Energy and Climate Change CommitteeWritten evidence submitted by EDF Energy
Executive Summary
Smart metering is right for Great Britain and it will deliver benefits for customers. But this is a complex programme with significant risks, which should not be underestimated. The rollout of Smart Meters will result in a net cost to energy suppliers who will need to recover this from their customers, as recognised by DECC’s Impact Assessment. Industry. The Government should therefore endeavour to minimise the costs involved in the rollout in order to prevent unnecessary cost being passed on to customers It is therefore necessary to design and deliver smart metering “right first time”.
The GB rollout is technically challenging, covering both gas and electricity, the provision of an In Home Display (IHD) and the creation of a Data Communication Company (DCC). The GB timescale is also ambitious, requiring 100% installation of smart meters by the end of 2019, compared with the EU requirement to install smart meters in 80% of homes by 2020.
There is recognition amongst all Suppliers and Energy UK that there are key enablers that need to be delivered to ensure a successful smart metering rollout; these include a competitive supply of robustly tested, secure and interoperable GB specification meters, and national, reliable, end to end communication arrangements. Without these key enablers the cost to the consumer will increase, service is likely to be impacted and unnecessary risks will be introduced to the programme. It is clear that, since the publication of the original Impact Assessment, the delivery dates for these key enablers have been delayed by between nine and 18 months, and yet the end date has remained fixed.
As the 2019 completion date is a Licence Condition, Suppliers have two choices: either to start the rollout ahead of the delivery of the key enablers, or delay rollout and compress the delivery period. Both choices are likely to increase the costs to consumers, deliver a sub-optimal customer experience and introduce unnecessary risk to the GB programme and the delivery of the expected benefits.
The Smart Meter rollout represents one of the largest and most complex, technical and logistical challenge that GB has ever undertaken, requiring the installation of new technology into every home across the country. In light of the practical delivery challenges and resultant delays to key deliverables which Government and Industry are facing, EDF Energy strongly recommends that Government changes the mandated completion date from 2019 to 2020. Furthermore, to manage future challenges in an efficient and cost effective manner Government should consider adopting an 80% by 2020 target in line with EU requirements, as opposed to 100% with “all reasonable steps” (which are as yet undefined), with the remainder being installed as customer acceptance and technical and delivery challenges are overcome.
EDF Energy’s Response to your Questions
Evidence on any or all of the following Terms of Reference
Are the Government’s cost and timescale predictions for roll-out realistic and will it deliver value for money?
1. EDF Energy believes that smart metering will deliver benefits for customers. This is a far-reaching programme using new technology and it is imperative that it is delivered right first time to avoid unnecessary complexity and cost being passed onto the consumer.
2. There is broad agreement between energy Suppliers and Energy UK that there are a number of key enablers that need to be in place for the efficient and effective delivery of smart metering in GB. The success of the smart metering rollout is dependent on the delivery of these key enablers, without which, costs will escalate, benefits may not be delivered and the customer experience will initially be poor. EDF Energy believes that these key enablers need to be in place before the commencement of the “mass rollout” of smart meters, the most important of which are listed below:
Service provided by the Data and Communications Company (DCC) and Service Providers are fully tested and available in line with supplier rollout projections.
SMETS2b Meters, In Home Displays (IHDs) and Communication Service Provider (CSP) Communications Hub devices are tested and available in line with supplier rollout projections.
Sufficient Wide Area Network (WAN) and Home Area Network (HAN) coverage is in place.
Supplier systems and infrastructure are tested and ready.
Network Operators are ready with operational IT systems and workforce to enable meter point defect rectification.
Existence of proven enrolment/adoption regime and early enrolment of SMETS meters that meet appropriate criteria, including data security.
3. EDF Energy is concerned about aspects of the policy framework and the cost and timescale predictions in the current Impact Assessment. In particular, EDF Energy is concerned that there have been significant delays to the key enablers while at the same time the completion date has been brought forward from 2020 to 2019.
4. Given the accelerated completion date, suppliers must decide whether to rollout meters before the key enablers are in place, or to compress their rollout into a shorter time period. EDF Energy believes a period of at least five years is required to deliver the rollout of smart meters. Either option is likely to result in increased cost to customers, unnecessary risk and a potentially sub-optimal customer experience. EDF Energy does not believe that these additional costs and risks are currently reflected in the Impact Assessment:
Our high-level analysis, based on the April 2012 Impact Assessment, indicates that:
Early rollout of smart meters, in addition to the extra costs identified by DECC in their most recent Impact Assessment, and ahead of the key enablers, could result in additional costs to GB in the order of £500 million.
Compression of the rollout caused by delays to the start date and a fixed completion date of 2019, could result in delivery risks and further additional costs in the order of £180 million.
5. EDF Energy recommends therefore that Government changes the mandated completion date from 2019 to 2020.
EDF Energy further considers that the current DECC plan does not allow for the fact that:
further delays to key milestones are likely (eg DCC Go Live and the bulk availability of compliant meters);
significant uncertainties remain in respect of “difficult-to-reach” customers (eg WAN coverage); and
customer acceptance and adoption remains an area of significant uncertainty with the potential to impact ultimate deployment volumes and rollout efficiency.
6. In order to address the practical delivery risks highlighted above, EDF Energy recommends that Government should consider adopting an 80% by 2020 target in line with the EU requirements as opposed to 100% with “all reasonable steps” (as yet undefined), with the remainder being installed as customer acceptance technical and delivery challenges are overcome.
What are the potential benefits of smart meters for consumers, and what barriers need to be overcome in order for consumers to realise them?
7. DECC’s Impact Assessment indicates that benefits are expected for consumers (through reduced energy usage), suppliers, network operators, generators and GB as a whole (primarily in terms of reduced carbon emissions). EDF Energy broadly agrees with the categories of costs and benefits identified within the Impact Assessment.
8. The Impact Assessment assumes that all costs and benefits are passed through to consumers, given competitive pressures on suppliers. The retail energy market in GB is highly competitive, and among the most competitive in Europe and we would welcome clarity regarding the framework that will be used to ensure that network operators deliver the expected benefits and how these are passed to consumers.
9. Customer behaviour change is vital to the delivery of benefits as customer benefits comprise c. 30% of total expected benefits. However, customers have the right to refuse the installation of a smart meter if they so wish.
10. EDF Energy remains committed to the rollout of smart meters to customers so that they can realise the benefits associated with improved understanding of their energy consumption and to re-build trust with our customers by putting them in control of their energy usage. However, there are a number of challenges that need to be overcome in order for consumers to realise the benefits of smart metering, including:
Trust—all parties, need to work together to increase consumers’ trust in energy companies. Greater trust will lead to increased engagement by consumers and a higher willingness to make the required behavioural changes to realise the benefits smart meters will bring.
Consumer Apathy—Government and other stakeholders must increase interest in, and awareness of, carbon reduction and energy efficiency in order for Customer benefits to be realised.
Access—The Industry needs to engage with customers so they are willing to be available and make time for the installation.
Benefits—Suppliers, Government and the Central Delivery Body will need to engage with customers to encourage them to make small changes to both habits and purchases in order to realise the overall benefits.
We acknowledge that suppliers (along with media, Government and others) have a role to play in facilitating consumer engagement and increasing interest in, and awareness of, carbon reduction and energy efficiency and the need to create a Central Delivery Body (CDB) to help manage these issues.
11. EDF Energy continues to undertake a series of trials with its customers to assess the potential impact of the challenges indicated above, although it is still too early to provide quantifiable evidence which correlates with mass roll-out on a National basis using the DCC infrastructure. However, there are indications that these challenges will be significant and that further work is needed by the Government programme and Industry to ensure that target benefits are delivered.
Is there a possibility that suppliers will gain considerably more than consumers from smart meters? Is enough being done to ensure that any financial benefits accruing to suppliers will be passed on to consumers?
12. The GB retail energy market is among the most competitive in Europe where customers can switch to competitive products from multiple suppliers. An example being that EDF Energy has signed up over 1 million customers to its “Blue” energy product, launched in 2012. A further example is that two smaller suppliers are expected to exceed the 250,000 customer exemption from the Energy Company Obligation. We believe these points demonstrate that competition in the market remains strong and that competitive pressure will ensure benefits arising from smart meters will be passed on to consumers.
13. It is important to recognise that the rollout of smart metering in GB is expected to result in a net increase in costs for suppliers, as the costs associated with procuring and installing a smart meter along with consequential system changes and supporting infrastructure outweigh the benefits. DECC’s April 2012 Impact Assessment provides the following aggregate supplier costs and benefits (for both domestic and SME sectors):
|
Category |
£bn |
|
Supplier Direct Costs |
(11.5) |
|
Supplier Benefits |
8.9 |
|
Supplier Net Benefit |
(2.6) |
14. Therefore, DECC’s own figures demonstrate that the rollout of smart meters will impose a net cost to suppliers of c£2.6 billion. Suppliers will therefore not gain considerably from the rollout of smart meters but instead will face a net increase in costs. EDF Energy’s internal investment case aligns with this view. Customers should benefit from reduced energy consumption and avoided infrastructure investment associated with smart grids.
What lessons can be learned from successful smart meter implementation and usage elsewhere in the world?
15. The GB smart meter rollout is supplier led and therefore differs in many respects from rollouts in other countries.
16. Important lessons can be learnt from both the similarities and differences between the GB smart metering programme and that of other countries:
Consumers must be engaged with the purpose and benefits of smart metering
17. In Ontario for instance a clear message was communicated to customers as to why smart metering was being rolled out and the related benefits. The GB rollout needs a similar approach engaging customers on the direct benefits and the wider and longer term impacts.
Large scale testing and trialling creates more certainty over costs and technical challenges
18. The French smart metering programme undertook a large-scale regional trial of smart meters (c. 300,000) ahead of the national rollout, enabling a greater level of certainty in respect of the costs and benefits as well as the technical challenges. A similar approach in GB could help prove technical and consumer readiness ahead of any large scale deployment.
Agreement on key objectives and the technical specifications of systems in advance of mass rollout is essential
19. Experience from Sweden demonstrates that robust and universally agreed specifications are a key enabler for a mass rollout, and are critical in avoiding stranded investments and cost inefficiency. The second round of smart metering deployment in Sweden benefited from improved understanding of costs and operational issues derived from the first round.
There are significant benefits in having a coordinated approach
20. In almost all other jurisdictions, the rollout has been led by a single, regional entity. The GB rollout is unique in placing responsibility for delivery on multiple competing companies. It is therefore even more important for the Government to ensure that Data Communications Company (DCC) services become available as soon as possible to enable the required coordination.
Will smart meters empower customers to take greater control of their energy consumption?
21. Smart meters should help empower customers to take greater control of their energy consumption and help to rebuild trust in energy companies.
22. However, since mandating that all consumers must be offered the provision of an In Home Display (IHD), technology has moved on so customers are able to access this data through other means, for example the large scale take-up of tablet devices, smart phones and smart televisions. Consideration should therefore be given as to whether the obligation to provide an IHD in all properties, particularly in those buildings that require additional infrastructure to be developed and installed to support IHD installations, should be amended.
Will consumers on pre-pay meters obtain the same benefits from smart meters as other consumers?
23. Customers on pre-payment meters already have a greater level of understanding about their consumption compared to credit customers so the potential for energy behaviour change may be less.
24. Smart meters can operate in either credit or prepayment mode thus helping to reduce the costs involved in supporting legacy pre-payment infrastructure where different meters were required.
25. Pre-payment in a “smart world” is likely to be replaced with “Pay As You Go” (PAYG) similar to that used for mobile telephones. This has the additional benefit of removing the stigma associated with pre-payment and making PAYG a payment method of choice for both existing pre-payment and some cash payment customers.
Should vulnerable customers and the fuel poor be first in line for smart meters so they can get the benefits sooner?
26. EDF Energy remains committed to the rollout of smart meters once the key enablers are in place in order to avoid an initially poor customer experience. We do not believe it would be appropriate to prioritise the installation of smart meters for vulnerable customers with immature technology and unproven processes. Vulnerable customers are not a group that should prioritised until the technology, processes and delivery mechanism are stable and proven.
What is the best way of involving third-party trusted messengers, such as charities, consumer groups, community organisations, local authorities and housing associations in roll-out?
27. Involving trusted third parties will be a key aspect of the consumer engagement strategy to publically support the smart meter rollout and deliver a consistent message to consumers. We regard the continued support of Government in conjunction with the operation of the Central Delivery Body as essential in identifying and gaining the support of these key third parties.
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?
28. The GB rollout is technically challenging and ambitious. Suppliers and Energy UK are all agreed on the key enablers that are required to be delivered to ensure that the rollout of smart meters does not result in unnecessary cost, risk or a sub-optimal customer experience. At the same time the end date for the completion of the rollout of smart meters is set in the Supply Licence and the timetable set out by DECC is challenging. Government should focus on managing the cost and quality of this ambitious rollout as opposed to prioritising speed of delivery.
29. In France significant effort was spent ensuring that meter technology was mature, secure and interoperable in advance of large volumes being deployed.
30. Experience from California and the Netherlands has shown it is vital to get customer engagement right and to have a communications programme in place for the whole rollout and for all customer segments. Small groups of people, empowered by the internet and social networking can create abnormal disruption to a smart meter rollout, as experienced in California.
31. Customers need to accept the benefits of smart metering for them and whenever possible messages should be consistent and come from trusted organisations. Suppliers and network operators should be open and honest about the benefits created by the rollout and the technology being deployed to allay fears.
Are levels of public awareness of and support for smart meter roll-out increasing?
32. Recent research does suggest that public awareness of smart meters is increasing with the latest research from DECC showing this to be at around 50%. However, we would urge caution as many consumers remain confused about smart metering.
Is enough being done to increase consumer awareness about smart meters? Could DECC’s consumer engagement strategy be improved?
33. Consumer engagement must be handled carefully, particularly during the Foundation phase. Collectively, we must not inflate demand to a level that cannot be managed as this will cause damage to the programme.
34. During Foundation, when different technologies and engagement approaches are being trialled, we believe that general awareness and education of smart meters should be the focus. DECC must take a leading role in rebuffing inaccurate or misleading reporting, supported by energy suppliers, the CDB, consumer groups and the Health Protection Agency.
Are consumers’ concerns about privacy and health being addressed adequately?
35. Privacy and health are two critical areas that could cause significant impacts to the rollout of smart meters if consumer concerns are not adequately addressed in a timely fashion.
36. Work in this area needs to continue over the coming months but we are encouraged by the work that the Health Protection Agency has recently done and the advice posted on its website in relation to smart meters supports this.
Is there any evidence that consumers’ concerns about smart meters are declining or growing?
37. Negativity towards smart meters is at a low level at the moment with campaigns aimed at stopping the rollout receiving only a small number of signatories (a petition received approximately 1,000 signatories on the House of Commons website and a website proposing that the smart metering rollout is halted has received 592 signatories to date). We would point to the experience gained from international rollouts that have seen significant challenges.
Will the commercial benefits of smart meter roll-out be captured within the UK?
38. The rollout of smart meters will require significant manpower to be deployed in GB in order to deliver meter installations and associated activities including customer services and IT systems development. Millions of meters and other products will be required, but it is currently unclear as to how much of this will be manufactured or assembled in GB.
Will DECC’s current approach to roll-out, including on procurement and establishment of the central Data and Communications Company, deliver an optimal data and communications strategy?
39. The DCC is a critical enabler for the rollout of smart meters supported by suppliers, network operators and Government. The DCC is the right model for the UK, providing national communications and a “hub” that can effectively support the high levels of customer switching seen in the GB market. It is therefore vital that the DCC is delivered and robust end-to-end testing completed prior to commencing the mass rollout of smart meters.
What criteria should DECC use to measure the ongoing success of roll-out?
40. EDF Energy believes that there should be a transparent and reasonable framework to measure the success of the smart meter rollout.
41. The Government has already put in place an extensive framework to monitor and evaluate suppliers against interim, and annual rollout targets. Suppliers will be required to provide information on smart meter penetration (ie the number of smart meters rolled out compared to total installed meters, aborted installations and IHD take-up). We believe that meter failure information should also be provided and that the provision of this information to the Government will enable them to assess the rollout against any criteria that it ultimately chooses to adopt. Government will also need to monitor the overall performance of the smart metering delivery process including those elements delivered by the DCC, Network Operators and the wider supply chain.
February 2013