What should be the smart response to the smart meter rollout deadline?

Suppliers are expected to take all reasonable steps to complete the smart meter rollout to all homes and eligible small businesses by 31 December 2020. With just 25 months remaining the National Audit Office’s (NAO) recent report on the programme has found that the number of meters that will be installed will fall “materially short” of the government’s expectations, perhaps by as much as a quarter.

The NAO argued that as most of the posited benefits of smart metering will only be realised in the long term (i.e. between 2020 and 2050), the case for continuing to expedite the rollout should be balanced against the risks arising from pushing suppliers to meet an untenable deadline. By way of example the NAO stated that the pressure on suppliers to install meters in the early phase of the scheme had presented risks and challenges to the programme, with around 12.5mn of the first-generation SMETS1 meters being installed – 7mn more than envisioned. As other parts of the smart metering infrastructure were not operational to original timeframes it has resulted in almost 1mn SMETS1 meters being in-situ that are operating without smart functionality following a change of supplier.

Despite the NAO’s criticisms, energy minister Claire Perry quickly responded that the government was determined to meet the 2020 commitment. She said that the business case for smart meters remained overwhelmingly positive, and highlighted that a smarter system will deliver up to £40bn of benefits between now and 2050. She suggested that the issues identified by the NAO were “temporary teething problems”, and reassured consumers that the issues with switching will start being resolved as meters are moved into the national communications infrastructure operated by the Data Communications Company (DCC).

The launch date for the DCC’s SMETS1 service has been pushed back, and it will now not be available for all meter cohorts until the end of October 2019. With suppliers allowed 12 months to enrol meters, there may still be some meters operating in traditional mode toward the back end of 2020. We believe that efforts should be focussed on ensuring the end to end infrastructure is fit for purpose for all smart meters, rather than fixating on the asset rollout deadline that is only part of the overall programme.

Irrespective of the current issues with the rollout programme it is abundantly apparent that the deadline will be missed. It is not obvious where the customer benefit lies in sticking to the 2020 end date. While the continued pressure will help keep install rates higher than an extended deadline, suppliers that cannot meet the deadline have to begin weighing up the costs and risks of enforcement action.

Metering is the responsibility of the supplier, and has been since the early years of the retail market. Even prior to smart meters, the market for this non-discretionary service has created problems for many suppliers trying to negotiate decent terms that include necessary service levels to meet the requirements placed on them, but executed via a contracted third party. Smart metering magnifies this market characteristic.

In our dealings with suppliers it is not the lack of effort that is slowing the rollout. Alongside the struggles we hear from some suppliers in arranging terms to install smart meters, there is also a reluctance to invest in the necessary IT until it is clear exactly what is required by when. It must be remembered that the smart metering programme is just one of many that requires significant changes to suppliers’ systems, processes, and contracts.

It therefore strikes us as barmy to continue to push suppliers towards a position where many (if not all) will breach their licences and be subject to investigations and possible enforcement action. All actors in the programme are culpable to some degree for the deadline being missed. Where is the customer benefit in investigating suppliers that have tried their best to meet the deadline? Does it make sense for Ofgem to launch multiple investigations come January 2021?

There does appear to be a way out though. Despite the minister’s immediate reaction to the NAO report, the ground seems to be prepared for a more considered assessment of the best way forward. During the development of the Smart Meters Act, Parliamentary Under Secretary of State Lord Henley committed to bringing forward a Ministerial Statement following the publication of the NAO report, which he said would allow some sort of debate in both houses of Parliament.

The BEIS Select Committee has also announced that it will hold an evidence session on the rollout in January. There has also been pressure from the industry, and Citizen’s Advice have been particularly vocal, recently reaffirming its belief that a 2023 deadline is more appropriate.

There are clearly two sides to be heard, and the government seriously considering the issues rather than dismissing them as “small speed bumps” is necessary. A full consideration of the rollout taking into account not only the immediate consumer savings, but also the wider long-term implications of a smarter energy system could point the way for the government to acknowledge the merits of a more measured rollout.

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