Energy and Climate Change CommitteeWritten evidence submitted by ScottishPower
Introduction and Summary
1. ScottishPower is fully supportive of the implementation of smart metering. We are convinced of the long-term strategic business case that is facilitated by smart meters both in terms of enabling better, more efficient customer service and helping customers to engage better with energy efficiency. We welcome the UK Government’s significant commitment to the UK roll-out.
2. It should be recognised that the GB roll-out is different from others worldwide, in that the task is being undertaken by energy retail companies and not energy distribution companies. This brings its own opportunities (increased customer engagement) but also its own challenges including a unique systems architecture and a lower ability to gain from experience in other jurisdictions.
3. Our views can be summarised by the following 4 core principles:
A stable design is necessary for creating a robust smart meter infrastructure for GB
4. The smart metering deployment is core strategic infrastructure for GB which will last for a minimum of 30 years. It is therefore vital that the key design elements (meter design, communications design, home interface design, security design etc) are all stable and baselined to allow suppliers to build the relevant systems and processes ahead of mass deployment.
5. DECC has been working hard to conclude on these topics and, over the last 18 months, has made strong progress. However, there are some elements that have taken longer than expected due to complexity (eg, the SMETS meter specification is two years later than the original plan) and some elements that are still to be resolved (eg, end to end architecture, fully defined enrolment and adoption criteria). This has inevitably delayed companies commencing mass roll-out and, some recent changes (eg, security design changes) have added significantly to supplier costs.
A simple design will still deliver the benefits while minimising the rollout cost
6. As the smart meter roll-out is led by the energy retail sector, the UK deployment is more complex compared to other global smart meter deployments. Nevertheless, it is important that DECC works hard to keep the design of the overall GB smart meter infrastructure and associated industry processes as simple as possible as this will have the benefit of reducing cost and accelerating deployment.
An integrated approach is the only way to ensure strong consumer engagement
7. Customer engagement with smart meters is crucial to meet Programme objectives. Iberdrola experience from the USA shows that an integrated effort from Government, energy suppliers, regulators and, in the UK’s case, the Central Delivery Body is needed to provide consistent information and educate customers about the installation of smart meters. DECC and the industry have been strong in co-ordinating the approach to customer engagement and this needs to continue through the deployment. In particular, we would like further consideration of:
DECC commissioning expert third party evidence in sensitive generic areas such as data privacy, safety and health concerns;
DECC reviewing the approach to customer opt-out. The level of opt-out could be as high as 8% of customers—a level which seriously damages the overall business case because of the need to maintain expensive legacy processes at scale. International experience indicates that additional charges for opt-out which reflect these costs help achieve a more efficient outcome with much lower opt out levels, thereby protecting long-term strategic benefits of the investment.
Timescales are secondary to creating a robust design
8. Delivering the smart meter business case necessitates full roll-out to the entire country. As stated earlier, in order to protect this investment, a stable design needs to be in place prior to mass roll-out. Once this design is in place, energy suppliers need to install the meters as quickly as possible to achieve the benefits.
9. Realistically, we believe the end date for smart meter deployment is likely to be five years after the start of unconstrained mass roll out (ie from when smart metering equipment is available in the marketplace at volume; full end to end testing and trialling has taken place and is accepted by participants; and that an industry agreed plan for HAN and WAN roll out is in place). However we believe that meeting particular end date targets set early in the preparatory work should be secondary to ensuring the establishment of a robust platform for deployment of smart meters which will ensure that the potential benefits of the Programme can be captured.
Response to the Committee’s Questions
Are the Government’s cost and timescale predictions for roll-out realistic and will it deliver value for money?
Cost and Timescale Predictions
10. We accept that the Government’s predictions for roll out on costs and timescales are based on estimates and that there are still many unknowns. However, we would highlight three key areas that could impact achieving the Government’s predictions:
Increased complexity in the design of both meter specification and end to end processes compared to other deployments. As an example, the recent and significant change that has had to be made to the security design has added complexity to the GB smart metering end to end architecture, and has already contributed to increased costs and delivery timescales for suppliers and meter manufacturers;
Delays to key programme milestones—In particular, the delivery of the technical specification for SMETS 2 meters has been delayed which we believe will impact the timescales for mass deployment given the uncertainty as to whether SMETS 1 meters will be fully adoptable into the DCC and/or upgradeable to the new security requirements. There could also be an impact on cost if this delays the availability of sufficient volumes of compliant meters to the market; and
The availability of HAN and WAN coverage being below 100%, as this will lead to increased costs as alternative solutions are implemented.
11. In addition to the points highlighted the current uncertainties around achieving a stable baseline architecture need to be resolved as soon as possible to ensure that additional costs or delays to the Programme are not encountered.
12. We believe that the complexity involved in the issues we have highlighted increase the risks within the smart meter programme and will make it significantly more challenging to meet the final 2019 deployment date. We believe that the end date for smart meter deployment should be 5 years after the start of unconstrained mass roll out ie from the time when:
Smart metering equipment is available in the marketplace at volume;
Full end to end testing and trialling has taken place and is accepted by participants; and
An industry agreed plan for HAN and WAN roll out, in line with Suppliers’ roll out projections, has been agreed.
Value for Money
13. We are fully convinced of the long-term strategic business case that is facilitated by smart meters both in terms of enabling better, more efficient customer service and helping customers to engage better with energy efficiency. We welcome the UK Government’s significant commitment to the UK roll-out.
14. However delivering the benefits is dependent on ensuring that substantially all GB consumers have a smart meter installed and that the consumer uses the smart meter to improve energy efficiency as set out in the Impact Assessment. This will be dependent on engaging effectively with consumers to ensure they understand the benefits that smart meters can offer them.
What are the potential benefits of smart meters for consumers, and what barriers need to be overcome in order for consumers to realise them?
Potential Benefits for Customers
15. Smart metering will offer the following potential benefits to consumers:
Provision to customers of accurate information on their energy consumption which will enable the customer to make decisions about how they use energy and could reduce their bills;
Significantly reduce the level of estimated bills;
Greater scope for customers to self serve providing additional convenience and saving time;
Allow energy companies to create and offer innovative products and services to consumers which will encourage competition in the market;
Reduce the amount suppliers need to include in bills for “cost to serve” by reducing the level of field visits, inbound call and bad debt write off;
Faster and more accurate identification and notification of power outages, and the potential for quicker resolution of outages; and
Will enable the active management of the smart distribution grid which will support the increasing level of domestic low carbon technologies
16. Capturing these benefits will depend on the technical capability of the smart metering systems rolled out, customers consenting to having a smart meter in their home and allowing suppliers access to their consumption data, subject to the data access and privacy framework.
Barriers that Need to be Overcome
17. To capture the benefits of smart metering systems, we will need to have public acceptance of smart meters. Customers must consent to having a smart metering system installed in their home; without such consent, none of the benefits will be realised. Our experience from our USA deployment suggests that an opt-out response strategy is needed before deployment begins.
18. We would also stress the importance of customers granting suppliers, and authorised third parties, consent to access more granular data; the more granular the data that is made available, the more specific the information and its format that can be given to customers on energy efficiency actions, appropriate products and tariffs.
19. We also believe further work is needed to fully test the complex change of supplier security credentials process, such that the multiple points of failure we perceive within this process can be managed and mitigated.
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?
20. The GB energy supply market is highly competitive and supply business profitability is accordingly low as demonstrated in the industry’s segmental accounts. Ofgem’s and the Government’s proposed reforms to the retail market are intended to sharpen competition further. Competition between suppliers will ensure that any net financial benefits accruing to suppliers from smart meter rollout will in due course be passed on to consumers through lower prices. Any steps that the Government can take to promote efficient rollout and reduce suppliers’ costs should therefore benefit consumers.
21. Initially, it is likely that costs will accrue to suppliers more quickly than the savings, which will tend to build up towards the end of the programme when existing inefficient manual processes can be curtailed. The impact on pricing to consumers is likely to follow a similar profile.
22. It is possible that, as a result of changes in system design, additional costs to suppliers will be incurred that have yet to be identified and/or quantified. For example, additional complexity is having to be introduced to the end to end processes through revised security requirements.
23. DECC is introducing a comprehensive reporting and monitoring regime, which should provide a valuable resource for future ex post evaluation of the benefits of smart metering and the extent to which suppliers and consumers have benefited.
What lessons can be learned from successful smart meter implementation and usage elsewhere in the world?
24. In general, global deployments of smart meters have been led by the distribution network operator. We have detailed experience of a major smart meter implementation in the US State of Maine, through our sister company Central Maine Power (CMP). CMP’s Distribution business recently completed the installation of more than 600k electricity smart meters covering all of their domestic and business customers. This project took 18 months to complete, but in a much simpler environment than GB. For example, access to premises was not required for 96% of the installations.
25. From our experience in the US, we would highlight that deployment is best undertaken by starting small, then testing and learning with each step as deployment expands. The CMP smart metering deployment experienced issues that required
Upgrades to the firmware (often to update security), requiring site visits in around 5% of cases, resulting in increased costs and reduced consumer experience;
A regulatory opt out mechanism can increase consumer engagement and maximise benefits. CMP had regulatory approval to charge customers for opting out. Customers could opt out of smart metering and retain their existing mechanical meter, provided they paid a $12 per month charge towards the associated costs of manual meter readings and legacy system support. The current opt out rate is c.1.5% and falling. Prior to introducing this opt out charging mechanism, however, CMP was experiencing an opt out rate of c.8%.
Will smart meters empower customers to take greater control of their energy consumption?
26. Smart meters should provide the information to consumers that will allow them to take greater control of their consumption. However it will require more than smart meters alone. To achieve this will require proactive and consistent engagement from the Central Delivery Body, Suppliers, Authorised Third Parties, Consumer Groups, Government, the Regulator and other parties to demonstrate the benefits that controlling energy consumption can bring such as reduced bills, matching tariffs to customers’ needs and proactive self servicing through on-line services.
Will consumers on pre-pay meters obtain the same benefits from smart meters as other consumers?
27. Prepayment customers are acknowledged to have a greater understanding of their current energy consumption due to the need for them to “top-up” their energy credit on a regular basis. Therefore it may be assumed that a portion of prepayment customers, particularly those on low incomes, will already take steps to manage the efficiency of their energy consumption. However smart meters will enable pre-payment customers to gain a better understanding of their consumption profile, as well as potentially benefitting from the ability to purchase credit from home, rather than having to visit a prepayment outlet.
28. However, there is still significant work required to determine the final architecture to support this and ensure prepayment customers benefit from smart meters, and we believe the end to end infrastructure, including the smart metering system, needs to be proven to be stable before introducing further complexity such as prepayment services.
Should vulnerable customers and the fuel-poor be first in line for smart meters so they can get the benefits sooner?
29. We are committed to ensuring vulnerable and fuel-poor customers continue to receive appropriate help and support throughout the roll-out process and beyond. As to targeting vulnerable and fuel poor customers first with smart meters, we would have reservations. These may not be the best customers to deal with any teething problems as the industry gains experience of how customers interact with smart meters, and there are cost implications. Identifying these customer groups can be challenging and may itself incur additional costs, but the main risk is that targeting these customers specifically could make the roll out of smart meters less efficient and therefore more costly. We will consider what impacts the roll out of smart meters might have on vulnerable and fuel-poor customers as the Programme plans evolve.
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?
30. We believe the main way of involving third party trusted messengers in the roll-out should be through their engagement with the Central Delivery Body (CDB). To make the most of their potential, the CDB should:
provide them with consistent, reliable information;
ensure they understand the benefits of smart meters and can help explain the benefits to consumers; and
provide them with an escalation point for queries of a complex nature.
31. ScottishPower already has strong links with all of these trusted messengers and we will also seek to engage with them throughout the deployment period.
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?
32. One important potential obstacle is customer acceptance. Customers can opt out of having a smart meter installed and opt out rates could be significant if health or privacy scares go unchallenged, or if customers who opt out do not have to pay their share of the costs of maintaining legacy systems at scale. As noted above, Iberdrola’s experience in Maine (US) showed that customer acceptance has a significant bearing on the success of a smart metering roll out. To mitigate this, an opt out charging mechanism was developed which reflected the costs involved and significantly reduced the number of customers refusing to have a smart meter installed.
33. Other unforeseen obstacles may arise as a result of the sheer complexity of the UK smart meter rollout compared to other deployments around the world. For example, unlike many other rollouts, electricity and gas smart meters will be deployed simultaneously; if the customer has different suppliers for gas and electricity, the installation may be by more than one supplier; and the roll-out will be reliant on new technologies and techniques that require full interoperability. This complexity is added to by the competitive nature of the GB market, and the need to accommodate change of supplier processes. Given this complexity, we believe the timescales for deployment are particularly, challenging with around 53 million smart meters to be deployed within the relatively short timeframe of around 5 years.
34. To address these challenges, we would suggest that the end date for smart meter deployment should be five years after the start of unconstrained mass roll out. We also believe that an agreed stable baseline end-to-end architecture should be in place as early as possible which will bring certainty over costs, allow the manufacture of sufficient volumes of compliant smart metering systems, and ensure that minimal non-compliant smart metering systems are deployed in the market that could increase costs and bring additional complexity.
Are levels of public awareness of and support for smart meter roll-out increasing?
35. We are aware of various independent research findings that indicate that a large number of energy customers are still unaware of smart meters, and many more mistake the In-Home Display for the smart meter. Considerable effort is still required from DECC, energy suppliers, the CDB and other third parties to educate customers about the installation of smart meters and of their potential benefits.
Is enough being done to increase consumer awareness about smart meters? Could DECC’s consumer engagement strategy be improved?
36. We believe it is important to strike a balance here; while it is crucial to the success of the roll out that customers are engaged, and fully understand the benefits and uses of smart meters, there seems little point in bombarding them with information until shortly before installation actually takes place and they can take steps to realise these benefits.
37. We welcomed the Government’s proposal for the CDB, and believe that the CDB should produce a communication plan for consumer awareness. However, prior to the CDB being established, we believe that DECC should be pro-active in promoting the benefits of smart meters to consumers, as well as putting in place robust measures to mitigate and where necessary manage instances of negative media activity.
Are consumers’ concerns about privacy and health being addressed adequately?
38. The Government rightly recognised the potential for threat to consumer privacy from the outset of the Programme. Stakeholders representing consumers, energy suppliers, and other businesses and privacy groups have all engaged in thorough discussions and consultations, resulting in DECC’s proposed regulatory restrictions on data use. At the same time, energy suppliers have committed themselves to the development of a Data Privacy Charter for smart metering.
39. Different views have been put forward about the degree to which consumers are, or should be, concerned about the risks to privacy as a result of the GB smart metering roll out. However, the Government has taken account of the negative impact in other jurisdictions when privacy has not been adequately factored into smart metering programmes and considered this alongside the data protection and privacy rights already enshrined in UK law. It also recognised that privacy concerns are not necessarily static and could grow with public awareness of smart metering. We believe that the approach taken to date has ensured that any concerns have been, and will continue to be, adequately addressed.
40. We believe information on the health implications of smart meters should be based on independent research. For example the Health Protection Agency, which is responsible for setting standards in this area, already provides advice and information on any health implications of smart meters, and could draw on existing global studies in related fields such as telecommunications. Any concerns from consumers should be addressed centrally by DECC and the Central Delivery Body.
Is there any evidence that consumers’ concerns about smart meters are declining or growing?
41. Currently we have no evidence that consumers’ concerns about smart meters are either declining or growing.
Will the commercial benefits of smart meter roll-out be captured within the UK?
42. As noted above, deployment of smart metering will lead to significant commercial benefits in terms of reduced supplier operational costs and improved customer service. These benefits will all be captured in the UK and will, by the operation of competition, be transmitted to consumers; however any increase in the costs of the roll-out could impact the level of benefits captured.
The installation programme and creation of DCC infrastructure should also create significant employment opportunities for the UK. We are unable to say how much of the manufacturing and systems development work will remain in the UK.
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?
43. We are in broad agreement with DECC’s approach to procurement and establishment of a central Data and Communications Company (DCC). The DCC procurement process is still at an early stage and we have limited visibility of the procurement rules, but we are hopeful that it will deliver a cost-effective data and communications strategy. . We expect to be able to answer this question more fully after the service providers have been appointed during Q3 2013.
What criteria should DECC use to measure the ongoing success of roll-out?
44. DECC is seeking to assess the success of the smart metering Programme through the introduction of transparent and prescriptive reporting and monitoring requirements. The roll out should be assessed against the Government’s Impact Assessment including, the number of meters rolled out, the level of customer opt out, and the level of energy reductions achieved.
February 2013