Under European Directives, all member states are required to install 'intelligent metering systems' - smart meters - to at least 80% of domestic electricity consumers by 2020. The UK Government has opted for a more challenging programme, with plans for energy suppliers to install smart electricity and gas meters in all homes and smaller non-domestic premises in Great Britain by 2019. We welcome the introduction of smart meters, but have concerns over the way the programme has been planned. The Department of Energy and Climate Change (the Department) estimates that the smart meters programme will cost some £11.7 billion. This is a large complex programme requiring replacing around 53 million gas and electricity meters with significant uncertainties over the estimated costs and benefits involved.
In particular, it is far from certain that all consumers will benefit from the regulatory requirement placed on suppliers to install smart meters in their homes. We recognise however that the Department will work to ensure that consumers do benefit from being able to monitor their energy costs. The costs of installing smart meters will be borne by consumers through their energy bills, but many of the benefits accrue in the first instance to energy suppliers. No transparent mechanism presently exists for ensuring savings to the supplier are passed on to consumers, and the track record of energy companies to date does not inspire confidence that this will happen.
The Department has acknowledged that it is accountable for delivering the programme, keeping the costs down and ensuring that consumers benefit through reduced bills from the lower costs borne by suppliers and reduced energy use. The Department insists that suppliers are best placed to deliver the programme and that competition between energy suppliers is the best way to ensure consumers benefit from suppliers' savings. We are concerned, however, that past performance suggests that competition does not work effectively in this market and should not be relied on to keep prices low.
There remain significant uncertainties in a number of key areas in the programme. Consumers may not be willing to cooperate with the installation of smart meters: the communications programme which is promised for 2012 is therefore absolutely vital to help consumers use smart meters to reduce consumption. Significant practical difficulties may arise in procuring and installing the required data communications service before the planned roll-out of smart meters in 2014 (at a projected cost of £3 billion). The Department needs to address remaining uncertainties by conducting proper trials to identify and manage the risks associated with an IT project involving such a substantial amount of money which is financed by individuals as consumers.
The Department needs to ensure that the vulnerable, those on low incomes and those who use prepayment meters also benefit from smart meters. It would be unacceptable if these consumers bore the costs of smart meters through higher charges without getting a share of the potential benefits. The Government must put in place measures to ensure vulnerable people are not readily disconnected if they fall behind with payments.
There are issues around cyber security which need to be addressed if confidence in this new technology is to be gained by the population who are expected to have smart meters in their home and pay for them.
On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department on preparations for the roll-out of smart meters, including the procurement of the Data Communications Service.