How will Brexit affect the smart meter rollout?
As if the UK’s smart meter rollout hasn’t suffered from enough setbacks, another one could be on its way when it leaves the European Customs Union. Let’s find out more?
The UK Government’s mission to install a smart energy meter in every home in the UK by the end of 2024 has not been a smooth process. If all had gone to plan, we’d be nearing the end of the rollout now – the original target was the end of 2020, but it was pushed back by four years!
To add to a long list of setbacks the rollout has faced, another big problem looms on the horizon. The UK is trying to negotiate a free trade deal with the EU. At the time of writing, it does not look likely. However, there are no signs of deals with many other countries either, specifically China and India, where the smart meter industry sources most of its materials.
Even if the UK can agree a free trade with the EU, it will have to trade on WTO rules with India and China. This is because the UK will no longer be part of the European Customs Union. As a result, higher tariffs look inevitable.
That puts a big spanner in the works for the smart meter rollout. In this article, we’ll explain why, as well as propose a possible solution.
Higher tariffs make meters more expensive
The issue for the smart meter rollout is that we import the majority of them from overseas, mostly from China and India.
Currently, we pay 2.1% of a gas meter’s value in tariffs when we import them from China and India. But on WTO terms, that tariff for meters from India would rise to 7.5%. From China, it rises to a massive 10%.
For electricity meters, the current tariff is 0.4%. The tariff for meters from India would go to an unbelievable 15%. Bizarrely, there will be no tariff for electricity meters from China. But 0% isn’t much less than 0.4%!
This rise will make meters much more expensive overnight. With more than 30 million meters still to be fitted in the next four years if the Government is going to reach its target, a price rise of up to 15% is a significant issue.
A bad time for a price rise
A sudden rise in the cost of meters will come at an already bad time for the Government. The rollout has been beset with problems since the very start.
The budget for the rollout has had to be increased many times over. It started as £11 billion, but current estimates are nearer £13.5 billion.
There have been numerous technical problems too. The first batch of smart meters that were fitted, known as SMETS 1, had an inherent fault which meant they would stop working if the user switched energy suppliers. SMETS 2 meters resolved that issue, but at a higher cost. Then, installers had to rip out the old meters and fit the new ones, wasting more time, money and resources.
It was no surprise when towards the end of 2019, the Government had to admit that there was no chance of it meeting the 2020 target, and pushed it back to 2024.
Then, of course, this year, we had the Coronavirus pandemic, which slowed down the rollout even more. For three months, installers were not allowed to enter people’s houses. Currently, installers are allowed into homes if they take the right precautions. However, many consumers will be reluctant to take the risk for a smart meter.
Now, on top of all this, the price of meters will rise dramatically as a result of moving to WTO rules. If only there were a better way?
Why does there need to be a target?
Chasing the 2024 (previously 2020) target to install a smart meter into every home in the UK has been a long and expensive process. It looks like it will only get longer and more expensive. So, why do it?
Smart meters are there to drive behaviour in consumers, helping them measure consumption and look for areas where they can use less energy and save money. However, in the grand scheme of things, the savings are relatively minimal – around 2%.
The rollout also has a significant environmental impact, with the processes of manufacture, recycling, transport and installation creating a sizable carbon footprint.
A better idea would be to abandon the target altogether. It would take the pressure off energy companies who already have enough to deal with and it would be more eco-friendly. It means the country could reallocate resources to more pressing matters.
End of life replacement
As well as abandoning the 2024 target for the rollout, which is probably impossible anyway, the Government should encourage consumers only to get smart meters when their current meters have reached the end of their life.
Replacing energy meters only when they stop working is much more eco-friendly, as you’re not creating unnecessary waste. It also takes the pressure of energy companies to install meters, when they could be concentrating on renewable energy, for example.
It would also save a lot of money, which is even more essential if the price of a meter is about to rise by up to 15%.
The only way to avoid a rise in tariffs on smart meters is to agree a free trade deal with India and China. However, neither of these look likely in the foreseeable future.
For the sake of business and the country, we hope the UK can negotiate fair trade deals with its trading partners soon. It will not just be the smart meter industry that will suffer if import tariffs rise from almost zero to 15% overnight.
However, it would be a good idea to pre-empt this price rise by abandoning the unrealistic smart meter rollout target, switching to end of life replacement. Let’s hope it happens soon, but in the meantime, we will continue to provide the UK energy industry with a cost effective solution to their metering needs.