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NSMP (Electricity & Gas) Cost Benefit Analysis
PwC Report
Table of Contents 1. Introduction
5
2. Key Central Assumptions (Electricity)
6
2.1 Introduction
6
2.2 Programme Roll-Out
6
2.3 Capital Costs of Smart Meters & IHDs
9
2.4 Consumer Costs & Benefits
9
2.5 Other ESB Network (ESBN) Benefits & Costs
10
2.6 Electricity Supplier Benefit & Cost Costs
15
2.7 Electricity Generation Costs & Benefits
17
2.8General Assumptions
18
3. NSMP (Electricity) Cost Benefit Analysis
19
3.1 Introduction
19
3.2 Timing of Smart Meter, IHD & ToU Implementation
19
3.3 Consumer (Residential Only) Usage Impacts
20
3.4 Consumer (Residential & SME) Non-Usage Impacts
21
3.5 Cost of Smart Meters & IHDs (ESBN)
22
3.6 ESBN Capex (Other) & Opex (NSMP-related)
23
3.7 ESBN Avoided Costs
24
3.8Supplier Impacts
25
3.9 Generation Impacts
26
3.10Full Statement of Impact (Central)
27
3.11Full Statement of Impact (Outcome Range)
28
3.12CBA Model Sensitivity
29
4. Key Central Assumptions (Gas)
30
4.1 Introduction
30
4.2 Programme Roll-Out
30
4.3 Capital Costs of Smart Meters & IHDs
32
4.4Consumer Costs & Benefits
33
4.5 Other BG Network (BGN) Benefits & Costs
34
4.6Gas Supplier Benefit & Cost Costs
37
4.7 General Assumptions
38
5. NSMP (Gas) Cost Benefit Analysis
39
5.1 Introduction
39
5.2 BGN Capital Investment in Meters (BAU & NSMP)
39
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5.3 BGN IT Capex & Opex Costs (NSMP)
43
5.4 BGN Meter Reading Impact
44
5.5 Other NSMP Impacts on BGN
45
5.6 Suppliers Impacts
46
5.7 Consumer Impacts
47
5.8 Full Statement of Impact (Central)
48
5.9 Full Statement of Impact (Outcome Range)
48
5.10CBA Model Sensitivity
49
6. NSMP (Integrated) CBA Results
49
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Important Message The analysis which follows is based largely on working assumptions on the timing and nature of smart meter roll-out, many of which are not, as yet, the subject of final CER decisions. Equally, the cost and benefit assumptions which feed into this analysis are, at this stage, best available estimates1. Certain elements of these could change significantly as policy decisions are formulated and/ or market research is undertaken.
1
For example roll out is now expected to commence in 2018 – see CER/14/046
3
Executive Summary The report which follows presents the detailed findings of a PwC analysis of the national costs and benefits associated with the roll-out of a National Smart Metering Programme (NSMP). A high-level overview of the results range, split between gas and electricity smart metering programmes is shown in Table 1. Table 1 NSMP (Electricity & Gas) CBA Outcome Range NPV ‘000s
Pessimistic
Central
Optimistic
Electricity
-€128,728
-€59,175
€105,612
Gas
-€11,240
€5,130
€21,501
Total
-€139,968
-€54,044
€127,113
In aggregate, the net result is marginally negative under the central scenario. Given the scale of overall NSMP expenditures, as well as the significant uncertainty which still attaches to certain of the most significant assumptions of cost, the result should be interpreted as broadly neutral. Equally, certain benefits attaching to smart metering (e.g. enablement of smart grid and greater use of renewables) are not capable of quantification and, for this reason, not considered in the analysis. The result for electricity is marginally negative in aggregate, compared with a very modest positive in the case of gas. In this regard, it should be noted that the gas NSMP is not stand-alone in nature – rather there is a significant dependence on infrastructures put in place for the electricity programme. Additional detail is provided in the chapters which follow.
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1. Introduction PwC was commissioned in September 2013 by the Commission for Energy Regulation (CER) to update the cost benefit analyses (electricity and gas) prepared on the national smart metering programme (NSMP) in late 2011. Findings of this updated analysis are presented in the remainder of this report, which comprises three primary sections covering gas, electricity and the NSMP in aggregate. The focus of the report is on quantifiable costs and benefits only. It should be noted that there are significant non-quantifiable benefits associated with smart metering which are not considered here. Smart grid enablement is a case in point. In preparing this analysis, PwC relied heavily on the contributions of the major stakeholders to the NSMP for input assumptions and technical support. High-level details of inputs assumptions and their structure are provided throughout the report, but disaggregated assumptions by stakeholder are not always provided to protect the confidential nature of certain of these. Where an assumption was not provided or where the assumption provided was a significant outlier relative to available benchmarks, an adjustment was made based on evidence from relevant peer organisations. PwC would like to extend it sincere thanks to all who contributed to the preparation of this analyses, particularly ESB Networks, Bord Gáis Networks, those energy suppliers who contributed estimates of cost and benefit impacts and the ESRI. The contribution of CER personnel is also acknowledged.
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2. Key Central Assumptions (Electricity) 2.1 Introduction This chapter presents an overview of the structure and detail of the primary assumptions which drive the cost benefit analysis of the NSMP (electricity) under the “central” scenario. The sections which follow describe the assumed NSMP roll-out schedule, the residential and SME penetration rates of Smart Meter (SM), In-Home Display (IHD) and Time-of-Use (ToU) tariffs, the capital and opex costs associated with programme roll-out from the perspective of ESB networks and electricity energy suppliers, consumer costs and benefits and impacts on the cost of generation.
2.2 Programme Roll-Out Table 2.1 shows the assumed roll-out schedule for the NSMP (electricity). Key points of note are the following:
electricity smart meters are rolled-out on a constant basis between 2017 and 2020 to private residences in Ireland as well as to Small and Medium-sized Enterprises (SMEs);
IHDs are provided in private residences only and are installed with the smart meter;
ToU tariffs, designed to promote a shift away from peak time consumption of electricity, are introduced to private residences and SMEs one year after installation of the smart meter.
In the 2011 CBA, SMs, IHDs and ToUs were assumed to be introduced simultaneously. The assumption of a deferred implementation of ToU has a dampening effect on the economic return of the NSMP. Table 2.1 Assumed Programme Roll-Out Schedule (SMEs & Residential) Year
% of Smart Meters Rolled-Out
2017
10%
2018
35%
2019
40%
2020
15%
Total
100%
IHD Timing
With Smart Meter
ToU Timing
1 Year Post Smart Meter
Assumptions Source: ESBN
There is not assumed to be a universal roll-out of SMs, IHDs or ToU in private residences, reflecting the following among others:
there are likely to be challenges in accessing certain private residences, which are holiday homes or vacant on a long-term basis;
there are certain types of dwelling where the distance from the meter is too great for an IHD to work effectively, most notably apartments;
there could likely to be refusals to accept ToU tariffs, particularly from individuals who will be challenged in shifting demand from peak times (e.g. dialysis patients).
Estimated rates of non-acceptance of SMs, IHDs and ToUs are shown in Table 2.2.
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Table 2.2 Assumed Rates of Non-Acceptance of Smart Meters, IHDs & ToUs Year
Smart Meter Refusals
Residential
SMEs
12.80%
0%
-
Inaccessible
11%
0%
-
Non-acceptance
2%
0%
IHD Refusals (% with Smart Meter)
24%
n.a.
ToU Refusals (% with Smart Meter)
6.57%
n.a.
Assumptions Source: CSO Census of the Population 2011 & Other (PwC Derived)
One of the primary benefits of smart metering (based on evidence from extensive CER-commissioned consumer trials in Ireland) is a change in the patterns of electricity usage by residential households, most notably a reduction in overall energy consumption and a movement of demand away from peak times. The assumed relationships between the realisation of these benefits and the smart meter infrastructures present in the home are shown in Table 2.3. An important point of note here is that no usage benefits can be attained without a smart meter. Table 2.3 Assumed Usage Impacts of Smart Meters, IHDs & ToU Year
% of Average Residential Usage Benefit Realised
Smart Meter
10%
IHD
9%
ToU
81%
Total
100%
Assumptions Source: PwC derived from CER Customer-based Trials (CBT)
The forecast number of residential household and SME electricity connections in Ireland is shown in Table 2.4. These assumptions derive primarily from CSO statistics and ESBN forecasts.
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Table 2.4 Number of Residential Households & SMEs in Ireland Year
Residential
SMEs
2014
2,038,985
196,373
2015
2,049,014
199,282
2016
2,059,091
202,236
2017
2,069,218
206,233
2018
2,079,395
210,309
2019
2,089,622
214,468
2020
2,099,898
218,710
2021
2,110,225
223,037
2022
2,120,603
227,450
2023
2,131,032
231,951
2024
2,141,512
236,542
2025
2,152,045
241,225
2026
2,162,629
246,002
2027
2,173,265
250,874
2028
2,183,954
255,844
2029
2,194,695
260,913
2030
2,205,490
266,084
2031
2,216,338
271,358
2032
2,227,240
276,738
2033
2,238,195
282,225
Assumptions Source: CSO Census of the Population 2011 & ESBN (PwC Derived)
Details of the assumed number of homes and SMEs in Ireland with smart meters, IHDs and ToUs by year are provided in the next chapter. Table 2.5 shows assumptions regarding the share of homes and SMEs with night-storage heating (NSH) and night saver tariffs (NST). Table 2.5 Percentage of Connections with Night-Storage Heating (NSH) or Night-Saver Tariff (NST) % of Connections
Residential
SMEs
NSH (Extra Install Charge)
4%
0%
NST (No Usage Benefit)
15%
0%
Assumptions Source: ESBN, CER
With regard to the former, these incur a higher SM installation charge. Connections with a NST, by contrast, are assumed not to realise any usage benefit as a result of being already incentivised to avoid electricity consumption during peak hours. This is likely a conservative treatment.
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2.3 Capital Costs of Smart Meters & IHDs The assumed unit costs of SM and IHD acquisition and installation are shown in Table 2.6. These assumptions were provided by ESBN and are predicated on the assumption that the IHD is installed simultaneously with the SM at no incremental cost. Table 2.6 Assumed Unit Capital Costs of Smart Meters & IHDs Year
Urban Residential
Rural Residential
SMEs
Smart Meter (Acquisition)
€X
€X
€X
Smart Meter (Install - General)
€X
€X
€X
Smart Meter (Install – NSH)
€X
€X
€X
Smart Meter (Other Unit Costs)
€X
€X
€X
SIM-based IHD (Acquisition)
€X
€X
€X
SIM-based IHD (HAN)
€X
€X
€X
Assumptions Source: ESBN, CER- ESBN have provided PwC with an estimated breakdown of costs, however. they are not published at this stage due to commercial and procurement sensitivities
The SIM-based IHD with the home area network (HAN) enables the remote updating of tariffs by networks on the IHD. Associated communication charges are included in the assumptions on ESBN operating costs. An important point of note in this regard is that the CBA assumes a single IHD only at the time of SM installation, with a maximum two-year management period. In other words, no IHD replacement costs are incorporated.
2.4 Consumer Costs & Benefits An overview of the nature of consumer costs and benefits captured in the CBA are shown in Table 2.7. Table 2.7 Categorisation of Consumer Costs & Benefits Year Reduced Consumption Costs Smart Meter Learning Time Ongoing Time Savings
Category
Residential
SMEs
Benefit
Yes
No
Cost
Yes
Yes
Benefit
Yes
Yes
Assumptions Source: CER CBT (PwC Derived)
As indicated, residential households are assumed to derive usage benefits in terms of an overall reduction in the rate of consumption of electricity as well as a shift in demand away from the peak. Both result in cost savings, assuming an acceptance of ToU tariffs, which are described in Table 2.8. In addition, residential households derive time-based savings from smart meters primarily as a result of not having to submit manual meter reads to suppliers. This benefit is shared with SMEs, as are the time costs associated with learning about SMs. With regard to the average usage benefit to residential customers, an overview of underpinning assumptions (which are based on consumer trials) is presented in Table 2.8.
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Table 2.8 Profile of Usage-related Benefit (Average Residential Household with SM, IHD & ToU) Pre-Smart Meter
Post-Smart Meter
Consumption (KwH)
Average Unit Cost
Total Cost
Consumption (KwH)
Average Unit Cost
Total Cost
433
€0.11
€47.5
390
€0.15
€60.5
Shoulder
3,210
€0.11
€349.4
3,111
€0.11
€334.8
Off-Peak
929
€0.11
€99.5
937
€0.09
€85.0
4,573
€0.11
€496.5
4,439
€9.24
€480.3
Peak
Total
Assumptions Source: CER CBT, CER (PwC Derived)
For a residential household with a SM, IHD and ToU, the average annual saving on an electricity bill as a direct result of smart metering is €16.2, i.e. €496.5 - €480.3. This saving results from an overall reduction in energy consumption (i.e. from 4,573 KwH per annum to 4,439) as well as from a reduction in the share of the energy consumed during peak hours and a revised tariff structure which promotes this behaviour. This benefit is assumed to be realised in full in the year when the SM, IHD & ToU are installed and sustained thereafter for the full programme period. The sustained nature of the benefit has not yet been subject to testing in the Irish market (as consumer-based trials were discontinued after a year), but international evidence suggests that the benefit not only sustains rather builds over time. To the extent that this is the case, the proposed treatment of the benefit in the CBA is potentially conservative. Related, no regard is had in the CBA to the fact that smart meters will, in time, enable smart grid which could have a transformative impact on the total system costs of energy consumption in Ireland. Table 2.9 shows the time-related or non-usage benefit assumptions contained in the CBA model. Table 2.9 Profile of Time-related Benefit (Average Residential Household & SME) Year
Residential
SME
Nature
€15.68
€31.36
n.a.
Smart Meter Bill Learning Time (Hours)
0.41
0.5
Once-off Cost
IHD Learning Time (Hours)
0.41
n.a.
Once-off Cost
Reduced Meter Reading Time
0.08
0.01
Ongoing Benefit
Average Value of Time (Hour)
Assumptions Source: CER CBT, ESRI CBA 2011
Residential customers are assumed to expend 0.82 hours in learning about SMs and IHDs in the year of their installation, compared with 0.5 hours for SME owners who are not provided with an IHD. There is an average annual reduction of .08 hours in the time spend by residential customers on activities related to meter readings, with the respective estimate for SMEs standing at 0.01. The average values subscribed to an hour of residential householder and SME time are as per the 2011 CBA.
2.5 Other ESB Network (ESBN) Benefits & Costs ESBN assumes a significant responsibility for the roll-out of SMs and IHDs, as well as for their management (extending to data flows and storage) post-implementation. There are significant associated capital costs beyond the costs of the SMs and IHDs profiled earlier. The profile and level of assumed additional ESBN capital costs are shown in Table 2.10.
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Table 2.10 Profile of Other ESBN Capital Costs related to Smart Metering Cost (€ mn)
Timing
Depreciation Treatment
Programme Management
€X
2014 to 2020
n.a.
Head End System
€X
2016
Five years, with single replacement.
MDMS
€X
2016 to 2017
Five years, with single replacement.
Backend Enhancements
€X
2016 to 2017
Five years, with single replacement.
Deployment & Materials Management
€X
2016 to 2020
n.a.
IT Security
€X
2017
n.a.
Web Portal
€X
2017 to 2018
n.a.
Capital Cost
Assumptions Source: ESBN (PwC Derived) - ESBN have provided PwC with an estimated breakdown of costs however, they are not published at this stage due to commercial and procurement sensitivities
The major items of capital expenditure are the following:
programme management – essentially the costs which ESBN will incur for the management of the full national roll-out of the programme, including procurement;
head end system– or the system and software needed to ensure a reliable two-way communication between the smart meter and the ESBN meter data management system;
meter data management system (MDMS) – the system needed for the storage, management and distribution of consumption data from the smart meters;
Backend enhancement – the current system used by ESBN for meter management will need significant enhancement to accommodate the new demands of smart meters;
deployment & materials management
investment in systems to ensure an effective management of the programme of smart meter roll-out;
IT security – investment will be required in new applications (supplementary to that built into mainstream systems) to ensure that smart meter data is secure at all points of transit and processing.
The major items of capital investment (excluding programme management and related costs) will be replaced once after a five year period of usage. Thereafter, it is assumed that the systems will become “mainstreamed” into ESBN practice as smart metering becomes the norm across the market. Additional ESBN operating costs as a direct result of smart metering are profiled in Table 2.11.
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Table 2.11 Profile of ESBN Operating Costs related to Smart Metering Category of Cost
Cost
Timing
Mobile Operator Charges (GPRS comms solution)
X
Staggered with SM Install
Telecoms O&M
X
As stated.
Head End Enhancement & Opex
X
Staggered with SM Install
MDMS
X
Annual costs staggered with SM install. System improvements in 2024 and 2031.
Network Operations Centre
X
From 2021
Infrastructure & Hosting
X
From 2021
Data Storage Costs
X
Staggered with SM Install
Web Portal Opex
X
From 2018
Replacement of Faulty Meters
X
From 2021
IHD-related Opex
X
From 2015 to 2021, reflecting planning effort and two year management.
Assumptions Source: ESBN (PwC Derived) - ESBN have provided PwC with an estimated breakdown of costs, however, they are not published at this stage due to commercial and procurement sensitivities
The major items of additional operating expenditure are the following:
mobile operator charges – related to the required ongoing communication between the smart meters and the MDMS of the ESBN with these estimates based on an assumed national roll-out of a GPRS or mobile communications solution;
telecoms operation & maintenance – or the costs associated with operating and maintaining the telecoms infrastructure required to support smart meter to MDMS communications;
head end and MDMS annual management and enhancement – or the annual costs associated with the operation and maintenance of these systems, as well as their occasional enhancement;
Network Operations Centre – when fully established, this is the costs of the team charged with ensuring that smart meter business processes are fit-for-purpose and that the supporting infrastructures are performing to the required standard;
data storage costs – or the costs of storing the data from the smart meters, estimated at €X per operational smart meter per annum as smart meters are rolled out;
replacement of faulty meters – or the costs associated with the replacement of faulty smart meters, estimated at between €X and €X mn commencing in 2020;
IHD-related costs – including back-office and customer costs during the planning and roll-out phases, communication costs during the two-year management period and faulty IHD replacement.
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Against these additional operating costs, ESBN will avoid certain legacy costs as a direct result of the NSMP. A high-level overview of the profile and magnitude of ESBN avoided cost assumptions are shown in Table 2.12.
Table 2.12 Profile of Avoided ESBN Costs as a Result of Smart Metering Category of Avoided Cost
Key Assumptions
Timing
Avoided Manual Meter Reads
Average annual savings of approximately €13 mn per annum between 2017 and 2033, which assumes straight-line relationship between meter reading volume and reduction realised.
Staggered with SM Install.
Avoided Costs of Meter Replacement
Savings associated with avoided costs of traditional meter replacement programme as well as roll-out of time switch meters. Benefits roll to programme end, i.e. avoided costs of traditional meters installed in 2033 is assumed.
For traditional, 130,000 in period 2017 to 2020 inclusive. 40,000 in all other years. Respective for time-switch are 13,000 and 10,000.
Avoided Costs of New Connections
All new connections are assumed to receive a smart meter, so avoided costs of acquisition and install of a traditional meter are computed as a benefit.
All new connections assumed to receive SM from start of roll-out. Benefit in line with new connections.
Avoided Costs of Specialist PrePayment Meters
For those households that would have converted to a pre-payment meter regardless of SM, the acquisition and install costs of the budget tracker (€269) are avoided as a result of smart metering.
In line with growth in the prepayment market (see Table 2.18) and the national roll-out of smart meters from 2017.
By replacing specialist pre-payment meters, SMs will displace average annual support cost of €17 per annum on a straight-line basis.
In line with growth in the prepayment market (see Table 2.18) and the national roll-out of smart meters from 2017.
Avoided costs of microgeneration capability on traditional meters at 820 units per annum at a cost of €300.
From 2017.
Avoided visits to traditional meters, e.g. disconnections or reconnections.
Average unit saving of circa €75 per avoided meter visit on approximately 57,000 per annum.
Staggered with SM install.
Avoided costs associated with investigation of voltage complaints.
Average unit saving of €90 on circa 3,000 investigated voltage complaints.
Staggered with SM install.
Avoided costs of re-enforcing the network as a result of reduction in peak demand and as a result of overall reduction in consumption.
Saving of €1.04 mn for every 1% reduction in energy consumption and €0.73 mn for every 1% reduction in peak energy consumption.
Staggered in line with realisation of reduction in energy consumption demand.
Avoided theft.
30% reduction in 1% incidence of theft, estimated at a maximum benefit of €2.73 mn per annum.
Staggered with SM install.
Avoided Support Costs for Pre-Payment Meters
Microgeneration
Assumptions Source: ESBN (PwC Derived)
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Key points of note are the following:
avoided manual meter reads – it is assumed for CBA purposes that there is a direct correlation between the share of traditional meters converted to smart meters and the associated reduction in manual meter reading costs, i.e. no regard is had to rising unit costs as a result of smaller volumes;
avoided costs of meter replacement – the full benefit of avoided meter replacement costs is assumed with no regard had to the residual book value of the assets being replaced;
avoided costs of specialist pre-pay meters – it is assumed that the practice of distributing budget controllers to pre-pay customers (which attract additional capital and maintenance costs) is discontinued in line with the roll-out of smart meters, notwithstanding certain speculation that the practice of distributing budget controllers will continue regardless.
Additional detail on CBA model assumptions on the size of the pre-pay electricity market in Ireland are provided in Section 2.8.
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2.6 Electricity Supplier Benefit & Cost Costs This section describes the primary assumptions which underpin the analysis of the costs and benefits to electricity suppliers as a result of the NSMP. In this regard, it should be noted that there were assumed to be six primary market players for the assumptions of costs here, namely: Electric Ireland; Bord Gais Energy; Airtricity; Energia, Pre-Pay Power and Pinergy. All suppliers were asked to provide details of the likely impact of the NSMP on their financials. Comprehensive responses were received from three providers only. These responses form the primary basis of the assumptions which are now described, with averages for the three largest providers only described here. Estimates for six market providers are, however, contained in the CBA model. Table 2.13 shows model assumptions on the average capital costs of NSMP for the three largest market players. Table 2.13 Average Electricity Supplier Capital Costs associated with Smart Metering Cost (Average for 3 Largest)
Timing
Assumed Asset Life
Depreciation Treatment
System for Receipt of New Market Messages
€588,449
Over a six year period from the start of the NSMP roll-out.
5 Years
Single Replacement Cycle, which is equivalent to 55% of the original asset value.
System for Issuance of New Market Messages
€588,449
As above.
5 Years
As above.
Enhanced Billing System
€1,828,559
As above.
5 Years
As above.
Enhanced CRM System
€2,523,894
As above.
5 Years
As above.
Enhanced Trading & Risk Management Systems
€1,213,676
As above.
5 Years
As above.
Other Capex
€1,071,161
As above.
5 Years
As above.
Capital Infrastructure
Assumptions Source: Electricity Suppliers, Frontier Economics (Benchmarking), PwC Aggregation
Table 2.14 shows model assumptions on the average additional opex of NSMP for the three largest suppliers.
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Table 2.14 Average Additional Supplier Opex associated with Smart Metering Category of Cost
Description
Key Assumptions
Timing
Costs of Smart Meter-specific training for IT staff, field staff and customer service staff.
Average of approximately €750,000 for the three main suppliers.
2017
IT Opex
Additional operating expenditures on new systems required for smart metering.
Average annual cost for three main suppliers of €625,135.
From 2017 to NMSP programme end.
Customer Awareness Raising
Supplier role in raising awareness of new tariffs and billing.
Average annual cost of €2.8 per customer for the three main suppliers.
In line with smart meter roll-out (first year cost only).
Smart Bill Production & Printing of Shadow Statements
Additional costs with producing the smart bill as well as the costs of printing shadow statements.
Average annual additional cost of €1.41 per residential smart meter per annum.
In line with smart meter roll-out.
Additional Comms Costs (General PrePay Customers)
The costs associated with communicating balance information to pre-pay customers (which would have existed regardless of SM) are higher as a result of their being no "in-home" budget controller or meter.
€3 per annum per additional prepay customer with a smart meter, with this number reaching.
In line with smart meter roll-out and rise in pre-pay customers.
Staff Training
Assumptions Source: Electricity Suppliers, Frontier Economics (Benchmarking), PwC Aggregation
Suppliers also realise reductions in their operating expenditures as a result of smart metering. An overview of related assumptions, based solely on those categories of benefit identified by suppliers, is shown in Table 2.15. Table 2.15 Average Supplier Opex Savings associated with Smart Metering Category of Saving
Avoided Ad Hoc Meter Reads
Bad Debt Reduction
Reduction in Dunning Cycles
Description
Key Assumptions
Timing
Suppliers are required to request read meters in certain situations, particularly switching.
2% of the residential customer base (excluding pre-pay) has an ad hoc meter reading annually, at an average cost of €66 per annum.
In line with smart meter roll-out.
The incidence of bad debts is reduced as a result of the enhanced reliability of billing information.
Average saving of €0.81per annum per residential customers.
In line with smart meter roll-out.
Related, there is a reduction in the costs associated with bad debt collection.
Average reduction of 21% in the current number of Dunning messages annually per residential customer (1.3 baseline) with an assumed unit cost of €0.45.
In line with smart meter roll-out.
Assumptions Source: Electricity Suppliers, Frontier Economics (Benchmarking), PwC Aggregation
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2.7 Electricity Generation Costs & Benefits A reduction in peak demand leads to annual savings as a result of a reduction on the required generating capacity. The assumptions which underpin this benefit (circa €68 mn NPV) are shown in Table 2.16. Table 2.16 Benefits Associated with Reduction in Peak Load Capacity Assumption
Assumption
Description
1,869
Republic of Ireland capacity required for residential demand in 2010.
€78,730
Indicator of the average annual unit cost of a MW in capacity, based on the costs incurred by a Best New Market Entrant in 2011.
-9%
Findings from CER Customer-based Trials (CBT) conducted in 2010.
32%
The gross benefit is reduced to reflect the fact that a significant share of residences will not realise reductions in their peak capacity for a variety of reasons, e.g. smart meter refusal.
RoI Residential Capacity Pot (MW)
Average Cost per MW (Best New Entrant)
Effective Reduction in December Peak Demand
Benefit Deflation Factor
Assumptions Source: ESRI (2011), PwC.
A fall in residential demand also results in a fall in wholesale demand, which assuming a given level of supply, results in a reduction in the System Marginal Price (SMP). CER ran a Plexos simulation to estimate the scale of this impact, the resultant assumption of which is shown in Table 2.17. Table 2.17 Benefits Associated with Lower System Marginal Price as a Result of Lower Demand Category
Value of Total, Residential, RoI SEM Purchases in 2011
% Reduction Achieved
Assumption
Description
€1,730,510,620
Value of electricity consumed by Irish residential households in 2011.
0.4%
Effective reduction in the cost of RoI SEM residential purchases as a result of the change in consumption behaviours realised as a direct result of smart metering.
Assumptions Source: ESRI (2011), CER.
The resultant NPV benefit is of the order of €42 mn.
17
2.8 General Assumptions Model assumptions on the discount factor (indicator of the social value of money), the duration of the smart meter life (which dictates the overall duration of the CBA model) and the forecast size of the pre-pay electricity market in Ireland are shown in Table 2.18. Table 2.18 Miscellaneous Assumptions Category
Assumption
Discount Factor
5%
Pre-Pay Market 2014
113,266
2015
119,703
2016
141,624
2018
156,994
2020
184,161
2025
231,345
2030
269,070
The compounded annual return on the investment in smart metering must exceed this factor if the NPV is positive. A positive NPV means a higher annual return than 5% is being achieved. A negative NPV means a lower return is being achieved. Assumptions regarding the rate of growth of the prepay market inform estimates of the value of the avoided costs of budget controllers as well as of incremental communications costs.
17
The average smart meter life is between 15 and 20 years. PwC ran the model to 2033 when the oldest smart meter will be 17 years.
2014 to 2033
Essentially, a seventeen year asset life from the year of first installation of a smart meter. This is conservative, given that meters installed in 2020 will be only 14 years when the CBA model is concluded.
Assumed Smart Meter Maximum Asset Life
CBA Model Duration
Description
Assumptions Source: Department of Finance, CER, Various
CBA model outcomes are highly sensitive to the assumed discount rate as well as model duration. This is evidenced in Section 3.12 of the next chapter.
18
3. NSMP (Electricity) Cost Benefit Analysis 3.1 Introduction This chapter presents the findings of the PwC cost benefit analysis of the NSMP (electricity), based on the assumptions presented in Chapter 2. It comprises 10 additional sectors, the last three of which provide overall NPV results under the central and alternative scenarios. Stakeholder detail is provided in the remainder
3.2 Timing of Smart Meter, IHD & ToU Implementation For reference purposes, Table 3.1 shows an assumed roll-out of smart meters, IHDs and ToUs to residential households and SMEs in Ireland. Table 3.1 Timing of Smart Meter, IHD & ToU Implementation Residential
SMEs
Year
% with Smart Meter
% with IHD
% with ToU
% with Smart Meter
2014
0%
0%
0%
0%
2015
0%
0%
0%
0%
2016
0%
0%
0%
0%
2017
9%
7%
0%
12%
2018
40%
30%
9%
47%
2019
75%
56%
37%
86%
2020
88%
66%
69%
100%
2021
88%
66%
82%
100%
2022
88%
66%
82%
100%
2023
88%
66%
82%
100%
2024
88%
66%
82%
100%
2025
88%
66%
82%
100%
2026
88%
66%
82%
100%
2027
88%
66%
82%
100%
2028
88%
66%
82%
100%
2029
88%
66%
82%
100%
2030
88%
66%
82%
100%
2031
88%
66%
82%
100%
2032
88%
66%
82%
100%
2033
88%
66%
82%
100%
Source: Derived from PwC CBA Model
19
3.3 Consumer (Residential Only) Usage Impacts Table 3.2 shows the forecast financial benefits accruing to residential households in Ireland as a result of the change in their energy consumption patterns supported by SMs by year. Table 3.2 Scale & Timing of Residential Usage Benefits Year
Households with Smart Meters
% of Maximum Usage Benefit Attained
Average Annual Usage Benefit
Total Usage Benefit (€ 000s Non-Discounted)
Total Usage Benefit (€000s Discounted)
2014
0
0%
€0.0
€0
€0
2015
0
0%
€0.0
€0
€0
2016
0
0%
€0.0
€0
€0
2017
159,439
17%
€2.7
€434
€375
2018
696,252
34%
€5.5
€3,863
€3,178
2019
1,308,574
57%
€9.3
€12,160
€9,528
2020
1,543,604
81%
€13.2
€20,370
€15,200
2021
1,552,279
92%
€15.1
€23,419
€16,644
2022
1,560,997
92%
€15.1
€23,554
€15,942
2023
1,569,757
92%
€15.1
€23,664
€15,254
2024
1,578,560
92%
€15.0
€23,738
€14,573
2025
1,587,408
92%
€15.0
€23,771
€13,898
2026
1,596,298
92%
€15.0
€23,915
€13,317
2027
1,605,233
92%
€15.0
€24,060
€12,759
2028
1,614,211
92%
€15.0
€24,205
€12,225
2029
1,623,234
92%
€15.0
€24,351
€11,713
2030
1,632,302
92%
€15.0
€24,499
€11,223
2031
1,641,414
92%
€15.0
€24,646
€10,753
2032
1,650,572
92%
€15.0
€24,795
€10,303
2033
1,659,774
92%
€15.0
€24,933
€9,867
Total
n.a.
n.a.
n.a.
€350,378
€196,754
Source: Derived from PwC CBA Model
In nominal terms, consumers realise an electricity-usage benefit of €350 mn as a result of smart metering. Discounted, this translates to an NPV of €197 mn.
20
3.4 Consumer (Residential & SME) Non-Usage Impacts Table 3.3 shows the value of the time impacts of smart metering on residential households and SMEs. Table 3.3 Value of Residential & SME Time Savings or Costs (-) as a Result of NSMP Residential Value of Time Impact (€000s Non Discounted)
Value of Time Impact (€000s Discounted)
Value of Time Impact (€000s NonDiscounted)
Value of Time Impact (€000s Discounted)
2014
€0
€0
€0
€0
2015
€0
€0
€0
€0
2016
€0
€0
€0
€0
2017
-€1,907
-€1,647
-€373
-€323
2018
-€6,223
-€5,120
-€1,148
-€944
2019
-€6,384
-€5,002
-€1,286
-€1,007
2020
-€1,004
-€749
-€485
-€362
2021
€2,156
€1,532
-€10
-€7
2022
€2,169
€1,468
-€10
-€7
2023
€2,181
€1,406
-€10
-€6
2024
€2,194
€1,347
-€10
-€6
2025
€2,207
€1,290
-€10
-€6
2026
€2,220
€1,236
-€11
-€6
2027
€2,233
€1,184
-€11
-€6
2028
€2,246
€1,134
-€11
-€6
2029
€2,259
€1,087
-€11
-€5
2030
€2,272
€1,041
-€12
-€5
2031
€2,285
€997
-€12
-€5
2032
€2,299
€955
-€12
-€5
2033
€2,312
€915
-€12
-€5
€13,514
€3,074
-€3,433
-€2,711
Year
Total
SME
Source: Derived from PwC CBA Model
The net effect is marginally positive, with residential households recording a modest net gain (i.e. €3 mn saving) compared with an equally modest net cost for SMEs (-€2.7 mn).
21
3.5 Cost of Smart Meters & IHDs (ESBN) The forecast capital costs associated with SM, IHD acquisition and installation are shown in Table 3.4. Table 3.4 Costs of Smart Meter and IHD Acquisition & Installation
Year
SM Acquisition & Installation Costs (€000s Non-Discounted)
IHD Acquisition & Installation Costs (€000s Non-Discounted)
Total (€000s NonDiscounted)
Total (€000s Discounted)
2014
€0
€0
€0
€0
2015
€0
€0
€0
€0
2016
€0
-€240
-€240
-€218
2017
-€38,989
-€240
-€39,229
-€33,888
2018
-€130,083
-€16,026
-€146,109
-€120,204
2019
-€148,323
-€19,106
-€167,429
-€131,185
2020
-€57,282
-€9,109
-€66,391
-€49,542
2021
-€2,669
-€84
-€2,753
-€1,957
2022
-€2,697
€0
-€2,697
-€1,825
2023
-€2,725
€0
-€2,725
-€1,757
2024
-€2,754
€0
-€2,754
-€1,691
2025
-€2,783
€0
-€2,783
-€1,627
2026
-€2,813
€0
-€2,813
-€1,566
2027
-€2,843
€0
-€2,843
-€1,508
2028
-€2,874
€0
-€2,874
-€1,451
2029
-€2,905
€0
-€2,905
-€1,397
2030
-€2,936
€0
-€2,936
-€1,345
2031
-€2,968
€0
-€2,968
-€1,295
2032
-€3,001
€0
-€3,001
-€1,247
2033
-€3,034
€0
-€3,034
-€1,201
Total
-€411,680
-€44,805
-€456,486
-€354,904
Source: Derived from PwC CBA Model
The discounted capital costs associated with the roll-out of SMs and IHDs alone is estimated at €456 mn in nominal terms, equivalent to an NPV of -€355 mn.
22
3.6 ESBN Capex (Other) & Opex (NSMP-related) As well as incurring the costs of acquiring and installing SMs and IHDs, ESBN will incur other capex and opex costs directly as a result of the NSMP. Forecasts of cost by year are shown in Table 3.5. Table 3.5 Costs of Other ESBN Capex and Opex Year
Capex Acquisition (€000s NonDiscounted)
Capex Depreciation (€000s NonDiscounted)
Other Opex (€000s NonDiscounted)
Total (€000s NonDiscounted)
Total (€000s Discounted)
2014
-€11,527
€0
€0
-€11,527
-€11,527
2015
-€15,448
€0
€0
-€15,448
-€14,712
2016
-€30,843
€0
€0
-€30,843
-€27,975
2017
-€34,020
€0
-€2,332
-€36,352
-€31,402
2018
-€9,511
€0
-€10,209
-€19,720
-€16,224
2019
-€9,261
€0
-€19,076
-€28,338
-€22,203
2020
-€9,261
€0
-€23,281
-€32,543
-€24,284
2021
€0
-€24,689
-€34,784
-€59,473
-€42,266
2022
€0
-€19,588
-€34,983
-€54,571
-€36,936
2023
€0
€0
-€35,185
-€35,185
-€22,680
2024
€0
€0
-€36,351
-€36,351
-€22,316
2025
€0
€0
-€35,594
-€35,594
-€20,811
2026
€0
€0
-€35,801
-€35,801
-€19,935
2027
€0
€0
-€36,791
-€36,791
-€19,511
2028
€0
€0
-€36,222
-€36,222
-€18,295
2029
€0
€0
-€36,436
-€36,436
-€17,526
2030
€0
€0
-€36,651
-€36,651
-€16,790
2031
€0
€0
-€37,832
-€37,832
-€16,506
2032
€0
€0
-€37,089
-€37,089
-€15,411
2033
€0
€0
-€37,311
-€37,311
-€14,765
Total
-€119,872
-€44,277
-€525,927
-€690,076
-€432,077
Source: Derived from PwC CBA Model
Mobile operator charges for a national GPRS comms solution are the largest single driver of this cost estimate.
23
3.7 ESBN Avoided Costs The EBSN also avoids costs as a result of smart metering, including the costs associated with manual meter reads, the avoided costs of a traditional or non-smart meter replacement programme and avoided capex as a result of changed patterns of energy consumption. Estimates of the scale of avoided ESBN costs, which are savings directly attributable to smart metering, are shown in Table 3.6. Table 3.6 Value of ESBN Avoided Costs (€000s) Non-Discounted
Discounted
Year
Meter Reads
Meter Replacement
2014
€0
€6,900
€1,700
€8,600
€8,600
2015
€0
€6,900
€1,700
€8,600
€8,190
2016
€0
€6,900
€1,700
€8,600
€7,800
2017
€1,455
€18,876
€4,623
€24,955
€21,557
2018
€6,302
€18,876
€8,250
€33,427
€27,501
2019
€11,815
€18,876
€20,604
€51,295
€40,191
2020
€13,931
€18,876
€19,989
€52,796
€39,397
2021
€14,013
€6,900
€28,270
€49,183
€34,954
2022
€14,096
€6,900
€20,840
€41,836
€28,316
2023
€14,180
€6,900
€22,795
€43,874
€28,282
2024
€14,264
€6,900
€21,403
€42,567
€26,133
2025
€14,350
€6,900
€23,150
€44,399
€25,959
2026
€14,436
€6,900
€25,298
€46,634
€25,968
2027
€14,523
€6,900
€21,771
€43,193
€22,906
2028
€14,610
€6,900
€22,300
€43,811
€22,127
2029
€14,699
€6,900
€21,978
€43,577
€20,961
2030
€14,788
€6,900
€27,997
€49,685
€22,761
2031
€14,879
€6,900
€22,470
€44,248
€19,305
2032
€14,970
€6,900
€23,013
€44,883
€18,650
2033
€15,062
€6,900
€22,688
€44,650
€17,669
Total
€222,370
€185,904
€362,540
€770,815
€467,229
Other
Total
Total
Source: Derived from PwC CBA Model
24
3.8 Supplier Impacts A summary statement of forecast supplier impacts by year is shown in Table 3.7. Table 3.7 Value of Supplier Impacts Non-Discounted ('000s)
Discounted
Year
Avoided Costs
Additional Opex
Additional Capex
Depreciation
Total
Total
2014
€0
€0
€0
€0
€0
€0
2015
€0
€0
€0
€0
€0
€0
2016
€0
€0
-€16,466
€0
-€16,466
-€14,935
2017
€576
-€6,624
-€16,466
€0
-€22,514
-€19,448
2018
€2,521
-€5,963
€0
€0
-€3,442
-€2,832
2019
€4,740
-€7,072
€0
€0
-€2,331
-€1,827
2020
€5,592
-€5,687
€0
€0
-€95
-€71
2021
€5,630
-€4,762
€0
-€9,586
-€8,718
-€6,196
2022
€5,662
-€4,774
€0
-€9,586
-€8,698
-€5,887
2023
€5,693
-€4,807
€0
€0
€887
€572
2024
€5,770
-€4,824
€0
€0
€947
€581
2025
€5,803
-€4,858
€0
€0
€944
€552
2026
€5,835
-€4,916
€0
€0
€919
€512
2027
€5,867
-€4,927
€0
€0
€940
€498
2028
€5,902
-€4,944
€0
€0
€958
€484
2029
€5,935
-€4,956
€0
€0
€979
€471
2030
€5,968
-€5,023
€0
€0
€945
€433
2031
€6,001
-€5,036
€0
€0
€966
€421
2032
€6,082
-€5,056
€0
€0
€1,026
€426
2033
€6,116
-€5,069
€0
€0
€1,047
€414
Total
€89,694
-€89,297
-€32,931
-€19,173
-€51,706
-€45,830
Source: Derived from PwC CBA Model
Based on the assumptions presented in Chapter 2, suppliers are impacted negatively to the amount of €51 mn in nominal terms. The equivalent NPV impact is - €46 mn.
25
3.9 Generation Impacts A summary of the benefits associated with a reduction in the peak generation capacity required and the system margin price of electricity is shown in Table 3.8. Table 3.8 Value of Generation Impacts Non-Discounted Reduction in Peak Capacity
Reduction in System Marginal Price
Total
Total
2014
€0
€0
€0
€0
2015
€0
€0
€0
€0
2016
€0
€0
€0
€0
2017
€157
€491
€648
€559
2018
€1,384
€2,132
€3,516
€2,893
2019
€4,329
€3,984
€8,313
€6,514
2020
€7,205
€4,674
€11,879
€8,864
2021
€8,232
€4,674
€12,905
€9,172
2022
€8,232
€4,674
€12,905
€8,735
2023
€8,232
€4,674
€12,905
€8,319
2024
€8,232
€4,674
€12,905
€7,923
2025
€8,232
€4,674
€12,905
€7,546
2026
€8,232
€4,674
€12,905
€7,186
2027
€8,232
€4,674
€12,905
€6,844
2028
€8,232
€4,674
€12,905
€6,518
2029
€8,232
€4,674
€12,905
€6,208
2030
€8,232
€4,674
€12,905
€5,912
2031
€8,232
€4,674
€12,905
€5,631
2032
€8,232
€4,674
€12,905
€5,362
2033
€8,232
€4,674
€12,905
€5,107
€120,088
€72,039
€192,126
€109,292
Year
Total
Discounted
Source: Derived from PwC CBA Model
Expressed in NPV terms, the estimated generation benefit is substantial at €109 mn.
26
3.10 Full Statement of Impact (Central) Table 3.9 shows an integrated statement of the CBA result for electricity smart metering, based on the application of the assumptions described in Chapter 2. Table 3.9 Total Statement of NSMP Cost-Benefit Analysis Stakeholder
Discounted (NPV) €197,116
Consumer Residential SME ESBN
€199,828 -€2,711 -€319,753
Smart Meter & IHD Costs
-€354,904
Other NSMP Capex and Opex
-€432,077
Avoided Costs
€467,229
Suppliers
-€45,830
Generation
€109,292
Total
-€59,175
Source: Derived from PwC CBA Model
Using a 5% discount rate, the NPV for the electricity CBA in aggregate is negative at -€59 mn. Given the scale of the expected total programme spend, and the fact that many of the costs provided for the purpose of advising CBA assumptions are indicative only, the result should be interpreted as broadly neutral and requiring testing with cost assumptions which are based on substantial market soundings. While the CBA model is not-distributional in nature, i.e. no regard is had to how incremental costs or benefits flow through the system, it is interesting to note that ESBN and electricity suppliers are negative in NPV terms. The scale of the net cost in the case of networks is very substantial, and reflects in large part the assumed national use of a GPRS communications solution with a high attendant annual operating cost. With regard to consumers, residential households are net positive in aggregate while SMEs are net negative. As indicated in Chapter 2, no usage benefits are ascribed to SMEs reflecting the fact that there is no national trialbased evidence for changes in usage patterns.
27
3.11 Full Statement of Impact (Outcome Range) The NPV outcome described in Section 3.10 is indicative only, with the likely outcome operating somewhere in a range of this central result. For the purposes of providing an indication of range, PwC prepared two alternative scenarios as follows:
pessimistic – where the major categories of cost are 10% higher than indicated and consumer usage benefits are static over time (as per the central scenario:
optimistic – where the major categories of cost are 10% lower than indicated and consumer usage benefits compound gradually over time to reach 175% of the central assumption by 2033. This benefit compounding is a standard feature of many other SM CBAs reviewed.
Table 3.10 NSMP NPV (Central, Pessimistic & Optimistic Scenarios) Scenario
Optimistic
Central
Pessimistic
Discounted (NPV)
Discounted (NPV)
Discounted (NPV)
€289,405
€197,116
€197,116
€292,116
€199,828
€199,828
-€2,711
-€2,711
-€2,711
-€256,644
-€319,753
-€379,918
Smart Meter & IHD Costs
-€321,987
-€354,904
-€387,822
Other NSMP Capex and Opex
-€401,886
-€432,077
-€459,325
Avoided Costs
€467,229
€467,229
€467,229
Suppliers
-€36,442
-€45,830
-€55,219
Generation
€109,292
€109,292
€109,292
Total
€105,612
-€59,175
-€128,728
Stakeholder Consumer Residential SME ESBN
Source: Derived from PwC CBA Model
Table 3.10 shows a range of outcomes under these scenarios, with the negative NPV of -€59 converting to a positive of €105 mn under the optimistic scenario. By contrast, under the pessimistic scenario the NPV outcome is -€129 mn. As indicated, additional market research is required to an improved estimate of impact.
28
3.12 CBA Model Sensitivity Closely related to the foregoing, it is worth highlighting the sensitivity of the CBA model result to a number of the underpinning assumptions (see Table 3.11). Table 3.10 NSMP NPV (Illustration of Sensitivities) (€000s NPV)
Outcome
Central
-€59,175
Asset Life (19 versus 17 Years)
-€25,435
€33,739
Discount Factor (4% versus 5%)
-€34,772
€24,403
Consumer Benefit Compounds (75% uplift by 2033)
€33,114
€92,289
-€128,728
-€69,554
€13,323
€72,498
Higher Capex (110%) Lower Capex (90%)
Difference from Central
Source: Derived from PwC CBA Model
The model converts to a positive NPV where consumers build on their initial experience of ToUs and derive further usage benefits from their SM, IHD and ToU over time and where estimated costs are 10% lower than anticipated. The scale of the loss is reduced with changes in the assumed duration of the smart meter asset life, as well as when the discount factor is reduced to 4% (the current official rate but scheduled to increase shortly). By contrast, a higher than forecast capex (+10%) results in a more negative NPV than for the central scenario.
29
4. Key Central Assumptions (Gas) 4.1 Introduction This chapter presents an overview of the structure and detail of the primary assumptions which drive the cost benefit analysis of the NSMP (gas) under the “central” scenario. The sections which follow describe the assumed NSMP roll-out schedule, the residential and SME penetration rates of Smart Meter (SM), the capital and opex costs associated with programme roll-out from the perspective of Bord Gais Networks and gas suppliers, and consumer costs and benefits.
4.2 Programme Roll-Out Table 4.1 shows the assumed roll-out schedule for NMSP (gas). Table 4.1 Assumed NSMP Roll-Out Schedule Year
% of Smart Meters Rolled-Out
2017
20%
2018
30%
2019
30%
2020
20%
Total
100%
IHD Timing
With Smart Meter
ToU Timing
No ToU Tariffs
Assumptions Source: BGN
The assumed rates of non-acceptance of smart meters are shown in Table 4.2. Table 4.2 Assumed Rates of Non-Acceptance of Smart Meters Year
Residential & SMEs
Smart Meter
15.00% -
Technically Not Feasible
10%
-
Non-acceptance
5%
Assumptions Source: BGN, CSO, PwC Derived
Fifteen per cent of households with gas meters are assumed not to receive a smart meter, with the greatest share of this non-receipt accounted for by technical issues. An estimated five per cent of households are assumed not to accept a smart meter for non-technical reasons, e.g. safety grounds, non-accessible. The assumed number of gas connections in Ireland by year (residential & SME) is shown in Table 4.3.
30
Table 4.3 Number of Impacted Gas Connections in Ireland Year
Residential & SME
2014
657,721
2015
664,081
2016
670,921
2017
678,241
2018
687,741
2019
697,241
2020
706,741
2021
716,241
2022
725,741
2023
735,241
2024
744,741
2025
754,241
2026
763,741
2027
773,241
2028
782,741
2029
792,241
2030
801,741
2031
811,241
Assumptions Source: BGN
By the time of assumed NSMP (gas) roll-out, there are close to 700,000 gas connections in Ireland with new connections growing at an assumed rate of 9,500 per annum.
31
4.3 Capital Costs of Smart Meters & IHDs BGN assumed unit costs of meter replacements (smart ready under the BAU and fully smart as part of the NSMP) are shown in Table 4.4. Table 4.4 Assumed Unit Capital Costs of Smart Meters (NSMP) and Smart-Ready Meters (BAU) Total
BAU
SR Meter (Replacement)
€X
SR Meter (New Connection)
€X
SR Meter (Pre-Payment)
€X
NSMP
Total
Smart Meter (Scheduled Replacement)
€X
Smart Meter (New Connection)
€X
Smart Meter (Retrofit)
€X
Smart Meter (Retrofit Pre-payment)
€X
Assumptions Source: BGN - BGN have provided PwC with an estimated breakdown of costs, however, they are not published at this stage due to commercial and procurement sensitivities
Key points of note are the following:
there is a relatively small difference in the cost of a smart ready meter (installed under the BAU or “no NSMP” set of assumptions) and the cost of a fully smart meter;
these “smart ready” meters are being installed in place of traditional meters as part of a mainstream meter replacement programme;
the rationale for this is that the conversion (or retrofit) costs for smart ready meters to fully smart meters is significantly less than the cost of a full smart meter replacement ;
the estimated cost of a gas smart meter assumes it will have the capability to provide data for display on an IHD .
The roll-out of smart-ready meters under the BAU likely deflates the relative cost of smart meter installation relative to the “do nothing” scenario, assuming that traditional meters are lower cost than smart ready meters and that the replacement programme is not capable of being deferred until 2017. Details are provided in Chapter 3.
32
4.4 Consumer Costs & Benefits A summary overview of the assumptions which drive estimates of consumer costs and benefits associated with the NSMP (gas) are shown in Table 4.5. Table 4.5 Assumptions on Consumer Usage & Non-Usage Impacts Assumption
Description
Annual Gas Consumption
Estimated at an average of 13,556 kWh per gas connection in the baseline year, with building regulations leading to an annual decline of approximately 0.5% for the duration of the CBA model.
SM Reduction Effected
Average of 3.6% reduction from the time of install of the smart meter for non-vacant properties (i.e. 94% of total), which is held constant over time.
SM Savings Realised.
Assuming an average unit cost of €0.038 per kWh, the average bill reduction realised per SM connection is €18.52 in the baseline year.
Time Savings Realised
Average time savings per non-vacant residence with a (credit) smart meter of 10 minutes per year, with an average value assigned to an hour of personal time of €15.68.
Time Costs
Average time cost of slightly more than a half hour in the year of SM install for credit meters in occupied homes.
Assumptions Source: BGN/ CER Consumer Trials/ Frontier Economics 2011
Key points of note are the following:
an estimated 94% of households with smart meters are assumed to realise a reduction of 3.6% in their annual gas consumption as a result of the SM and IHD, with this percentage held constant as a share of a modestly declining consumption demand for the duration of the CBA model;
households and SMEs (occupied premises with credit meters only) are assumed to realise time savings of six minutes per annum every year from the time of smart meter install, primarily as a result of not having to submit meter readings and deal with associated enquiries;
against this, there is a learning time of a half hour (occupied premises with credit meters only) in the first year of smart meter installation.
33
4.5 Other BG Network (BGN) Benefits & Costs BGN incurs costs and benefits beyond the costs of meter acquisition and installation. Table 4.6 shows the general operational costs and benefits associated with the NSMP (gas) for BGN. Table 4.6 Profile of Other BGN (Non-IT) Benefits & Costs related to Smart Metering Assumption
BAU (No NSMP)
NSMP
Battery Replacement
Once every ten years for smart ready meters (excluding pre-payment) at a unit cost of €X.
Once every ten years for smart meters (excluding pre-payment) at a unit cost of €X.
Avoided site visits (exceptional).
Meter locks (€69 each @ 1.97% of credit meters annually); Meter unlocks (€69 each @ 0.81% of credit meters annually); Gas supply isolations (€824 each @ .03% of credit meters annually); Service disconnect (€107 each @ 0.25% of credit meters annually).
No site visits for smart meters, but still exist for meters not converted to smart.
Prepayment Meter Vending Cards
Average annual cost of €3.50 per prepay meter, with an additional average cost of €0.56 for replacement vending cards.
As above.
Prepayment Call Outs.
9% of prepayment customer require a service call @ €X each.
As above. Also, average call out charge of €X for smart pre-payment meters in line with roll-out.
Fuel Gas Savings
None.
Reduction of gas used in the transmission system (2.5% of consumption) as a result of reduction in demand for gas among households with SMs.
Incidence of Theft
.07% of annual throughput for traditional credit and prepayment meters.
Assumption that for smart meters incidence of theft will reduce by 30%
Avoided distribution reinforcement costs as a result of lower demand volume.
n.a.
Average annual savings of €1.48 per smart meter installed.
Smart Meter communication failures
n.a.
Annual re-visits due to comms failures of 0.4%, with an associated average unit cost of €X.
Assumptions Source: BGN/ Frontier Economics 2011- BGN have provided PwC with an estimated breakdown of costs, some of which however, are not published at this stage due to commercial and procurement sensitivities
The most significant items contained in Table 4.6 are avoided site visits and avoided distribution reinforcement costs. With regard to the former, smart meters will enable BGN to remotely perform many functions which now require a high-cost site visit, e.g. meter locks and unlocks, for all premises with smart meters. The associated saving is estimated at approximately €15 mn (non-discounted) over the period of the NSMP. Related, reduced gas consumption will reduce the BGN investment required in the gas distribution network with an associated saving of approximately €13 mn (non-discounted) over the period of the NSMP. Beyond these operational impacts, BGN will have to invest in the programme management of the NSMP (above and beyond the costs associated with the roll-out of smart-ready meters) as well as in specialist IT systems to manage the interface with ESBN comms infrastructures and to support data processing and storage.
34
Details are provided in Table 4.7.
Table 4.7 Profile of BGN IT Costs related to Smart Metering Cost
Description
Assumptions
Depreciation
Programme Management
The costs to BGN associated with rolling-out the programme of smart meters over and above those that would otherwise be incurred.
Approximately €X million in total, commencing in 2014 and finishing in 2020 when the last smart meter is installed.
n.a.
MDMS
A Meter Data Management System (MDMS) to support BGN in the processing and storage of large volumes of consumption data as a result of smart metering.
Approximately €X mn in cost, spread evenly across the ten years from 2016 to 2027 inclusive.
Single depreciation cycle seven years after investment @ 100% of original cost.
IT Capex Licence Costs
A licence payment which is made on a per meter basis in the year in which smart meters are installed.
€X per smart meter in the year of installation.
n.a.
IT Opex Licence Costs
Ongoing licensing costs for IT software and applications.
€X per smart meter annually from the first year of installation.
n.a.
Annual cost of hardware/ application supports.
Recurring annual charge for technical support to specialist smart meter applications and IT hardware.
Average annual cost of circa €X mn from 2017 onwards.
n.a.
BGN customer care programme.
Costs of BGN direct engagement with impacted customers during the roll-out of smart meter installations.
Estimated at circa €X mn per annum between 2017 and 2020 inclusive.
n.a.
Electricity interface/ IT License Costs.
Annual capex licence costs per smart meter attaching to use of electricity infrastructures, e.g. MDMS, Headend.
€X per smart meter in the year of installation.
n.a.
Electricity interface/ additional wiring costs for indoor meters or apartment dwellings.
Additional repeater/wiring costs associated with head-to-reach gas meters
€X unit charge attaching to 2.5% of residences with gas smart meters, equating to an average cost of €X per smart meter in the year of installation.
n.a.
Electricity interface/ Incremental WAN charges.
Supplementary payments for Wireless Access Networks (WAN).
€X per smart meter annually.
n.a.
Electricity interface/ contribution to IT overhead.
BGN annual contribution to ESBN IT overhead in return for infrastructure supports, particularly the Network Operations Centre.
Approximately €X mn annually from the time of installation of the first gas smart meter.
n.a.
Electricity interface/ programme management.
The costs of managing the integrated delivery of service with ESBN.
Estimated at €X mn in total, spread evenly across 2014 to 2016 inclusive.
n.a.
Assumptions Source: BGN
It should be noted that the NSMP (gas) builds on the communications and IT infrastructures of the NSMP (electricity). The CBA of the NSMP (gas) would be less favourable than indicated in this report where the programme implemented in isolation from the NSMP (electricity). Table 4.8 shows the assumptions which underpin estimates of the impact of the NSMP (gas) on the meter reading costs of BGN.
35
Table 4.8 Impact of NMSP (gas) on BGN Meter Reading Costs BAU
NSMP
Four scheduled reads per standard meter, 2 for long-term no access (1.11% of connections), 1 for nonregistered credit meters (0.77% of connections) and non-vending PP meters (4.25% of connections). Unit cost of €1.02 for a scheduled read and circa €11 for all others. Unit cost of a scheduled read rises to €2.50 from 2019.
As BAU for meters not converting to smart, but with an average of 0.5 reads required per smart meter (in exceptional circumstances), at a cost of €1.02 per read rising to €1.50 from 2019.
Smart Meter Operations Centre
n.a.
Establishment costs of €4.5 mn between 2017 and 2020. Annual operational costs of between €400,000 and €500,000 annually.
Overhead Cost for Manual Meter Reads
n.a.
Overhead for manual meter reads of €0.8 mn annually from 2019 onwards.
Meter Read Assumptions
36
4.6 Gas Supplier Benefit & Costs Table 4.9 shows the assumed gas supplier costs and benefits associated with the NSMP (gas). In this regard, it should be noted that these assumptions are as per those used in the Frontier Economics 2011 analysis of the NSMP (gas) and derive, largely, from data gathered during the CER smart metering trials. Table 4.9 Profile of Assumed Supplier Costs & Benefits related to Smart Metering Cost
Description
Assumptions
Depreciation
IT Capex Costs
The IT costs associated with accommodating more detailed consumption data.
Estimated at €7.27 per meter in the year of installation.
Single depreciation cycle eight years after the initial outlay, at 75% of the original investment cost.
IT Opex Costs
The annual opex associated with supporting the investment in SM-specific capital.
Estimated at €1.25 per smart meter from the time of first install.
n.a.
An average spend of €1.00 per customer in the year of smart meter installation.
n.a.
€0.10 per smart meter connection per annum.
n.a.
Customer Awareness
Additional Bill Printing Costs
The costs to suppliers associated with informing customers about smart metering. The costs to suppliers associated with preparing smart bills in line with regulation.
Reduced customer complaints and queries.
Reduced complaints and queries as a result of removal of bill estimates.
€1.00 per year per smart meter connection.
n.a.
Reduced costs of debt management.
As a direct result of customers having more real-time information on consumption.
€0.37 per year per smart meter connection.
n.a.
Reduced switching costs.
As a result of avoiding the need for "out-of-cycle" meter reads and associated administration when customers are switching suppliers.
€0.65 per year per smart meter connection.
n.a.
Assumptions Source: Frontier Economics 2011
As the assumptions are based fully on the number of connections, no assumptions were required regarding the number of gas suppliers in the market.
37
4.7 General Assumptions Miscellaneous assumptions are shown in Table 4.10. Table 4.10 Miscellaneous Assumptions Category
Assumption
Discount Factor
5%
Pre-Pay Market
% of Connections 2014
13%
2015
15%
2016
17%
2018
21%
2020
21%
2025
21%
2030
21%
The compounded annual return on the investment in smart metering must exceed this factor if the NPV is positive. A positive NPV means a higher annual return than 5% is being achieved. A negative NPV means a lower return is being achieved. Assumptions regarding the rate of growth of the prepay market inform estimates of the value of the avoided costs of budget controllers as well as of incremental communications costs.
15
PwC ran the model to 2031 when the oldest smart meter will be 15 years.
2014 to 2031
Essentially, a fifteen year asset life from the year of first installation of a smart meter. This is conservative, given that meters installed in 2020 will be only 12 years old when the CBA model is concluded.
Assumed Smart Meter Maximum Asset Life
CBA Model Duration
Description
Assumptions Source: BGN, PwC, Department of Finance
As for NSMP (electricity), the assumed discount rate of 5%. The pre-pay market is assumed to continue to grow until 2017, at which point it is assumed to reach saturation at 21% of residential & SME customers. The gas smart meter asset life is assumed to be 15 years, less than is the case for electricity. Reflecting an assumed rollout starting year of 2017, the CBA model runs to 2031 when the oldest smart meter in the system will be 15 years. This is conservative to the extent that 20% of the smart meter base will be 12 years old only (i.e. have a residual asset life of three years at least) when the CBA analysis is concluded.
38
5. NSMP (Gas) Cost Benefit Analysis 5.1 Introduction This chapter presents the findings of the PwC cost benefit analysis of the NSMP (gas), based on the assumptions presented in Chapter 4. It comprises 9 additional sectors, the last three of which provide overall NPV results under the central and alternative scenarios. Stakeholder detail is provided in the remainder
5.2 BGN Capital Investment in Meters (BAU & NSMP) Table 5.1 shows the assumed rate of smart ready (SR) meter installation under the BAU scenario, i.e. where there is no NSMP (gas). These volumes are used to estimate the cost of the BGN meter replacement programme should the NSMP not progress. Table 5.1 Timing of BAU Meter Investment Programme Year
SR Meters (Replacements)
SR Meters (New Connections)
SR Meters (Pre-Payment)
Total
2014
21,454
6,840
362
28,656
2015
20,736
7,320
349
28,405
2016
20,570
9,500
337
30,407
2017
20,405
9,500
325
30,231
2018
20,242
9,500
314
30,056
2019
20,080
9,500
303
29,883
2020
19,919
9,500
292
29,712
2021
19,760
9,500
282
29,542
2022
19,602
9,500
272
29,374
2023
19,445
9,500
263
29,208
2024
19,290
9,500
253
29,043
2025
19,135
9,500
245
28,880
2026
18,982
9,500
236
28,718
2027
18,830
9,500
228
28,558
2028
18,680
9,500
220
28,400
2029
18,530
9,500
212
28,242
2030
18,382
9,500
205
28,087
2031
0
9,500
0
9,500
Total
334,043
166,160
4,698
504,901
Source: Derived from PwC CBA Model
39
Table 5.2 shows the assumed rate of implementation of gas smart meters, from the time of their first installation in 2017. Table 5.2 Timing of NSMP Meter Investment Programme Year
Smart Meters (Scheduled)
Smart Meters (New Connections)
Smart Meters (Retrofit)
Smart Meters (Retrofit PP)
Total SM Installations
2017
57,709
7,320
32,706
17,466
115,202
2018
87,706
9,500
49,646
28,793
175,645
2019
88,195
9,500
49,898
29,904
177,497
2020
59,014
9,500
33,377
20,430
122,322
2021
0
9,500
0
0
9,500
2022
0
9,500
0
0
9,500
2023
0
9,500
0
0
9,500
2024
0
9,500
0
0
9,500
2025
0
9,500
0
0
9,500
2026
0
9,500
0
0
9,500
2027
0
9,500
0
0
9,500
2028
0
9,500
0
0
9,500
2029
0
9,500
0
0
9,500
2030
0
9,500
0
0
9,500
2031
0
9,500
0
0
9,500
Total
292,625
140,320
165,628
96,594
695,166
Source: Derived from PwC CBA Model
Reflecting an assumed “refusal” rate of 15% on the baseline number of gas connections in Ireland, and assuming that all new connections are smart meters, the maximum smart meter penetration of gas connections in Ireland is 86% with this rising gradually from 2017 (see Table 5.3).
40
Table 5.3 Assumed SM Penetration Rates by Year Year
Total Number of Gas Connections
Total Number of Smart Meters
% SM Connections
2014
657,721
0
0%
2015
664,081
0
0%
2016
670,921
0
0%
2017
678,241
115,202
17%
2018
687,741
290,847
42%
2019
697,241
468,344
67%
2020
706,741
590,666
84%
2021
716,241
600,166
84%
2022
725,741
609,666
84%
2023
735,241
619,166
84%
2024
744,741
628,666
84%
2025
754,241
638,166
85%
2026
763,741
647,666
85%
2027
773,241
657,166
85%
2028
782,741
666,666
85%
2029
792,241
676,166
85%
2030
801,741
685,666
86%
2031
811,241
695,166
86%
Source: Derived from PwC CBA Model
Table 5.4 shows the incremental capital costs to BGN associated with the roll-out of smart meters in Ireland, relative to the planned programme of investment in smart ready meters.
41
Table 5.4 Net Cost of NSMP Meter Investment Programme versus BAU Year/ €000s
BAU Meter Capex (Non-Discounted)
BAU Meter Capex (Discounted)
NSMP Meter Capex (Non-Discounted)
NSMP Meter Capex (Discounted)
Net NPV Impact on BGN Meter Capex
2014
9,192
9,192
9,192
9,192
0
2015
9,086
8,653
9,086
8,653
0
2016
8,990
8,154
8,990
8,154
0
2017
8,904
7,692
17,118
14,787
-7,095
2018
5,831
4,797
25,206
20,737
-15,940
2019
5,811
4,553
25,254
19,787
-15,234
2020
5,792
4,322
17,718
13,222
-8,900
2021
5,773
4,103
2,588
1,839
2,264
2022
5,755
3,895
2,596
1,757
2,138
2023
5,737
3,698
2,604
1,679
2,019
2024
5,719
3,511
2,612
1,604
1,907
2025
5,702
3,334
2,621
1,532
1,802
2026
5,686
3,166
2,629
1,464
1,702
2027
5,670
3,007
2,637
1,398
1,608
2028
5,654
2,856
2,645
1,336
1,520
2029
5,639
2,712
2,653
1,276
1,436
2030
5,624
2,576
2,662
1,219
1,357
2031
5,609
2,447
2,670
1,165
1,282
Total
116,173
82,668
141,481
110,802
-28,134
Source: Derived from PwC CBA Model
Table 5.4 shows that the roll-out of fully smart meters will result in an incremental cost to BGN of approximately €28 million (discounted or NPV) in the period to 2031.
42
5.3 BGN IT Capex & Opex Costs (NSMP) Table 5.5 shows that BGN will incur close to €81 mn (discounted or NPV) in additional IT costs as a direct result of the NSMP (gas) in the period 2014 to 2031. Table 5.5 BGN IT Capex & Opex Costs (NSMP) Year/ '000s
BGN IT Capex (NonDiscounted)
BGN IT PM (NonDiscounted)
BGN IT Opex (Non-Discounted)
BGN Total IT (NonDiscounted)
BGN Total IT (Discounted)
Depreciation 2014
-€0
-€7,180
€0
-€7,180
-€7,180
2015
-€0
-€5,225
€0
-€5,225
-€4,977
2016
-€1,903
-€5,225
€0
-€7,129
-€6,466
2017
-€1,903
-€2,078
-€4,076
-€8,057
-€6,960
2018
-€1,903
-€2,078
-€5,179
-€9,161
-€7,536
2019
-€1,903
-€2,078
-€5,335
-€9,316
-€7,299
2020
-€1,903
-€2,078
-€4,506
-€8,487
-€6,333
2021
-€1,903
€0
-€2,644
-€4,547
-€3,232
2022
-€1,903
€0
-€2,652
-€4,555
-€3,083
2023
-€565
-€2,537
€0
-€2,660
-€6,467
-€4,169
2024
-€565
-€3,113
€0
-€2,668
-€7,052
-€4,329
2025
-€565
-€3,394
€0
-€2,677
-€7,341
-€4,292
2026
-€565
-€3,394
€0
-€2,685
-€5,446
-€3,032
2027
-€565
-€3,281
€0
-€2,693
-€5,341
-€2,832
2028
-€565
-€2,817
€0
-€2,701
-€4,884
-€2,467
2029
-€565
-€2,817
€0
-€2,709
-€4,893
-€2,353
2030
-€565
-€205
€0
-€2,717
-€4,827
-€2,211
2031
-€565
-€57
€0
-€2,726
-€4,686
-€2,045
Total
-€18,406
-€25,943
-€48,628
-€114,594
-€80,798
-€21,615
Source: Derived from PwC CBA Model
43
5.4 BGN Meter Reading Impact Table 5.6 shows the impact of the NSMP (gas) on the meter reading costs of BGN, with the costs of a Smart Meter Operational Centre (SMOC) included in the meter reading costs of the NSMP scenario. Table 5.6 Impact of NSMP on BGN Meter Reading Costs BAU Meter Reading Costs (Non-Discounted)
BAU Meter Reading Costs (Discounted)
NSMP Meter Reading Costs (includingSMOC & emergency response overheads) (Non-Discounted)
NSMP Meter Reading Costs (including SMOC & emergency response overheads) (Discounted)
Net NPV Impact on BGN Meter Reading Costs
2014
-€2,523
-€2,523
-€2,548
-€2,523
€0
2015
-€2,485
-€2,367
-€2,513
-€2,367
€0
2016
-€2,451
-€2,223
-€2,481
-€2,223
€0
2017
-€2,420
-€2,090
-€3,057
-€2,641
-€551
2018
-€2,392
-€1,968
-€3,112
-€2,561
-€593
2019
-€2,427
-€1,901
-€4,658
-€3,649
-€1,748
2020
-€2,462
-€1,837
-€3,448
-€2,573
-€736
2021
-€2,497
-€1,775
-€2,561
-€1,820
-€46
2022
-€2,532
-€1,714
-€2,575
-€1,743
-€29
2023
-€2,567
-€1,655
-€2,588
-€1,668
-€14
2024
-€2,602
-€1,597
-€2,602
-€1,597
€0
2025
-€2,636
-€1,541
-€2,615
-€1,529
€12
2026
-€2,671
-€1,487
-€2,629
-€1,464
€23
2027
-€2,705
-€1,435
-€2,643
-€1,401
€33
2028
-€2,740
-€1,384
-€2,656
-€1,341
€42
2029
-€2,774
-€1,334
-€2,670
-€1,284
€50
2030
-€2,808
-€1,286
-€2,683
-€1,229
€57
2031
-€2,842
-€1,240
-€2,697
-€1,177
€64
Total
-€46,532
-€31,357
-€50,736
-€34,870
-€3,514
Year/ '000s
Source: Derived from PwC CBA Model
Reflecting the inclusion of SMOC costs, an assumed significant uplift in the average meter reading costs for non smart meters as volumes decline as well as an assumed requirement to physically visit a small proportion of smart meters annually, it is assumed that BGN meter reading costs are €3.5 mn higher as a direct result of NSMP (gas) for the period under review. In this regard, it should be noted that were the analysis carried forward, the meter reading impact would be positive as there are net savings from 2025 onwards.
44
5.5 Other NSMP Impacts on BGN Table 5.7 shows the net financial impact on BGN of miscellaneous operational features of the NSMP (gas), e.g. avoided need for exceptional site visits, reduced costs of distribution network reinforcement. Table 5.7 Impact of NSMP on Miscellaneous Factors (e.g. Distribution Reinforcement) BAU Misc. Impact (Non-Discounted)
BAU Misc. Impact (Discounted)
NSMP Misc. Impact (Non-Discounted)
NSMP Misc. Impact (Discounted)
Net NPV Benefit () or Cost (+)
2014
-2,828
-2,828
-2,845
-2,845
16
2015
-3,048
-2,902
-3,065
-2,919
17
2016
-3,264
-2,961
-3,283
-2,978
17
2017
-3,479
-3,005
-2,664
-2,301
-704
2018
-3,691
-3,036
-1,491
-1,226
-1,810
2019
-3,736
-2,927
-315
-247
-2,680
2020
-3,781
-2,821
459
342
-3,164
2021
-3,826
-2,719
446
317
-3,036
2022
-3,872
-2,621
459
311
-2,931
2023
-3,918
-2,525
472
304
-2,830
2024
-4,483
-2,752
485
298
-3,050
2025
-4,525
-2,645
497
291
-2,936
2026
-4,567
-2,543
510
284
-2,827
2027
-4,609
-2,445
-1,544
-819
-1,626
2028
-4,693
-2,370
-2,495
-1,260
-1,110
2029
-4,738
-2,279
-2,464
-1,185
-1,094
2030
-4,783
-2,191
-1,496
-685
-1,506
2031
-4,828
-2,106
402
175
-2,282
Total
-72,667
-47,678
-17,931
-14,143
-33,535
Year/ €000s
Source: Derived from PwC CBA Model
Table 5.7 shows a saving of €36 mn (discounted or NPV) to BGN as a result of NSMP (gas), with the greatest share of this benefit accounted for by the reduced costs of physical site visits as well as the reduced costs of distribution network reinforcement as a result of a reduced consumption demand.
45
5.6 Suppliers Impacts Table 5.8 shows the net financial impact of the NSMP (gas) on suppliers. Table 5.8 Impact of NSMP on Gas Suppliers Supplier IT Capex (including Depr.) (Non-Discounted)
Supplier IT Opex (NonDiscounted)
Supplier Net Opex Impact (NonDiscounted)
Total Supplier (NonDiscounted)
Total Supplier (Discounted)
2014
€0
€0
€0
€0
€0
2015
€0
€0
€0
€0
€0
2016
€0
€0
€0
€0
€0
2017
-€882
-€152
€112
-€922
-€797
2018
-€1,313
-€377
€399
-€1,291
-€1,062
2019
-€1,313
-€603
€746
-€1,170
-€917
2020
-€898
-€758
€1,040
-€616
-€459
2021
€0
-€770
€1,182
€412
€293
2022
€0
-€781
-€1,200
€419
€283
2023
€0
-€793
€1,218
€425
€274
2024
-€662
-€805
€1,237
-€230
-€141
2025
-€985
-€817
€1,255
-€547
-€320
2026
-€985
-€829
€1,273
-€540
-€301
2027
-€674
-€841
€1,291
-€223
-€118
2028
€0
-€853
€1,310
€457
€231
2029
€0
-€865
€1,328
€463
€223
2030
€0
-€876
€1,346
€470
€215
2031
€0
-€888
€1,364
€476
€208
Total
-€7,711
-€11,008
€16,302
-€2,417
-€2,388
Year/ '000s
Source: Derived from PwC CBA Model
Based primarily on assumptions contained in the Frontier Economics 2011 analysis, Table 5.8 shows a marginal net cost to suppliers of €2.4 mn over the period of the CBA model.
46
5.7 Consumer Impacts Table 5.9 shows that consumers are the significant beneficiaries of the NSMP (gas) with usage benefits dominating an estimated benefit of €86 mn Table 5.9 Scale & Timing of Residential Usage & Non-Usage Costs (+) or Benefits (-) Consumer Usage Impact (NonDiscounted)
Consumer Non-Usage Impact (Non-Discounted)
Total Consumer Impact (Non-Discounted)
Total Consumer Impact (Discounted)
2014
€0
€0
€0
€0
2015
€0
€0
€0
€0
2016
€0
€0
€0
€0
2017
€2,088
-€919
€1,169
€1,010
2018
€5,165
-€1,286
€3,879
€3,191
2019
€8,210
-€1,161
€7,049
€5,523
2020
€10,258
-€603
€9,655
€7,204
2021
€10,364
€348
€10,712
€7,613
2022
€10,470
€355
€10,825
€7,327
2023
€10,575
€361
€10,937
€7,050
2024
€10,680
€368
€11,048
€6,783
2025
€10,784
€375
€11,159
€6,524
2026
€10,887
€382
€11,269
€6,275
2027
€10,990
€389
€11,379
€6,034
2028
€11,092
€395
€11,487
€5,802
2029
€11,194
€402
€11,596
€5,578
2030
€11,295
€409
€11,704
€5,362
2031
€11,395
€415
€11,811
€5,153
Total
€145,448
€230
€145,677
€86,428
Year/ €000s
Source: Derived from PwC CBA Model
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5.8 Full Statement of Impact (Central) Table 5.10 shows the summary statement of NSMP impact by stakeholder. In this regard, it should be noted that impacts by stakeholder group are “first-round” only, i.e. no regard is had to initial incremental costs or benefits are subsequently shared across the stakeholder group. Table 5.10 Total Statement of NSMP Cost-Benefit Analysis Stakeholder
Discounted (NPV)
Consumer
€86,428
BGN
-€78,910 Increased Meter Capex
-€28,134
NSMP (Gas) IT Costs
-€80,798
Impact on Meter Reading Opex
-€3,514
Miscellaneous Impact
€33,535
Suppliers
-€2,388
Total
€5,130
Source: Derived from PwC CBA Model
BGN incurs net costs of approximately €80 mn as a result of the NSMP (gas), compared with a relatively modest €2.4 mn for suppliers. Combined these compare favourably to an estimated consumer benefit of €86 mn, resulting in a net positive CBA of €5 mn. In this regard, it is worth re-iterating here that: i) the net costs of the NSMP (gas) are contrasted with an investment programme in smart-ready meters which is presently being rolled out by BGN; ii) no updates on supplier costs and benefits were received for the purposes of the 2014 analysis; and iii) consumer benefits are assumed to be static from the time of smart meter installation, with no improvement or deterioration over time. Equally, it is important to note that the NSMP (gas) leverages the communications infrastructure put in place for NSMP (electricity). In other words, a stand-alone NSMP (gas) CBA would be less positive.
5.9 Full Statement of Impact (Outcome Range) The NPV outcome described in Section 5.8 is indicative only, with the likely outcome operating somewhere in a range of this central result. For the purposes of providing an indication of range, PwC prepared two alternative scenarios as follows:
pessimistic – where the major categories of NSMP (gas) cost are 10% higher than indicated and consumer usage benefits are static over time (as per the central scenario:
optimistic – where the major categories of cost are 10% lower than indicated .
Outcomes are shown relative to the central scenario in Table 5.11. Table 5.11 NSMP Gas NPV (Central, Pessimistic & Optimistic Scenarios) Stakeholder
Pessimistic
Central
Optimistic
48
Consumer
€86,428
€86,428
€86,428
BGN
-€94,030
-€78,910
-€63,789
Increased Meter Capex
-€35,983
-€28,134
-€20,284
NSMP (Gas) IT Costs
-€87,560
-€80,798
-€74,036
Impact on Meter Reading Opex
-€3,514
-€3,514
-€3,514
Miscellaneous Impact
€33,026
€33,535
€34,044
Suppliers
-€3,638
-€2,388
-€1,139
Total
-€11,240
€5,130
€21,501
Source: Derived from PwC CBA Model
Table 5.10 shows a range of outcomes under these scenarios, with the positive NPV of €5 mn converting to a positive of €22 mn under the optimistic scenario. By contrast, under the pessimistic scenario the NPV outcome is -€11 mn. As indicated, additional market research is required to provide an improved estimate of impact.
5.10 CBA Model Sensitivity Closely related to the foregoing, it is worth highlighting the sensitivity of the CBA model result to a number of the underpinning assumptions (see Table 5.12). Table 5.12 NSMP (Gas) NPV (Illustration of Sensitivities) (€000s NPV)
Outcome
Difference from Central
Central
€5,130
Asset Life (19 versus 17 Years)
€17,846
€12,715
Discount Factor (4% versus 5%)
€12,196
€7,065
Higher Capex (110%)
-€11,240
-€16,370
Lower Capex (90%)
€21,501
€16,370
Source: Derived from PwC CBA Model
6.
NSMP (Integrated) CBA Results
Table 6.1 presents a summary of the outputs from the CBA conducted on the NSMP for gas and electricity, the findings from which were presented in the foregoing chapters. Table 6.1 NSMP (Electricity & Gas) NPV Outcome Range NPV ‘000s
Pessimistic
Central
Optimistic
Electricity
-€128,728
-€59,175
€105,612
Gas
-€11,240
€5,130
€21,501
Total
-€139,968
-€54,044
€127,113
The range of NPV outcomes, based on the best available assumptions in 2013, ranges from -€140 under the pessimistic scenario to +€127 mn under the optimistic. Given the scale of the scale of the investment entailed in
49
the NSMP, the central outcome of -€54 mn should be interpreted as broadly neutral, particularly when regard is had to the important role which smart meters could play in the enablement of smart grid and, ultimately, the attainment of national energy policy objectives. For the next iteration of the CBA, it is crucially important that cost estimates which are based on market soundings are obtained. Equally, it will be important to undertake some due diligence on the likely impacts of the NSMP for suppliers – with estimates provided in 2013 spanning a very wide range and significantly different from the experience of international providers.
50
