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.

Related thinking

Regulation and policy

What will the introduction of the Retail Energy Code mean for metering companies?

Ofgem has proposed that certain metering companies will need to become full parties to the new dual fuel Retail Energy Code (REC). What will this mean in practice? Metering Equipment Managers (MEMs) is a term introduced for the REC, encompassing electricity Meter Operator Agents (commonly termed MOPs) and gas Meter...

Regulation and policy

New horizons: DCC plans to expand remit over next 5 years

The government awarded the Data Communications Company (DCC) licence to Capita subsidiary Smart DCC Ltd in 2013. As an Ofgem-regulated monopoly, the DCC’s remit was to set up the smart metering communications infrastructure, linking up 53mn electricity and gas meters with the systems of energy suppliers, network companies and third...

Regulation and policy

Points for trying: switching data cleanse struggles over the line

While Ofgem has been pressing the industry to cleanse its data ahead of the future switching arrangements, the Switching Programme has missed one of its data checkpoints by a noticeable margin, prompting remedial actions. The Switching Programme is moving the industry towards new arrangements from July 2021, which should see...

Home supply and services

DCC systems now supporting over 4mn meters

One year ago, the SMETS1 end date was approaching for suppliers with derogations and for smart meters installed for prepayment customers. At this time, there were only around half a million SMETS2 meters installed, with almost 12mn SMETS1 meters deployed. A year on, SMETS2 installs have ramped up significantly, and...

Commercial and market outlook

Editor’s Pick | NAO on networks: good service, but costs too high

The National Audit Office (NAO) has concluded that electricity networks have provided a good service, but the costs for consumers have been too high. In a report, published on 30 January, the NAO examined how effectively Ofgem has used price controls. The NAO found that consumers in GB experience fewer power...

Regulation and policy

New Year’s Resolution – Improve the Protections Given to Vulnerable Consumers

Ofgem published its final Consumer Vulnerability Strategy (CVS) in October, setting out how it plans to tackle vulnerability in the energy market. While the CVS covers the time period up until 2025 the regulator gives us an idea of what to expect in the first year of the strategy in...

Home supply and services

Editor’s Pick | GB retailers set sights on international markets

Cornwall Insight retail market analyst Molly Lloyd examines suppliers moving into international markets and discusses some of their potential motives for doing so. The GB energy retail market has long been characterised by entries and acquisitions from suppliers outside these shores. The oil and gas majors in the 1980s and...

Announcement

BBC Radio 4 Interview: The decline of smart meter installations

Robert Buckley, our Head of Retail and Relationship Development, spoke live on BBC Radio 4’s You & Yours programme about Cornwall Insight’s latest research on smart meters. The research showed that to meet the 2020 deadline, the installation of smart meters would need to quadruple to reach the target; instead,...

This site is registered on wpml.org as a development site.