Preparations for the roll-out of smart meters - Public Accounts Committee Contents

Conclusions and recommendations

1.  Consumers will have to pay energy suppliers for the costs of installing smart meters through their energy bills, but many of the benefits will pass in the first instance to the energy suppliers. The costs of installing smart meters will not be transparent in consumers' bills. Energy suppliers will benefit significantly from smart metering, for example, through cost savings on staff associated with automated meter reading. We are sceptical that suppliers will pass on these benefits in full to consumers, given their track record and the failures of suppliers to reduce retail prices promptly when wholesale energy costs have fallen. The Department needs to build consumer trust by ensuring suppliers report transparently the costs and savings of smart metering and the Department should set out clearly how it will review suppliers' implementation plans and monitor their performance and the information they give to ensure that the benefits are shared with consumers. The Department is relying on competition to drive down prices, but Ofgem have clearly found that the energy market is not functioning effectively as a competitive market. The Department must act to ensure open competition does prevail.

2.  The benefits of smart meters can only be fully realised if there is widespread take-up and consumers use them to reduce their energy bills, yet the role of suppliers in helping to achieve this remains undefined. To benefit from smart meters consumers will need to change their behaviour in response to the information the meters provide on consumption and costs, and change tariff and supplier where necessary to secure the best deal. The Department has some public funding for helping consumers to understand how to make best use of smart meters, and we await its consumer energy strategy due to be published in 2012. The Department should clearly set out what energy suppliers' responsibilities will be for engaging with consumers to deliver the benefits; and how they will be held accountable to both the Department and consumers. The Department should also set out how it proposes to engage and inform consumers of the potential benefits to them. Furthermore, smart meters have a limited life and the Department, working with industry, should make absolutely clear the potential costs beyond the next decade.

3.  The benefits from smart meters may not reach vulnerable consumers, those on low incomes and those who use prepayment meters. Already at a significant disadvantage when energy costs rise, the vulnerable, elderly and those on low incomes are at risk of not benefiting from smart metering. Introducing smart meters in this way by expecting consumers to pay for the installation is of itself regressive. Some consumers are not knowledgeable about energy suppliers and tariffs, which are difficult to understand, some do not have a bank account, so will miss out on savings from using direct debits, and some choose prepayment meters to allay the fear of disconnection. The Department should set out how it intends to ensure vulnerable and low income consumers do not miss out on the benefits from smart metering. The Department must also ensure protocols are in place to ensure that vulnerable customers are not automatically disconnected if they fall behind with payments.

4.  Trials so far have been inconclusive about consumers' willingness to cooperate with the installation process and to use smart meters to reduce their energy consumption. There are also uncertainties around the practicalities of the proposed timetable for procuring a new system, installing the data communications system, and the rolling-out of smart meters to every home in Great Britain. The Department told us it expects to gather more evidence during the two years remaining before the start of the roll-out in 2014. To make the best use of this time, the Department should identify the remaining uncertainties and address these by conducting proper trials to gather the robust evidence it needs to identify and manage the remaining risks.

5.  The data communications service required to link smart meters to suppliers is a complex IT project that may cost as much as £3 billion. There is a risk that the smart metering system may not be able to support the development of smart grids, designed to better match electricity supply and demand, without incurring additional expenditure to modify or upgrade the meters and the data communications system. We expect the Department to take on board the lessons learned from other large Government IT programmes and to ensure that the contracts they place are sufficiently flexible to cater for smart grids and avoid additional costs falling to consumers.

6.  The Department and energy suppliers face significant challenges to install smart meters in every home in the country. The Department is confident that it has adequately accounted for the risks involved in the smart metering programme, particularly the risk of cost escalation. We note these assurances, but do not share the Department's optimism. We expect the Department to proceed on the basis of detailed plans underpinned by robust evidence. We welcome the Department's confirmation that it will be reviewing progress and could pull the plug or subsequently rethink its approach if the programme is not delivering for consumers. The Department should report to this Committee in 2013 on: its progress in addressing the issues we have raised; the reasons for any further changes in the estimated costs and benefits from proceeding with the roll-out in 2014; and its plans for monitoring and reporting on actual costs and benefits through the roll-out.

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© Parliamentary copyright 2012
Prepared 17 January 2012