Conclusions and Recommendations
The cost-benefit case for roll-out
1. Ofgem
must be prepared to strengthen the requirements on suppliers to
provide accurate bills if there is evidence that consumers are
not receiving accurate bills and/or that they are being back-billed
months after smart meters have been installed.
(Paragraph 13)
2. We recommend
that suppliers work together to achieve efficiency savings during
roll-out. This would help to ensure efficiency and the widest
possible coverage of the WAN (Wide Area Network). DECC should
draw up a co-operation protocol and require suppliers to sign
up to it. (Paragraph 26)
3. Smart metering
has the potential to bring wide benefits to our energy infrastructure
and to consumers, and we welcome this investment in the UK's energy
system. The development of a smart grid will be key to meeting
future energy challenges, but the extent to which smart metering
will facilitate that is unclear, and not enough has been done
to quantify the benefits of a smart grid. Greater transparency
is needed for the true costs and benefits of roll-out to be assessed.
DECC should clarify the extent to which smart metering will
facilitate the development of the smart grid and should publish
its analysis of the financial costs and benefits of a smart grid.
(Paragraph 34)
4. 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. There is also a risk that
the benefits that accrue to suppliers as a result of roll-out
will not be passed on fully to consumers. We are not convinced
by the argument that competition in the market will ensure that
costs are kept down and benefits are passed on to consumers. Until
Ofgem can provide concrete evidence that competition has increased—for
example by publishing its analysis of market performance against
agreed indicators of competitiveness or by publishing a review
of the impact of its RMR reforms—serious concerns about
competition in the market will remain. The responsibility for
keeping roll-out costs under control and ensuring that benefits
are passed on to customers rests with the Government and Ofgem.
They must demonstrate how reforms to the market will achieve this
and what action they will take if this is not achieved. (Paragraph
35)
5. If consumers do
not believe that they are benefiting significantly from roll-out,
they could rightly perceive it as a costly project that they have
paid for but gained little from. As we outlined in our Consumer
Engagement with Energy Markets report, we are concerned that
not enough is being done to make consumers aware of the need to
invest in the UK's energy infrastructure. DECC has been focusing
its consumer messaging on the relatively small energy and bill
savings of around 2.8% that smart meters may help consumers to
achieve. We recommend that messages around smart metering should
place greater emphasis on the wider benefits it will bring to
the UK's energy infrastructure. We reiterate the call in our Consumer
Engagement with Energy Markets report for greater transparency
regarding the "contribution that consumers are being expected
to make to ensuring that we have safe, secure and affordable energy
supplies in future". (Paragraph 36)
Roll-out stages and timescale
6. We
welcome DECC's recent announcement that the dates for mass roll-out
are being pushed back by a year. However there needs to be some
flexibility in the new timetable, which should be driven by engineering
and infrastructure requirements and the need to avoid artificial
deadlines acting to push up programme costs. DECC should be
prepared to amend the timetable further if more time is needed
to address any systemic issues that may arise, to respond to further
delays to technical and infrastructure requirements for roll-out,
or to prevent cost escalations for other reasons. (Paragraph
45)
Smart meter communications and coverage
7. We
note the concerns about the centralised DCC model proposed by
DECC. DECC should, in response to this report, set out the
justification and cost implications of the DCC model. (Paragraph
51)
8. We are concerned
about WAN and HAN coverage in the short to medium term, and these
will affect consumers' experience of smart meters. Communications
issues must be resolved before installing smart meters in order
to ensure that consumers have a good experience and are able to
access the benefits of smart meters as soon as they are installed.
DECC must clarify how progress towards 97.5% coverage will be
achieved. (Paragraph 60)
Smart meter functionality and interoperability
9. We
see a fundamental inconsistency between DECC's position that there
is little difference in functionality between SMETS 1 and SMETS
2 meters and its assertion that the new SMETS 2 standards are
needed to ensure full interoperability. Given that some HAN communication
issues are still being addressed as part of the SMETS 2 design
process, it is clear that final SMETS 2-compliant meters should
be less susceptible to HAN connectivity issues than SMETS 1-compliant
meters. However, it is unclear how much difference there will
be in functionality between SMETS 1 and SMETS 2 meters, particularly
in the longer term in relation to the smart grid and smart appliances.
DECC should outline clearly what the difference between SMETS
1 and SMETS 2 meters will be, particularly in relation to longer-term
functionality. (Paragraph 71)
10. SMETS 2 meters
are more likely to provide customers with a satisfactory smart
metering experience than pre-SMETS 2 meters. We are also concerned
that it may cost more to support SMETS 1 meters when customers
switch and that these costs may be passed on to consumers. Energy
companies that wish to wait for SMETS 2 meters before engaging
more fully in roll-out should not be pressed to deploy pre-SMETS
2 meters during foundation stage. (Paragraph 72)
Consumer savings
11. The
provision of real-time consumption and billing data is central
to consumers' ability to manage their energy use, but it is unclear
just how accurate the billing information provided on IHDs will
be. We accept that many consumers will want to access their data
via smart phones, tablets and other means, but we are also convinced
that in-home displays (IHDs) help many consumers to gain a basic
understanding of their energy consumption and costs. If the projected
consumer savings and other benefits of smart meters are to be
achieved, consumers must be presented with the best opportunity
to gain a fuller understanding of their energy usage from the
moment they receive their smart meter. We support DECC's position
that all households should be offered an IHD with their smart
meter. However, we also recommend that more should be done
to ensure that these devices provide accurate information so that
they can be used most effectively by consumers. (Paragraph
87)
12. We see a fundamental
incongruity in DECC and Ofgem's position that on the one hand
IHDs are integral to domestic consumers' ability to reduce and
manage energy consumption and should therefore be offered to them,
but that on the other they need not be offered to small and micro-businesses.
We question how the ambitious energy savings that have been projected
for the non-domestic sector can be achieved by small and micro-businesses
if they are not given the same opportunities as domestic consumers
to access their consumption data. It is in all our interests to
engage as many consumers as possible with smart meters in the
short term, as this may increase their ability and willingness
to engage with more sophisticated demand response incentives in
the long term which could bring wider benefits. We recommend
that small and micro-businesses should be given the same offer
of an in-home display, free of charge, that domestic consumers
will get upon installation of a smart meter. At the very least,
they should have free access to the consumption and billing data
that IHDs are expected to provide. (Paragraph 91)
Consumer concerns and engagement
13. We
welcome the action that DECC is taking to respond to public concerns
about health, data protection and other issues in relation to
smart meters. We also welcome the fact that it is considering
further "how best to respond" to such issues. (Paragraph
104). We urge DECC to take into account solutions that have
worked in other countries and to outline, before the commencement
of mass roll-out, what further action it will take to address
consumer concerns. DECC must ensure that these issues are given
sufficient and timely attention in consumer engagement campaigns
before and during roll-out. (Paragraph 104)
14. We note Ofgem's
reasons for not wanting to give detailed guidance at this stage
regarding the obligation on suppliers to install smart meters
in all homes, and we agree that it is important that suppliers
should aim to install smart meters in as many homes as possible.
However, we also believe that suppliers would benefit from having
a clearer understanding of what is expected of them in cases where
customers refuse a smart meter so that they can plan how to respond.
We therefore recommend that DECC and Ofgem should provide some
guidance in this regard. (Paragraph 108)
15. We agree with
Ofgem that it may be reasonable, once roll-out is complete, to
charge consumers who opt out of having a smart meter. This would
help to protect other consumers from picking up the increased
costs of reading "dumb" meters, but any such charge
would have to be reasonable. We do not believe it would be appropriate
to impose a similar charge on consumers who are prevented from
receiving a smart meter by HAN or WAN communications issues. Ofgem
and DECC should provide guidance on the circumstances in which
it may be appropriate to charge consumers for opting out of having
a smart meter. If charging does occur, Ofgem should monitor the
charges and be prepared to set a cap if charges appear to be excessive.
(Paragraph 109)
16. The provision
of good-quality information and support regarding smart meter
usage and energy efficiency will be crucial to consumer benefit
from smart meter roll-out. We applaud the action that DECC and
Ofgem have taken to ensure that consumers receive information
and advice about smart meters and energy efficiency when their
smart meter is installed. However, we are concerned that the benefits
of receiving this information may be lost, or significantly reduced,
if smart meters are installed in areas where communication gaps
mean that they will be operated in "dumb" mode for some
time after installation. DECC should amend the Smart Metering
Installation Code of Practice to ensure that consumers whose smart
meters do not have smart functionality at the point of installation
receive appropriate information and advice when this functionality
is enabled. (Paragraph 112)
17. Public engagement
should begin before the start of mass roll-out. We hope that energy
suppliers will learn from the US experience of roll-out and start
engagement early. We welcome the setting up of the CDB and
suggest that changes to the timescale for mass roll-out present
a welcome opportunity to ensure that the consumer engagement programme
is well under way before mass roll-out commences. (Paragraph
117)
18. Energy companies
still have a long way to go in putting right past failures and
building trust among consumers. It is therefore essential that
information and support from a range of messengers, including
charities, local authorities and other trusted third parties,
is available to consumers before, during and after roll-out. (Paragraph
118)
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