Energy and Climate Change CommitteeWritten evidence submitted by Telefonica (SMR21)

Executive Summary

1. Smart meters for electricity and gas are an essential foundation for a smarter energy future for the UK. They will empower consumers by providing them with feedback on their energy usage, helping them to monitor, manage—and should they wish—reduce their energy consumption. Smart meters will help reduce or end estimated readings and make it easier for consumers to change tariffs and switch between suppliers, increasing market competition. Consumers will be able to access their energy consumption and billing data online, and new methods of payment (including pre paid through a variety of methods such as mobile payment) will be possible.

2. A national network of smart meters—each with their own communications hub providing wireless connectivity to every household—will also help accelerate the arrival of the “smart home” and the introduction of a range of new digital services that will help to improve people’s lives. These include “e-health” services where patients with chronic conditions such as high blood pressure, diabetes or respiratory problems are able to monitor their conditions in their own home and share the measurements with their doctor.

3. However, there is no guarantee that the UK will realise these benefits. To do so requires the support of consumers and a technology solution that is scalable and can support both the immediate and long term opportunities. A solution using existing cellular networks rather than a proprietary technology will be more future proof, will have access to a wider developer community, will be less dependent on dedicated radio spectrum, and—unlike proprietary solutions—will have a high level of nationwide coverage from day one.

4. There is currently a lack of awareness, understanding, and support for smart meters among many consumers. In particular we do not believe there is mainstream consumer awareness about the long-term potential benefits of a network of smart meters, or how it can pave the way to smart homes with a range of connected digital products and services.

5. DECC has rightly spoken about the importance of consumer engagement. Telefónica strongly supports this view. All companies involved in smart metering and the Government—ideally with the support of consumer bodies, charities and voluntary groups—need to engage with consumers through the recently announced Central Delivery Body (CDB). Collectively we need to deliver a co-ordinated campaign and make a single case for smart meters with consistent language. A good case study is the national campaign for the transition from first generation to second generation mobile phones in 1994—1996 which Telefonica UK (then Cellnet) played a leading role.

6. Our own consumer research with mumsnet shows that there is an appetite among consumers for smart homes and connected devices and services that make life easier. To build support for smart meters we need to tap into this enthusiasm and explain how smart meters are a stepping stone towards smart homes.

7. One of the principle obstacles to building a network of smart meters in the UK is the lack of consumer awareness and support but there are other pre-conditions to success: 1) The communications infrastructure that supports smart meters is available from day one so that we avoid the scenario of meters being installed in people’s homes which are unable to communicate energy usage data until a later date 2) availability of a sufficient number of trained and accredited installers. 3) Common standards which specify how the meter works with the in-home display devices, and future smart home devices, need to be defined. 4) All of the equipment has to be certified and interoperable.

8. We believe there should be a combination of short, medium, and long term Key Performance Indicators (KPIs) to measure the success of Smart Meter deployment including a target linked to level of customer complaints generated by installation process; targets linked to the speed and progress of the roll out plan; a measurement on interoperability for the meter, communications hub, and the display unit; metrics on reductions in energy consumption and how much money consumers are saving money; and potentially a metric related to the range of innovative “Smart Home” services which are connected to the communications hub that supports the smart meter.

9. We hope the Committee finds this submission useful. We would welcome an opportunity to explain our thinking in greater detail during the Committee’s oral hearings.

About Telefónica

11. Telefonica is one of the world’s leading telecommunications companies operating mobile, fixed and wireless networks in 25 countries across Europe and Latin America, with more than 314 million customers. In the UK Telefónica trades under the commercial brand O2. Telefónica runs 2G and 3G networks in the UK and was the first to trial 4G/LTE, reaching speeds of over 100Mpbs.

12. Telefónica has extensive experience of supporting smart meters. We provide communications services for over 150,000 smart meters for commercial and industrial customers across the UK; and Telefónica UK recently secured agreement to supply a managed connectivity service for over 1.4 million smart meters for a large utility company’s foundation phase smart meter rollout. We have also deployed over 7,500 smart meters across Telefonica UK’s property estate.

What are the potential benefits of smart meters for consumers?

More Information, More Control

13. Smart meters are an essential foundation for a smarter energy future for the UK. They will empower consumers by providing them with feedback on their electricity or gas energy usage, and helping them to monitor, manage—and should they wish—reduce their energy consumption. As well as helping to reduce the environmental impact of individual households smart meters could also help consumers to save money.

14. Smart metering provides real time information to generate accurate billing of energy consumption, ending the practice of estimated bills and manual readings. More importantly consumers will have real time visibility of how much money they are spending on their energy consumption. This will make it easier to predict, plan and budget for future energy bills, one of the main areas of household expenditure for many consumers.

15. Smart meters will make it easier for consumers to change tariffs and switch between suppliers through efficiency improvements in supplier data and systems, and by giving consumers the opportunity to share their data with 3rd party price comparison companies who can help them find more competitive tariffs.

New Payment Options

16. Smart meters with the correct specification can be remotely reconfigured as either a pre-payment or a post payment meter allowing customers to easily change tariffs and try different payment methods. This would support the growth of “pay-as-you-go” payment giving consumers even greater control over their consumption and predictability about their energy spend. Energy companies will also benefit by receiving payment in advance for future consumption.

17. Prepayment energy meters are not new—approximately 15% of UK consumers currently use prepayment for their energy use—and smart meters will make smart meters more user-friendly. Energy retailers will be able to offer new and more flexible ways of topping up the meter. Smart meters will work with remote credit top-up facilities so consumers will no longer need to visit a shop or other physical payment points to “re-charge” their meters.

18. Smart meters can be set so that customers are not disconnected if they run out of credit in specific situations, for example at night, or when shops and credit top-up facilities are closed.

Online Billing

19. Consumers will be able to access their energy usage data and billing data via the internet and on smart phones, tablets and other mobile devices. We predict this shift from physical billing to online billing will mirror the shift from physical to online banking. Consumers will be able to access their data whenever, wherever they want, making it easier to change consumption behaviour and make better informed decisions about their choice of tariffs or suppliers.

Improved Customer Satisfaction

20. As well as stimulating greater competition in the market smart meters will enable energy suppliers to provide improved levels of customer service. For example remote and early identification of incidents or supply problems. According to a 2011 study carried out in the USA by the market research company JD Power, most of the leading utilities on customer satisfaction were among the few that are rolling out smart meters.

Paving the way to a Smart Grid

21. Feedback on energy consumption—empowering consumers to save money and reduce their environmental impact by changing their behaviour and or their supplier—is the most immediate benefit of smart meters. But if the correct technology is adopted a UK wide of network of smart meters also has the potential to accelerate the modernisation of energy generation and help pave the way to a dynamic “Smart Grid”.

22. The introduction of new tariff plans and detailed real-time information about consumption is expected to incentivise consumers to shift part of their consumption to off-peak periods. This will enable energy suppliers to manage demand in a more flexible and sophisticated manner reducing the costs of energy production and investment in standby generation. These cost savings could potentially be passed onto consumers in the form of cheaper energy tariffs or help to mitigate the rise in energy costs.

23. A smart grid could also enable consumers to sell back surplus energy produced by micro generation in their own homes—further incentivising and rewarding consumers who embrace renewable technology. It also paves the wave for the greater use and integration of electric vehicles. For example fully charged and parked electric cars could be used to store electricity which could be transferred via smart meters back to energy suppliers during periods of high demand.

Accelerating the Arrival of the Smart Home

24. A national network of smart meters—each with their own communications hub providing wireless connectivity to every household—will also help accelerate the arrival of the “smart home” and the introduction of a range of new digital services that will help to improve people’s lives. These include connected consumer goods—eg thermostats which can be set or adjusted remotely—security products which enable people to monitor their homes remotely or “e-health” services where patients with chronic conditions such as high blood pressure or respiratory problems are able to monitor these conditions in their own homes and share the results in real time with their doctor, improving the quality and cost of healthcare.

25. These and other digital services will require access to wireless networks. Therefore the communications hub installed in each home to support the smart meter must be flexible, scalable, secure, interoperable and capable of fulfilling more than just the immediate requirements of smart meters.

And what barriers need to be overcome in order for consumers to realise these benefits?

26. A network of smart meters has the potential to deliver numerous benefits to consumers and society (see above). But there is no guarantee that the UK will realise these benefits. To do so requires the support of consumers and a technology solution that is scalable and can support both the immediate and long term opportunities. A solution using cellular networks rather than a proprietary technology will be more future proof, will have access to a wider developer community, will be less dependent on dedicated radio spectrum, and—unlike proprietary solutions—will have a high level of nationwide coverage from day one.

27. There is currently a lack of awareness, understanding, and support for smart meters among many consumers. The energy industry does not enjoy high levels of trust with consumers and it is important to acknowledge that many consumers have reservations about smart meters. Some consumers are worried that energy companies may use the information from smart meters to charge them more for their energy. There are also fears about unproven health risks from smart meter technology and worries about privacy.

28. DECC has rightly spoken about the importance of consumer engagement. Telefónica strongly supports this view. All companies involved in smart metering and the Government—ideally with the support of consumer bodies, charities and voluntary groups—need to engage with consumers through the recently announced Central Delivery Body (CDB). Collectively we need to make the case for smart meters, communicate the benefits, and reassure consumers about any concerns they may have.

29. In particular we do not believe there is mainstream consumer awareness about the long-term potential benefits of a network of smart meters, and how it can pave the way to smart homes with a range of connected digital product and services.

Our Consumer Research (with Mumsnet) Shows There is an Appetite for “Smart Homes” and Connected Devices and Services that Make Life Easier

30. If we are to succeed in building consumer support it is vital that we truly understand consumer aspirations and reservations. In August 2012 we asked members of the mumsnet forum to share with us their thoughts about the “Smart Home of the future”. A number of questions where posed to get the online discussion started including:

31. In what ways do you think smart technology could revolutionise your family’s lives in terms of the connection between inside and outside the home? Would you like an alert that tells you if you’ve left the iron on, or a fridge that tells you when you need to buy more milk? Can you think of any ways that the types of connective technology described above could help you make your home run more efficiently, both in terms of time and/or money? Can you think of any ways that connective technology might help your family feel closer?

32. There were more than 100 posts. The vast majority were enthusiastic about the potential benefits. Here is a selection of comments:

33. “Smart technology in the home would enable me to have more time to myself... The more help the better I say to organise myself and my family’s life.”

34. “Also useful a device telling you how much energy you are using. Ability to remotely turn things on and off would mean they are on for exactly the correct amount of time thus saving money.”

35. “I’d love to be able to turn on the hot water remotely, 20 mins before the children’s bath time. Or even, just turn on the heating (and the hall light) as I leave work to come home. I hate coming home to a dark house.”

36. “I’d love to be able to control my heating/AC and turn the oven on from outside the home.”

37. “General ‘something wrong’ alerts would be good: water running, power going out, movement in the house when there shouldn’t be, too much power being used (so something on which shouldn’t be)”

38. “I think the costs involved in smart technology make it prohibitive.”

39. “Leak alerts if you have eg a pipe leaking that an alert goes off telling you which pipe it is it would have saved me 6 months of upheaval recently with a leaking kitchen pipe...”

40. Based on what we have heard from consumers we believe that to secure broad consumer support for smart meters it is important to communicate both the rational benefits—potential cost savings, carbon reduction—and also paint a compelling vision of the near term future, with the connected home providing consumers with a range of smart devices and services, supported by the communications hub which is installed along with the smart meter.

What are the potential obstacles to rolling out smart meters in the UK and how should these be addressed? What pitfalls have hindered roll-out programmes elsewhere and are we doing all we can to avoid them?

41. One of the principle obstacles to building a network of smart meters in the UK is the lack of consumer awareness and support (see above). But there are other pre-conditions to success:

42. Roll out planning—It is important to ensure that when a smart meter is installed the communications infrastructure is already in place, otherwise the consumer experience of smart metering could be a negative one. Cellular networks are already in place and ready to support a smart metering rollout from day one. Telefónica’s cellular solution has more than 90% population coverage from day one unlike proprietary solutions which will not have high levels of coverage from day one.

43. Installation—the availability of a sufficient number of trained and accredited installers in order to meet the deployment rates required for the Government’s 2019 targets. As the installers are conducting home visits they need to be trusted as well as trained. We need to insure the Smart Metering Installation Code of Practice (SMICOP) is sufficiently robust to deliver a positive consumer experience during installation, especially for senior citizens or vulnerable groups in society, and that installers are held accountable for following the correct installation procedures.

44. Common standards—Common standards known as “SMETS2” (which among other things will specify how the meter works with the in-home display device, and how quickly the meter releases data) have yet to be fully defined. The standards require industry agreement and then EU approval. We are confident that agreement will be reached but the longer this takes the greater the risk that meters used for trials (which have an earlier set of standards) may find their way into people’s homes. This could result in an unsatisfactory experience for consumers, and may lead to unnecessary repeat visits.

45. Meters certified and ready to go. All of the equipment (the smart meter, the communications hub, the display device) must be certified and interoperable. Different energy providers may select different manufacturers to build their meters and display devices. All of the different meters and display devices must work with the communication hubs. One possible solution is an independent test house that will conduct interoperability tests and provide accreditation.

Are consumers’ concerns about privacy and health being addressed adequately?

46. Privacy fears and concerns about unproven health risks must be addressed as part of the consumer engagement programme. On both issues it is important to remember that consumers can choose whether to have a smart meter installed in their home. The onus is on all the companies involved to make the case by demonstrating the benefits and address openly any concerns or reservations people may have.

47. In 2012 Telefónica commissioned the largest research study into UK public opinion on the sharing and use of data as part of a new “data dialogue” with consumers. Our main conclusion was that for the UK to realise the potential in the use of customer data for the benefit of consumers themselves, there needs to be a certain level of trust established and a fair value exchange realised. Crucially there needs to be a unified push on transparency.

48. We need to explain to consumers how the data gathered by smart meters will be used by the energy suppliers. Collectively we need to communicate that the energy suppliers will only use the bare minimum required to obtain accurate readings. And then explain that consumers can (should they wish to) allow their energy suppliers to use more of their data to offer them new services or more appropriate tariffs.

49. As we mention above, the installer must be trained and trusted. Centralised certification of meters should also add confidence and reduce the need for second or repeat visits.

What criteria should DECC use to measure the ongoing success of roll-out?

50. We believe there should be a combination of short, medium, and long term Key Performance Indicators (KPIs) to measure the success of Smart Meter deployment.

51. We would suggest the following KPIs for the short term, the period of nationwide installation:

A target linked to level of customer complaints generated by installation process.

Targets linked to the speed and progress of the roll out plan. Installing smart meters at the correct volume/rate.

A measurement on interoperability for the meter, communications hub, and the display unit.

52. We would suggest the following KPIs for the medium term, the period post installation:

Metrics on reductions in energy consumption; how much money consumers are saving money; reduction in carbon.

Potentially a target on market competition and supplier switching.

53. We would suggest the following KPIs for the longer term, the period 23 years post installation:

A tangible improvement in consumer satisfaction and confidence in energy suppliers.

A metric related to the range of innovative “Smart Home” services which are connected to the communications hub that supports the smart meter.

A target related to reducing fuel poverty.

February 2013

Prepared 26th July 2013