How smart is the smart meter rollout?

The main installation phase of the Government’s programme to offer smart meters to every household by 2020 is set to begin this year. The meters are provided by energy suppliers, who pass on the costs of implementation to consumers in energy bills.

Smart meters send information to suppliers about consumers’ energy consumption, ending the practice of estimated bills. They also enable consumers to better track and thus manage their energy usage so they can save money on their bills.

The smart meter rollout, however, has already received some trenchant criticism. Both the House of Commons Public Accounts Committee and the Energy and Climate Change Committee in the last Parliament raised significant concerns about the policy. Influential groups such as the Institute of Directors and Which? have both called for the rollout to be halted or scrapped altogether. This blog will examine some of the most frequent objections.                                         

Timeline

The scheme is already behind schedule. The main installation phase should have started in 2015, but was subsequently delayed to 2016. Even in the foundation stage, there have been problems keeping suppliers on the timetable. For instance, in November 2015, E.On was fined £7 million for missing their 2014 target to supply smart meters to all their business customers. By the appointed deadline, just 65% of their eligible businesses had been provided with a smart meter.

Last year, the Energy and Climate Change Committee concluded that the full rollout would not be complete by 2020. In support of this prediction, they cite: a lack of trained installation engineers; the delay in the launch of the Data Communications Company (DCC) to control consumers’ energy information; and persistent, unresolved problems with interoperability. According to DECC’s latest progress report last summer, around 1.2 million smart meters had already been installed in the foundation stage. This figure represents just 2.5% of all domestic meters, demonstrating the scale of the remaining task.

Cost

The Government’s official impact assessment has forecast that the scheme will cost £10.9 billion. In return, it will yield a total of £17.1 billion of benefits for both consumers and suppliers. Consumers will save money through reduced energy consumption, while suppliers will avoid costs of site visits and reduced customers’ enquiries.

Yet some important voices in the debate have been sceptical of these figures. The Chair of the British Energy Efficiency Federation expresses some doubt in a recent article, pointing out that the German government’s impact assessment found no net benefit for consumers of smart meters. The National Audit Office report in 2014 cautioned that the estimated benefit of the scheme was contingent on near universal take-up of smart meters. Energy suppliers may need to spend money engaging with reluctant customers to convince them of the merits of the devices. Similarly, the Institute of Directors argues that DECC’s calculations are not at all transparent, with earlier impact assessments showing a net negative benefit to consumers and key pages missing from current documents.

The Government’s primary method for controlling the cost of the rollout is competition between different suppliers. In theory, customers will be able to switch suppliers away from companies that increase their bills by more than their competitors. However, in its 2014 report, the Public Accounts Committee said that this would be insufficient to protect consumers. The very fact that Ofgem referred the energy market to the CMA shows there is currently a deficit of competition. While the dominance of the Big Six has fallen from 99% of market share at its peak to 85% now, the Government still acknowledges that further competition is required. This concern was also expressed in the Centre for Sustainable Energy’s report in 2011. They recommended the Government adopt a more interventionist approach to regulating the cost of the smart meter rollout.

Data-sharing

The data-sharing aspect of smart meter technology has also proved a concern. A recent academic study found that, because of data-sharing, smart meters, and demand-side management technologies in general, are likely to be supported only by people concerned about climate change, and not by those worried about high energy costs. This research suggests that many will be uncomfortable about large energy suppliers having access to their personal data. Some security issues have been identified already, demonstrating the validity of this anxiety about data sharing. For example, the FT reported in March 2016 about how GCHQ intervening in the programme to add extra encryption on smart meter data to protect households from hackers.

Conclusion

Smart meters offer exciting opportunities for the future energy system. As part of the smart meter installation process, consumers will be given advice about how to improve the energy efficiency of their homes. Moreover, by seeing near-real time data of their energy usage, consumers will be able to observe inefficiencies in their homes’ energy consumption. This feature of the scheme may enable some much-needed progress on improvements to domestic energy efficiency.

The smart meter rollout undoubtedly has some serious challenges, however, particularly around staying on time and on budget. To an extent, that may be inevitable given the scale of the programme, whose aim is to install 53 million appliances in people’s homes. Close monitoring and constant reviewing from DECC will be essential as the main stage of the rollout commences.

Sam Hall is a Researcher at Bright Blue

Can ‘smart power’ help deliver the cheap, low-carbon and secure energy that the UK needs?

In the Budget last month, the Chancellor accepted the National Infrastructure Commission’s recommendations on ‘smart power’. This announcement could herald a significant transformation in the UK’s electricity system. 

What is ‘smart power’?

The aim of smart power is to balance more effectively energy demand and energy supply. Rather than building expensive new power generating capacity, energy from existing infrastructure is used more efficiently. 

Smart power encompasses various new technologies, including: interconnectors, which are undersea cables that link our grid to those of our European neighbours; energy storage, which allows the grid to retain surplus energy and deploy it when demand is high; and demand-response systems, in which energy users switch their power consumption from peak demand time to when demand is lower.

The National Infrastructure Commission makes a number of recommendations about how the Government can bring about this “smart power revolution”. Among them is a call for the Government to negotiate with neighbouring European countries to build more interconnectors, especially those with an abundance of low-carbon energy like Norway and Iceland. 

Smart power has been a topic of growing importance in the UK energy debate. Interconnection in particular has been studied in quite some detail. This blog aims to set out some of that evidence. 

The opportunities and challenges of interconnection

There is a broad consensus that greater interconnection will have a positive role to play in the future UK energy mix and that, with the right regulatory framework, it can help deliver on all three aspects of the government’s energy trilemma (security, affordability, and decarbonisation). 

The literature on this topic tends to agree that bill payers will enjoy savings from further interconnection. National Grid’s report in 2014 found that just 5GW of additional interconnector capacity would save bill payers over £1 billion by 2020. They argue that, as the UK is likely to be a net importer of cheaper energy, at least initially, interconnection would reduce the wholesale price for consumers. 

Whilst generally agreeing about the financial benefit to consumers, some studies have highlighted the impact on UK energy producers. Energy UK’s Pathways to 2030 report from last month supports increasing the number of interconnectors. They express concerns, however, that imported energy currently enjoys an unfair advantage in the energy market over domestic capacity. Power generated in the UK is subject to the carbon floor support, but power which comes via interconnectors is not. Similarly, imported electricity does not have to pay UK network charges. 

There is some evidence that this imbalance could have negative consequences for security of supply and decarbonisation. The technical analysis carried out by Pöyry, which informed the National Infrastructure Commission report, highlights the inefficient and distorting differences in carbon tax rates among EU member states in the context of interconnection. Whilst greater interconnection would lead to an increase in generating capacity overall inside the EU, some individual countries could see a fall in their domestic capacity. They note that this could have implications for security of supply.

A recent study by Aurora is highly critical of greater interconnection, and is at odds with much of the other evidence. They argue that, because of the exemption of interconnected electricity from the higher UK carbon tax, high-polluting plants in mainland Europe will step up their production and displace lower carbon energy sources in the UK. The effect of this, they claim, is that net CO2 emissions across Europe could increase. 

This would only be a problem in the short-term, however, given the rapidly increasing share of renewables across Europe. In addition, the National Infrastructure Commission was explicit in its aim to build interconnectors with countries that have a superabundance of renewable power, acknowledging that the dynamics of interconnection vary according to the country being connected to.

The political context

Following the Chancellor’s endorsement, there is little doubt that smart power will now become a growing feature of our energy system. The Budget confirmed that the government would support an additional 9GW of interconnected capacity, almost double the current amount, and would allocate a fund of at least £50 million for research into energy storage over the next five years.

As more and more of our energy is derived from variable renewable technologies such as solar and wind, the need for a flexible and responsive grid will increase. Smart power has the potential to tackle this intermittency, and with it, one of the biggest weaknesses of renewable technologies. The Chancellor was right to back it in this month’s Budget, but care will be required to ensure a level playing-field on regulation and tax.