Parliamentary Commissioner for the Environment - Te Kaitiaki Taiao a Te Whare Pāremata

Response to submitters on Smart Meters report

Presentation to the Commerce Select Committee on smart meters

Detailed analysis available in pdf format in the right column

Dr Jan Wright, Parliamentary Commissioner for the Environment

10 December 2009

Thank you for the opportunity to speak to you again. I appreciate that you have spent a great deal of time listening to submissions from variety of groups and companies.

Before I begin, I’d like to make an observation, slightly different to my usual practice.

I want to let you know that I take my role as your advisor to Parliament on environmental issues very seriously. I didn’t take up this role to do or say nothing.

And I want to use my experience and my education to give you the best advice I possibly can. I value my independence, and I hope it is of value to you.

Energy has long been ‘one of my things’. My first degree at Canterbury was an Honours degree in Physics. A few years later I did my Masters degree in Energy at Berkeley in California. While there I was involved in pioneering energy research at Lawrence Berkeley Laboratory. I also have a doctorate in Public Policy from Harvard.

So I am confident in the advice I offer you. This is a very complex issue. But I have some good years of experience under my belt and I have excellent people around me (such as these two here beside me).

The Electricity Commission in its submission to you describes my report on smart meters as a “useful start”. I think it is rather more than that. Since its publication, we have received invitations to present at three international conferences. We have not accepted any as I have no interest in becoming an international resource on smart meters. That’s not my role.

We have brought some handouts with us. One is very long and I apologise for inflicting it on you at this time of the year – it’s not what most of us would view as holiday reading. In this document, the responses to the nine recommendations I made in my investigation into smart meters are presented. And in it we supply answers to the criticisms that were made by submitters to you.

 

Since I spoke to you in August, the Technical Advisory Group appointed by the Minister of Energy to review the electricity sector included comments on smart meters in its draft report. In September I made a submission to the Technical Advisory Group and went a step further than in my report.

I recommended that the roll-out be halted until things were a lot clearer. Why did I do this? Because of the speed with which the new meters are being rolled out and because confusion is rife. This was ambitious, but I wished to draw attention to the extent of my concern.

Yesterday I met with the team from the International Energy Agency who are here doing an in-depth review of our energy policy. We spent much of the time discussing smart meters.

To recap:

Firstly, I’m concerned about growth in electricity consumption especially at peak times.

Because that is usually when thermal power plants are all going flat out and emitting carbon dioxide – the main greenhouse gas. And when the peak demand goes up, new power plants – all of which have some environmental impacts – must be built.

Secondly, the introduction of advanced meters gives the potential for real and significant change in the ability of consumers to reduce their electricity use without hardship.

Thirdly, but the electronic meters being rolled out in NZ don’t provide this ability – a home area network – a computer chip called a HAN. A HAN chip can be added later but that will cost much more in most cases.

Since the release of my report, various groups and companies have contacted my office and some of these have also made submissions to you.

There have been four main arguments from those who disagree with my two key recommendations – namely:

Make an advanced meter really smart before you install it by putting a home area network chip (a HAN) into it

Require communication protocols in smart meters and smart appliances to be open access. ZigBee is an example of an open access protocol.

 

The four main arguments are:

1) The market is getting it right – there is no need for intervention – we are responding to what our customers want.

2) It’s too early. Putting the cart – a home area network – before the horse – devices like smart appliances.

3) It’s too risky - we might get locked into the wrong technology – we need to wait.

4) It’s not economic to put a HAN chip in before installation – retrofitting later is a better way to go.

I’m now going to address each of these four arguments in detail.

The market is getting it right – no need for intervention

I have been told that NZ is a world leader in smart meters because this is the only country where they are being rolled out without any government intervention.

This claim to world leadership is quite extraordinary.

Clearly, the companies that are rolling out advanced meters have business cases for doing so. There is no reason for those business cases to include the potentially significant benefits to the environment. Or indeed all the benefits to consumers.

When I spoke to you last time, I said one of the textbook assumptions for a well-functioning market is that consumers are able to make choices based on good information.

To most of us, electricity is this mysterious invisible stuff that comes out of walls.

A HAN chip in a meter provides a basis for consumers to be able to  control their own electricity use intelligently.

In preparing for speaking to you today, we asked the companies rolling out the smart meters if customers could ask for a HAN chip to be added – at customer expense.

In every case, the answer was no.

A HAN chip in a meter will also give lines companies the ability to control peaks, thus delaying the need for expensive investment in new capacity. It is no accident that the lines company, WEL Networks is supporting my two key recommendations – a HAN chip in the meter prior to installation communicating through an open access protocol.

Cart before the horse - Smart appliances are years away

EECA is mandating that all heat pumps sold in NZ must be smart by 2012. Even if a heat pump isn’t smart, smart thermostats that interface with heat pumps are already being manufactured.

And if an appliance isn’t smart, you can add a smart plug to it. Smart plugs – using the ZigBee protocol – are on sale overseas. These are more sophisticated than timers – they will turn off appliances at critical times.

In Australia – the state of Victoria – all homes must have meters with a HAN chip with the open access protocol – ZigBee - by 2013. Increasingly we have a common appliance market with Australia.

Whirlpool in Australia has a strategic alliance with Fisher & Paykel. Whirlpool is aiming to manufacture a million smart clothes driers by 2011 and make all its appliances smart by 2015.

The criticism that I want to put the cart before the horse is wrong – it’s the other way round. The HAN needs to come first. Noel Leeming, L V Martin, and Dick Smith will  make sure that the smart appliances, smart plugs and In-Home Displays are available.

It’s too risky – we might choose the wrong technology

This argument goes like this – If we bring in a particular HAN communication protocol, and it’s the wrong one, then smart appliances might not be able to talk to meters.

My response is that there is no real risk.

ZigBee is looking more and more like a clear winner – at least for NZ. The state of Victoria has mandated it. Australia and NZ are increasingly a common appliance market. 40 million are being  supplied worldwide; 60 million are on order.

But even if ZigBee is not the winner: As long as the HAN communication protocol is open access, anyone can manufacture smart devices that will interface with the meter.

General Electric make washing machines, fridges etc and send them all over the world.

When they are shipped to NZ, three pin electrical plugs must be added. Similarly, GE is now making smart appliances that will interface with several communication protocols.

Finally, if we get it wrong, we can simply use protocol converters to convert from ZigBee to a different protocol. There is hardly any risk. Technology changes all the time – you can’t wait forever before getting in the game. Those of you who are the same generation as me may remember what happened with personal computers – PCs.

IBM made the first PCs – hardware. These PCs were open access (by accident!) -- so we quickly saw the spawning of cheaper IBM clones. But Bill Gates locked most of us into Microsoft – a proprietary system of software. ZigBee is open access – it’s like IBM, not like Microsoft. I really don’t see a risk if NZ goes for HAN with the ZigBee protocol.

It’s not economic – better to retrofit later

I understand that two submitters added a HAN chip to a meter in front of you in a few seconds. So for some meters, retrofit might be quick – but it doesn’t make it cheap.

Most of us have experienced paying for an expensive tradesman visit for a simple job to be done. The visit is the costly bit, not the job itself.

But householders can’t be allowed to play around with their meters. It’s simply not safe.

The Electricity Commission recently engaged an economic consultancy -- to do a cost benefit analysis of my recommendations. This analysis concludes that putting HAN chips in meters before meters are put in houses is not economic.

I would be disappointed to see this analysis taken seriously given the lack of transparency and inadequate referencing of data.

However, there is enough transparency to see that the estimated benefits are far lower than those in overseas studies and the costs much higher. For instance, the cost of a HAN chip is taken to be between 4 and ten times higher than in Australia.

Further on costs, I note that in its submission, Genesis states that use of the ZigBee protocol incurs an ongoing licence fee of $10 per year. There is no such licence fee.

In conclusion

I released my report on smart meters in June. Since then it has been open to public scrutiny, and I am delighted that this committee has taken it so seriously.

I and my staff have learned a great deal more about smart meters. And in preparing for today, we have systematically tested the logic and basis for my recommendations.

I stand by those recommendations. I am even more comfortable with them now than I was when I made them in June.

Finally, let me tell you what is happening in Britain.

I quote from a UK Government press release last week.

Smart meters will be rolled out through energy suppliers to every home by the end of 2020 under final plans published today by Energy and Climate Change Minister Lord Hunt.

 

Lord Hunt said:

“A global climate deal in Copenhagen needs all countries to make the most ambitious commitments possible, but it will also require all of us to change how we lead our lives and how we generate our energy.

Smart meters will put the power in people’s hands, enabling us all to control how much energy we use, cut emissions and cut bills.”

In New Zealand, we are not rolling out smart meters; we are rolling out dumb meters.

Our consumers and the environment deserve better.