Energy and Resources Minister Gerry Brownlee has agreed to the recommendations set out in the Electricity Commission's report on the roll-out and requirements for smart meters in New Zealand.

 The Electricity Commission was required under the Government Policy Statement on Electricity to report to the Minister on whether the roll-out of smart meters in New Zealand should be regulated, and whether the voluntary guidelines around technical aspects of smart meters were adequate.

"I have considered the Electricity Commission's report and advice from officials, and agree with the Commission's findings," says Mr Brownlee.

"I am satisfied the Commission's report reflects current knowledge of smart metering in New Zealand, and the views of consulted and interested parties."

The Electricity Commission has not recommended extensive regulation of smart meters, because the benefits of regulation are not considered to outweigh the costs at this time.

The Commission does, however, recommend regulating some technical standards, for example on information exchange protocols and data security, through electricity industry rules.

Mr Brownlee says he was persuaded by the Commission's reasons for rejecting the need for extensive regulation of smart meters.

The Commission concluded that:

• There are differences in the New Zealand electricity market compared to other countries, which mean the reasons for regulating smart meters overseas do not apply to New Zealand (including the fact New Zealand already has a functioning ripple control system to manage peak load);
• The current roll-out of smart meters is happening within an acceptable timeframe;
• Smart meter technology is not fully developed and may become obsolete;
• There is a high level of compliance with the current voluntary guidelines;
• Regulating the roll-out of smart meters could create additional costs for consumers for no additional benefit.

The Parliamentary Commissioner for the Environment recently called for electricity companies to only install smart meters which had 'home area network' (HAN) capability already installed.

Mr Brownlee says HAN technology is not yet fully developed, with 'smart appliances' (that 'talk' to the electricity meter) not likely to be readily available for another 10 years.

"What this means is consumers would have to pay for a technology they would not benefit from for some years, with a real risk the installed technology may become obsolete and have to be replaced (at additional cost) during that time," says Mr Brownlee.

"With such rapidly evolving technology, there is also a real risk New Zealand may pick the wrong form of HAN capability, rendering New Zealand smart meters unable to 'talk' to smart appliances which have adopted the international standard. It is best in these fields to let the market work out what the HAN technology will be," he says.

"There's no doubt that smart meters are the way of the future and this government is committed to the roll-out of smart meters in New Zealand. That was signalled in the Ministerial Review into Electricity Market Performance last year.  However, we are not going to regulate when the costs of doing so outweigh the benefits, and regulation will create costs to the consumer."

The Electricity Commission's 'Advanced Metering Infrastructure in New Zealand: Roll-out and Requirements' report is available at: http://www.electricitycommission.govt.nz/opdev/retail/ami/index.html

Questions and answers

• 1. What is a smart electricity meter?

The term 'smart meter' is used to describe an advanced electricity meter that is capable of two-way communication.  This communication can be through a number of different methods, such as radio or cellular telecommunications network.  Smart meters are programmable and have more functionality than a conventional meter. Internationally, smart meters are also referred to as 'advanced meters'.

Some argue that a smart meter needs to be capable of communicating with and controlling appliances in the home, but this functionality may also be provided via other channels (for example, mobile phones and the internet). 

• 2. Why does the Commission conclude the current roll out of smart meters is being carried out within an acceptable timeframe?

Retailers have plans in place under which smart meters will be installed at approximately 80 per cent of New Zealand's almost 2 million meter installations by the end of 2013.

Although all retailers are not currently planning to install smart meters at all metering installations, in most cases that is because a full roll-out of smart meters is not yet economic (i.e. the benefits of installing them at some installations does not outweigh the cost).

• 3. Why does the Commission say that regulating the roll-out of smart meters could create additional costs for consumers for no additional benefit?

This is because the current roll-out of smart meters is occurring at no additional cost to consumers. Retailers are looking to replace their existing meters, and the cost of installing, leasing and operating an advanced meter is now not much more than the cost of installing, leasing and operating a basic meter.

Advanced meters are therefore only being installed where it is economic to do so, and include only functionality that is beneficial to consumers, participants, the economy, and the environment.

It is possible an extensive roll-out of smart meters would impose additional costs on consumers, as has been the case in Victoria, Australia. Consumers could be required to pay for smart meter functionality they do not require, or for which there is only a limited benefit, or that will not provide benefits for a number of years (for example, HAN technology described above).

• 4. What advantages are there by applying new rules and guidelines, instead of regulation or legislation?

They are easier to change to keep up with technological changes.

Technology in this area is developing rapidly, and there is not yet international consensus on any particular technology.  Being consistent with international consensus is important to help ensure competition in the provision of smart meters (and any smart appliances that may be linked to them).

Mandating a particular technology type in the current roll-out of advanced meters has the potential to lock New Zealand into a technology that may become obsolete.