The world understands ‘smart metering’ in many different ways. Gordon Brown used the expression in his first speech on climate change. He meant devices that give visual real-time indication of electricity consumption, largely in homes. To the UK Conservative Party (see this issue of Carbon Commentary) it means conventional meters that can record the export of electricity from a house, as well as its use. Smart meters are much more useful than either of these two definitions suggest. Their primary value will be to adjust the price of electricity depending on the level of demand. This frightens politicians because they fear the backlash from users complaining of the horrendous cost of peak-time electricity use. But if we are to increase the percentage of electricity coming from intermittent and/or unreliable sources, smart meters are a necessity.

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Smart meters, at least as understood in the rest of the world, can change the price of electricity depending on when it is used. They can either be pre-programmed to increase the price at 5pm and decrease it at 9.30pm, or the price can be changed to reflect unexpected spikes in demand. Additional features available in smart meters will include remote meter reading.

The pressure to introduce smart meters is highest in areas in which electricity demand varies strongly across the day. Most Italian homes now have smart meters that allow the electricity company to choke off usage and this allows the utility to manage peak demand.

The benefits from smart metering will be large. In the UK, domestic homes only account for 25% of electricity use, but there is no mechanism by which home consumption can be restricted at times of peak demand. This means that the Grid has to maintain a large reserve of expensive generating capacity to meet unexpected surges in demand because of freak weather or events, such as very popular TV programmes that precipitate jumps in usage.

Smart meters seem to be good at ‘shaving’ peaks in demand, reducing the amount of spare generating capacity that the Grid needs. (This surplus capacity will generally have to be kept warm, using fossil fuels to no benefit.) In the longer run, they can also be used to move time-insensitive electricity use to the night hours. So, for example, a decent price incentive would quickly get customers to switch dishwashing and clothes washing to hours of low demand. Most studies show that a reasonable percentage of domestic electricity consumption can be quite easily moved from one time of day to another.

A second advantage of smart meters is that they can be used to cut demand when supply fails. If we are to increase radically the percentage of electricity coming from wind, we will benefit enormously from having the capacity to cut domestic demand very quickly. This will, however, also mean that home appliances will have to be programmed to turn off at times of high prices. This is less difficult than it seems. A radio signal from the smart meter can turn off the supply at the plug sockets for individual appliances.

The Conservatives’ vision is to use ‘smart meters’ to enable home-owners to get payment for home-generated electricity. This will be useful, but only to a very limited extent. If we eventually see large volumes of battery-operated cars (see ‘Shai Agassi and the big batteries’ in a previous edition of Carbon Commentary) smart meters will facilitate the use of car batteries as a buffer source of electricity for the times when the wind fails.

Smart meters are important. They won’t necessarily be popular. In Britain’s liberalised electricity market, in which customers can switch suppliers at a few weeks notice, it is also not yet clear how the installation of these devices will be paid for.