22

2.2 Smart metering implementation project……………………………………………………….…25

2.3 Project scope and technical requirements……………………………………………..…………28

2.4 Smart metering architecture………………………………………………….………………….32

[anonimizat]……………………………………………………………36

[anonimizat]

3.1 Study case setup…………………………………………………………..………………….….36

3.2 Cost benefit analysis……………………………………………………………………………..38

3.3 Quantification of costs and benefits……………………………………………….……………..41

3.4 Conclusions and recommendations…………………………………………………….……….50

References……………………………………………………………………………………..…….51

List of Figures.…………………………………………………………………………….………….53

List of Tables………………………………………………………………………………….…..…53

[anonimizat]-term 2050 greenhouse gas reductions target.

The implementation of smart metering was the requirement of Third energy package approved by European Parliament in 2009. Until 2020, 80% of EU Member States consumers should have smart meters installed. [anonimizat].

A majority of the State Members have adopted regulatory framework and the implementation of smart metering projects is almost finished. [anonimizat], including a Cost benefit analysis in order to set up the necessary economical and technical condition for introducing of smart meters.

This paper includes a review of smart metering concepts and analysis that include:

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Expected benefits and perceived barriers of smart metering introduction and implementation;

Landscape of smart metering implementation in European countries and an analysis of different market structures;

Presentation of Methodology of Cost benefit analysis;

Analysis of main benefits and costs associated with the implementation of smart metering projects, a quantitative and qualitative analysis;

Presentation of background, objectives, scope and technical requirements of smart metering implementation project;

A briefly presentation of smart metering architecture;

Presentation of Study case – Cost benefit analysis for smart metering implementation project, DSO perspective;

Study case setup, assumptions and delimitations, costs and benefits quantification, determination and interpretation of results.

The purpose of this study case is to present my findings and the results of Cost benefit analysis for the smart metering project implemented by a DSO perspective. Also, the paper provide conclusions and recommendation how to improve smart metering implementation in energy sector.
I worked closely with ANRE experts who are monitoring responsibilities regarding implementation of smart metering pilot projects in Romania and DSO experts that were directly involved in implementation of this project.

Chapter I

1.1 Smart infrastructure, smart energy use, smart prices, smart devices

European Union targets for 2030 were set up based on full implementation of the 20/20/20 targets.

These targets intended to determine Member States and EU to become more competitive, secure and sustainable from energy point of view and to meet long-term 2050 greenhouse gas reductions target.

Targets for 2030 are:

40% cut in greenhouse gas emissions compared to 1990 levels;

At least a 27% share of renewable energy consumption;

At least 27% energy savings compared with the business-as-usual scenario.

Regarding the costs to fulfill the targets it is not big difference from the price that Member States have to pay for replace ageing energy system.

In order to meet the targets for 2030 the European Commission proposed certain policies for 2030:

A reformed EU emissions trading scheme (ETS) that is a cornerstone of the EU's policy to combat climate change through reducing greenhouse gas emissions.

New indicators for the competitiveness and energy security, supply diversification, and interconnection capacity between EU countries.

New governance system based on national plans for: competitive, secure, and sustainable energy. The plans will improve coordination at European level, grow the investments and will rice the transparency.

Smart grids and smart metering implementation were a requirement of the Third energy package that is a EU legislative initiative, approved by European Parliament in 2009. The main objective were to improve competition in the gas and electricity markets and provide unbundling ownership for generation, transport, distribution and the supply of energy. Also, other important objectives were: increase energy efficiency and consumption generated from renewables together with climate change mitigation through greenhouse gas emissions and carbon emissions reduction.

The full European Union targets for 2020 were settled up in the following directions:

Employment: 75% of the 20 until 64 year-olds to be employed;

R&D / innovation: 3% of the EU's GDP to be invested in innovation;

Climate change / energy:

20 % reduction of EU greenhouse gas emissions compared to 1990;

20% of energy consumption to be generated from renewables;

20% increase in energy efficiency;

Education:

school drop-out rates below 10%;

more than 40% of 30-34 year-olds completing third level education;

Poverty / social exclusion:

20 million fewer people in or at risk of poverty and social.

Smart urban energy networks

Half of the world’s population lives in cities and three quarters of the world energy consumption takes place in cities, accounting for 80% of greenhouse gas emissions (GHGs). Estimations predict the share of population living in cities to rise to 70% on average and up to 85% in industrialized countries by 2050.

Source: World Urbanization Prospects, Published by the United Nations in 2016.

These numbers show it is important that urban energy networks have to cover the energy needs of a city’s growing population. This network includes the production, transport, distribution, supply and storage of energy. Cities are mainly passive energy consumers with all the power plants located outside the urban area. Only for small communities it is possible to have locally power plants, energy transformation stations and distribution grid as a small network.

Urban energy network development through continuously investments is important for EU targets fulfillment until 2020 but there are another aspects that can influence, as: different local energy markets and different regulations, customer behaviors and cultural aspects. Also need to be taken into account implementation of sustainable and predictable support schemes.

Political and urban developments, technical progress as well as ecological restrictions and climate change mitigation measurements influence today’s energy sector and affect the grid and generation infrastructure. Energy supply, transportation and distribution is based on a centralized concept, while in the future decentralized generation will increase significantly.

For 2020 EU targets implementation it is compulsory to grow share of renewable in energy mix and in this will require the use of energy storage until now unavailable to broad range.

In the future energy supplies and generators will face the accelerating depletion of natural resources which requires upgrading of existing grid and metering infrastructure and increased generation from renewable sources in order to avoid the negative impacts on local economies and communities. Additionally, another factors as political constraints, regulatory framework, increasing energy demand and climate change mitigation must be take into consideration.

An integrated energy management systems (from generation to distribution and consumption) rely on comprehensive networks feeding energy-related data into a multifunctional information and communication technology (ICT) platform, which will enable a range of smart services and devices based on real time data. In particular, the use of ICT leads to: an optimal design and operation of the urban energy networks, a good communication between technologies that allow monitoring the performance of the smart cities and improve the communication with end-users. Networked demand response systems can reduce peak loading on aging electric grids and eliminate overloads. The added value of installing smart metering lies also in the multiplication of multi-usage that will generate the production of large amounts of data and improve future post-analysis and decision-making processes.

In his article M.A.F. Ghazvani at all (2017) mentioned that it is essential for households to participate actively in demand response programs. The Home energy management system is very important to schedule the consumption with controllable applications in smart households. This system can facilitated energy storage. Also electric vehicle and electric water heater are incorporated in Home energy management system and this can create the premises for energy independence.

Urban energy networks should be built on two complementary pillars:

On one hand the technical dimension, dealing with the selected technologies and energy flow paths – including the availability of the energy resources, the evolution of demand for the different involved energy types or the control of technologies regarding energy conversion, transport or storage;

On the other hand, the decision-making dimension, considering the economic and societal impacts.

Therefore, urban energy networks rely on the integration of:

processes (e.g. policy, decision making, urban and infrastructure planning processes, financing and stakeholder processes),

concepts (e.g. integrated planning and design approaches, energy efficiency measures; decentralized and centralized energy production strategies for heat, cold, electricity and fuels; mobility, waste and water strategies) and

technologies (e.g. trigeneration technologies or combined cooling, heat and power, renewable energy technologies, storage technologies, technologies for cascade use of resources, smart electrical and thermal network components, mobility technologies, ICTs).

The approach of smart urban energy networks should be a holistic one, respectively interactions between energy and mobility, water, waste, the quality of life and socio-economic conditions within the city addressed from an energy point of view (demand, supply, distribution, storage, transport, generation). This involves, considering the following topics addressed in a general and integrated planning and implementation framework at city scale: smart energy networks, urban network integration, local integration of renewable energy technologies, energy storage, energy efficient buildings and human factors.

Smart energy networks and Smart electricity grids

Smart energy networks represents a spatial and temporal modeling of multi-energy systems in urban environment, surplus renewable electricity effectively handled by electricity-to-thermal conversion, multi-sources energy management or balancing, connection of building clusters to the smart grid, end-use mixes (industry, households, commerce), energy demand mapping (heat, cold, electricity, gas).

The European Union defines them as “electricity networks that can intelligently integrate the behaviour and actions of all users connected to it – generators, consumers and those that do both – in order to efficiently deliver sustainable, economic and secure electricity supplies”. The US Department of Energy adds the capacity of “self-healing from power disturbance events, operating resiliently against physical and cyber-attack, accommodating all generation and storage options and optimizing assets and operating efficiently.”

Source: European Technology Platform for Electricity Networks of the Future, key European forum

Most European countries are today involved in smart grid pilot projects. The implementation and application of ICT intervenes at different levels of the power chain, targeting generation, transmission and distribution grids, smart metering and finally intelligent buildings. At plant level, monitoring devices measure power outputs and consumptions in real time, sending data back and forth to the electrical network manager and the consumers. Monitored distribution grids come along with demand-side management strategies which help grid operators anticipate the load schedules and ensure network’s stability, entailing adapted pricing schemes. At residential levels, the installed smart meters allow the regular reading, processing and feedback of consumption data to the customer. Today demand response by domestic energy users is not yet a spread practice. However, when all buildings and national companies are able to adapt their energy consumption on demand, the reliability of supply, the stability of the upstream (production) and downstream (consumption) markets, the customer awareness and the global network efficiency will be enhanced.

Smart electricity grids constitute a priority for the EU in the energy field and was featured in the European Commission's Energy Union package.

The International Energy Agency (IEA) defines the smart grid as “an electricity network that uses digital and other advanced technologies to monitor and manage the transport of electricity from all generation sources to meet the varying electricity demands of end-users”.

Source: IEA report, 2011.

Y. Kabalci (2016) makes the difference between the conventional power grids that have to generate and distribute the electricity and the Smart grids where the infrastructure is more flexible and can afford several distributed generation sources, such as renewable or micro – generation power plants. The communication components of a Smart grid includes wireless technology as power line communication – PLC. A Smart grid structure with all components are depicted in Figure 1:

Figure 1 Smart grid structure

Source: Y. Kabalci (2016)

Smart grids can have more contributions to energy efficiency, as follow:

Increase the share of renewables in the energy mix;

Reduce the infrastructure required for electricity supply;

Allow renewable energy sources who is intermittent, wind, solar, to be more easily compensated by conventional forms of energy when user demand is high or the energy supply from renewables is low;

Reduce demand peaks for energy, by sending price signals that encourage consumers to adjust their energy use to off-peak periods.

Empower the consumers through curbing overall energy consumption and making them more aware of their energy use and when it is use. Also, in that way the customers could be able to adjust the consumption to price signals;

Benefits for customers through more transparent and flexible pricing;

Allow consumers to sell surplus energy they generate, for example through photovoltaic panels, to the electricity grid at a defined price;

Increase technological innovation in the energy sector;

Provide “green jobs” in EU Member States.

In order to develop smart grids across the Europe, the Commission encourages the deployment of smart metering across EU Member States.

Until now the smart metering deployment was different in EU Member States because of precise energy cost savings that are uncertain and the concerns about security and data protection.

In the chain production – distribution – supply – consumption, energy producers are the most supportive of smart metering and at the opposite side are the customers that are concerned particularly about the meter costs and security of personal data.

In order to meet the benefits of smart grid respond to the price signals, consumers need real-time information on their energy consumption or generation. This can be provided by advanced metering systems, which called “smart meters” that use the latest digital technologies, update information regularly and provide two-way electronic communication between consumers and the grid, especially distribution and electricity transport companies.

The traditional power grid transferee the electricity in one direction from the power plants to passive customers, while the smart grid can transfer electricity both ways.

Before,

Figure 2 Traditional power grid

Source: European Distribution System Operator's Association for Smart Grids.

Distribution system operators are responsible with this transformation, from one direction to both ways. They will increasingly manage small generators connected directly to their networks because more energy is being generated locally from domestic solar panels and wind turbines to electric vehicles and small cogeneration units or small power pants. In this way, the customers will play an active role, as a prosumers, they can contribute to enhanced security of supply and quality of service. This means distributed energy resources and in the specific case of renewables, distributed renewable energy sources.

Also, nowadays there are new forms of energy demand, such as electric vehicles. Complementary IT solutions, sensors and automation were introduced and new communication channels that allow DSOs to manage in an active way the energy generation and demand. This is a smart grid.

Now,

Figure 3 Smart grid

Source: European Distribution System Operator's Association for Smart Grids.

The main DSOs responsibilities, security of supply and quality of service, remain the same, but the network must be active manage and for this regulatory frameworks are compulsory. Smart grids are strong related with smart metering and energy storage witch went from concept to development.

Smart grids and DSOs contribution

DSOs are the operating managers and sometimes owners of energy distribution networks witch they are oblige to ensure, all times and for all customers, security of supply and quality of service through deliver electricity to homes and businesses.

According with this, DSOs have three main responsibilities: planning, building and developing the electricity network.

Also, DSOs are rolling out and operating smart meters.

There are four main challenges for DSOs across the Europe:

95% Renewable connected to the distribution grids according with European Union targets for 2030;

80% European Union roll-out target for smart meters by 2020, objective in accordance with Directive 2009/72/CE concerning common rules for the internal market in electricity;

Grow investments in smart grid and smart metering roll-out, 215 billion investments in distribution by 2030;

Increase number of customers and increase demand of electricity, 500 million customers in Europe.

Source: Directorate-General for Energy, Annual Report 2015

There are more drivers witch determined the change of distribution system from one direction to both ways:

Growing share of distributed generation;

Engagement customers as Prosumers;

Storage technologies connected to the distribution grids oblige DSOs to manage the networks more actively;

Changes in market structure, create interconnection between gas and electricity grids;

Growing energy demand for electrical vehicle charging;

Digital evolution through smart meters, network automation and data handling.

To get all this, DSOs across the Europe have four main challenges:

Engage the customers, through clear financial benefits that they will have after smart meter implementation and assuring administration of customers data while preserving their privacy and security;

Guarantee that investments in smart grid solution are recognize in costs by Regulatory authorities and paid by the final customers;

Active grid management becomes a policy and strategic priority for DSOs;

Ensure fair allocation of network costs, grid users will pay fair and cost-reflective rates;

Strengthen cooperation between DSOs and TSOs, related to data handling, grid development planning and active and collaborative grid management.

Smart Grids and Energy Union

Smart grids could have a similar effect on the EU economy as shale gas had on the United States economy. This opinion belongs of commissioner Maroš Šefčovič, Vice – President of Energy Union. According with Šefčovič smart grid development are going to increase energy independence, reduce energy imports, and provide substantial savings to consumers.

Also, Commissioner Miguel Arias Cañete from Climate and Energy considers that smart grids encourage demand-side response by consumers, and in the long run reduce the infrastructure needed to supply electricity.

Besides that, smart grids are expected to contribute to the long-term goals set by the European Council (October 2014): improve EU energy efficiency by 27%, attain a 27% EU share of renewable energy by 2030 and reduce greenhouse gas emissions.

Smart grids and European bodies

European Commission services consider that the implementation of Smart Grids should be coordinated at European level because the Third Energy Package's provisions for 80% rollout of Smart Meters in Europe by 2020 represent an innovative regulatory framework, unique worldwide and are subject to individual Member State's transposition. For this reason, it is necessary to be coordinated at European level in order to establish harmonized and cost-efficient policies and regulation, avoid duplication of work and exploit best practices.

At the end of 2009, the Commission set up a Smart Grids Task Force to advise the Commission on policy and regulatory frameworks, to develop common standards, technical requirements for smart grids and to co-ordinate the first steps towards the implementation of smart grids.

The Commission's Joint Research Centre is responsible with observing, simulating and assessing emerging power systems and smart grids developments in Europe and beyond. Also, the center keeps a detailed inventory of all smart grid and metering projects in Europe and has carried out its own research on the subject.

In 2014 the Commission's Joint Research Centre launched “The Smart grid projects outlook 2014”, the most updated and comprehensive inventory of Smart grid and smart metering projects in Europe for 2014: it includes 459 smart grid projects from all 28 EU countries and more. This report presents the latest analyses and insights from the most comprehensive database of smart grid projects across the EU Member States.

The Connecting Europe Facility support EU infrastructures and Trans – European networks in the sector of energy. The main objective is to develop infrastructure in the energy sector using public funds.

1.2 Legal framework for smart metering implementation

European legal framework for smart metering implementation

The Energy Efficiency Directive 2012, establishes legally measures to use energy more efficiently at all the energy chain – generation, transportation, distribution to final consumption. According with this was introduce provisions related to metering and billing information, articles 9-11 provide the rules about devices, invoices and information that should be provided to end customers.

Article 9 requires end customers for electricity should have a competitively price related with individual meter that reflect energy consumption and provides information on time of energy use.

This provision does not require the introduction of smart metering systems but if Member States introduce intelligent metering systems and smart metering according with the Third Package Directives: 2009/72/EC and 2009/73/EC then the smart meters must be able to measure electricity supplied to the grid from the customer’s.

There are some specifications when an intelligent metering system will be introduce:

Metering system must provide information on actual time of use;

Smart meters and data communication must be secure for end customers and the privacy data must be in compliance with data protection legislation;

Metering data should be available at customers request in a easily understandable format;

Appropriate advice and correct information must be given to final customers about mater’s potential regarding monitoring of energy consumption.

Article 10 provides that end customers with traditional individual meters, not smart, should be informed at least every 6 month how much they will be billed for the energy they used in the last period.

This article gives the final customers the right, where the smart meters are available, to detailed information on their energy consumption for the previous period and to do comparison with a typical user. Also the smart meter enable accurate billing based on actual consumption in real time and offers detailed consumption data according to the time of use for any day, week, month and year.

Article 11 establish the right for end customers to receive bills and billing information for their energy consumption free of charge. DSOs responsible for data management are oblige to give suppliers and consumers access to these data with no additional costs.

For Member States it is not enough to transpose in national legislation the art. 9-11 provisions, they must implement more elements as: fiscal incentive, access to finance, grants or subsidies and proper information and communication with customers. All this means to engage customers during roll-out process of smart meters.

The effective implementation of the Directive on Energy Efficiency 2012/27/EU in all EU Member States is still in progress.

According with the Third Energy Package through Directives 2009/72/EC and 2009/73/EC, Member States are responsible to ensure the implementation of smart metering under EU energy market legislation in the Third Energy Package. This implementation depends on long term Cost benefit analyses (CBA). Member States who have a CBA positive impose a roll–out target for electricity smart metering implementation at least 80% until 2020.

According with Directives on the Internal Market for Electricity and Gas, Member States are responsible to implement smart metering and to communicate with customers.

Also, the Directive 2009/72/EC demands that, in order to promote energy efficiency, Member States through regulatory authorities should promote regulation that recommend or impose implementation of smart metering systems and smart grids. Success of implementation depends on how customers are properly informed about the benefits of smart metering and about how actual electricity consumption and costs frequently enough to enable them to regulate their own electricity consumption. For that service no additional cost shall be charge to the customers.

Additionally, Energy Performance of Building Directive EPBD 2010/31/EU include a provision about the introduction of intelligent metering systems whenever a building is constructed or undergoes major renovation.

National legal framework for smart metering implementation

In 2014 National Energy Regulatory Authority issues Order no. 145 for implementation of smart metering electricity systems.

According to the provisions of this order the smart metering systems who will be implemented are electronic ones which measure the electricity consumption, assure the bidirectional secured transmission of information to the end customer, provide more information than a conventional meter and use electronic forms of communication.

ANRE establish the mandatory functionalities of electricity smart metering systems based on the DSOs will implement pilot projects that will be approved by the regulatory authority based on transparent criteria.

The target establish by ANRE for smart metering implementation is 80% of the number of end customers until 2020.

Also ANRE monitors the results of projects regarding the implementation of smart metering systems.

ANRE, taking into account the results of pilot projects and Cost benefit analysis regarding the implementation of smart metering systems performed by DSOs will be approve, through president order, the National implementation plan of smart metering systems during 2017-2020 in Romania and the National implementation calendar. These documents are very important for smart metering implementation planning and will contains: the calendar dates of implementation stages, and the national implementation plan of smart metering systems regarding the investment works for each DSOs, the value of them and financing sources and end customer information measures.

The provisions of Order no. 145/2014 oblige the DSOs to display on their own websites, for informative purposes, the number of smart metering systems implemented, their technical data, compulsory and optional functions and the method of communication with the information management subsystems. Also DSOs and energy suppliers are oblige to inform the end customers, mentioning on the electricity invoice the existence of the smart metering system at the consumption place.

1.3 Challenges, arguments and risks in smart metering implementation

Smart metering could be a response to the following global challenges:

Improve energy efficiency by a better transparency regarding data measurement and encouraging consumers to modify their consumption habits accordingly;

Reducing costs through optimizing operating expenses and capital expenditure, reducing grid losses and increasing investments together with reducing losses and costs of meter reading;

Growing demand for energy until 2030 as population increases by educating consumers to reduce peak load consumption;

Increasing electricity prices, expected to increase by 40% by 2020, as a result of growing demand;

Climate change mitigation to reduce pollution, carbon dioxide and greenhouse gas emissions. Smart metering can contribute to reduced peak load power that will lead to lower production and usage of power plants with high carbon dioxide emissions;

Assure security of supplies by increasing the share of base load production;

Increase renewables share in mix of energy sources that is expected to reach 27% percent by 2030 in total energy consumption; reduce fossil fuel to 50% until 2030 and reduce reliance on nuclear energy. This are actually European Union targets for 2030.

Smart metering will support the realization of EU objectives but with the adequate regulatory framework the smart meters will play an important role in: recording usage time, supporting consumption-based billing, providing detailed energy usage information, and enabling commercial management systems to audit energy.

Furthermore, encourage consumers to conserve energy and optimize consumption.

For all these reasons and more, the installation of smart meters is the right choice for all types of facilities.

Arguments and risks in smart metering implementation:

The implementation of smart metering in the electricity sector are benefits not only for European countries but also for the whole Romanian society. Through correct and clear regulations will be many benefits that can be achieved by installation of smart grid solutions based on smart metering infrastructure:

Significant reduction in the electricity consumption can be achieved; consumers can access over the internet or directly to devices present in consumption places that they can control;

Reduction of the peak load consumption using data from smart meters and using the communication channel provided by smart metering infrastructure.

There are some risks that Romania may be facing in its effort to deploy smart meters:

Technological risk

This risk can be controlled through interoperability of the smart metering systems between different vendors given the uncertainty of future technologies and for this reason it is important that regulatory bodies to work closely with utilities in defining open standard communication protocols.

Rapid technological advancements require smart meters to be interconnected in the future with the home area network advanced future technologies.

Regulatory risk

Regulations about smart metering should be defined clearly and transparent before investments are made by DSOs. It is important to know what they can expect in the future in terms of obligations and return from investments.

Also the rules must be clear for cost recovery. The cost of meter roll out is recovered through regulated tariffs and paid, finally, by the customers.

Through regulations it is important to set the minimum functional requirements for the smart meters.

Social acceptance risk

Consumers may be reticent to smart meters implementation from worries regarding:

Personal data protection, as smart meters will allow access to much more detailed data about household’s consumption and their privacy can be disturbed.

The electricity and gas prices will increase as a result of smart metering implementation.

The communication technology in smart metering will cause health problems.

In order to mitigate social acceptance risks, it is recommended that tailored educational programs be designed to engage consumers in the implementation process as early as possible and to identify customer’s needs.

Smart metering provides numerous benefits, the most important of which is greater energy awareness for customers.

1.4 Benefits and barriers in smart metering implementation

Benefits of smart metering implementation

Smart meters are the next generation of gas and electricity meters and they offer a range of intelligent functions. This includes telling us how much energy we are using through a display in our homes. They can also communicate directly with energy suppliers which means that no one will need to come and read the meters.

Smart meters offer a range of benefits for consumers. They:

Give near real time information on use – expressed in money and transparent and flexible pricing,

Allow us to better manage energy use and can help to save money and reduce emissions,

Will mean consumers get accurate bills – only be billed for the energy that actually were used,

Demand management, which help grid operators anticipate the load schedules and ensure network’s stability, reduce peak loading and eliminate overloads,

Reduce the electricity consumption through devices control, reduction of the peak load consumption using data from smart meters,

Outage & Restoration, smart metering reduce outage time and restoration.

Figure 4 Benefits of smart metering implementation

Processing by the author

Yah He at all (2016) considered that Outage management of distribution networks is a critical application that can obtain benefits from smart metering roll – out. The authors developed a method based on topology analysis and together with smart metering communication models can evaluate the impact of smart metering infrastructure on outage management.

Barriers to the implementation of smart metering

Although there is strong motivation to install smart meters, a number of barriers can hinder both the speed and effectiveness of the implementation. The following should be take into consideration:

Consumer resistance driven by data security and privacy issues regarding a household‘s behavior with negative impact in installation process of meters.

Cost is another key barrier, in most of the cases the cost of smart meter roll out can be recovered through regulated DSOs tariffs and in the end all costs will be paid by customers through energy bills.

Consumer benefits are delayed compared to costs, investment expenditures are incurred at the beginning whereas benefits are expected after a certain period of time.

Economic constraints, costs can be easily assessed, while benefits remain uncertain and distributed between market participants.

Technical restrictions resulting from the lack of standardization and the rapid development and advancement of technologies. Also technologies may not interacting between them when trying to integrate products from different suppliers.

Recovery costs may be an issue from the DSO‘s point of view who depends from accuracy of regulations and projects approval given by regulatory bodies.

Regulatory environment can, ultimately, be both a driver and a barrier. In liberalized markets, role of regulators in promoting smart metering may be limited. In addition, the regulator‘s responsibility may stretch further, protecting consumers against undue price increases and protecting consumers privacy.

M.A.F. Ghazvani at all (2017) identified and prioritized the barriers during the smart metering implementation wherewith Member States were oblige to handled and dealt with quickly to avoid jeopardizing of the project. The research provide a multi – dimensional classification of barriers during the implementation of smart metering projects. This was a real help for project coordinators to prioritize the barriers and easily facing them and to take proper action for successful project implementation.

Figure 5 Casual relationship between smart metering implementation

Source: M.A.F. Ghazvani at all (2017)

1.5 Smart metering implementation landscape in European countries

A brief analyses of smart metering implementation around Europe

The European Union’s Third Energy Market Package impose Member States to implement legal framework for the installation of smart meters. More than, in many European countries electronic meters with bi-directional communication are installed for economic reasons.

The analyses of smart metering implementation around Europe has two essential dimensions:

Legal and regulatory framework, in which countries the framework has been created, how clear and supportive are the regulations in order to achieve energy savings and demand response for the customers.

To appreciate the status were taken into consideration: cost benefit analysis existing or not, roll-out plan and timetable, implementation barriers, legal minimum functional requirements.

Market implementation, progress of implementation, number of smart meters and services to benefit consumers.

To appreciate the status were taken into consideration: data handling, roll-out status, smart metering services already implemented.

Different market structures

Difference in market structure occur because the owner of meters and responsible with data management are different bodies.

In most of Member States ownership of meters and their maintenance represent DSOs responsibility. But there are some exception:

In France, for example, electricity meters are owned by municipalities, but maintenance is the responsibility of the DSOs.

In the United Kingdom, meters are owned by suppliers.

In Germany, although the DSO is the metering operator, customers can choose their service provider and for this reason ownership of meters is unclear.

In Denmark, for example, DSOs own not only electricity, but also gas and, in some cases, heat meters.

In Romania, DSOs are the owners of electricity smart meters.

Member States smart metering implementation status

I chose several Member States to present the smart meters implementation landscape at European level. The results of implementation status is depicted in Annex no. 1.

* *

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In Chapter I have realized a brief analysis of smart metering implementation around Europe.

Smart grids and smart metering implementation were a requirement of the Third energy package that is a European Union (EU) legislative initiative, approved by European Parliament in 2009. Smart electricity grids constitute a priority for the EU in the energy field and most European countries are today involved in smart grid pilot projects.

The implementation of smart metering in the electricity sector offer a range of benefits for consumers and society but there are some risks and barriers who must be taking into consideration in smart metering implementation projects.

All smart metering projects implemented in Member States were based on Cost benefit analysis approach, witch methodology is depicted in Chapter II.

Chapter II – Methodology of Cost benefit analysis

2.1 Cost benefit analysis, the concept

Cost benefit analysis is a process by which business decisions are analysed and means an evaluation of all costs and benefits, costs during the implementation of the project and benefits that will be generated if the project is successfully finished.

The first step in cost benefit analysis is to complete a comprehensive list of all the costs and benefits associated with the project implementation.

At the end the results of total costs and benefits will be quantitatively compare to determine if benefits outweigh the costs.

Cost benefit analysis – the approach for smart metering project implementation

It is an economical oriented Cost benefit analysis based on costs and benefits incurred by DSOs. Usually, in many Member States where the smart metering was implemented the costs exceed the benefits. However the implementation goes further because of the benefits for society and impact on the entire electricity grid.

The concept of Cost benefit analysis is based on monetary perspective but from smart metering point of view some of costs and benefits can be quantified and included in analysis, whereas others need to be addressed qualitatively. Because of this, Cost benefit analyses for smart metering implementation address two main perspective:

An economic assessment – monetary appraisal, quantitative impact;

A qualitative impact analysis – nonmonetary appraisal, generally social impact.

Economic analysis – monetary appraisal/ quantitative analysis

For economic analysis is taking into account all costs and benefits that can be monetary evaluated. The analysis include also cost and benefits for whole electricity chain (for example: integration of distributed energy, impact on price of electricity) and society (call centre, environmental aspects) that can be quantified.

The Cost benefit economic analysis is composed from three main components:

Definition of study case set-up, assumptions and delimitations, inclusive discount rate and implementation condition (smart metering functionalities, roll-out period, number of consumers);

Identification of costs (price of smart meters, grid development costs, data management and IT system) and benefits (call centre, meters reading, reduced of CPT value);

Determinate output indicators – the results of Cost benefit analysis:

Net present value (NPV), the difference between the discounted benefits and costs;

Internal rate of return (IRR), the discount rate that produce at NPV with zero value.

Figure 6 Cost benefit analysis framework

Qualitative impact analysis – nonmonetary appraisal

This analysis refers to impacts that are not quantifiable in monetary terms. This reflects benefits of smart metering implementation as security of supply, new services and applications of smart devices, social impact as job creation and consumers inclusion.

To summarize the smart metering roll – out includes both economic and qualitative impacts. The assessment framework is depicted bellow, in Figure nr. 7:

Figure 7 Assessment framework of the smart metering roll – out

The Cost benefit analysis for smart metering consists in eight steps detailed in Figure 8.

Figure 8 Eight step of Cost benefit analysis

The main idea of the Cost benefit analysis methodology that I used to performed Study case analysis is that the asset – smart meters provide a set of technical functionalities with turns in benefits that can be quantified. Smart metering is considered a Smart grid asset.

Figure 9 From assets to monetary value

2.2 Smart metering implementation project

Smart metering implementation have the potential to provide new opportunities for all participants and that will improve the way electricity is distributed and consumed.

Smart metering implementation have the potential to generate value for all participants in the electrical energy market in Romania: generators, TSOs, DNOs, energy suppliers, consumers, national regulatory authorities for energy, other governmental institutions and other stakeholders.

In Romania we have already legal framework issued by National Energy Regulatory Authority – ANRE in 2014 that was improve in the next years. The target of smart metering implementation has been established at 80% of the number of end customers until 2020.

All costs, installation and maintenance of the smart meters will be pay by DSOs.

This Study case analyses, from the perspective of one of the eight Romanian DSOs, the feasibility of a smart meter system implementation, and examine all relevant cost for a three years implementation period (2016 – 2019) and benefits for ten years (2016 – 2026).

The business case is developed for a DSO with 11.300 customers to witch will be installed 11.300 meters (15.500 monophasic meters and 800 three phasic meters) and 25 balance meters. DSO will replace, in three years, all the old meters with new smart meters.

The Study case objectives are the installation and integration of the 11.300 smart meters who are the main functionalities for the end customers: remote reading consumption data, updating the readings with sufficient frequency to allow energy savings, assure bidirectional communication between DSO the metering system mounted at consumption place and the information management system, to allow the remote control of connection/disconnection from the grid, to assure secured data communication.

The total implementation cost of the project is 7.589.140 Ron and all the costs are paid by the DSO. The end customer will receive the smart meter free of charge.

Background and objectives

In the last period, the Romanian energy market faced many challenges to become that need to be today. These can be summarized in the following areas:

Increase of energy efficiency in both industrial and household segments,

Increase of share of renewable sources, according to EU target, Romania exceeded the own target of 24 percent of renewable sources in total energy consumption by 2020,

Improvement of technical infrastructure through investments to modernize the power grids because of increasing age of the current networks,

Liberalization of the electricity and gas markets that had as a consequence increasing energy prices.

Growing demand, the energy consumption is expected to grow in the near future. To deal with this Romania need to optimize the consumption as a result of implementing energy efficiency measures such as smart metering and demand response solutions.

High grid losses, including energy theft that is on increase level and technological losses due to aging network and technology.

Detection of energy theft was briefly depicted by C. at all (2017). Energy thefts are considered as non – technical loss. According with their article the utility providers are estimated to lose billions of dollars annually because of energy theft. Although the implementation of smart metering offers technical advantages the smart meters are susceptible to be exposed to more energy thieves in comparison with conventional one. The article’s authors designed two algorithms witch are capable to identify consumers who steals energy and can locate the faulty equipment. Also another benefit of this algorithms is the reduction of non – technical losses due to energy thefts and metering defects.

Smart metering implementation is expected to have a major role in addressing these challenges for Romania. Pilot projects developed by DSOs are the key when it comes to testing hypotheses related to benefits, costs, and implementation approaches.

Since with liberalization of energy and gas market Romanian Government and ANRE looking for ways to match consumption with generation and the solution could be smart metering roll-out that imply all market participants and all value chain.

In Romania, traditional electrical meters only measure total consumption and provide no information of when the energy was consumed or how much energy is necessary according to the previous consumption based on forecasting.

Old meters are in the ownership of DSOs and maintenance are also their responsibility, even if this activity is sometimes outsourced. According with legal framework, meters reading is mandatory once a year. However DSOs usually read meters once every three months. Customers are the possibility of reading the meters by themselves. Electricity invoice is based on self-read consumption or estimated consumption.

Smart meters implementation will provide new opportunities which will improve the way electricity is distributed and consumed. A smart metering system is allowing bidirectional communication between the distributor, energy suppliers and end customers on the one hand, and the energy meter on the other.

Smart meters have the potential to create value for all participants in the electrical energy market and that includes: generators, DNOs, energy suppliers, energy traders, end customers and regulatory authorities or other governmental institutions.

Estimation of the size of smart metering pilot project that were implemented in Romania, in 2015 – 2016 are depicted in table 1.

Table 1 Smart metering pilot project that were implemented in Romania, in 2015 – 2016

Source: ANRE 2016 annual report

Even that smart metering provide new business opportunities the implementation is in the most Member States are delayed or is in the first phases. That because the business case in not trivial, especially from costs and benefits point of view.

The main objective of ANRE related with smart metering implementation are:

2.3 Project scope and technical requirements

The scope of this smart metering implementation project is to address the technological framework and associated cost and benefits for smart metering roll-out, from DNO perspective:

Technical smart meters requirements

The requirements are set by ANRE in compliance with the smart meters functionalities standards.

According to provisions of the Order nr. 145/2014, the smart metering electricity systems are electronic systems which measure the electricity consumption, assure the bidirectional secured transmission of information to the end customer, provide more information than a conventional meter, using electronic forms of communication. The smart metering systems include:

Measuring subsystems which contain at least the meter, the measuring transformers and equipment for secure of access to meter;

Subsystems for transmission of information;

Subsystems for management of information from meters.

Smart metering systems defined by paragraph as define above have compulsory and optional functions.

The DSOs projects regarding the implementation of smart metering systems must be feasible from technical point of view, reasonable financially and reflect the money savings proportional to the value of investments in these systems.

According to the provisions of Order no. 145/2014, the DSOs will propose the realization of pilot-projects in order to be implemented in the urban and rural areas with good or recently revamped electric grids which work at nominal technical parameters.

Functionalities of smart metering electricity systems

Mandatory functionalities

Optional functionalities

2.4 Smart metering architecture

Smart meters are considered “smart” because, compared to traditional meters, they have more functionalities as: bidirectional communication, ca be remotely read and can be operated without a physical visit to the customer location.

Smart meter is an electronic meter with a programmable communication terminal that can interface with multiple networks and devices. The technology used for project implementation is AMI – Advanced Metering Infrastructure because that technology fulfil the mandatory functionalities issued by ANRE Order nr. 145/2014.

AMI technology includes meters able to analyse the data about energy consumption and power quality of each consumer. The main functionalities are:

Provide bidirectional communication between consumers and the DSO and energy suppliers to improve maintenance, demand management and planning;

Can facilitate remote control meter reading.

The general architecture of smart metering systems consists of: smart meters, communications area and concentrators and IT infrastructure, as depicted in Figure 10. Smart meters can also be connected with devices from the home area network (HAN).

Figure 10 Smart metering architecture

Source: A.T. Kearney

Y. Kabalci (2016) considered that AMI technology makes Smart grid able to operate control commands sent by utility company. But AMI technology can have several threats as unauthorized access that can create security, safety and privacy issues. In Figure 11 is presented AMI technology integrated with Smart grid infrastructure:

Figure 11 AMI Technology

Source: Y. Kabalci (2016)

The smart meters area is only a part of the entire smart metering infrastructure who connect IT infrastructure and communication area with the home area network.

The home area network can includes more than one device installed on a customer‘s premises. The home network area (HAN) is part of advanced smart grid architecture and the smart metering system allow communication with receptors from the home of end customer, including with the meters of other utilities.

The communications area ensures the interface between the IT infrastructure and smart meters. A data concentrator makes the connection between the meters and the IT systems. Also the connection could be made directly.

The communication structure is middleware, consisting of a concentrator that is used between the smart meters and the central system. The connector used to transmit data from meters to the concentrator is PLC—power line communication. As a concentrator, a GPRS is used to send the data from the meters to the IT systems.

Middleware communication system offers more benefits because of the existence of data concentrators and balancing meters that can identify commercial and technical losses and can identify the energy thefts. This model can help DSO to realize more benefits.

Figure 12 Independent infrastructure with middleware

IT infrastructure and systems represent the foundation of the smart metering system. The main characteristic of IT infrastructure is its modularity, spread across the database, metering data management, and user interface.

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In Chapter II was presented the methodology of Cost benefit analysis and the approach for smart metering project implementation.

Cost benefit analysis is an economical oriented one but also have a qualitative perspective.

Therefore was presented the background and objectives of smart metering project from Romanian market point of view.

The scope of the project was to address the technological framework and associated cost and benefits for smart metering roll-out, from DNO perspective.

During the Chapter II were highlighted technical smart meters requirements, mandatory and optional functionalities and smart metering architecture that figures with this requirements.

The Study case set – up will be presented in Chapter III.

Chapter III – Study case

Cost benefit analysis for smart metering implementation project, DSO perspective

3.1 Study case setup

For smart metering implementation, DSO includes in the pilot project two types of smart meters with AMI technology: single-phase (9.900 meters) and three-phase (1.400 meters).

The total number of customers included in smart metering implementation project are 11.300, from witch: 10.500 household customers and 800 non – households customers.

Also the architecture includes a middleware infrastructure contains a balancing meter, at each transformation point, especially because of level of commercial grid losses is high. Balancing meter helps identify the area where losses are occurring, by analyzing the difference between the power transmitted to household and the registered consumption.

The pilot project includes 30 balance meters and 30 concentrators.

General Study case assumptions and delimitations

Assumptions:

The business case is made only for the DNO perspective:

Costs components are associated with DNO’s activities and own or shared services;

Benefits are also associated with DNO’s activities and their own or shared services;

Benefits included in cost – benefit analysis are related directly to smart metering implementation and ca be valued in money.

The scenario who was take into consideration for the business case:

A DNO responsible for delivery electricity to 11.300 consumers;

AMI smart metering infrastructure, with three level architecture;

Mandatory functionalities of smart meters established by ANRE Order no. 145/2014;

High density of population means that 90% of meters are placed in urban areas.

Cost – benefit analysis has been performed take into consideration:

Costs includes installation, maintenance and running costs;

Benefits includes only running benefits and CPT after implementation;

Costs and benefits that have been share regarding billing and call center.

Other assumptions:

Investment period/ cost benefit period (costs incurred in the first three years and benefits incurred starting with second year for ) – ten years, between 2016 – 2025;

Project deployment period (main costs incurred) – 2015;

The main investment in made in 2015;

Discount rate is 7,5%, level regulated by the National Authority for the electricity distributors for the third regulatory period, starting in 2013.

Delimitation:

There are others additional benefits for energy suppliers, customers and society in general, which are excluded from the cost – benefit analysis. This benefits can be assessed only from a qualitative point of view.

The benefits who haven’t been mapped with the mandatory requirements establish by ANRE through Order no. 145/2014 are excluded from the cost – benefit analysis.

The cost and benefit calculation does not include estimation of energy thefts and shared assets with other stakeholders.

There are a variance of costs that depends of many factors which are excluded from the cost – benefit analysis. This factors can be: type of communication technologies, the cost of financing the investment (how much is supported by the DSO and how much will be financed from external sources).

Other indirect costs are also difficult to quantify: upgrading IT system components, legal costs and taxes, costs with recycling or disposal of old meters that were replaced.

The DNO is accountable for:

100% network and infrastructure costs;

100% metering and collection of meter data;

100% of meter data validation and processing;

100% of billing distribution services;

100% benefits of CPT value (technical and commercial losses) after smart metering installation;

80% of billing consumption cost and benefit;

90% of call center benefit.

3.2 Cost benefit analysis

The Cost benefit analysis is based on costs and benefits incurred by DSOs. The Overview of cost and benefit share is depicted bellow:

DSO point of view:

DSO and Energy Supplier share costs and benefits:

Cost and benefits elements of the business case that have financial impact for the DSO:

Costs elements:

Implementation and Investment costs CAPEX are composed by:

Meters costs:

Acquisition costs of smart meters: three phase, single phase and meters for balance.

Installation costs:

Cost of installation of new meters. Installation of new meters was realized in urban area (100%) and no rural area (0%).

93% of meters are placed in houses when it is required an appointment and customer presence for the replacement.

Cost of installation will be decrease because of well-defined replacement processes of old meters and a good customer acceptance through:

Creating communication channels with customer and marketing investments,

Providing customer assistance through call center,

Taking into consideration 15-25% missed first appointments.

Information system and management data costs:

Acquisition and installation cost for Information system and management data costs received from meters: acquisition and installing of computer equipment (servers, storage, modems and communication modules), costs with fiber optic and Wi-Fi infrastructures, other auxiliary devices and assets that are not associated to meters.

Acquisition and installation cost of the AMI central application, integration with external systems – interfaces.

Acquisition and installation of database management systems and applications, data back-up and licenses.

Transmission data system costs:

Acquisition and installation cost of Transmission data system stem: data concentrators, controllers.

Customer service costs:

Costs of customer assistance, before and during smart meters implementation, through Call center and other communication channels, inclusively marketing costs.

Costs with connections / disconnections / reconnections, meters replacements, meters reading.

Grid improvements costs:

Costs of grid improvements that are necessary for proper functioning of smart metering implementation.

Total value of CPT – commercial and technical losses:

Value of CPT – commercial and technical losses.

CPT – own technological consumption represent the difference between electricity entering in the grid and electricity exiting in the same grid. This differences represent grid losses and also the energy taken from the grid and non-invoiced due to failure registration of meters.

Running costs:

Operational and maintenance costs:

Costs with maintenance of information systems is the primary driver of the running cost ant they are represented by: service and repairs for concentrators and communication lines, maintenance of telecommunication infrastructure, AMI application maintenance and licenses.

Costs with maintenance and replacements of damaged smart meters, servicing and repairing meters. Also can include manual meter reading that will still be required by the ANRE or manual verification due to possible errors or customer complaints.

Data transfer costs:

Costs with transfer of data reading by smart meters to DSO informational systems.

Customer service costs:

Costs of customer assistance, after smart meters implementation, through Call centre and other communication channels, inclusively marketing costs.

Benefits elements:

Quantification of benefits take into consideration the fallowing elements:

Reduce Total value of CPT, after implementation of smart metering systems:

Reduce commercial and technical losses (CPT).

Decrease commercial losses or amount of energy that is delivered in grid, but not invoiced.

Increase the amount of energy registered by the meters that can be invoiced accurately.

Reduce of commercial losses leads to less energy distributed through the system. As a consequences the technical losses also will be reduced because they are part of the distributed energy.

Improve Call Centre activities:

Better management of customer complaints and other specific activities after installation of smart metering systems in pilot-project area.

Dramatically decrease the number of calls regarding meters reading by the costumers.

Improve Field Service Management, after installation of smart metering systems in pilot-project area through:

Reduced outages – reduction of time spent with location identification where failures have occurred.

Reduced restoration costs – reduction of time spent to identify location of a failure.

Optimization maintenance costs with connection/disconnection/reconnections that will be eliminated due to technical personnel no longer visiting customer’s location.

Reduce costs with maintenance of existing meters, especially cost of replacing old defective meters.

Reduce customer meter reading costs, after installation of smart metering systems in pilot-project area:

Reduced meter reading cost incurred for the labor force to read meters, usually once every three months for households.

There are more benefits that were not included in Cost benefit analysis because they cannot be quantitative assess and have a qualitative perspective:

New product sales opportunities;

Energy suppliers and customers benefits;

Reduced CO2 emissions;

Improvement of network quality parameters;

Reduced implementation costs from smart metering because some elements are included in others investments plans in energy field.

3.3 Quantification of costs and benefits

Quantification of costs

Implementation and Investments Costs – CAPEX are incured during the first three years of implementation period, 2016 – 2019. Running costs are incured during the whole implementation period, 2016-2025. The costs durind the whole period 2016 – 2019 have been calculated for 11.300 customers and are depicted in Table 2.

Table 2 Implementation and Investments Costs and Rinning Costs

Total Implementation and Investment costs CAPEX are estimated at 7.229.800 Ron and the Total Running costs are estimated to be 359.340 Ron annually starting with first year. Total Running costs for entire implementation period, 2016-2025, are in amount of 3.593.400 Ron.

Total costs of smart metering implementation project are estimated at 10.823.200 Ron.

Implementation and Investment costs CAPEX and Running costs are depicted in Figure 13 and Figure 14.

Figure 13 Implementation and Investment costs CAPEX

Figure 14 Running costs

Average Total Implementation and Investment costs CAPEX is in amount of 639 Ron per smart meter and average Total running costs is in amount of 31,8 Ron per smart meter. The situation is depicted in Table 2 and Figure 15 and 16.

Figure 15 Implementation and Investment costs CAPEX per meter

Figure 16 Running costs per meter

Quantification of benefits

Cost benefit analysis includes benefits witch could be quantified. Running benefits were calculated per year and will be extrapolated for entire implementation period, 2016-2025. For the first year, 2016 no benefits have not been estimated nor obtained. The Running benefits are depicted in Table 3.

Table 3 Running benefits

Total Running benefits are estimated at 1.615.900 Ron annually. Taking into consideration that the benefits will be obtained from the first year, the Running benefits for entire implementation period will be 16.615.900 Ron. Running benefits are depicted in Figure 17.

Figure 17 Running benefits

Average Total Running benefits is in amount of 197 Ron per smart meter. The situation is depicted in Table 3 and Figure 18.

Taking into consideration that the benefits will be obtained from the first year, the Running benefits for entire implementation period per smart meter will be 1.970 Ron.

Figure 18 Running benefits / meter

Not all benefits of smart metering implementation could be quantified in monetary value but certainly the results will reflect in decrease of energy costs because of more accurate meter reading and billing, differentiated tariffs, improve service quality and create the opportunity for manage consumption.

Reduction of CPT (commercial and technical losses) is estimated to become 12% after implementation of smart metering from 15,45% that it was before.

Output indicators – the results of Cost benefit analysis

Net Present Value of smart metering implementation project reflects the degree to which benefits (revenues), equals or exceeds the costs (investment capital) required to fund it.

Net present value (NPV), the difference between the discounted benefits and costs.

NPV formula is depicted below:

Discount rate (DR) is the interest rate used in cash flow analysis in order to calculate NPV for future cash flows, for period 2016-2025.

Discount rate takes into account the time value for the many. According with this theory, money available now is more valuable than in the future. For smart grid implementation projects, the discount rate has a significant impact on the Cost benefit analysis. This is because, typically, the main costs are incurred at the beginning of the project and the benefits are provided in long-term period. Taking into consideration this aspect and the fact that risk of smart metering implementation projects is higher than, the discount rate will be higher.

Number of time periods (T) represent the number of year for implementation period, 1 to 10 year.

The scenario was performed and the NPV was calculated for the following Discount rates: 3,5%, 7,5%, and 10%.

Table 4 shows the NPV resulting from the cost benefit analysis. Also in Table 5 is presented the Internal rate of return (IRR), that means the discount rate that produce at NPV with zero value.

Table 4 NPV calculation

Table 5 IRR determination

According with the calculation the IRR is 12% that means the Discount rate that produce at NPV with zero value is situated at 12%.

The NVP is positive at a Discount rate between 3,5% and 10%. After that the NPV started to decrease.

A Discount rate at 7,5% level, regulated by ANRE, produce a positive NPV in amount of 1.395.330 Ron. This is mainly due to the fact that the Running benefits in amount of 16.159.000 Ron exceed the Investment and Implementations Costa in amount of 7.229.800 Ron and Running costs in amount of 16.159.000 Ron.

The NPV per smart meter is 123,48 Ron calculated at a Discount rate of 7,5%.

Investment costs are incurred during the first year while running costs and benefits are realized starting with second year until tenth year.

In conclusion, the Study case results in a positive Net Present Value because of investments and running costs being offset by running benefits. This causes a positive net effect.

Figure 19 Breakdown of Total NPV

Cash flow are calculated during the whole implementation period – 10 years.

Investment costs in amount of 7.229.800 Ron are incurred during the first year of implementation period. Running benefits in amount of 1.615.900 Ron and running costs in amount of 359.340 Ron are distributed equally starting with the second year until the tenth year.

Figure 20 Present Value, Costs and Benefits annually distribution

The Cost benefit analysis indicates that implementation of smart metering has the potential to be a profitable investment due the positive NPV.

Also implementation of smart metering brings benefits for the entire society. The main benefits are reduction of smart metering reading costs, decreasing of commercial and technical losses, avoiding other investments made by DSO’s, reducing distribution operational costs and reducing outage and restoration costs.

According with ANRE Annual Report for 2016, implementation of smart metering can bring a lot of benefits:

Reducing the costs with meter readings, between 55% and 97%;

Reducing operating costs with on-site technical interventions, between 27% and 97%;

Decreasing CPT, one of the most important benefit of smart metering implementation, between 38% and 100% depends on the grid infrastructure.

This benefits can be quantified but there also qualitative performance indicators as:

Reducing the outage at final customers;

Reducing the number of claims about meters readings;

Decreasing the number of voltage variations;

Reducing pick load consumption, demand management.

3.4 Conclusions and recommendations

Conclusions

The Study case purpose was to provide a model of Cost benefit analysis who shows that the smart metering implementation is feasible and valuable for both DSO as investor and consumers.

The Cost benefit analysis were made base on costs and benefits quantitative appraisal from economical point of view but also have been taken into consideration non – monetary assessment.

The Study case is performed for a DNO perspective only with a portfolio of 11.300 consumers.

Over a period of three years will be replace the all old meters, the main investment was made in the first year. The smart meters have a life time of 15 years.

The smart metering implementation project shows a positive NPV in amount of 1.395.330 Ron due to benefits that exceed the costs. The Discount rate was set up at 7,5% and the implementations period is 10 years.

The NPV per smart meter is 123,48 Ron.

The installation costs will decrease in the future unless the material costs will become significantly lower.

Estimation and quantification of benefits continuous to be difficult to realize during the project implementation. The benefits are more evident after implementation period.

For smart metering bringing value, the technology used for smart metering implementation project is AMI model – Advanced Metering Infrastructure that include middleware layer which includes data concentrators and balancing meters.

PLC technology was used for communication between meters and data concentrators.

Approach of project implementation is very important because it has a significant impact on the profitability and feasibility of the project.

The main benefits of smart metering implementations for the electricity sector is the reduction of commercial and technical losses and meter reading costs.

Data protection and security must be properly address during the implementation of smart metering project.

The DSO smart metering pilot project was approved by ANRE and 99,5 % realized from physical point of view and 88% from value point of view because of investment costs savings.

Recommendations

Investments in an electricity smart grid, respectively smart metering projects, should be incentivized to bring benefits for all value chain: generation, transmission, distribution, supplying and obviously consumers. Because a fair distribution of benefits depend mainly by the regulatory framework the recommendation is to incentivize distributors to invest in smart metering through: clear and predictable smart metering regulatory framework, data security regulation and implementation methodology especially regarding cost benefit analysis.

Although the rules regarding the implementation were define through regulatory framework (performance and mandatory functionalities, technical properties, management and data transmission etc.) the smart metering pilot projects that were implemented by DSO are not homogenous. As a consequences in reported date and performance indicators are a lot of differences. ANRE should establish a unitary reporting system for all DSO.

Set clear and transparent principle for including the costs of smart metering implementation project in the distribution tariffs, through the distribution tariffs methodology, in order to reflect:

Fair and real operating expenses, that are generally lower than estimated expenses;

Adjusted technical and commercial losses expenses based on the project implementation progress and establish a maximum level that will be recovered through distribution tariffs;

Establish depreciation of the smart meters and level of amount recovery through distribution tariffs in the period when the depreciation occurs and is registered in accounting system not for the whole investment cost from the beginning;

Establish a fair return of equity rate that means a fair profitability for DSO.

ANRE should recognizes the costs in distribution tariffs only if DSOs performed investment plan for smart metering project that were previously approved by the ANRE.

The unitary costs of smart metering investment that will be recognize in the distribution tariffs for each DSO, in the first year of implementation, should be at most equal with unitary cost realized by DSO. In the next years of implementation, ANRE should establish a percentage of medium cost of investment that should be recognized in distribution tariffs.

ANRE, through regulatory framework should oblige DSOs to report key performance indicators and if the KPIs are not achieved then the distribution tariffs will be adjusted accordingly. KPIs could include: data communication success rate from meters to IT system – 98%; invoicing rate of real meter data for all customers – 99%.

ANRE should create a unitary reporting systems and quarterly should assess the smart metering implementation progress.

ANRE should perform and approve a National implementation plan of smart metering and an implementation calendar for ten years starting with 2017.

ANRE should revised the performance standards for the distribution system based on results and progress of smart metering implementation projected.

DSO should invest enough in an IT system to assure the data protection and security taking into consideration: confidentiality, integrity and data availability.

DSO must invest consistently in the IT system to have enough functionalities to prevent cyber-attacks due that customers think that their data are more vulnerable to potential hacking threats.

DSOs and ANRE through Energy Efficiency Department should promote smart metering social acceptance through consumer’s educational programs and public campaigns in order to understand the concept and awareness the benefits associates with smart metering implementation.