€200 billion will be needed to upgrade Europe's gas and electricity grids over the coming decade, the European Commission estimated in an energy infrastructure plan unveiled last November.
About half of these costs will have to come from the market, the Commission added, saying investments should be recovered using the 'user pays principle'. The rest will have to come from government coffers at a time of budgetary pressure.
In short, this will mean rising electricity bills for consumers.
"The unspoken secret is that whether we like it or not, huge reinvestment has to go into the grid," Bob Gilligan, vice-president for the 'Digital Energy' business at GE Energy Services, told EurActiv in an interview.
The grids were built largely after WWII, Gilligan explains, and about half of them have reached the end of their useful life. "The average age of the transformer in the United States is over 40 years old, and these things were typically designed with a 30-year lifespan. So you've got a lot of assets that have to be replaced – and the same thing goes in Western Europe."
And with an increasing share of energy generated by wind parks and solar power stations, the European Commission says a more decentralised and "intelligent" network is needed that can better cope with variations in supply and demand.
However, Gilligan recognises that this will come at a cost for consumers.
"For consumers, they are not going to like it, because the fact is, this infrastructure we have been working with has been fully depreciated, so the cost of electricity appears low. But now you have to go and reinvest and put money back into the system and that is going to raise their cost," he said, adding: "I do not see any way to avoid it."
With pressure on consumers' electricity bills, the European Commission is pushing EU countries to roll out smart meters that allow households to track their power consumption at any time of day. Households can then plan their consumption around off-peak times, when energy is cheaper, therefore helping them to keep their bills under control.
"We need smart meters and smart grids, which allow consumers to control exactly their power consumption and to save money and energy by changing their habits," the Commission said when unveiling its energy infrastructure plan in November.
Expected costs and savings
Smart grids and meters are being touted by industry for the savings they are expected to bring – for households and utilities alike.
GE Energy believes the costs of smart grids and meters are manageable, with the entire infrastructure estimated to cost around $500 per installed meter. "Not just the meter, but the sensors, communication, software, etc. that are required – we think around $500 per meter endpoint is reasonable," Gilligan explained.
In the US, where around four million smart meters have been installed, the overall cost is estimated at around $2 billion, Gilligan said. "That is displacing the need for five coal plants," he added, pointing out that those would have come at a cost of $1.5 billion.
Overall, the pay-back time for a utility is less than four years, said Gilligan, "so it just makes sense from an economic standpoint".
For consumers, simply delivering real-time usage information to households has led to a 3% decrease in power consumption, without further automation, Gilligan explained. "Now, when you further automate in the home, you see more. You see a 9 or 10% reduction. But information alone is powerful".
In Italy, Enel has launched a two-billion-euro investment programme to equip all its Italian customers with smart meters within five years, by far the biggest roll-out in Europe. And it is now starting to install 13 million meters in Spain.
For the Italian utility, the benefits are clear. Enel estimates that consumption peaks have been reduced by 5% due to greater customer awareness and clear price signals. And energy distributors have benefited from a 5% reduction in their yearly meter management costs, said Livio Gallo, director of Enel's Infrastructure and Networks division.
Consumer benefits still unclear
With utilities expected to make savings, consumers should also end up reaping the benefits in terms of reduced electricity bills.
But that's only the theory, warns EU consumers' organisation BEUC. And it is not yet clear whether the smart meters that have been rolled out in Italy, and parts of France and Germany, have helped deliver savings for households.
"What we observe is that energy suppliers install smart meters which have only limited consumer functionalities and sometimes only allow for remote reading of the meter," said Johannes Kleis, head of communications at BEUC. "Such basic meters obviously do not offer any additional benefit to consumer and even risk that they are discouraged by this technology at an initial stage."
"If the industry is gaining from smart meters, consumers should also share in these gains – for instance by a reduced energy bill," Kleis stressed.
BEUC also warns that smart meters might not offer any advantages for poorer households, "especially vulnerable consumers who cannot easily shift their energy consumption from peak to off-peak tariff".
"This means that a full-roll out of smart meters might not be necessary," Kleis said.
Not an easy sell
At GE Energy, Bob Gilligan recognises that smart meters may not be an easy sell for households, which may be reluctant to adopt the technology.
"The problem for us is the consumers," said Gilligan. "One day, you get a notice when someone is going to put a smart meter in your house. Months go by and nothing changes. Maybe your bill will go up because you are paying subsidies for that cost. It's going to be a year before you see new information come to you that helps you manage your bill better. And still you are going to say, 'well, did my cost, my total bill, really go down?' Well, it may not have because you are avoiding some other cost that may have come to you."
"That is the problem: everybody is expecting costs to drop [with smart meters] but the reality is that costs are going to go up." For Gilligan, the main challenge, therefore, is to reduce the rate at which prices will increase.
Among consumers, there does not seem to be great enthusiasm for moving to smart meters at the moment. Research carried out by German consumer group VZBV has shown that only 4% of consumers would get a smart meter at current market prices. And only 25% would agree to invest in this technology if the cost were lower and the potential savings greater.
Some households, of course, are going to embrace the technology regardless, said Gilligan. "A lot of people will do it just for the environmental benefit and because it's kind of cool. You know it's more technology at home, it's gadgets, we like gadgets. We'll do it for the novelty of it, as long as it does not negatively impact upon our lifestyle."
But as long as uncertainties over the potential savings persist, consumers are unlikely to adopt smart meters en masse. "There is going to be a segment of the population that has an interest in saving a few dollars, but the reality is that people will do it if it does not interfere with their lifestyle," Gilligan said.