Wednesday 3 June 2020


UPDATED 3 June 2020

The latest figures indicate the Government is going to miss its revised target to fit 85% of home in Britain with a smart meter by the end of 2024.

This new target was introduced in September 2019 when it became clear that the original target of fitting or at least offering one to every home in Britain by the the end of 2020 was, literally, unachievable. But now the new one looks out of reach too.

By the first quarter of 2020 just over 19 million smart meters had been installed in homes, split about 57:43 between electricity and gas. The number of installations has fallen from its peak of 1.3 million in the last quarter of 2017 to just 984,685 in the first quarter of 2020. A year ago I said that at the current rate of fitting it would be be mid to late 2026 before the target was reached. That remains the case.

To install the remaining 25 million smart meters by the target date would require 1.3 million fitted every quarter. In 2019 the average was just over a million a quarter. The rate is falling - and will have been practically shut down by coronavirus - so even at a million it would take 25 quarters which takes us to the first few months of 2026.

The trade body energy UK warned the Government in November that the target was unreachable and the best it could hope for was just over two thirds of homes fitted by the end of 2024.

Meters fitted
Of the 19.2 million smart meters which had been fitted by the end of March 2020 only 4.3 million were SMETS2, leaving 14.9 million of the early version called SMETS1. Despite their name they are not smart enough to cope when the customer changes supplier and will normally go dumb or, to use the official phrase, 'operate in traditional mode'. The latest figures show that 3.7 million of these SMETS1 meters have gone dumb and BEIS has told me that "the vast majority is likely to be a result" of customers switching supplier.

So in addition to the 25 million traditional meters that need replacing another 15 million SMETS1 meters need upgrading.

Since 15 March 2019 all meters being fitted should be SMETS2. However, we know that some suppliers have still been fitting SMETS1 meters because SMETS2 are in short supply and they still have SMETS1 meters in their stores. The latest report for Quarter 1 2020 says "Energy suppliers are now installing second generation smart meters (SMETS2) as the default choice in most cases." My emphasis. It clearly implies some SMETS1 meters are still being installed.

There are plans to upgrade SMETS1 meters to operate with any supplier. They will still not be SMETS2 meters but the workaround will at least mean they can support switching supplier. This process is known as enrolment into the DCC network (described below) and it was due to begin in July 2019. The target date to upgrade all SMETS1 meters is still the end of 2020. It is not clear to me yet what progress has been made but we do know that 3.7m SMETS1 meters are still operating in dumb mode.

Customers are free to choose whether or not to have a smart meter fitted. But the large companies are more and more trying to make it seem inevitable. Some are even booking appointments without agreement others are cold-calling and sending texts to customers. This hyperactivity was because if they missed the original 31 December 2020 target they could be fined. EDF was fined £350,000 for missing its 'milestone target' for fitting meters. These milestone targets are secret and Ofgem refuses to reveal them despite an FOI request. Ofgem also confirmed that any SMETS1 meters fitted after 15 March 2019 will not count towards those milestone targets.

Most major suppliers now have at least one tariff where agreeing to a smart meter is part of the terms and conditions. Regulator Ofgem says such terms are within its rules as long as "communications are transparent and accurate, including around any smart meter only tariffs they are offering."

Not all homes can have smart meters. Rural areas, tall blocks of flats, buildings with thick walls, and meters in odd locations can all prevent installation. And the target by the end of 2024 is only to fit them to 85% of homes - leaving between four and five million homes without one.

What smart meters do
Smart meters are not in fact very clever. They simply report back to the supplier how much electricity and gas the customer uses each day and, with the customer's permission, every half hour. More frequent reporting may be available in future.

The meter also feeds some information about current use to what is called an 'In Home Display' or IHD. If you have both electricity and gas there will be one IHD which covers both electricity and gas. It will normally be mains-powered and fixed in position but there will be an option for a separate portable battery powered unit. The IHD can show how much fuel is currently being used and can display the cost in £.p. Some of them will have a traffic light system - glowing green when consumption is low through amber to red when it is high. They can also do calculations of past and future use. Some reports suggest that if the IHD is switched off for any reason it is difficult or impossible to get it back online and recording usage accurately.

The costs of the smart meter programme are certain, though it is inevitable now that they will increase above their current estimates. The latest cost/benefit analysis was published in September 2019. It is still priced in 2011 pounds and to get to a current 2020 cost these figures should be multiplied by 1.17. It estimates that manufacturing and installing 53 million meters, communication devices, and IHDs in 30 million premises will cost £7.5 billion. There is also a new communications infrastructure network called DCC which will cost £2.9bn. That was due to be completed late in 2015 but was in fact not switched on until November 2016 and was still being tested In 2018. It now seems to be working with the 4.3 million SMETS2 meters fitted by the end of March 2020. The cost/benefit analysis puts the total costs of the programme over 22 years at £13.5bn. That is around £15.8 billion in today's pounds.

That cost is more than £500 per household and is paid through higher electricity and gas bills. Those payments have begun. In 2017 all major suppliers and some smaller ones have put up the cost of electricity by 10% to 15% and each of them blames that rise in part on smart meters. That process continued in 2018.

Estimates of the savings are more speculative.

 * Customers will save money because they will use the information from the IHD to cut their energy consumption. That is the theory and the saving from that is put at £6.2bn over 22 years based on a 3% cut in electricity use and 2.2% in gas use (and just 0.5% for prepayment gas customers). The savings figure assumes that just one in three customers will achieve these savings.

Achieving those savings requires active engagement by customers. But many will not be engaged and will end up paying more. A report by the old Department for Energy and Climate Change on some pilot smart meter installations found that initially 96% used their IHD but about four out of ten disconnected them during the research. None were able to identify any clear savings due to the IHD. The Public Accounts Committee estimated in 2014 that customers would save on average about £26 a year. A survey by a price comparison site in July 2018 (on a small and perhaps not representative sample) found that less than half (49%) of its sample of 678 people with a smart meter had reduced energy usage. And as standing charges grow - in 2019 they accounted for 13.5% of the typical bill - the scope for reducing bills by cutting energy use decreases.

Customers will also gain, if they choose to, by faster switching from one supplier to another. The process can take weeks now but a 24 hour service is promised. They will also benefit from suppliers sending an accurate monthly bill of energy used rather than sending out estimated bills. Though they will then lose the advantage of smoothing their bills over the year. 

In the 2019 Cost benefit analysis there is a new saving allocated to customers. It is £1.4 billion from what it called 'time savings' which it says is a monetary value on "reduced time consumers spend interacting with the energy system". That includes reading the meter, sending the results to the supplier, calling the firm with complaints or questions and, in the case of prepayment customers, travelling to a shop to get their key charged up. It comes to 32 minutes per year for credit meter customers and around three hours per year for prepayment customers. Halve those times for customers who only have electricity.

* Energy suppliers will save an estimated £8.1 billion. The biggest chunk - £2.3bn - will be from ending meter reading and other home visits. Reduced customer enquiries and complaints will save £1.2bn. Another £1bn will be saved by managing pre-payment customers better and there is a big saving of £1.2bn from reducing the cost of customers switching supplier. A further £1.9bn is saved by managing debt better and reducing theft.

* Networks and the generators will save £1.7bn between them from smoothing the peaks and troughs of demand and generating less power.

* Finally, carbon related benefits and air quality improvements will add £2bn to bring total savings to £19.5bn, of which £9.8 billion is saved by the energy industry directly.

These figures from the 2019 cost/benefit analysis are in 2011 pounds. Actual costs in 2020 pounds will be 17% higher. Even in constant terms the total cost of £13.5 billion is £2.5 billion more than the 2016 assessment. The cost is being paid by energy customers through their bills.

Who gains?
Less than a third of the savings will be made directly by consumers, though if you add in the value of the time saved that comes to 39%. Half the savings will be made by the industry. The hope is, of course, that suppliers, generators, and transmitters of electricity and gas will pass some of those savings on. They may. But some of their savings - on debt management and prepayment meters for example - will come at a direct cost to the customers affected though they may be passed on to others.

So while the customers will pay for the £13.5 billion cost of the smart meter programme through their bills, the savings of £6.2 billion will only be gained by those who adjust their behaviour and and the £9.8 billion saved by the industry will only be felt by customers if the industry passes on its own savings to customers in lower prices. It is not at all clear that the £2 billion rather speculative carbon related and air quality savings will ever reach consumers' pockets.

The energy industry has a very poor record in passing on savings. In 2014 they took many months to pass any of the gains from the fall in the wholesale price of gas and none reduced electricity prices even though much of that is generated by burning gas.

Extra costs.
The impact assessment does not take account of two significant extra costs.

First, bills will no longer be estimated as they will be based on actual usage over a month. That is promoted by the Government as good news for consumers. But it will be expensive for gas and electricity suppliers. For many years they have encouraged customers to agree to pay estimated bills monthly by direct debit rather than quarterly based on meter readings. The result is that the firms have kept hundreds of millions of pounds on their books belonging to customers. The value of that is shown by the fact that customers who pay a more accurate quarterly bill can be charged 7% extra or more more than monthly direct debit customers. If they no longer make that saving then prices will inevitably rise. Some customers may prefer to keep estimated bills. They are at least constant and that can help with budgeting.

This money the suppliers routinely hang onto is separate from the £400m that Ofgem found they had wrongly kept when customers switched to another supplier. In February 2014 it ordered firms to refund this money. That event does not bode well for hopes that the industry would voluntarily return to customers the savings it makes from smart meters.

Second, the DCC has incurred expenses planning and eventually implementing the upgrade of SMETS1 meters. The National Audit office estimated in November 2018 that will add another half a billion pounds to the cost.

Time of use
The report also makes no assessment of the costs or savings to be made from what are called Time of Use tariffs. Once the smart meter network is rolled out suppliers will start making customers manage the load, especially in electricity supply. In other words when demand is high the price goes up. When demand is low the price comes down. And with half hour reporting - and it may be more frequent in future - time of use tariffs could be very specific.

For example, energy could be more expensive between 7am and 9am when most people are getting up, putting on the kettle, and making breakfast. Or between 5pm and 8pm when evening meals are being cooked. The result would be that poorer families could not afford to eat dinner at dinner time.

Ultimately the cost of power could rise during the adverts in TV soaps or the interval in football matches when millions put the kettle on make a cup of tea.

Time of use tariffs mean that the customer is being drafted in to manage the national power load. By pricing people out of energy use at peak times the peaks and troughs of usage - so irksome to the engineers managing the grid - are smoothed out.

Time of use tariffs are particularly being touted for charging electric vehicles overnight for those drivers who have a drive or garage at home where they can charge them up. The current specification for home vehicle chargers specifies that suppliers will be able to decide the time of day that the energy is fed to them.

Debt and disconnection
Smart meters will also enable energy suppliers to manage debt and disconnection remotely. Customers can be switched from credit payment to prepayment by the supplier without changing the meter. It also means that if someone has not paid their bill then the supplier will be able to disconnect them remotely. There are currently safeguards about who can be disconnected and when. But once the conditions are met the process of doing so will be much simpler. In fact though there were only 17 disconnections in 2017.

The delivery of this programme is in the hands of the six large and dozens of smaller energy suppliers. They each fit the meters for their own customers. Which could mean dozens of different engineers visiting the same street or block of flats to do the same job in neighbouring homes.

The central Data & Communication Company (DCC) is run by Capita. It will be responsible for collecting the data sent back by smart meters and forwarding it to the right energy supplier, the networks and energy services companies. Others may also get access to it. In 2014 the Information Commissioner expressed concerns about the security and use of this data. There is currently no provision to let customers know specifically who has access to it.

The data network will be run by two companies - Arqiva will cover northern England and Scotland using a long-range radio network and Telefonica UK will cover the rest of England and Wales using standard cellular telephone technology with what it calls 'mesh technology' to fill the gaps in the cellular network. Unlike individual customers the devices will be able to roam between suppliers to find the strongest signal. The target is to cover 99.25% of dwellings - which if achieved will leave 225,000 premises unconnected. However, remote dwellings, tall buildings, and multi-occupied premises are problems that have not been solved. Some in the industry have said that 30% of homes cannot be integrated into the DCC grid. The Department for Business, Energy, and Industrial Strategy has not denied that figure.

Meanwhile Smart Energy GB spent £87m over 2018 and 2019 to persuade us all that the smart meter programme is a good thing. What it calls building consumer awareness and understanding of smart meters and encouraging consumer engagement. It included advertising such as the Gas and Leccy characters and a Smarter Britain bus tour with daytime TV housing gurus Kirstie Allsopp and Phil Spencer - who admitted he didn't have a smart meter before he was paid to promote them.

In November 2018 the Advertising Standards Authority told SmartEnergyGB to stop claiming smart meters were free as we were all paying for them - about £400 per household - through higher bills. And in March 2019 it ruled that a claim smart meters saved people money was false and should be withdrawn. They only save money if we change our habits to use less.

On 25 November 2018 the National Audit Office published a report on smart meters and warned

"The facts are that the programme is late, the costs are escalating, and in 2017 the cost of installing smart meters was 50% higher than the Department assumed. 7.1 million extra SMETS1 meters have been rolled out because the Department wanted to speed up the programme. The Department knows that a large proportion of SMETS1 meters currently lose smart functionality after a switch in electricity supplier and there is real doubt about whether SMETS1 will ever provide the same functionality as SMETS2. The full functionality of the system is also dependent on the development of technology that is not yet developed.
The facts summarised above, and many more, are not fatal to the viability and value for money of the programme. However, there are serious issues that need to be addressed if Smart Meters is to progress successfully and deliver value for money."

On 15 October 2018 a revised House of Commons Library briefing set out the difficult task of meeting the 31 December 2020 deadline and has a lot of useful background information.

In July 2018 the British Infrastructure Group of MPs and Peers published their report Not So Smart which said that the saving per household would probably be only £11 a year and that the 2020 deadline was not achievable - it recommended a two year extension. It also raised concerns about whether the savings by the energy suppliers and the networks would be passed on to consumers. It was concerned that customers would not know what was happening to their data.

On 7 March 2015 the Energy and Climate Change Select Committee expressed concerns about delays and unresolved challenges in the smart meter programme. "Without significant and immediate changes to the present policy, the programme runs the risk of falling far short of expectations. At worst it could prove to be a costly failure."

In December 2014 the Ontario auditor general Bonnie Lysyk said that the state's smart meter programme had cost twice its estimate and made few if any savings for customers or suppliers and failed to reduce energy consumption.

3 June 2020
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