Economic analysis of privacy-aware Advanced Metering Infrastructure adoption

Demand response systems primarily seek to reduce demand levels during periods of high load and increase demand as necessary in the off-peak hours. The objective of this flattening of the demand curve is to curb the need for generators to frequently ramp up or down and to reduce peak load levels. This, in turn, would potentially decrease the aggregate production cost of electricity. One of the most effective known methods of accomplishing this is to use Advanced Metering Infrastructure (AMI), an intelligent metering technology that collects temporally precise consumer electricity usage data and relays it to the local utility. Because AMI modules collect fine granularity consumer data, a significant threat to consumer privacy exists, as this data can be shared or sold by the utility to interested third parties. A privacy-aware AMI module can be used to avoid this inherent danger by protecting an individual consumer´s data using public key infrastructure. However, while privacy-aware AMI would be preferred by consumers, utilities would naturally prefer non-privacy-aware modules, as they could profit from the sale of consumer usage data. Therefore, it is not clear what regulatory structure should be implemented in determining what type of AMI to offer consumers and with what regulations. In this paper, we examine two possible regulatory regimes using consumer decision theory and determine the economic conditions required for privacy-aware AMI adoption at equilibrium under both regimes. Finally, we predict the privacy-aware AMI adoption rates for each regime and provide regulatory recommendations.