Budgeting for upfront vs. ongoing smart metering costs

The total cost of ownership of digital energy management is often overlooked, sometimes jeopardising the potential upside when programs are not resourced or budgeted for the long-term.

This article attempts to ask some foundational questions that may be relevant to consider when evaluating the cost benefit of smart metering, sub metering and digital energy management solutions.

Who maintains the data?

  • Smart metering systems are not without fault and “perfect data” is not always the norm
  • Irregular spikes attributed to system “glitches” can adjust averages, totals and other chart outputs and in certain cases these glitches may be only observable on a granular level via reviewing that week’s data output
  • Depending on the system used (not all systems and do your due diligence), our practical experience is that there can be significant work over time in reviewing and maintaining raw data, verifying to NMI totals and billing records and getting to the bottom of discrepancies between the two
  • See below of budget estimates


How much does internal data QA cost?

  • As an example, at 5 min oversight per meter each week, over 5 years this is 21 hours
  • If this QA is required across 40 meters this would equate to 867 hours (over 5 years)
  • This is around 23 weeks at 37.5 hours per week, so say roughly 6 months
  • At a salary of $80,000 per year and spending 6 months on QA over the asset life, this $2,000 per meter
  • Even at 1 minute per week per meter, this is $400 in additional staff costs per meter
  • Budget for at least $400 per meter


Ongoing subscription and replacement costs?

  • Monthly communications costs vary from as little as $10/meter per month to hundreds per day
  • Metering can require out of warranty replacement, or replacement due to aspects that are not covered by warranties
  • What percentage of meters are planned for replacement over 5 years?
  • Budget for $20/month per meter in doing initial back of envelope calculations, and do ask the question early as you progress discussions with suppliers
  • Budget for a 5% replacement rate so assume 40 meters includes an additional 2 sometime down the track over 5 years


Who owns the data?

  • Costs can come in the form of increased management overhead having to deal with issues post smart metering install
  • One example is not having discussions on data governance upfront and wasting resources on negotiating who has access, who owns data, permitted purposes of use, conflicts in disclosing data to third parties etc
  • There is a risk management benefit in budgeting for the time required to get these data governance aspects clear and in writing from day one with relevant stakeholders
  • Budget for 3 days stakeholder engagement generally for a rollout


Who keeps it secure?

  • Don’t do a smart metering project in a silo, talk to varied stakeholders including IT and your data people (they will be excited and able to help)
  • Discuss cybersecurity with your IT department, find out who keeps data secure and if there are any relevant risks
  • Budget for at least 1 day to review security and other IT aspects 


How does the smart metering create value?

  • Deliverable cost savings associated with smart energy metering are often overstated specific to what is being monitored
  • Being conservative in potential savings performance is key, in that often the issues identified from smart metering require at least some capital, if not staff time, to create adjustments, improvements or perform maintenance
  • The key here is that if smart metering identified the issue, someone then need to fix it and who pays for that?
  • Budget for at least 1 day to document and pre-qualify some initial processes as part of your business case


Number of smart meters?

  • What is the balance between too many and too little end uses being smart metered?
  • Less is more, adding meters as you go and testing assumptions saves time and make sure you don’t over capitalise
  • The worst case is adding 20 smart meters and not even using them to deliver the savings % promised in a business case (which is common unfortunately)
  • Budgeting for a structured approach, learning as you go can save. Why install all the meters upfront if you can learn by doing?


Time reviewing data to identify cost savings?

  • This is difficult to answer…
  • Assume one day a fortnight for an engineer to review a portfolio of 40 smart meters and action insights
  • Over 5 years this is $43,000 @ $80,000/year salary
  • This is conservative and that would be an efficient engineer, possibly below market rate and no indexation was used here obviously i.e. it might cost 3x that in staff time to actually deliver savings from reviewing and acting on the data…
  • Budget for at least the amount above and possibly more (hard to measure)


Upfront Hardware Cost

  • Assuming a meter cost of $2,800 installed per meter and 40 meters are needed

Total hardware cost is $112,000


Ongoing Costs (from the article above)

  • There is at least five days review prior in the points above ($1,700 staff time @ $80k/year)
  • Monthly costs at $20/meter for communication costs for 40 meters over five years is $48,000
  • Assuming a meter cost of $2,800 installed per meter, 5% replacement contingency is $5,600
  • QA of metering data @ $400/meter is $16,000 (this was the lower estimate)
  • Engineering staff time over 5 years to identify and action savings $43,000

Total OPEX cost is $114,300 (close to the cost of hardware!!)

From this you can see, installing smart metering can be as expensive as running it.


Payback implications?

  • If you have budgeted a conservative 2% saving associated with smart metering and this creates a 5-year payback based on hardware costs, is it that simple?
  • Does this not become 10 years when you include total costs of ownership and benefits realisation?
  • Would you fund such a project?
  • Do you have the time, resources, and budget over those 5-years to deliver the benefits promised?


In Summary:

While smart energy metering is a promising technology, ultimately there are supporting systems and staff resources required to deliver on the promise of digital energy management and achieve the promised savings via a disciplined energy management campaign.

Being upfront about total costs of ownership can help evaluate what savings improvements are required to justify the upfront and ongoing savings over the whole life cycle of the project.

The worst thing is to get some early wins post install and not have budget or resources to follow through where in five years people may even say “What smart metering system? I didn’t know we did this, what is the login to that….?”