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Smart metering has the potential to bring wide benefits to consumers, energy suppliers and our energy infrastructure, and we welcome this investment in the UK's energy system.
Mass roll-out is due to take place between 2015 and 2020, and will see energy companies install approximately 53 million smart meters in homes and small businesses. DECC estimates that roll-out will cost around £12.1 billion and deliver benefits of £18.8 billion. Projected benefits include accurate billing, easier switching, energy and bill savings for consumers, and operational savings for energy suppliers. Smart meters could also facilitate the creation of a smart grid that will help to balance peaks and troughs in electricity supply and demand, but the extent to which they will do this is unclear. Not enough has been done to quantify the benefits of a smart grid, and greater transparency is needed for the true costs and benefits of roll-out to be assessed.
The cost of roll-out will ultimately be paid for by consumers in their bills. There is a clear risk that the £6.7 billion net benefit projected by DECC may not be achieved if costs spiral or if consumers do not realise the expected energy and bill savings. DECC, Ofgem and some energy suppliers have suggested that competition in the market will ensure that costs are kept down and that benefits are passed on to consumers through lower energy prices, but we are not convinced that the energy market is sufficiently competitive to ensure this is the case. Until there is strong evidence that it is, DECC and Ofgem must retain responsibility for ensuring that costs do not spiral and that benefits are passed on. Energy companies should co-ordinate installation activity to ensure costs are contained and the benefits of roll-out are maximised.
Consumer acceptance of and engagement with smart metering is crucial to the success of roll-out. The extent to which consumers will benefit directly through energy and bill savings will depend largely on how they engage with smart meters. The provision of accurate, real-time consumption and billing data via the in-home display (IHD) is central to helping consumers to understand, reduce and alter their energy consumption habits. If households and small businesses are to be given the best chance of achieving savings, they should be offered free IHDs, which must provide accurate, real-time data.
It is important that people have a positive experience when they receive a smart meter and that the information they receive when it is installed will help them to get the most out of it. We welcome the action that DECC and Ofgem have taken to ensure that consumers will receive advice about smart meters and energy efficiency when the meters are installed. However, the benefits of receiving this information may be lost or significantly reduced if gaps in communications coverage mean that some smart meters have to be operated in "dumb" mode for some time after installation. It would be preferable to wait until communications issues are resolved before installing smart meters so that consumers can access the benefits of smart meters as soon as they are installed. Likewise, suppliers should not be pressed to roll-out earlier versions of smart meters now if they prefer to wait for a version that fully meets the technical specifications in order to give their customers a better experience.
We welcome DECC's recent decision to push back the timetable for roll-out to the new 2015-2020 dates, which was a sensible response to delays in the implementation programme. DECC should retain some flexibility in the new timetable, which should be driven by engineering and infrastructure requirements and the need to avoid cost escalation.
The messages that consumers hear about smart metering will be central to their perception of roll-out and whether they choose to accept a smart meter in their home. It is therefore crucial that the aims and potential benefits of roll-out are clear and that public concerns about smart meters are addressed. We welcome the action that DECC is taking to respond to the concerns that have been raised about health, data protection and privacy, and we urge it to outline what further action it will take to address such concerns.
A key lesson from other countries is that good consumer engagement is crucial to building public confidence in and support for smart metering. Current messages emphasise the savings that consumers may make on their energy bills as a result of smart meters, but fail to highlight the wider benefits. The strategic role of smart meters in helping to deliver a secure, affordable and low-carbon energy system for the future by facilitating a smart grid must be clarified, costed and explained to consumers. Government should also be clear about what it regards as a reasonable effort by energy companies to ensure the widest possible take-up of smart meters by consumers, and whether it expects customers who refuse to have a smart meter to be charged for the ongoing cost of manual meter-readings. The new roll-out timetable provides a welcome opportunity to ensure that public engagement strategies are well under way before mass roll-out begins and that a range of messengers, including charities, local authorities and other trusted third parties, will be involved.
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