Smart meters have two-way communication capability, so local electricity distributors will be able to retrieve billing information automatically, eliminating meter readers. As well, they can allow electricity to be sold back to the grid. For example, if a home is equipped with solar panels for some of its electricity requirement, a long sunny spell might result the generation of extra power that the homeowner could sell back to the grid with the electricity bill being reduced accordingly.

Smart meters also have the potential to allow power distribution companies to remotely disconnect or reconnect homes from or to the grid. They could in the future also allow for the integration of gas- and water-use readings.

Time-of-use rates Smart meters by themselves, however, deliver few benefits in the absence of time-of-use rates that charge different electricity rates for peak, mid-peak and off-peak periods. The smart meter will enable households to control energy costs by switching the time they do certain energy-using activities away from peak times to off-peak times. In some jurisdictions, governments have been so convinced about the benefits of smart meters and time-of-use rates that they are making them an integral part of their strategy for promoting energy conservation and reducing peak load. In Ontario, for example, the government has set a target to have 800,000 smart meters installed in homes (mainly in urban areas) by the end of 2007 and in all homes by 2010, which will incur a capital cost of about $1 billion (the costs of the smart meter system will be included in the Delivery portion of the rates for residential and small commercial customers). The Ontario Energy Board (OEB) has not yet confirmed a mandatory start date for time-of-use rates, but these are expected to follow shortly after. In the near future, consumers will be able to access their meter data via the Internet and/or telephone. The current plan calls for the previous day's data to be ready for viewing by 8 a.m. the following day and for 13 months of history to be accessible to the customer. Other areas have started to explore the benefits as well. In Alberta, about 500 residents of Drumheller and Grande Prairie are taking part in a pilot project to see if smart meters help reduce energy use. It's the first such experiment in Western Canada. An earlier trial in Woodstock, Ontario, found the average participant cut electricity use by 15 per cent.

Variable rates

How consumers ultimately respond to time-of-use rates will, of course, depend on the price differentials among peak and off-peak rates. The OEBs time-of-use pricing is expected to include three different electricity rates for on-peak, mid-peak and off-peak usage. What time of day is considered on peak, mid-peak or off-peak will vary between summer and winter and even between weekdays and weekends (see Table 1). The rates are expected to vary from 3.4 to 9.7 cents per kWh. Table 1: Proposed Time-of-Use Rates, Ontario Day of the Week Time Peak Period Price (c/kWh) Weekends & Holidays All day Off-Peak 3.4 Summer Weekdays (May 1 -- Oct. 31) 7:00 a.m. to 11:00 a.m. Mid-Peak 7.1 11:00 a.m. to 5:00 p.m. On-Peak 9.7 5:00 p.m. to 10:00 p.m. Mid-Peak 7.1 10:00 p.m. to 7:00 a.m. Off-Peak 3.4 Winter Weekdays (Nov. 1 -- April 30) 7:00 a.m. to 11:00 a.m. On-Peak 9.7 11:00 a.m. to 5:00 p.m. Mid-Peak 7.1 5:00 p.m. to 8:00 p.m. On-Peak 9.7 8:00 p.m. to 10:00 p.m. Mid-Peak 7.1 10:00 p.m. to 7:00 a.m. Off-Peak 3.4

This type of price variation should seriously influence the energy use decisions of homeowners. It is worth noting that the on-peak periods, both in summer and in winter, correspond to periods of the day when the HVAC system is typically most heavily used. This raises a potential policy conflict for government regulators. Politicians and policy-makers who argue for smart meters and time-of-use rates talk about using differential prices to give consumers an incentive to shift their energy consuming activities from peak to off-peak times. While this makes sense for activities such as dishwashing and laundry, it does not address the fact that heating and cooling needs are not discretionary activities. Heating is an obvious necessity in Canadas cold climate and, to an increasing extent summer cooling is also viewed as a necessity (e.g. for persons confined to their home for medical reasons).

Cost hike inevitable

Given the distribution of the time-of-use rates, it is inevitable that the cost of heating and cooling the home (to the extent that they depend on electricity) will increase substantially, at least in the short run. In the longer term, it is possible that consumption patterns may shift enough (flattening peak period spikes and filling off-peak valleys) to justify reducing the rate differentials as well. No matter what, the obvious implication of these changes for HVAC contractors will be an even greater emphasis on high-efficiency products. As rates for on-peak periods goes up, the payback for higher SEER central air conditioning systems and furnaces equipped with ECMs will be shorter, making them more cost-effective. The trend will also spur demand for smart controls that can regulate a variety of activities including, but not limited to, HVAC systems. These smart controls will allow consumers to measure, evaluate and regulate energy usage by time of day, even from remote locations, via the Internet. Finally, the HVAC industry should also expect that the transition to smart meters will contribute to the development of smarter consumers, who will be motivated to take more care in making educated decisions when it comes to HVAC services. And, as long as HVAC contractors and their suppliers are prepared, that can only mean good things for the industry. (With thanks to Toronto Hydro, Enersource and the CBC.)

Martin Luymes is HRAC director of services and relations for the Heating, Refrigeration and Air Conditioning Institute of Canada.