Evidence Check: Smart metering of electricity and gas: Government Response to the Committee’s Sixth Report of Session 2016–17

Third Special Report

On 24 September 2016 we published our Sixth Report of Session 2016–17, Evidence Check: Smart metering of electricity and gas [HC 161]. On 24 November 2016 we received the Government’s response to the Report, which is appended below.

Appendix: Government response

I am very grateful to the Science and Technology Committee for their report on the Smart meter roll-out and the recommendations it contains.

Since its publication the new national smart meters data and communications infrastructure has gone live across most of Great Britain, enabling energy suppliers to commence the roll out of the next generation of smart meters and allowing households and businesses to control their energy use.

Consumers are already benefiting from the early roll-out of smart meters, with over 4.2 million smart and advanced meters operating in homes and businesses across the country under our programme.

The majority of consumers who already have smart meters are having a positive experience. Research conducted by Populus on behalf of Smart Energy GB shows that eight in ten people with smart meters would recommend one. The same proportion say they have taken steps to save energy, for example turning off their lights, turning the heating down or changing the way household appliances are used.

Consumers are and will remain at the heart of the smart metering programme. The Committee’s recommendations are helpful in carrying our work forward and in monitoring the effect of the roll out in an objective fashion, drawing on internal and external evidence.

Baroness Neville-Rolfe CMG

Minister of State for Energy and Intellectual Property

Introduction

1.The Government welcomes the Science and Technology Committee’s inquiry and report on the roll-out of smart meters in Great Britain—as well as the Committee’s consideration of the issues raised during the new ‘Evidence check process’ and their subsequent inquiry. A response to each of the recommendations is provided below.

2.The roll-out of smart meters is a significant and essential national upgrade of Great Britain’s national energy infrastructure that is expected to deliver £5.7 billion1 of net benefits by 2020. The roll-out will put households and businesses in control of their energy, allowing bill payers to see exactly how much their energy use costs. Smart meters will end estimated billing and make switching energy suppliers easier and faster. The roll-out will transform the prepay experience; topping up a smart meter in prepay mode should become as easy as topping up a mobile phone. In addition, it will provide a platform for smarter, more flexible energy systems.

3.The roll-out is building momentum. More than 4.2 million smart and advanced meters are operating in homes and business across Great Britain under the Programme. The new national smart meters data and communications infrastructure is now live in the majority of the country, enabling energy suppliers to commence the roll out of the next generation of smart meters, allowing households and businesses to control their energy use.

The evidence check process

In its response to this report, the Government should reflect on its experience of collecting evidence check statements from a range of departments using the IfG’s Evidence Transparency Framework and consider how its processes could be improved, including by building the IfG structure into its guidance and policy-development methodologies. We hope that the Government will be more consistent in its engagement with the Institute for Government’s Evidence Transparency Framework when preparing future evidence check statements for us and other committees.

4.The Government notes this recommendation. As the Committee’s report highlights, the evidence check process undertaken by the Committee was the first of its kind.

5.We can reassure the Committee that evidence is central to all Government decision making on smart metering. The level of detail in the Programme’s impact assessment reflects the way in which evidence is informing policy-making. Economists responsible for developing and updating the programme’s impact assessment work within the smart meter policy team, to ensure that rigorous economic analysis underpins all policy development.

6.We welcome the Committee’s recognition that the Government’s smart metering impact assessments for the Programme have been updated as evidence has emerged over time, that we make good use of evidence to inform our work, and that attention is paid to the significance of behavioural science evidence.

Consumer behavioural science

Smart Energy GB is making good use of behavioural science to consider how best to support the smart meter roll-out. This could usefully be bolstered by evidence from sociologists and social psychologists, given that energy usage is an integral part of modern life.

7.The Government agrees with this recommendation. One of Smart Energy GB’s core objectives is to drive behaviour change to help consumers benefit from smart meters. In addition it is required to assist consumers with low incomes or prepayment meters, and consumers who may encounter additional barriers (e.g. being blind or partially sighted, not speaking English or Welsh proficiently, being off the gas grid, or living in rented accommodation) in being able to realise the benefits of smart metering2.

8.Evidence submitted to the inquiry highlights social science evidence which demonstrates that there are different ways of encouraging behaviour change, such as influencing energy-use practices and improving consumers’ energy know-how. Smart Energy GB will need to consider a broad range of relevant evidence to ensure it delivers all of its objectives.

9.Smart Energy GB’s recent paper, ‘A Smart Route to Change’3, sets out how behavioural science can be employed to affect energy use through the smart meter roll-out.’ The Government considers that energy suppliers should work with Smart Energy GB to test the ideas they have developed in this paper.

In order to reflect the available evidence the Government should ensure that in its bid to complete the smart meter roll-out by 2020 it does not compromise on consumer engagement before, during and after installation, including for small businesses. The impact of smart meters will be limited without this support from installers and Smart Energy GB.

10.The Government agrees with this recommendation. Consumer engagement is at the heart of the smart meter roll-out in Great Britain. It is central to ensuring consumers realise the benefits of smart metering. Government recognises that the roll-out is a unique opportunity to ensure domestic and small business consumers receive appropriate support and information that will help them cut energy waste and save money on their bills.

11.The Government’s approach to consumer engagement is set out in the Programme’s Consumer Engagement Strategy, which was published, following consultation, in 20124. Energy suppliers have the primary consumer engagement role as the main interface with their customers before, during and after installation. Smart Energy GB leads the national consumer engagement campaign (this extends to both domestic consumers and microbusinesses). The Government continues to have an ongoing role in communicating with consumers, to dispel myths and support the engagement activities of delivery partners.

12.The Government’s Early Learning Project5 comprehensively evaluated consumers’ experiences of the early roll-out of smart metering. It confirmed the importance of tailoring advice, and helping consumers to monitor their usage through their In Home Display, to enable them to make ongoing energy savings. As a result of this the Government has developed good practice advice and guidance materials6 to support the delivery of tailored energy efficiency advice by installers. We are working closely with energy suppliers, and other consumer facing bodies, to make use of these new tools.

13.The Early Learning Project also identified that some consumers would particularly benefit from tailored follow-up support to ensure they are able to realise the benefits of smart meters. The Government is therefore carrying out further work to assess the provision of post-installation support for vulnerable and pre-payment consumers and will seek to ensure good practice is shared across industry. We will also continue to monitor the provision of this support and consider further action if necessary to ensure it meets the requirements of these consumers. This activity complements the existing Smart Metering Installation Code of Practice7, which must be followed by all suppliers when installing smart meters. This is designed to ensure that all consumers, including the most vulnerable8 are prepared ahead of their installation visit, made aware of the benefits of smart metering and that appropriate protections are in place throughout the consumer experience.

14.Government will continue to monitor supplier and Smart Energy GB consumer engagement activity with a view to ensuring it reflects the best available evidence and is effective in supporting consumers in their use of smart meters.

The Government should update its research on the impact of smart meters as the roll-out progresses, adjusting the Impact Assessment as necessary. It should take the opportunity now available to examine five years of data for some customers in the Early Learning Programme. It should explore with British Gas the opportunity to make its large datasets, from 2.7 million fitted smart meters, available to researchers.

15.The Government has regularly updated its economic cost-benefit analysis for the roll-out and published the latest update on 10 November 20169. We will continue our own research programme, as well as drawing upon evidence from suppliers and other key organisations.

16.Our focus at this stage of the Programme is on gathering robust evidence to inform any further actions required to maximise benefits for consumers. For example we are commissioning primary consumer research, which will provide further evidence on early consumer experiences and impacts. This will include an assessment of the contribution of consumer engagement activities which have been implemented in light of the Early Learning Project research.

17.Whether independent analysis of energy consumption data held by British Gas or other suppliers is feasible is a matter for their consideration, within the context of privacy and data protection obligations. The Government will continue to work with energy suppliers, including British Gas to monitor evidence and validate this against programme assumptions on energy savings. We are also supportive of a project proposed by University College London to create a secure portal for researchers to access smart meter data (this is, of course, subject to consumer consent).

Changing when energy is used

There is an extensive range of studies providing evidence on the likelihood and scale of consumers changing their usage patterns in response to Time of Use tariffs. Some evidence suggests that driving genuinely significant change could require a level of differential pricing which might be commercially, and potentially politically, difficult.

18.The Government notes that while it is likely to be a key consideration, the price differential between peak and off-peak cannot fully explain the consumer response to time of use tariffs. For example, a review of trials in Europe found that the level and quality of information provided to consumers by suppliers appeared to be as big a motivator of peak shifting as the price differential. This study showed that participants who received education decreased their consumption at peak times by an additional 50% for time of use pilots, and by an additional 23% for critical peak pricing or in critical peak rebate pilots, compared to participants who did not receive any education.10

19.The benefits available to consumers and the energy system from time of use and other innovative tariffs will also depend on the types of load consumers have in their premises—for example, those with large loads such as electric heating, heat pumps or electric vehicles may be better able to realise benefits for themselves and provide greater opportunities for smoothing peak demand from a system perspective.

20.In addition, other parties including aggregators and local authorities may have access to large loads (for example, storage heaters in a block of flats) that can provide demand side response benefits to the system. These parties could provide consumer incentives to control these loads without time of use tariffs.

21.Consumer engagement is also a key factor in the potential take up of both smart metering and time of use tariffs. The visibility, control and understanding of energy use is the first important step to empowering consumers as they make use of their Home Displays. However, it is important to recognise that this understanding and empowerment will take time to develop. We expect it to strengthen as familiarity with smart metering grows, and the services it enables become more widespread.

22.Consumers will need to understand the opportunities available to them in the future smart energy system, what their participation will entail, and have a clear choice about whether and how they participate. The Government will continue to build its evidence base is this area. In September 2016 BEIS launched a tender for an evidence assessment on demand side response by smaller energy users.11 This will be used to build a better understanding of:

a)the motivating factors and barriers that drive consumers’ decision making around demand side response;

b)the most effective products, services, policies and engagement strategies for achieving demand side response at scale amongst domestic and smaller non-domestic consumers.

23.In addition, BEIS’s and Ofgem’s smart energy call for evidence12 seeks stakeholders’ views on consumer engagement issues in this context.

The balance between consumer and national benefits

The Government needs to do more to communicate the national benefits of smart metering alongside the potential cost savings and efficiencies for individual consumers. This was a weakness of the Government’s evidence check statement, and relates to a lack of clarity over the ‘problem’ that smart meters aim to address. In its response to this report, the Government should provide further information on how it expects smart metering to affect the required energy generation capacity of the network and the mix of energy generation sources.

24.The Government notes the recommendation and is clear about the long term national benefits that smart metering will bring. Our Consumer Engagement Strategy13 has been informed by a range of UK and international evidence and seeks to drive uptake and support behaviour change to deliver maximum benefits for consumers from smart meters. The content of smart meter engagement is underpinned by evidence on the communications that most resonate with consumers and was provided by Navigator14. It tested a range of messages on smart metering: including those relating to upgrading our energy infrastructure; helping the country manage energy supply; or environmental benefits. The research found that:

“‘a smart meter and energy display shows you what you are spending in real time’ was the most motivating of those [messages] presented and had the broadest appeal. It led towards a correct interpretation of the function of a meter and IHD and how it would be used and in turn towards the idea of saving money through an improved understanding of the significance of energy use”.15

25.The conclusions of our research were supported by work from the USA Smart Grid Consumer Collaborative16 (discussed in the 2012 Consumer Engagement Strategy17), which concluded that the more successful smart meter deployments have messages focussed on benefits that are immediately relevant to consumers and not complicated by references to longer-term benefits. The Strategy suggested that it would, therefore, be important for consumer engagement to focus initially on energy savings, consumer experience and customer service benefits.

26.In addition Smart Energy GB has trialled messages during the ‘test and learn’ phase of its campaign and found that messages around consumer ‘control’ were the most effective at engaging consumers. This evidence is the basis for energy-saving messages being more prominent at this stage of the Programme than those around the impact of the roll-out on energy generation capacity of the network and the mix of energy generation sources. Messaging on the national energy system benefits of smart metering therefore features in some, but not all of Smart Energy GB’s campaign messaging to date18.

27.The Committee asked the Government to further set out the impact of smart metering on the energy network and generation. We expect the roll-out of smart meters to facilitate both a reduction in electricity demand (from encouraging behaviour change) and a shift in electricity demand from peak to off-peak periods, encouraged through time of use and other innovative load control services enabled by smart meters.

28.These will impact energy generation and networks, enabling:

a)reduced need for new generation capacity to be built;

b)more efficient use of existing generation assets; and

c)avoided investment in transmission and distribution networks.

Technical, security and privacy issues

The problem of interoperability of some early smart meters has still not been resolved, despite having been raised previously. This undermines efforts to encourage consumers to switch suppliers to get the best tariff deals and requires timely action.

29.The Government is taking action on interoperability. Our objective is for smart meters installed in the Foundation stage to be made fully interoperable and has required the Data and Communications Company to prepare and consult on the feasibility of moving SMETS1 meters into the new national smart metering data and communications infrastructure. This consultation was published on 11 November19 and contains an assessment of technical options to deliver market-wide interoperability.

30.More broadly the Government always recognised that energy suppliers would begin by installing smart meters that gave a range of benefits but were not immediately interoperable. That is why the Programme’s strategy was to establish the Data and Communications Company to provide interoperability for the second generation of smart meters, and to provide a route to making early smart meters interoperable. The advantages of this approach were that it gave consumers the choice of accessing the benefits of smart meters early and helped energy suppliers pilot approaches and build capability for the main phase of the Programme, when most consumers would be receiving their smart meters. Eight in ten people with smart meters would recommend one and the same proportion say they have taken steps to save energy, such as turning off their lights, turning the heating down or changing the way household appliances are used.20

31.The Government put protections in place in November 2012 to ensure consumers are appropriately informed that they may lose smart services, both at the point a SMETS1 meter is installed and prior to switching supplier. Domestic suppliers’ licence conditions include the following requirements which are enforced by Ofgem:

32.Consumers with smart meters installed during the Foundation stage are still able to switch supplier. If the new supplier is not able to operate the meter in ‘smart’ mode, the meter should accurately record energy consumption and can be used in ‘traditional’ mode, with meter readings taken manually. The meter will normally not need to be replaced. Suppliers are required in licence conditions to inform consumers of the impact that switching could have on their smart services.

We recommend that the Government consider further how to communicate the level of thought that has gone into designing a secure system for smart metering.

33.The Government notes this recommendation and welcomes the Committee’s acknowledgement that security has been taken seriously throughout the development of smart metering. We recognise the need to provide reassurance to the public and clearly explain the range of steps that it has taken with security experts, including National Cyber Security Centre, to provide robust security for the smart metering system. The Government worked in partnership with GCHQ on its blog21 on smart metering infrastructure and will continue to support Smart Energy GB, amongst others, to provide clear messages to the public on smart meter security.

Conclusion

The Government has invested in trialling smart meters and in studies of their impact. Smart Energy GB is also making use of evidence in understanding consumer behaviour. Despite the growing evidence base underpinning the project, there are a number of areas where the Government clearly believes there are misconceptions and misunderstandings about the utility, impact, and security of smart metering. The Government should reflect on these in the context of the mass roll-out and consider how best to communicate with consumers on some of these topics.

34.The Government agrees with this recommendation. As is best practice, Government regularly evaluates and refines its approach to communicating with consumers, working with partners, including Smart Energy GB. We have learnt from experience both here and internationally that consumers and consumer engagement must be at the heart of the roll-out of smart meters in Great Britain. The Government recognises the need for consumers to receive independent, impartial information about the benefits of smart meters and how to use them, and reassurance where misconceptions may arise. It was for these reasons that the Government mandated the establishment of Smart Energy GB to lead the national consumer engagement campaign for smart meters. Smart Energy GB works with trusted third parties including Citizens Advice, National Energy Action, the National Housing Federation and Age UK, among many others, to ensure that consumers are able to access advice about the roll-out.

35.Whilst recognising the need to continuously improve our approach to consumer engagement, the early evidence from the roll-out is that our strategy is largely working. Awareness of smart metering and its benefits has risen by 7% in the year since September 2015. In addition, consumers’ positive experience of the roll-out to date is likely to drive uptake, nearly eight in ten (79 per cent) of people who identify as having a smart meter would recommend one to others.22

The smart meter roll-out has too many objectives, and this may hinder implementation and evaluation. The Government should be clearer about the primary purpose of smart metering and use this to drive evaluation of the project. Taking this approach will help make future evidence check statements clearer. Smart meters need to be clearly understood by the consumer and provide information in a format that the customer finds helpful. In order for consumers to benefit directly from smart metering there will need to be appropriate investment in customer engagement, given that this is being introduced in an era of low public trust in utility providers.

36.The Government considers that the roll-out has an appropriate number of objectives for a large scale infrastructure programme. The Government is committed to ensuring that the roll-out of smart meters delivers maximum return for consumers and the energy system as a whole. Energy policy is delivering an unprecedented level of change to transform Great Britain’s energy system so that we reconcile the objectives of security of supply, the need for affordability and the need to meet our climate change commitments. Maximising the benefits of smart metering, which fall to multiple parties across the energy system, therefore requires a number of Programme objectives to guide delivery.

37.The Government has a clear approach to evaluation of the Programme’s objectives which focuses resources on the areas where evidence has the greatest value in the short-term, whilst enabling the Government to evaluate all objectives at the post-implementation stage. This is set out in the December 2012 Monitoring and Evaluation Strategy23, the first objective of which is:

To ensure that sufficient evidence about consumer impacts and the effectiveness of different approaches to consumer engagement is available, to inform the ongoing development of the approach to consumer engagement including an early review before the end of the Foundation Stage.

38.The Early Learning Project published in April 201524 provided a comprehensive early evaluation against this objective and has enabled us to make improvements to the Programme and refine policy. A further programme of consumer research is currently being commissioned to update this analysis, the results of which will be published over time.  Evaluation of other areas has been planned to reflect when the different benefits will be delivered, with a full Post Implementation Review when the roll-out is complete.

39.The Consumer Engagement Strategy25 for smart metering has been designed in accordance with the size and scale of the Programme with a view to ensuring that consumers hear clear, accurate and consistent messages on smart metering. Lessons have been learnt from international experience and the roll-out in Great Britain is intended to deliver an unrivalled level of consumer engagement.

40.The Government agrees with the Committee on the need for appropriate investment in consumer engagement. It is for this reason that Smart Energy GB was established. Smart Energy GB’s objectives are underpinned by licence conditions, which require energy suppliers to fund the organisation’s activity and achieve value for money.

41.Smart Energy GB’s activity is designed within the context of the current energy market and in particular seeks to cut through consumer inertia and acceptance of the status quo. This has seen the use of innovative campaigns such as ‘Estimation Nation26 and Gaz27 and Leccy28 to capture the imaginations of households and small business across Great Britain. Smart Energy GB has set out to ensure that messages are accessible to all British consumers29. Its materials are translated in to six additional languages and its multi-channel communications approach seeks to reach as many consumers as possible.

42.Smart Energy GB is also working with trusted third-parties30, including the Post Office, National Energy Action and Citizens Advice to ensure information about smart meters and how to benefit from them is disseminated as widely as possible. In addition, there remains a role for energy suppliers to ensure consumers are appropriately engaged, not only to promote awareness of smart meters but also to ensure that consumers are able to benefit. The Government will continue to monitor supplier and Smart Energy GB consumer engagement activity closely.


1 Smart Meter Roll-out Cost-benefit analysis, 10 November 2016: https://www.gov.uk/government/publications/smart-meter-roll-out-gb-cost-benefit-analysis

4 Government Response to the Consultation on the Consumer Engagement Strategy, December 2012: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/43042/7224-gov-resp-sm-consumer-engagement.pdf

5 Smart Meter Early Learning Project and Small-Scale Behaviour Trials: 2 March 2015: https://www.gov.uk/government/publications/smart-metering-early-learning-project-and-small-scale-behaviour-trials

6 Smart Metering Energy Efficiency Advice Materials Project

9 Smart Meter Roll-out Cost-benefit analysis, 10 November 2016: https://www.gov.uk/government/publications/smart-meter-roll-out-gb-cost-benefit-analysis

11 Realising the Potential of Demand-Side Response to 2025 – A focus on Small Energy Users, 15 September 2016: https://www.contractsfinder.service.gov.uk/Notice/9259cf19-d9d8-49fb-8bde-3fe0f2f1b00d

13 Government Response to the Consultation on the Consumer Engagement Strategy, December 2012: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/43042/7224-gov-resp-sm-consumer-engagement.pdf

15 Navigator, p.29

16 US Smart Grid Consumer Collaborative (2011) Collaborative: Excellence in Consumer Engagement 2011 (http://smartgridcc.org/wp-content/uploads/2011/10/SGCC-Excellence-in-Consumer-Engagement.pdf)

17 Government Response to the Consultation on the Consumer Engagement Strategy, December 2012: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/43042/7224-gov-resp-sm-consumer-engagement.pdf

19 DCC consultation on the Initial Enrolment Project Feasibility Report (IEPFR).11 November: https://www.smartdcc.co.uk/more/news/consultation-on-initial-enrolment-project-feasibility-report/

21 The smart security Behind the GB Smart System, Dr Ian Levy, GCHQ: https://www.ncsc.gov.uk/articles/smart-security-behind-gb-smart-metering-system

24 Smart Meter Early Learning Project and Small-Scale Behaviour Trials: 2 March 2015: https://www.gov.uk/government/publications/smart-metering-early-learning-project-and-small-scale-behaviour-trials

25 Government Response to the Consultation on the Consumer Engagement Strategy, December 2012: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/43042/7224-gov-resp-sm-consumer-engagement.pdf

26 Supermarket, Smart Energy You Tube Channel: https://youtu.be/eaSte4UGnZE

27 Gaz and Leccy Cinema Takeover: Smart Energy GB YouTube Channel: https://youtu.be/PTO5HdGtku0

28 Gaz and Leccy TV introduction: Smart Energy GB YouTube Channel: https://youtu.be/yG4pB_0ls90




5 December 2016