Is Mandating 'Smart Meters' Smart?

42 Pages Posted: 19 Oct 2012

See all articles by Thomas‐Olivier Léautier

Thomas‐Olivier Léautier

University of Toulouse 1 - Toulouse School of Economics (TSE)

Date Written: October 8, 2012

Abstract

The advent of "smart meters" will make possible Real Time Pricing of electricity: customers will face and react to wholesale spot prices, thus consumption of electric power will be aligned with its opportunity cost. This article determines the marginal value of a fraction of demand (or a consumer) switching to Real Time Pricing. First, it derives this marginal value for a simple yet realistic specification of demand. Second, using data from the French power market, it estimates that, for the vast majority of residential customers whose peak demand is lower than 6 kVA, the net surplus from switching to Real Time Pricing is lower than 1 €/year for low demand elasticity, 4 €/year for high demand elasticity. This finding casts a doubt on the economic value of rolling out smart meters to all residential customers, for both policy makers and power suppliers.

Keywords: electric power markets, demand response, smart grid

JEL Classification: L11, L94, D61

Suggested Citation

Leautier, Thomas-Olivier, Is Mandating 'Smart Meters' Smart? (October 8, 2012). Available at SSRN: https://ssrn.com/abstract=2163770 or http://dx.doi.org/10.2139/ssrn.2163770

Thomas-Olivier Leautier (Contact Author)

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

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