Identifying the Economic Relevance of Smart Meter Reliability in

Germany: A Cost-Benefit Analysis

Tobias Altenburg

, Daniel Staegemann

and Klaus Turowski

Very Large Business Applications Lab, Faculty of Computer Science Otto-von-Guericke University Magdeburg, Germany

Keywords: Cost-Benefit Analysis, IoT, Internet of Things, Reliability, Smart Meter Architecture, Evaluation.

Abstract: The decarbonization and resulting energy transition has a lot of challenges for the future. Decentralized power

generation and its stabilization of the power grid is a problem that can be solved by more accurate monitoring

of power consumption using smart meters. The overall objective is to prevent blackouts. Therefore, the

reliability of the used smart meter architecture is an important factor. In the present paper, a systematic cost-

benefit analysis focused on Germany is performed to demonstrate the economic advantages of a reliability-

optimised smart meter architecture.

1 INTRODUCTION

The Internet of Things has become an important

factor in the modernisation of today's society

(Kaufmann, 2021). Due an increasing number of

networked devices and the resulting growing amount

of data worldwide, the social transformation is being

driven forward. Until 2025 there will be 75 billion

networked devices worldwide (Statista, 2018) with a

total data volume of approximately 80 zettabytes

(O'Dea, 2021). The digitalisation of civil

infrastructure facilities in particular is becoming

especially relevant to society (BSI, 2020; European

Union, 2022; European Commission, 2020). The

services that are provided like the supply of water,

electricity or gas are increasingly dependent on

available and operating information technology. The

so-called smart meters can record real consumption

data and forward them to higher-level instances to

provide these data for the overall management of

whole ecosystems. Ensuring the uninterrupted supply

of water, electricity or gas is essential for the

economic, social and political functioning of any

technological economy. According to the last

European Commission report (European

Commission, 2020) in 2020, the penetration rate of

smart electricity meters is estimated to 43% (123

https://orcid.org/0000-0002-1433-4912

https://orcid.org/0000-0001-9957-1003

https://orcid.org/0000-0002-4388-8914

million) and of smart gas meters to 27% (31 million).

In 2030, there will be a penetration rate of 92% (226

million) for smart electricity meters. Furthermore, a

penetration rate of 44% (51 million) is projected for

smart gas meters in 2024. As a result of this increased

macroeconomic and societal dependency and future

challenges, the security of supply is becoming more

and more central to energy and economic governance.

In order to make an economically efficient decision

on the optimisation of the reliability of of smart meter

architectures, it is important to have an objective

comparison of the costs and the benefits.

Generally, smart metering systems are more

failure-prone than conventional meters because of the

more complex interaction of hardware and software

components (EY, 2013). Therefore, implementing

additional measures to assure the reliability appears

sensible. Yet, this also comes with additional costs

that have to be taken into consideration. This paper

will focus exactly this issue - performing a cost-

benefit analysis (CBA) that demonstrates the cost-

effectiveness of optimising the reliability of a smart

meter architecture. Based on the previous

argumentation, we would like to answer the following

research question:

RQ: "What is the benefit-cost ratio for reliability

optimisation of a smart meter architecture?"

Altenburg, T., Staegemann, D. and Turowski, K.

Identifying the Economic Relevance of Smart Meter Reliability in Germany: A Cost-Beneﬁt Analysis.

DOI: 10.5220/0012124900003552

In Proceedings of the 20th International Conference on Smart Business Technologies (ICSBT 2023), pages 203-208

ISBN: 978-989-758-667-5; ISSN: 2184-772X

 2023 by SCITEPRESS – Science and Technology Publications, Lda. Under CC license (CC BY-NC-ND 4.0)

203

To answer the mentioned research question, in

section 2 the theoretical basis and the stepwise

process of a CBA are presented. After that, the

described approach is performed in section 3. In the

final section, we summarize the paper and explain

possible future work.

2 SYSTEMATIC COST BENEFIT

ANALYSIS

This chapter presents the theoretical foundations of a

CBA as well as the systematic procedure for

performing a CBA. The different steps are described

in a universal manner.

2.1 Basics of Cost Benefit Analysis

CBA is one of the most used tools for evaluating

projects. It is well grounded in theory and has a long

tradition and a wide area of applications (Gregersen&

Contreras-Hermosilla, 1992; Layard& Glaister, 1996;

Cubbage, Davis, Frey,& Behr, 2013; Sartori et al.,

2014). CBA is often used in investment decisions,

both by companies and governments. The CBA

determines the relevance of the advantages and

disadvantages of a project by the monetary value of

Euros that the society is ready to pay for these

outcomes. Therefore, it measures the social value of

a project by quantifying the social impacts and

making costs and benefits comparable in monetary

terms (Koopmans& Mouter, 2020).

In 2015, the EU published a CBA on the roll-out

of smart metering systems for the digital collection of

electricity data (ICCS-NTUA& AF Mercados EMI,

2015). This identified the main cost and benefit

factors for the expected roll-out and defined key

findings and recommendations for the EU. Further,

the paper by Vitiello et al. presents the highlights of

the national CBA for the roll-out of smart meters in

the EU member states and shows the current situation

of the smart meter roll-out in 2020 (Vitiello,

Andreadou, Ardelean,& Fulli, 2022). To build upon

these findings, in the publication at hand, a CBA is

performed to demonstrate the positive economic

effect of optimising the reliability of a smart meter

architecture.

2.2 Four Steps of Cost-Benefit Analysis

For systematically conducting a CBA, the following

tasks are performed in chronological order as

depicted in Figure 1 (

Zahvoyska, Oksana,& Maksymiv,

2017)

 Project Identification: In this step, the

specifications of the project are defined.

These include the necessary requirements,

the planned objective and the scope, which

describes the project focus in more detail

 Financial Analysis: This describes the data

acquisition for the required cost and benefit

values and quantifies them

 Economic Analysis: The next step presents

the economic profitability on the basis of the

monetary cost and benefit values, so that the

relationship between used resources and

achieved success is described

 Risk Analysis: The qualitative risk analysis

focuses on the probability of occurrence of

an event

Figure 1: Four Steps of the Cost-Benefit Analysis.

The described sequence of the CBA constitutes a

systematic approach to evaluate a project

economically. Here, the project plan is specified from

the generic to the detailed level. Fundamental key

elements are the quantification of the costs and the

benefits.

3 PERFORMING THE COST

BENEFIT ANALYSIS

In this section, we will adapt the previously described

procedure for performing a CBA to our use case.

After the four steps shown in Figure 1 have been

completed, we will consolidate and evaluate the

results at the end of the section.

3.1 Project Identification

The primary objective of the reliability-optimised

smart meter architecture is to avoid a blackout. A

blackout is a major electricity outage that causes a

large area without power for a long time, which has

serious social and economic consequences

(Leopoldina, 2023). The balance between electricity

production and consumption is very important,

because it guarantees the stability of the grid (BDEW,

2022). Currently, 55.4% of Germany's energy

ICSBT 2023 - 20th International Conference on Smart Business Technologies

204

production is conventional power generation by

power plants that run on coal or natural gas (BDEW,

2022). Based on the planned decarbonization, the

separate large power plants will be replaced by

flexible and decentralized capacities, such as wind or

solar energy, in the future. In addition to

decentralization, it will be more difficult to regulate

the available amount of electricity in the power grid

with solar and wind power. Therefore, the mentioned

energy transition creates new challenges, which can

be addressed by a more accurate monitoring of the

power consumption (Leopoldina, 2023). For this

reason, the widespread adoption of smart meters can

help to achieve the overall objective, which is still to

ensure grid stability.

The following CBA is used to demonstrate that

the reliability optimisation of a smart meter

architecture has a positive benefit-cost ratio. With this

verification, we want to show that (from a purely

financial perspective, not including the potential

additional impacts of a blackout on society) the

additional financial costs for higher reliability are

likely to be amortized. The considered use case

focuses on smart meters for electricity supply in

Germany, because this is the economically strongest

country in the EU (Eurostat, 2022) and has a very

good data basis. The requirements for performing the

CBA are the quantification of the costs and benefits

on the basis of a determined value in the currency

EURO. The details of the collection of these data are

explained in the following section 3.2.

3.2 Financial Analysis

To determine the costs, it is necessary to have models

of a smart meter architecture, which represent a

traditional architecture and a reliability-optimised

one (Altenburg, Staegemann,& Turowski, 2023). For

this purpose, we will use the two architectures from

Figure 2.

Figure 2: Model of a Smart Meter Architecture.

Figure 2a is the simplest approach and has no

constructive reliability methods. All components of

the smart meter architecture are connected to each

other via a single channel so that a failure of the Smart

Meter Gateway (SMGW) or an interruption of the

communication channels between the smart meters

and the SMGW or the SMGW and the application

will affect the overall system immediately. Figure 2b

shows a reliability-optimised smart meter

architecture. The SMGW is redundant and the smart

meters are clustered, so that two of the smart meters

are defined as root nodes and aggregate all

information of the subordinate smart meters (López

et al., 2019; Jan et al., 2015). According to the model

in Figure 2, we focus on non-households in the CBA,

because a smart meter architecture with more than

one smart meter for electricity measurement is almost

exclusively used in the industrial or commercial

sector.

The most significant cost driver is the meter and

the related installation costs. Meter-related costs do

vary significantly across the different EU member

states because of the very different conditions, like

the type and cost of the smart meter or the different

costs for installation work (ICCS-NTUA& AF

Mercados EMI, 2015). Therefore, we follow the

example of the Federal Republic of Germany, as

described in section 3.1. The Federal Network

Agency in Germany has defined an annual price cap

for the installation and operation of smart metering

systems in electricity, which the metering point

operator is obliged to comply with (BNetzA, 2023).

As shown in Figure 3, there are two different service

offers. It is either possible to order an individual smart

meter or an intelligent metering system, which is a

combination of smart meter and SMGW. While the

former has a price cap of 20 EUR per year, for the

latter, the annual consumption is used to calculate the

costs. Therefore, for our calculation, we use the

median costs of 150 EUR per year (BNetzA, 2023).

Figure 3: Intelligent Metering System.

For the presented CBA, the benefit is determined

by the avoidance of blackouts. To be able to quantify

the monetary benefit for Germany, we use the tool

"blackout-simulator.com" (Schmidthaler& Reichl,

2016). With this online assessment tool, it is possible

to determine the costs of blackouts for different

private and commercial consumer groups. This offers

an essential input for the economic decisions of the

Identifying the Economic Relevance of Smart Meter Reliability in Germany: A Cost-Beneﬁt Analysis

205

presented use case, in which we want to demonstrate

the positive benefit-cost ratio of a reliability-

optimised smart meter architecture. This simulation

of a blackout is performed for the entire country

within an hourly time interval.

3.3 Economic Analysis

In this section, we will perform the CBA calculations

based on the requirements that are defined in sections

3.1 and 3.2. According to the Monitoring Report 2022

(BNetzA, 2022) of the Federal Network Agency for

Electricity, Gas, Telecommunications, Post and

Railway, there are 52.3 million metering locations in

Germany. Out of these, 49.3 million metering

locations are related to households and 3 million to

industry and commerce. Based on the smart meter

architectures from Figure 2 and the described cost

basis, which we explained in Section 3.2, we have the

following additional costs for a reliability-optimised

smart meter architecture:

Cost Architecture 2a  150 EUR 



20 EUR x 3



 210 𝐸𝑈𝑅

Cost Architecture 2b  150 EUR x 2 



20 EUR x 2



 340 𝐸𝑈𝑅

Costs for reliabilit

optimisation 

340 EUR  210 EUR  𝟏𝟑𝟎 𝐄𝐔𝐑

(1)

As shown in Formula 1, the additional cost for the

assumed reliability-optimised smart meter

architecture is 130 EUR. Those have to be multiplied

by the above mentioned 3 million metering locations

for the industrial and commercial sector, so that we

get additional costs of 390 million EUR. In order to

get the monetary benefit, we use the online

assessment tool "blackout-simulator.com" to assess

the damage caused by a blackout. It quantifies the

monetary damage that is caused when for certain

regions, that can be selected by the user, no electricity

is supplied to the industrial and commercial sectors.

The size of the damage during a blackout depends on

the time and most of all, the duration (Schmidthaler&

Reichl, 2016). The diagram in the following Figure 4

shows the linear increase of the benefit-cost ratio with

the duration of the blackout. Even when preventing a

blackout with the duration of one hour, the reliability-

optimised smart meter architecture has a positive

benefit-cost ratio. This means that the additional costs

already amortize. By avoiding an even larger

blackout of about three hours, the benefit-cost ratio is

already two, which means that the monetary benefit

becomes twice as high as the additional costs invested

through the optimisation of reliability.

Figure 4: Impact of blackout duration on the Benefit-Cost

Ratio.

3.4 Risk Analysis

Generally, the probability of a blackout in Germany

is relatively low (BNetzA, 2022; BDEW, 2022;

Leopoldina, 2023). The sum of unplanned

interruptions in the German power grid was less than

13 minutes per consumer in 2021 (BNetzA, 2022;

Leopoldina, 2023). However, the decentralisation and

increasing digitalisation of the energy system

described in section 3.1 do have an impact on the risk

of a blackout (Leopoldina, 2023). With the progress

of the energy transition and the resulting digitalisation

by monitoring energy consumption using smart

meters, the possibility of a power outage can be better

estimated than today. Currently, it is very difficult to

quantify the probability of a possible power outage

with adequate accuracy. To illustrate the impact a

blackout can have, a summary of six major blackouts

(Hooper, 2003; BBC, 2012; Al-Mahmood, 2014;

Melvin, 2015; Associated Press, 2019; Mogul,

Saifi,& Syed, 2023) over the past twenty years is

shown below in Table 1. For orientation, these data

provide a very good overview of the severity that

blackouts can have.

Table 1: Six biggest blackouts of the last twenty years.

Country Year Affected Duration

Ital

2003 56 M 18 h

India 2012 620 M 15 h

Bangladesh 2014 150 M 12 h

Turkey 2015 70 M 9 h

Indonesia 2019 120 M 8 h

Pakistan

2023 230 M 12 h

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4 CONCLUSION AND FUTURE

WORK

Decarbonization and the resulting energy transition

have a lot of challenges to ensure grid stability. In the

future, accurate data collection of electricity

consumption by smart meters will have an important

societal impact. In this paper, a systematic cost-

benefit analysis of a smart meter architecture

optimized for reliability was performed. Based on the

annual limits in Germany, the additional costs for a

reliability-optimised smart meter architecture could

be estimated at EUR 130. This value has been adapted

to the German industrial and commercial sector with

3 million metering locations. Afterwards, the

obtained total costs were compared with the benefits

that were quantified by a simulation and it was

determined that even after an avoided outage time of

one hour, those additional costs are amortized. It is

important that the monetary benefit increases linearly

with the duration of the blackout.

In addition to the results of this paper, a more

detailed analysis and concretisation of the probability

of a blackout could be a possible future work.

Furthermore, the extension of the CBA by increasing

the scope could be a topic for future work.

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