Digitizing Electricity Metering Devices

In the beginning of the 21st Century, Turkey had countered Energy challenge due to a lack of infrastructure. As industries and population grew over the years and investment in energy projects could not be accomplished, that is to say the biggest lump sum energy project, called GAP, in the southeast Anatolia region of Turkey had not yet been accomplished since its start in the1970s, an energy crisis was encountered by the country. The government's solution to such a lack of energy was to cut the electricity of the whole country at peak hours to reduce consumption. Are you giggling at such a brilliant solution? Then, you are right; if the government cannot see the whole picture and understand the need for energy on the market side, and if it does not know how to make use of evolving technology, then officers (will eventually be forced to extreme measures like cutting) can even cut the cables to reduce consumption. Yet, we were lucky that the government changed in 2002 and all institutions, including TEDAŞ

(Electricity Distribution Corporation of Turkey), were revised by the new government. The energy company’s new administration focused on the market side of the energy consumption to manage the crisis. They realized that, first of all you cannot reduce energy consumption by command-and-control measures, and secondly such reductions will lead to more energy stress after you release electricity. In other words, such command-and-control measures in fact lead to shifting the stress from previous peak hours to new peak hours.

Figure 1 shows how the former electricity cut between 17.00 and 22.00 lead to a shift of peak hours during the day. I even remember my relatives used to do house chores when electricity was available after 22.00. Under second condition, there is even more trouble, since people will start to load electricity at the same time, and servers will get stuck with 100% utilization rate.

The new administration of TEDAŞ analyzed the market and technology, and came up with the data similar to what Figure 1 shows; electricity usage of citizens is at normal levels between 6:00 and 17:00, sharply increases between 17:00 and 22:00 and below average between 22:00 and 6:00. On the production side, the company was charging a flat rate and the electricity metering devices were analog. Also, electricity that was not consumed between 22:00 and 6:00 could not be stored or transferred to other periods of the day. With such data, in order to shift the peak load, they came up with  a marketing tool that a smart MBA student would commonly apply as "Price Discrimination" through usage of smart electricity metering devices. For those who do not know such a term, Price Discrimination is selling almost the same products or services to different buyers at different prices. That is to say, TEDAŞ charged the normal price for energy between the hours 6:00 and 17:00 and, by and large, 2 times and half the normal price between 17:00 - 22:00 and 22:00 - 6:00, respectively. The system was made feasible with the introduction of digital metering system based devices, since analog devices would show just how much total electricity was consumed. These digital devices, once installed, would show the monthly price that company charges for these different periods and relative electricity usage for these periods. The hour usage of electricity during these 3 different periods were compiled separately and charged depending on its relative price factor, and at the end, households were charged the total amount. By looking at the data, citizens were careful not to use heavy energy consuming devices during high price hours.

Yet, some consumers have low or high price elasticity depending on their wealth; in other words, some people will ignore price differences and use these devices during high hours. Some poorer people will prefer low hours, by sacrificing the time of delivery of the product, which is electricity. Yet, digitizing these metering devices had enormous benefits by changing consumption patterns of households:

1. Previously, under the flat rate, all households demanded electricity during peak hours and this lead to short of supply for TEDAŞ. On the other hand, after the peak hour period ended, the electricity production capacity of TEDAŞ was almost entirely wasted, i.e., there was an abundance of supply. After the digital metering system was introduced, the curve flattened as it is shown in figure 3. Eventually, since demand was distributed to other periods of the day away from peak usage hours, shortage of supply problems disappeared and simultaneously the company started to make money from previously wasted electricity.
2. Poor people were able to make use of these devices by shifting to low hours and thus saving money.
3. Lifetime of power generators and hardware within the infrastructure of the company lengthened. Previously, the company had to make additional investments in order to meet the demand of peak hours; however, after households shifted their consumption patterns, since supply was in abundance, the company did not have to increase energy production by investing in power generators.
4. Since TEDAŞ was owned by the state and value for poor people was created through price discrimination, the state was able to perform its social responsibility.
5. The company was able to make more money from wealthy people since they had inelastic demand; and to sell its abundant off-peak supply to poor people to make money out of thin air.

Consequently, by introducing a digital metering system that provides price data for 3 different periods, customers were able to make use of such IT to change their consumption patterns. At the same time, by saving electricity and reducing energy stress during peak hours, Turkey could overcome its energy crisis, and today different segments still adopt different schedules for consuming electricity in order to save money.