The effect of smart metering on revenue collection, electricity access and supply

Background, challenges, and context

Utilities in many developing countries are trapped in a cycle of low payment leading to restricted and low-quality supply. Utilities’ lost revenue causes them to under invest in distribution networks, leading to fewer new connections, rationing, voltage fluctuations, and unreliable service for existing customers. Poor service, in turn, causes consumers to feel justified in making incomplete payments.

Advanced metering infrastructure (AMI) smart meters, which enable two-way communications between the meter and a central server, may be able to improve cost recovery and reliability.

AMI smart meters provide information about where and when outages occur, enabling distribution companies to fix problems quickly. As the meter is connected to the mobile phone network, the utility can directly observe consumption in close to real time.

Smart meters can also aid in the detection of theft by triangulating the location where losses are occurring at a much more detailed geographic level than is otherwise possible. Large, volatile, or informal loads can be identified and either cut off or formalised.

Because AMI smart meters offer two-way communication, it is possible to remotely disconnect non-paying consumers or transfer them to pre-payment without the intervention of revenue collection agents – some of whom have been observed to collude with utility customers at the expense of power suppliers.

Smart metering also encourages accurate metering and billing, improving utility accounting and enabling consumers that are being metered to watch their own consumption more carefully.

However, smart meters have a capital cost, and it is not yet clear whether they earn a return in terms of energy cost recovery or greater household connections. In addition, there are no credible evaluations on the crucial point – can this technological intervention change norms, incentives, and payment, and thereby improve reliability and access?

Research overview and objectives

This project evaluated the ability of smart metering to break the cycle of low payment leading to restricted and low-quality supply. It aimed to answer whether smart metering can improve cost recovery, and thereby energy reliability and access.

A novel field experiment was conducted to study the impact of a smart metering scheme in Haryana, India, from the perspective of both the distribution company (asking, did the new scheme lead to positive returns on investment in the form of greater revenue and reduced losses?) and its customers (asking, what was the benefit of real-time monitoring and the satisfaction level for those consumers who received it?).

In 2019, a large metering scheme was launched in Haryana to commission one million smart meters for domestic and commercial consumers across selected urban towns (close to 60,000 meters had already been installed prior to the study). The smart meters used can transmit a consumer’s daily consumption data wirelessly to utility servers, while also giving the utility the capability to remotely disconnect non-paying consumers.

However, the new meters were being used in exactly the same way as traditional ones – no new features had been activated and they were being read manually. This enabled the team to design an experiment where smart meter features could be tested within a treatment group, while being able to access similar data from identical hardware in both treatment and control groups.

Research methodology

A cluster-based randomised control trial (RCT) was carried out in the district of Karnal in Haryana to test the impact of two new features made possible by smart meters: automated online billing and rule-based remote disconnection.

The first feature would change how electricity consumption was measured by substituting manual in-field meter readings with remotely transmitted high-frequency data, eliminating the role of meter readers. The second feature involved a policy change towards more predictable and automated disconnections (moving away from discretionary and decentralised enforcement by field officials).

The RCT was implemented through a formal partnership with the Energy Department of the Government of Haryana and the state electricity utilities. The sample covered 23,541 consumers across 125 ‘binders’ (an administrative grouping of consumers who live in the same neighbourhood, used by utilities to organise billing and metering activities), with an average of 188 consumers per binder.

Prior to the experiment, all consumers – treatment and control – had their old meters replaced with new smart meters. The difference between the two groups was that in the control households, no features of the new technology were used in utility operations, with their bills being based on manual readings even though the information could be transmitted remotely.

This novel deployment had two advantages; first, it allowed the team to independently measure the true electricity consumption of control households as distinct from the manual readings reported by utility staff, and second, because treatment and control meters were of a similar age, the team could isolate the impact of smart features, without the results being conflated with the effect of simply installing new meters (old devices might suffer from miscalibration or become non-functional, so there may be benefits to new equipment, smart or otherwise).

The team combined administrative data on billing and payments with two household surveys.

Research results, key messages, and recommendations

• The change in how bills were generated did not increase the revenues recovered from consumers. The move to online billing slightly reduced revenue collection, leading to an 8% reduction in bills. This change is not in itself undesirable since it may correct manual billing inaccuracies (it is not obvious whether these are more likely to be biased upwards or downwards).

• While the rule-based disconnection regime was announced, it was not adhered to in the field (operational staff were unwilling to give up discretion) and was quickly discontinued by the utility. As a result, the team found no improvement in revenue recovery in the remote disconnections treatment group.

• Furthermore, although smart meters make alternative payment contracts such as pre-paid metering feasible, the utility chose not to introduce these changes.

• The savings in monthly costs for the utility (arising from not having to manually read meters) were outweighed by the monthly costs payable to the supplier of the smart meters, and without their use leading to greater disconnections of non-paying customers it is difficult to see the investment costs of the meters themselves being recovered by the utility.

• Thus, the rollout of smart meters in this setting did not lead to improvements in revenue collection, more effective enforcement, or reduced losses.

• The team concluded that unless smart meters are actively used to reform enforcement and payment practices, capital investments into the technology alone may not deliver either utility or consumer benefits.

Local partners

Department of Energy, Government of Haryana, India

University of Chicago

London School of Economics and Political Science

Yale University