Leapfrogging Smart Meters:
Permissionless Innovation, Electricity, and Consumers
Leapfrogging Smart Meters:
Permissionless Innovation, Electricity, and Consumers

January 22, 2020

Project Summary

In 2009, Congress introduced the Smart Grid Investment Grant (SGIG) as part of the American Reinvestment and Recovery Act, a stimulus package intended to help revert the effects of the recession. The SGIG was the largest program in the stimulus package, providing $3.4 billion of federal funding for building out a smart grid. Most of the projects that received funding through that grant program were centered around expanding the use of smart meters — a new electricity meter technology that reads energy use and relays that data back to the electricity provider.

Smart meters were promised as a means of reducing electricity costs, improving user knowledge about their electricity use, and contributing to better environmental outcomes through lower electricity use at peak production hours. However, recent innovations in smart thermostat technology are proving to be much more effective at achieving those results without the implementation of a substantial federal program. Utilities such as Portland General Electric and Southern California Edison have reported that smart thermostats have proven to be more effective at reducing energy use than smart meters, in some instances reducing peak demand by 40 – 50 percent. As author Todd Myers points out, there are a number of reasons why smart thermostats have been more effective at reducing energy use than smart meters rolled out under SGIG:

  • Smart meter rollouts often required increasing consumers’ monthly utility bill to cover the cost of implementation, which meant the increase had to be approved by regulators, creating hurdles for implementation.
  • Smart thermostats are a consumer-driven technology, so the people buying them are people who understand or buy-in to the technology. Smart meter rollouts, however, rely on district-wide adoption and use, even among consumers who do not understand or care about the technology.
  • Smart meters are not as good at providing useful data to consumers, which makes them more difficult to use effectively. In some instances, smart meter implementation led to increases in energy use, rather than reductions.

Despite over a decade of effort since the introduction of the SGIG and $3.4 billion worth of funding, smart meters are still struggling to change the way we consume electricity. Much of the problem stems from a lack of coordination between users and technology. Electricity pricing structures are often complicated and require a high level of knowledge and effort on behalf of the consumer to respond appropriately. In contrast, smart thermostats can respond to that information instantaneously and are adopted only by those who face real financial incentives from buying a smart thermostat.

It is unclear how effective the smart-meter rollout has been, or whether it has been worth the sizable cost. Rather than forcing specific technologies on consumers, policymakers should opt for approaches that engage consumer preferences and embrace innovative solutions.

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