Smart meters: progress or delay? - Energy and Climate Change Committee Contents

1  Introduction

1. Smart meters have the potential to bring great benefits to consumers and suppliers as well as improve the UK energy infrastructure. Smart meters allow energy suppliers to get remote electricity and gas readings from households and businesses using mobile phone-type signals and wireless technologies. The potential consumer benefits from smart meters include reduced energy bills through reduced energy consumption alongside energy efficiency. The roll-out of smart meters in the UK is due to take place between 2015 and 2020 with an estimated 53 million devices to be installed by energy suppliers in 30 million homes and businesses.[1] DECC estimates that the roll-out of smart meters will cost around £10.9 billion and these costs will be passed onto consumers.[2] Concerns have been raised about the lack of a budget cap for this programme.[3] However, the Government expects the cost to be offset by expected savings of £17.1 billion, in part from energy efficiency.[4] The roll-out of smart meters must be managed carefully if these benefits are to be achieved and costs are to be kept under control. The Government has chosen to have energy suppliers lead the roll-out of smart meters.[5] There are two phases to the roll-out.

Phase 1: the foundation phase 2013-2015

2. Between 2013 and 2015, energy providers are undertaking installation trials to build and test business processes, and to establish what works best for consumers. The foundation phase uses a smart meter called SMETS 1 (Smart Metering Equipment Technical Specification). SMETS 1 was designated by the Secretary of State in December 2012, with minor amendments made to the specification in March 2014. Equipment installed in this phase must be compliant with SMETS 1 if it is to count towards suppliers' roll-out obligations.[6] The Government is working with industry and consumer groups to prepare for the mass roll-out. This includes establishing a code of practice to ensure householder protection and setting up the data and communications infrastructure needed to read meters remotely and securely. At the end of September 2014 the Government reported that there were 543,900 domestic smart meters (328,800 electricity and 215,100 gas) operating in smart mode, which represents 1.2 per cent of all domestic meters operated by the larger suppliers.[7]

Phase 2: the mass roll-out phase 2015-2020

3. Following the foundation phase, energy providers will be obliged to complete the mass roll-out between 2015 and 2020. Energy companies will contact their customers to install smart meters. The mass roll-out phase will use a SMETS 2 meter, which has technical differences to SMETS 1.

4. The Data Communications Company (DCC) and Smart Energy GB have been appointed as key enablers of the mass roll-out. The role of Smart Energy GB, which is funded by suppliers and was launched in 2014, is to engage consumers on smart meters on behalf of suppliers. The DCC was appointed by DECC in September 2013 and its role is to provide the national communications structure that links the smart meters in homes and businesses to energy suppliers. The DCC aims to ensure that the same smart meters can be used with different energy suppliers, thereby resolving concerns about interoperability and retaining customers' freedom to switch suppliers. The mass roll-out was due to start at the end of 2015, however, in November 2014, the DCC launched a consultation 'Resetting the DCC Delivery Programme" whose purpose is to seek an extension of the start date to 2016.[8]

5. In June 2014, the National Audit Office issued a report called "Update on preparations for Smart Metering".[9] The Public Accounts Committee (PAC) then held a short inquiry into preparations for smart metering.[10] The PAC received written evidence from DECC and Opower, held a one-off oral evidence session in June 2014 with DECC, and published their report on 10 September 2014.

Our inquiries

6. In our 2013 report, we investigated the potential costs and benefits of the smart meter roll-out, as well as progress towards the 2015 launch.[11] We were broadly supportive of DECC's efforts but highlighted five areas where more clarity was needed:

·  Keeping the overall costs under control

·  The relationship between smart meters, demand-side response and a smart grid

·  Consumer engagement

·  Consumer savings

·  Smart meter coverage and interoperability (i.e. enabling one meter to be compatible with all energy suppliers)

We also noted that DECC had not published the Major Projects Authority's review of the smart meter project on grounds of commercial sensitivity. We stated that given the concerns that have been raised about the risk of cost escalation, the Government should "make this information available as soon as possible".[12] The Government has yet to publish any of the three MPA assessments.

7. Given the national importance of the smart meter programme and the concerns that we raised in our first inquiry on the subject, we followed up our earlier inquiry by inviting responses on the following issues:

·  What progress has been made on smart meter roll-out since our last report on this subject?

·  To what extent has the Government addressed the concerns we raised about smart-meter roll-out, and the concerns raised by other interested parties since we published our last report?

·  What problems have emerged during the foundation stage and how are they being addressed?

·  What are the remaining challenges (technical, communication or other) associated with launching the mass roll-out of smart meters in 2015, and completing it by 2020?

·  How can these challenges be overcome?

·  What are the best approaches to monitoring the mass roll-out of smart meters?

·  What contribution can smart meters make to expand the use of demand-side response as a means of addressing possible capacity shortages?

·  To realise the full potential benefits of smart meters, is it necessary to introduce time of use pricing for electricity?

8. We received 35 submissions of written evidence and held two oral evidence sessions in December 2014. A full list of witnesses can be found at the back of this report. We are grateful to all those who took the time to contribute to this inquiry.

1   Helping Households to cut their energy bills 12 October 2012 Back

2   Helping Households to cut their energy bills 12 October 2012 Back

3   Which? (PSM0016) Back

4   Helping Households to cut their energy bills 12 October 2012 Back

5   Smart Meters: A guide 8 October 2013  Back

6   Smart Meters: information for industry and other stakeholders (22 January 2013) Back

7   Smart Meters, Great Britain, Quarterly Report to end, September 2014 Back

8   Resetting the DCC Delivery Programme, accessed 6 February 2015 Back

9   National Audit Office Update on preparations for smart metering, 5 June 2014 Back

10   Public Accounts Committee Update on preparations for smart metering 10 Sept 2014 Back

11   Energy and Climate Change Committee Smart meter roll-out 16 July 2013 Back

12   Energy and Climate Change Committee 16 July 2013 Back

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Prepared 7 March 2015