The main installation phase of the Government’s programme to offer smart meters to every household by 2020 is set to begin this year. The meters are provided by energy suppliers, who pass on the costs of implementation to consumers in energy bills.
Smart meters send information to suppliers about consumers’ energy consumption, ending the practice of estimated bills. They also enable consumers to better track and thus manage their energy usage so they can save money on their bills.
The smart meter rollout, however, has already received some trenchant criticism. Both the House of Commons Public Accounts Committee and the Energy and Climate Change Committee in the last Parliament raised significant concerns about the policy. Influential groups such as the Institute of Directors and Which? have both called for the rollout to be halted or scrapped altogether. This blog will examine some of the most frequent objections.
The scheme is already behind schedule. The main installation phase should have started in 2015, but was subsequently delayed to 2016. Even in the foundation stage, there have been problems keeping suppliers on the timetable. For instance, in November 2015, E.On was fined £7 million for missing their 2014 target to supply smart meters to all their business customers. By the appointed deadline, just 65% of their eligible businesses had been provided with a smart meter.
Last year, the Energy and Climate Change Committee concluded that the full rollout would not be complete by 2020. In support of this prediction, they cite: a lack of trained installation engineers; the delay in the launch of the Data Communications Company (DCC) to control consumers’ energy information; and persistent, unresolved problems with interoperability. According to DECC’s latest progress report last summer, around 1.2 million smart meters had already been installed in the foundation stage. This figure represents just 2.5% of all domestic meters, demonstrating the scale of the remaining task.
The Government’s official impact assessment has forecast that the scheme will cost £10.9 billion. In return, it will yield a total of £17.1 billion of benefits for both consumers and suppliers. Consumers will save money through reduced energy consumption, while suppliers will avoid costs of site visits and reduced customers’ enquiries.
Yet some important voices in the debate have been sceptical of these figures. The Chair of the British Energy Efficiency Federation expresses some doubt in a recent article, pointing out that the German government’s impact assessment found no net benefit for consumers of smart meters. The National Audit Office report in 2014 cautioned that the estimated benefit of the scheme was contingent on near universal take-up of smart meters. Energy suppliers may need to spend money engaging with reluctant customers to convince them of the merits of the devices. Similarly, the Institute of Directors argues that DECC’s calculations are not at all transparent, with earlier impact assessments showing a net negative benefit to consumers and key pages missing from current documents.
The Government’s primary method for controlling the cost of the rollout is competition between different suppliers. In theory, customers will be able to switch suppliers away from companies that increase their bills by more than their competitors. However, in its 2014 report, the Public Accounts Committee said that this would be insufficient to protect consumers. The very fact that Ofgem referred the energy market to the CMA shows there is currently a deficit of competition. While the dominance of the Big Six has fallen from 99% of market share at its peak to 85% now, the Government still acknowledges that further competition is required. This concern was also expressed in the Centre for Sustainable Energy’s report in 2011. They recommended the Government adopt a more interventionist approach to regulating the cost of the smart meter rollout.
The data-sharing aspect of smart meter technology has also proved a concern. A recent academic study found that, because of data-sharing, smart meters, and demand-side management technologies in general, are likely to be supported only by people concerned about climate change, and not by those worried about high energy costs. This research suggests that many will be uncomfortable about large energy suppliers having access to their personal data. Some security issues have been identified already, demonstrating the validity of this anxiety about data sharing. For example, the FT reported in March 2016 about how GCHQ intervening in the programme to add extra encryption on smart meter data to protect households from hackers.
Smart meters offer exciting opportunities for the future energy system. As part of the smart meter installation process, consumers will be given advice about how to improve the energy efficiency of their homes. Moreover, by seeing near-real time data of their energy usage, consumers will be able to observe inefficiencies in their homes’ energy consumption. This feature of the scheme may enable some much-needed progress on improvements to domestic energy efficiency.
The smart meter rollout undoubtedly has some serious challenges, however, particularly around staying on time and on budget. To an extent, that may be inevitable given the scale of the programme, whose aim is to install 53 million appliances in people’s homes. Close monitoring and constant reviewing from DECC will be essential as the main stage of the rollout commences.
Sam Hall is a Researcher at Bright Blue