NEWS

It was supposed to be so easy. In 2009, the UK Government announced plans to replace every gas and electricity meter in every home with a shiny new ‘smart meter’ by 2020. One year away from the deadline and these plans are looking unlikely to say the least. The smart meter rollout has encountered numerous problems. How and why did these problems come about?  Can anything be done to solve them?

The backstory

Replacing conventional utility meters with smart meters brings benefits to all sides.

For consumers:

• Consumers with smart meters can see how much energy they are using in real-time, meaning they have more control over what they use. They can be more thoughtful about how they use their power and possibly save money.
• No more estimated bills. Consumers only pay for what they use.
• Being able to see how you use energy helps consumers switch to more appropriate energy tariffs.

For energy suppliers:

• With smart meters, energy suppliers can take meter readings automatically. They do not have to employ humans to do it for them. This could save them around £400 million a year.
• Smart meters help energy suppliers with demand management and make their operations more efficient.
• Being able to offer more flexible, appropriate tariffs to customers could boost retention.

For the Government, moving to smart meters should help the UK reduce energy consumption, which has environmental benefits.

For all these reasons, the Government declared that every home in the UK would have a smart meter by 2020. EU law directed that pursuing 80% of households was acceptable, but the UK decided to go for 100% and set the target in stone. Consumers would not have to pay to replace their current meters, although the cost of fitting the meters nationally, estimated to be around £11 billion, would be passed on to the consumer in the form of higher utility bills.

Unfortunately for all concerned, the smart meter rollout has been blighted by multiple issues.

Problems with the national smart meter rollout

It had been predicted for a while, but a November 2018 report from the National Audit Office (NAO) made it clear for all to see. The ambitious target of replacing every utility meter in the UK by 2020 was not going to be achieved. Worse, the rollout would cost much more than initially predicted.

There is a long list of reasons why this has happened:

• Technical issues – the first generation of smart meters, known as SMETS 1, have been fitted in more than 12.5 million homes. However, they have an issue which means they could stop working if a customer switches their utility supplier. This is called ‘going dumb’ in the industry. A new smart meter, SMETS 2, which does not have this issue, has been developed, but the infrastructure to link SMETS 2 meters to their suppliers doesn’t exist in many parts of the UK.
• Shortage of equipment – SMETS 2 meters are not being manufactured quickly enough to meet demand. Suppliers are still fitting SMETS 1 meters, but they do not count towards the target anymore.
• Financial issues – It costs more to install a smart meter than originally expected. The original project planners also underestimated the cost of analysing all the data smart meters produce.

The report also criticised energy firms for not offering enough guidance to customers on how they can use their smart meters to save money.

Consequences of these issues

The delay and rise in costs of the UK’s smart meter rollout have significant consequences. Consumers will probably have to pay higher prices for their energy to meet the increase in costs. The total rise of £500 million, as estimated by the National Audit Office, works out as £17 per household.

However, this figure could easily rise higher when you factor in the costs of replacing ‘dumb’ or faulty SMETS 1 meters. There is also a danger that Brexit could bring new unforeseen expenses, especially if the UK leaves without a deal.

Energy suppliers could also face fines or sanctions for failing to do their part in meeting the Government’s targets of replacing every smart meter by 2020.

The NAO laid the blame for these issues squarely at the door of the Government, calling for them to take responsibility for getting the rollout back on track. Currently, the Government maintain they will still be able to meet their ambitious targets.

Possible solutions

The UK’s smart meter rollout now finds itself at a crossroads. It seems there are three options:

• Extend the deadline for implementation
• Lower the target for the proportion of homes that need to have their meters replaced
• Redouble efforts to achieve the 100% target by 2020

There are pros and cons to each.

Extending the deadline has many benefits. It gives everyone a chance to take a breath, to get their supply chains in order and to make other necessary alterations to their business. It would stop the cycle of poor decision-making which has beset this initiative. The disadvantages are that consumers will have to wait longer to reap the rewards of having a smart meter. It doesn’t help solve the problems of the rising cost of the rollout. Experts suggest extending the deadline to the end of 2025 would make the target achievable.

Lowering the objective from 100% of homes to something around 70% would also take the pressure off. Even the EU only ever suggested a target of 80% should be pursued, with Germany suggesting even this target would be too hard to hit. Loosening the target would make the rollout much more manageable. However, again, some consumers would not be able to gain the benefits of using smart meters for their utilities. You would imagine that it would be people in more remote, rural areas of the UK who would not be given a smart meter. Some might say this is unfair.

Deploying more resources to the rollout in order to meet the targets and deadline would allow everyone to get the benefits of having a smart meter that they were originally promised. In reality though, there are too many disadvantages. The suppliers would have to more than double the number of meters they fit per quarter, from 1.25 million to 3.3 million. It would be far too expensive to hire qualified and well trained fitters, and manufacture enough equipment to achieve these productivity levels. These skyrocketing costs would doubtless be passed on to the consumer, who would have to face much higher bills.

There is also the possibility that the suppliers could not sustain these extra costs in the short term. Last year some energy suppliers like Spark Energy went out of business. Already this year we have lost Economy Energy. Suppliers are currently struggling to operate within OFGEM’s energy price cap. Do we really want to put more strain on the UK’s energy industry?

The way forward

What should the UK do? There are advantages and disadvantages to all the above ideas. However, carrying on with the way things are going is not an option. Something must be done to make the smart meter rollout more cost-effective, to alleviate the burden on consumers who never asked for smart meters in the first place. Perhaps a combination of extending the deadline and lowering the target would be the ideal solution?

There is value for everyone in having smart meters. However, as with many government initiatives, the planning and execution have been poor. Back in 2009, when the Government first announced their plans, the auditing firm EY told the Government that they had wildly underestimated the cost of the rollout. They were ignored.

Hopefully this time, they will listen to the metering industry and adjust their approach.