The effect of smart meter penetration on dynamic electricity pricing: Evidence from the United States

A successful grid modernization comprises not only the deployment of new energy infrastructure and technologies, but also the utilization of these technologies to promote modern energy services and active consumer engagement. As an enabling technology in smart grids, advanced metering infrastructure (AMI) has been rapidly deployed in the U.S. By the end of 2016, almost half of all electricity consumers have AMI meters with two-way communication capability. While many have examined the driving forces for smart meter technology diffusion, there has been limited empirical evidence on the actual utilization of smart meters in modern energy services. To fill this research gap, this paper explores how electric utilities in the U.S. are leveraging AMI meter installations to implement dynamic pricing programs. A cross-sectional dataset for 582 electric utilities in the U.S. is constructed based on the EIA 861 form “Annual Electric Power Industry Report” from the year 2016. A fractional response regression model is estimated, and results show that a ten-percentage increase in smart meter penetration is associated with an average of 0.56 percentage increase in customer participation in dynamic pricing programs. The estimated effect of smart meters on dynamic pricing programs is relatively small, given the magnitude of capital investment and the scale of smart meter market penetration in the U.S. Future smart grid policies in the U.S. may gradually move away from public investment in AMI roll out and shift to supportive policies that facilitate the implementation and use of AMI to realize the full benefits of smart grid.