Select Committee on Business and Enterprise Written Evidence


Memorandum submitted by Energy Retail Association

  The Energy Retail Association (ERA), formed in 2003, represents domestic electricity and gas suppliers in Great Britain. All the main energy suppliers operating in the residential market in Great Britain are members of the association—British Gas, EDF Energy, npower, E.ON, ScottishPower, and Scottish and Southern Energy.

  The ERA is pleased to submit written evidence to the BE Select Committee inquiry into the UK energy market. We have limited our responses to the following areas of the Committee's inquiry:

    —  whether the current market structure encourages effective competition in the retail markets for gas and electricity;

    —  the effectiveness of regulatory oversight of the energy market; and

    —  progress in reducing fuel poverty and the appropriate policy instruments for doing so.

  In this response we aim to present a comprehensive picture of the retail market with a level of detail that demonstrates the diversity of offers and range of consumers that are catered for. We will support this with independent evidence sourced through desk research. In order to represent the retail energy market in context we have provided some background information on the dynamics of the market.

  The ERA evidence submitted here is intended to be factual and a comprehensive report on all the areas of the inquiry in which we are qualified to comment. For completeness we have included some additional comments, which due to their topical nature are likely to be raised in other submissions.

Whether the current market structure encourages effective competition in the retail markets for gas and electricity

1.  Background to Changes in the Market

  Key points:

    —  We are no longer an energy island with domestic UK Continental Shelf gas and oil reserves. Therefore, the price we pay is aligning itself with our EU neighbours whose Governments face similar pressures to control rising prices.

    —  Britain continues to have some of the cheapest gas and electricity in Europe.

    —  All energy retailers purchase from the same wholesale and primary fuel market and are, therefore, affected by the same wholesale price volatility. This means they face similar movements upwards or downwards in their costs at broadly the same time. However, actual price movements will also be influenced by suppliers' individual strategies.

    —  Purchasing strategies are based on securing future national supply and meeting current and projected future demand.

    —  Britain's dependence on gas-fired generation makes our need for competitive gas supply even greater.

  1.1  Since the gas and electricity industries were opened to competition over ten years ago Britain's energy retailers have operated in an increasingly globalised marketplace. This has begun to present some significant challenges. A series of global events have led to record wholesale gas prices; these include:

    —  Increased demand in China and India.

    —  High wholesale European gas prices, which are linked to the global oil market.

    —  Instability in oil producing nations leading to record prices.

  These increases have, in part, been passed on to UK consumers through the retail price.

  1.2  We are no longer an energy island with domestic North Sea gas and oil reserves. The price we pay is aligning itself with our EU neighbours whose governments face similar pressures to control rising prices. There remains a challenge to create a more competitive market in many EU countries and to improve the transparency of the market operations. Nevertheless, the result of having the most competitive market in the world (see Section 3.1 below) is that Britain continues to have some of the cheapest gas and electricity in Europe.



  1.3  Against this volatile background, the UK energy marketplace is adapting and changing. In order to cushion consumers from volatility in high wholesale prices energy retailers have hedged their costs. However, efforts to hold back from passing on some costs are becoming unsustainable due to external market pressures. For the first time the UK has become a net importer of natural gas; in future gas will come from areas such as North Africa, the former Soviet Union and the Middle East, as well as from Norway and Holland. The costs of imported gas and other fuels are determined by world markets and these factors will influence the costs of all suppliers.

  1.4  The fall in UK gas production, coupled with rising demand for gas, has been an additional factor behind rapidly increasing wholesale gas prices. Over the past 18 months, all UK gas retailers have been forced to increase their prices to customers as a result of the higher commodity costs set on the open global market. The higher cost of gas and coal has also influenced the wholesale price of electricity.

  1.5  The situation is not exclusive to Britain. There have been price rises in many other EU states as the impact of world markets has been felt. In Germany, according to a poll by the Financial Times on 7 January 2008, rising electricity prices are topping the list of concerns for German consumers this year where electricity bills have increased by 50% since 2000.

2.  Wholesale versus Retail

  Key points:

    —  Energy is not the only commodity affected by a global economic downturn.

    —  Other products eg food, transport and water are facing similar price pressures.

    —  Volatility in the wholesale oil markets is due to political and economic factors beyond the control of any one nation.

    —  Energy suppliers have, to varying degrees, been able to delay the impact of high wholesale prices by adjusting their energy purchasing strategies and making efficiencies elsewhere in their businesses.

    —  Retail prices have come down as well as gone up.

  2.1  Around half of a typical domestic energy bill is made up from wholesale costs and over the last five years consumers have seen double digit rises in both gas and electricity. The juggling act performed by energy retailers between cushioning wholesale price increases to protect retail prices will be made all the more difficult by the cost impact of a raft of environmental regulations due to be implemented in the UK. This is in addition to the requirement for large scale investment in energy infrastructure and the increased cost of the Carbon Emissions Reduction Target, which is estimated to be at least £38 per fuel. The graph below from Ofgem shows the factors that make up a domestic energy bill and the increasing cost of environmental levies.


  2.2  Unlike petrol pump prices, our energy prices do not fluctuate frequently because energy retailers attempt to smooth the peak and troughs. It can be some months, depending on individual circumstances, before retail prices are caught by the wash of the volatile upstream prices. Similarly, as and when wholesale prices have retreated from these record levels, there has been a delay before those ripples reach retail prices.

  2.3  A further criticism raised by some observers is that energy suppliers appear to raise their prices in line with each other. All energy retailers purchase from the same wholesale and primary fuels market and are, therefore, affected by the same wholesale price volatility. While there is some variation in timing and amount of any price adjustments, depending on companies' positions and strategies, the broad commonality of any movements reflects the strength of competition and the consequences in terms of customer losses for any company charging significantly more than its rivals.

  2.4  The energy retail market in Britain continues to be defined by highly competitive and dynamic service providers who continue to innovate to increase their market share. In real terms, the competitive market is keeping prices lower for British consumers: the prices they pay for energy remain lower than before market deregulation.


Source: Ofgem factsheet 66 Jan 2008

3.  Indicators of competition

  Key points:

    —  Britain has the most competitive market in Europe (Oxera, January 2008) in which 55% of gas and electricity consumers have switched supplier.

    —  Only 25% of consumers have never switched either gas or electricity supplier.

    —  400,000 consumers are active and switch each month. Of the remainder, some will have switched and switched back, some changed one fuel, but not the other and some will have changed tariffs.

    —  Energy consumers have access to the widest range of products provided by energy retailers to meet the requirements of an increasingly engaged market.

    —  Suppliers are developing markets to promote energy services packages.

    —  Smart meters will prompt innovation that will shift consumer buying habits from being based purely on price.

  3.1  The principal feature of Britain's energy market is consumer choice. A report by Oxera in January this year heralded Britain as having by far the most competitive energy market in the EU and G7 countries over the period 2004 to 2008.

  3.2  One indicator is the switching rate of 55%, which is far higher than Sweden at 32%; the second most competitive market in Europe. Ofgem records state that 100,000 consumers switch supplier each week. However, it is likely that the actual switching rate is even higher in Britain because many consumers switch tariffs without changing supplier. This is not just an indication of a dynamic market, but also that many consumers are happy to stay with their existing supplier and choose instead to change tariff or payment method to get the best deal for their individual circumstances. According to MoneyExpert.com's switching index for household products in Q1 2007 the energy market was more dynamic in terms of switching levels than markets in:

    —  broadband;

    —  home insurance;

    —  landline and mobile telephone services;

    —  credit cards;

    —  car insurance;

    —  bank accounts; or

    —  mortgage providers.

  3.3  Research by BroadbandChoices.com, a price comparison site, showed that the figures for consumers switching providers for their broadband services was just 13% in 2007, prompting the comment that broadband service providers had "something to learn from the energy industry".

  3.4  The UK (with the exception of the smaller system in Northern Ireland) and Scandinavian countries are the only European states that can claim to have achieved intense competition, as demonstrated by switching rates that far exceed the other EU members. Austria, Denmark, Germany, Netherlands and Spain offer switching opportunities to some degree and Belgium, Ireland, Italy, Luxembourg and Portugal have also already met the EU's market opening requirements. However, it is crucial to note that in other countries the opportunities to switch are not always reflected by the numbers of consumers actually switching. For example, Germany and Austria have a switching rate of 6%. The Netherlands is one of the better performers with around 12% of the population switching energy provider.



  3.5  British consumers exercise much more power over the market than in many other EU states and this also impacts on the prices that companies are able to charge. Price is a key factor dictating the flexibility of the market and decisions by companies to increase retail energy prices have to be balanced against the potential loss of market share.

  3.6  Competition for consumers has driven innovation and better customer service. A variety of different offers are available to consumers indicating a degree of product differentiation. Energy retailers offer price caps, bills without a standing charge, dual fuel discount, and many non-price related benefits, such as a single bill or electronic billing. A number of energy retailers have diversified into other services and offer bundled services, including the supply of energy and telecoms with an option of paying just one bill, for example.

  3.7  Affinity partnerships with large retail brands in other sectors continue to be an important feature of the market. Customers are rewarded through bundled offers of products by loyalty points. Energy companies on the other hand benefit from better customer retention and a means of attracting new customers. The introduction of capped and fixed price products by energy suppliers as wholesale prices rose protected many customers from increased prices. Moreover, consumers can now choose to have their retail price indexed to the wholesale market which may provide good value over the long term.

  3.8  However, price remains the primary differentiator. This means that any new product must be cost effective to produce and competitively priced to attract consumers. No matter how good the product if consumers consider the price in anyway excessive the product will not sell. A current example is the niche market in microgeneration technology which, due to its high cost has not achieved the critical mass required to enable economies of scale.

The effectiveness of regulatory oversight of the energy market

4.  Effectiveness of Regulation

  Key points:

    —  Doorstep sales complaints have fallen by 97% since the EnergySure Code was put in place by industry.

    —  Switching complaints dropped by 60% after the completion of the Customer Transfer Programme led by the ERA.

    —  Energywatch has recorded a 70% reduction in overall complaints in the last five years.

    —  The Billing Code and Energy Supply Ombudsman are voluntary schemes established by industry.

    —  Self regulatory schemes are independently audited and enforced.

    —  The Debt and Disconnection Safety Net was reviewed by Ofgem in 2006.

    —  Ofgem reduced the number of supply licence conditions as a response to confidence in the industry to self-regulate.

    —  Existing regulation must be proportionate to risk eg consumer protection, health and safety.

  4.1  The ERA's members operate in a regulated and customer-facing environment, which naturally leads to close monitoring of the industry by Government and the regulator, which have a responsibility to protect the interests of consumers. Regulation must be proportionate in order to allow the competitive market to function effectively and to enable suppliers to innovate.

  4.2  As an example of the ability of the industry to self regulate where appropriate, in 2003 the ERA took ownership of the Code of Practice on Face to Face Marketing of Energy Supply. The voluntary Code, now known as the EnergySure Code, sets standards by which energy suppliers can be judged. Persistent failure to observe this EnergySure Code will lead to a withdrawal of using the EnergySure "badge". The Code aims at the same time to help customers understand the service and behaviour they can expect from EnergySure Code Members. The Code is independently audited on an annual basis by KPMG. Whilst it has no legal force, it provides a means for self-regulation in the competitive energy market and aims to assist the realisation of the benefits of competition. Annually, Code members approach approximately 35 million people about switching their energy supplier, and fewer than 1 in 100,000 approaches results in an energywatch complaint about direct selling. Since its launch complaints to energywatch about doorstep sales practice have fallen by 97%.

  4.3  The ERA aims to work with the industry on issues where consumers can benefit from suppliers working for the common good where there is no competitive advantage. The establishment of a "safety net" for debt and disconnections set out a framework for debt recovery and protects vulnerable households from disconnection. In January 2008 Ofgem published an independent review of the operation of energy suppliers debt recovery processes. It concluded:

    "Disconnections are down significantly from the record levels seen in 2001. It is reassuring to see supplier's progress in improving debt and disconnection procedures overall since Ofgem's last industry-wide review in 2005".

    (Debt and Disconnection Review 07/08, 25 Jan 2008)

  4.4  In July 2006, in response to recommendations following a supercomplaint against the industry, the ERA established the Energy Supply Ombudsman to offer a redress scheme for consumers unable to resolve billing disputes with their energy supplier. The scheme is entirely industry funded and since its launch has been extended to include all types of complaints. In accordance with the Consumer, Estate Agents and Redress Act 2007 the Energy Supply Ombudsman will become the Energy Ombudsman with effect from 1 April 2008 and its remit will be extended to networks businesses.

  4.5  Since the introduction of competition in the gas and electricity supply markets, the industry has matured and developed significantly. Customers now have a wide choice of supplier and/or supply offers, indicating a high level of product innovation and differentiation within the market. In Ofgem's Domestic Retail Market Report (June 2007) they highlight that their research has shown that less than 3% of customers think switching is too difficult or say they are unaware that it is possible to switch. A National Consumer Council report Switched on to Switching (2005) found that 95% of energy consumers found the switching process "very easy or fairly easy".

  4.6  We believe that it is vital that the supply licence provides a level playing field on regulatory obligations for all suppliers, regardless of size or whether a new entrant or not. Such differentiation would simply serve to distort competition. We support the view that all regulation must be non-prescriptive, proportionate and developed with a clear and realistic strategy for implementation. Ofgem recognises that regulations that are drafted without due regard to the impact on business will be ineffective and lead to compliance problems.

  4.7  As an industry, we acknowledge Ofgem's right to enforcement through energy and competition legislation. However, as the market matures a key advantage to offering added value to consumers will be retailers' ability to innovate. It is important that burdensome and disproportionate regulation is avoided so that there continues to be innovation in the market.

Progress in reducing fuel poverty and the appropriate policy instruments for doing so

5.  Fuel poverty and social programmes

  Key points:

    —  Fuel poverty is an effect of three factors colliding—low income, poor housing and the price of fuel. Energy suppliers have nothing to do with the first two, and the third is largely driven by world energy markets.

    —  Nevertheless, energy suppliers have engaged in a number of initiatives aimed at relieving fuel poverty. These have included the significant spend on improving insulation standards for the priority group in EEC/CERT, as well as other voluntary programmes assessed by Ofgem at £56 million a year.

    —  The Government has challenged suppliers to raise this contribution towards £150m a year over the survey period.

    —  Social tariffs form part of a package of measures and cannot be viewed in isolation where the issue of fuel poverty is multi-faceted.

    —  The increased CERT charges present a significant challenge and Government must help suppliers to identify and target low income households.

  5.1  Energy suppliers are not the architects of "fuel poverty". People in fuel poverty often have multiple debts and there is a challenge for the Government to offer joined-up services to address all of the problems vulnerable people face managing their energy bills and keeping their homes warm. This requires long term, sustainable strategy.

  5.2  An underlying cause of increasing fuel poverty is higher primary fuel costs and investment requirements in generation and gas import capacity, leading to higher wholesale costs. Such rises greatly exceed margins in energy supply and have to be passed through to consumers. Energy suppliers are intermediaries, and their part in alleviating fuel poverty is focussed on a number of special schemes including the CERT programme (which is improving energy efficiency, especially of potentially fuel poor households) and social initiatives. This is a substantial area of work, which is making a real difference.

  5.3  According to Ofgem the price of fuel makes up 15-20% of the overall effect. In supporting the Government in eliminating fuel poverty the main contribution that energy companies can make is to maintain pressure on fuel prices, to promote energy efficiency improvements, and to ensure that there is flexibility in a competitive market to enable vulnerable customers to benefit from competition and the special services and tariffs available to them.

  5.4  A social tariff should be seen as one part of a toolkit of measures that suppliers can deliver according to the needs of their customers and according to what provides the most help. Other measures include winter rebates, price freezes, trust funds, boiler upgrades, free insulation, benefits entitlement checks, partnership schemes with charities, local authorities and health services and energy efficiency advice. All these schemes offer flexibility in how they are implemented by suppliers.

  5.5  Legislating for a social tariff could become a complex intervention in the market, restricting rather than promoting innovative and sustainable schemes. On the other hand a contribution per customer from each supplier (as set by Government) would enable assistance to be provided in an equitable manner. If the Government chooses this option it must be specific about what it expects suppliers to achieve and that its expectations are realistic. It should also be recognised that taking the social tariff option may remove a segment of society, albeit temporarily, from access to choices in the market. This degree of financial exclusion may be appropriate for some, but there is currently no guidance on who should qualify.

  5.6  Identification remains a huge challenge for energy companies and Government, whether it is offering free insulation or targeting welfare support. Means-testing is fraught with difficulty because people do not self-diagnose. Many people in need do not identify themselves and energy suppliers rightly have only the minimum details about their customers' personal circumstances. This needs to be resolved with Government before any further schemes are launched. The Government must interrogate its data and devise a means of sharing this and overcoming any data protection issues.

    For example, this winter 250,000 elderly gas and electricity customers are benefiting from offers of free insulation and heating systems under a joint government/industry scheme that is being funded by energy suppliers. This is the second year that energy suppliers have funded a winter initiative to provide free insulation to 250,000 pensioners on benefits in England, Scotland and Wales. Over a five week period a coupon was sent to targeted households identified using benefits data held by Government. This was a joint initiative involving energy suppliers, Eaga the Department of Business Enterprise and Regulatory Reform and Department of Work and Pensions. Customers responding to a freephone helpline or completing a coupon were offered tariff advice and information about their energy supplier's social welfare schemes that range from trust fund payments to winter rebates. Households in England were also offered Warm Front grants to improve their heating systems. The scheme is branded under the Government's winter Keep Warm Keep Well campaign. The scheme will measure the extent that energy efficiency measures can be accurately targeted using data on benefits claimants held by the government. Industry experience is that on average £1,500 is under claimed by each household every year.

  5.7  Energy suppliers offer more practical help to low income families than any other business sector. This raises the question of accountability when external factors drive adverse outcomes, as in the case of tackling fuel poverty. Energy companies are not qualified to develop and deliver social welfare programmes and should not have to substitute for public services.

6.  Pre-payment meters

  Key points:

    —  Prepayment meters (PPMs) operate on a similar principle as "pay as you go" mobile phones.

    —  This enables customers to manage their energy spend more efficiently.

    —  The majority of PPM customers are low income, but not fuel poor.

    —  Of the customers who pay for their energy with a PPM, a minority of 20% are fuel poor.

    —  Ofgem state that 75% of fuel poor customers pay by standard credit or direct debit and only 5% of pensioners (who account for 50% of Britain's fuel poor) use PPMs.

    —  Most customers who use PPMs do so because it enables households on low incomes to budget their energy use.

    —  Ofgem research (factsheet 67) published in June showed that the majority of PPM customers are happy to pay in this way.

    —  PPMs are also often used in rented accommodation or holiday lets.

    —  Some PPMs are installed by energy suppliers when a customer has difficulty paying their bills, to help them manage their spend.

    —  In 2007 Ofgem research indicated that the proportion of prepayment customers who had switched was below the average for the market as a whole. However, switching rates for prepayment customers were slightly above those for standard credit customers.

    —  The majority of pre-payment customers are not in debt.

    —  Suppliers use PPMs as an alternative to disconnections.

  6.1  There has been much attention focused on prepayment (PPM) energy customers over the last few years and this has led to some misunderstandings. Prepayment meters operate on a similar principle as "pay as you go" mobile phones and enable customers to manage their energy spend more efficiently. A feature of a pay as you go option is that the cost is often higher than an online offer. In the same way mobile phone calls and texts are more expensive for pay as you go offers and there is a sometimes a minimum monthly top up requirement. In energy most PPMs work with a swipe card or key, which customers use to buy their energy in advance at a local corner shop, garage or Post Office, and then charge their meter.

  6.2  Suppliers incur additional charges from meter provision and maintenance, and prepayment meter infrastructure. As with pay as you go mobile telephones, the cost of servicing PPMs is higher, and historically, users' tariffs have often reflected this. Ofgem indicates that on average each PPM costs an additional £60 compared to standard credit customers and £85 compared to direct debit customers.

  6.3  Of the total of 26 million electricity meters and 20 million gas meters in the UK, there are currently 3.5 million electricity PPMs and 2.2 million gas PPMs. The majority of PPM customers are not fuel poor. In fact Ofgem figures state that of the customers who pay for their energy with a PPM, a minority of 20% are fuel poor. Furthermore, 75% of fuel poor customers pay by standard credit or direct debit and only 5% of pensioners (who account for 50% of Britain's fuel poor) use PPMs. We are concerned about any proposal to intervene on prepayment tariff rates, without a clear principle of seeking to focus help on those in greatest need. Aside from the cost to all consumers, including the majority of fuel poor who do not use PPMs, the proposed intervention will benefit those who use prepayment meters in second homes, holiday cottages, rented property and student accommodation.



Source: Ofgem Domestic Retail Market report, 2005

  6.4  A feature of a competitive market is the ability of suppliers to vary their service offers. Every supplier's customer base differs, and companies have decided on an individual basis how to charge their customers. Companies ensure in a variety of ways that they are offering appropriate products for customers on PPMs. Some energy suppliers have chosen to reduce or equalise their tariffs with standard credit tariffs. However, others consider that equalising tariffs would disproportionately affect the 3 million fuel poor customers who do not use PPMs. According to Ofgem's Domestic Retail Market published in June 2007 if the cost of servicing PPMs was recouped across all customers, every bill would go up by approximately £14 per year.

  6.5  In response to concerns about disconnection levels the ERA established a new protocol in 2004 under what is known as `safety net' procedures. The scheme has been successful in ensuring that no households identified as vulnerable have been disconnected in over three years. The number of disconnections last year was 5000. This is down from 17,000 four years ago. However, the commitment to reduce disconnections has led to suppliers recovering debt in other ways. Consequently the number of prepayment meter installations has increased.

  6.6  PPMs are used to recover debt accrued where this is the best option for the customer. For those customers who are repaying debt, most repay it at less than £3 a week. The rates at which they can repay debt are tailored to the customer's needs. For example, a customer need only pay £2.85 week of debt on a PPM if they are on benefits. However, a significant number agree to a higher repayment rate in order to be clear of a debt. Provided a PPM is not carrying a debt of more than £100 a consumer could switch to a supplier with a better deal. Anecdotally, suppliers have indicated that prepayment users are currently amongst the most active switchers compared to other forms of payment. This confirms figures in Ofgem's 2007 retail market report that show PPM user switching levels are higher than those on standard credit tariffs.

  6.7  There is particular concern about old style token meters because they cannot be adjusted remotely, so require a home visit to recalibrate them when prices change. Suppliers are complying with the new license conditions concerning the timely recalibration of token PPMs, and are making significant progress. This style of meter will be phased out by 2009 when the current replacement programme is complete. Suppliers are taking measures to ensure that the number of token PPMs accruing debt is falling. In June the number of token PPMs accruing debt was around 115,000—down from 409,000 when Ofgem first took action in December 2006.

  6.8  All suppliers who reduced PPM prices following recent price cuts confirmed that the decreases will be backdated on meters when they are recalibrated and that customers will benefit from lower prices from the date on which they were introduced.

  6.9  Despite the poor image PPMs score consistently high marks in customer satisfaction surveys. This was supported by a survey of consumers carried out by Ofgem last June. Some people prefer the pay as you go option as it means that they can budget precisely their energy use.

Additional comments

7.  A future low carbon economy

  Key points:

    —  Energy suppliers have accepted that a business model based on selling a finite resource, such as gas, in ever-growing quantities is not sustainable.

    —  The supplier obligation challenge for energy companies is to reduce carbon emissions from upstream generation and increase energy efficiency downstream.

    —  There is a cost associated with developing a low carbon economy.

    —  The next 20 years could see a new era of energy generation.

    —  Government has a significant role to play in helping energy suppliers to promote new attitudes to energy use.

    —  The success of new technology depends on creating consumer demand. This is currently undermined by perpetual negative messaging based on misinformation and misunderstanding.

  7.1  In the Energy Review in 2006, the Government signalled an ambition for a low carbon economy. Energy suppliers support this ambition and have committed to a major reform of the energy market. The supplier obligation beyond 2011 will mean that suppliers need to diversify their product offers and reduce carbon emissions upstream and increase energy efficiency downstream based on sustainable business model. Companies agree that there is more that can and should be done through traditional approaches (such as the insulation measures supported by CERT) and believe that future policies could continue to encourage these opportunities.

  7.2  The suspension of the 28-day rule, allows suppliers to sign longer term contracts with their customers, This will enable energy suppliers to invest in higher cost products, such as new technology, advanced appliances and microgeneration etc, because they can recover the cost over a longer period and have the certainty that their capital investment is not lost by the consumer switching away. If more consumers opt for a longer contract with their supplier switching rates may slow, but the competitive environment will be defined by an even wider range of innovative products being brought to market.

  7.3  An essential feature of this new market structure will be the advent of smart meter technology to 26 million homes throughout Britain. Smart meters are two-way communication devices that have the potential to revolutionise the way that consumers manage the amount of energy they use, the cost of their energy and their impact on the environment. They are the next generation of electricity and gas meters. A national roll out of smart meters could bring about the end of estimated bills and meter readings, and provide customers and energy suppliers with accurate information on the amount of electricity and gas being used. They will also provide the platform for the development of a much greater choice in energy tariffs and services for homes across the country. Smart meters will empower customers to make choices on how much energy they use.

  7.4  Suppliers will install two-way communication systems that display accurate real-time information on energy use in the home to the consumer and back to the energy supplier. In addition, Smart meters enable:

    —  Automatic and actual meter readings that will bring an end to estimated bills.

    —  Flexible tariffs that measure consumption over set time periods.

    —  Capability for selling energy back to the supplier which will facilitate microgeneration technology (eg solar panels or wind turbines).

    —  The same meter for electricity (and gas, subject to cost) will be used for all customers, whether they are pre-payment or credit, and regardless of supplier.

    —  Suppliers could differentiate their tariffs and services through offering alternative means of displaying energy consumption—eg through handheld devices, mobile phones, the internet or via digital TV.

    —  Improved accuracy of forecasting energy demand at different times of the day.

  7.5  The Energy Retail Association is calling on the Government to provide a clear mandate to roll- out Smart Meters across Britain. This mandate is essential if this huge project to replace 45 million meters across every home in the country is to be completed within 10 years at a reasonable cost. Without the mandate it would be impossible to ensure that every energy customer in the country has a smart meter fitted. The industry would also be unable to take their current discussions further and to work together to buy and install smart meters, which would result in a significant increase in both cost and time.

31 March 2008





 
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