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Full report: Update on preparations for Smart Metering

The National Audit Office has today published a briefing reviewing the Government’s progress on the Programme under which energy suppliers must, by 2020, replace 53 million meters in homes and small businesses with smart electricity and gas meters.

The Smart Metering Implementation Programme, led by the Department of Energy and Climate Change, is expected to cost some £10.9 billion and bring economic benefits of £17.1 billion. According to the NAO, the Department has made good progress, with Ofgem, in preparing for mass roll-out and has established a framework for passing responsibility for smart metering to industry.

The economic case for the Programme remains positive. The Department recognizes that there remain significant risks. The Programme requires suppliers to take all reasonable steps to install meters in all homes and small businesses by 2020. But the current home area network radio system is not suitable for up to 30 per cent of premises, and suppliers have been developing a solution based on a different frequency of radio signal for these premises.   In addition, some energy suppliers have not yet developed their smart meter prepayment systems. The risks also include customer resistance to the installation of smart meters, the need for suppliers and others in the industry to resolve outstanding technical issues, the readiness of suppliers, network operators and the supply chain for large-scale installation, and the robustness of the data security and privacy arrangements.

Although the foundation stage of the Programme has allowed suppliers to test and trial smart metering equipment, only two of the big six suppliers have installed a significant number of meters.

The Department considers the likelihood of the risks materializing to be low, but their potential impacts are high. The Department is relying on suppliers’ commercial incentives and competition in the industry to ensure that suppliers achieve universal roll-out efficiently. It has worked with security experts to establish controls aimed at securing data security and privacy.

Since 2011, the total net benefits from the Programme have reduced from £8.3 billion to £6.2 billion, primarily as a result of the one year delay to the completion of mass roll-out, but the benefit-cost ratio for the Programme to 2030 has remained at around £1.60 of benefit for every £1 spent. The Department’s economic case has allowed £1.5 billion for higher than expected costs.

The Department must retain ownership of the Programme’s key risks, ensure that roles and accountabilities are clear and make appropriate use of its powers to manage the risks, costs and benefits of the Programme.

Notes for Editors

1. The NAO has prepared this briefing to complement the Department of Energy and Climate Change’s update report for the Committee of Public Accounts, which was presented on 31 March 2014.
2. The NAO has reviewed the progress the Department describes and evaluated the reasons for, and impacts of, any changes to the economic case on expected benefits and costs, based on review of key documents and interviews with Department officials, key industry participants and stakeholders conducted in March and April 2014. The NAO did not fully audit the data the Department provided or statements the Department made and has not sought to come to a value for money conclusion on the Smart Metering Implementation Programme.
3. The change in the Programme’s estimated net benefits and costs is between the Department’s estimates in 2011 and 2014.The figures are given in 2011 prices and a 2013 present value base year to enable comparison, with the 2011 figures derived from the Department’s 2011 impact assessment, which used 2009 prices and a 2011 present value base year.
4. The home area network will enable consumers toconnect in-home displays and other consumer devices to their smart meters.
5. The home area network currently operates at a frequency of 2.4 GHz and is not suitable for some properties, such as many high rise flats or buildings with thick walls. This limits or prevents the components of the smart metering system from communicating with each other.The NAO’s original report ‘Preparations for the roll-out of smart meters’ published in June 2011 can be found here:http://www.nao.org.uk/press-releases/preparations-for-the-roll-out-of-sma rt-meters-2/
6. Press notices and reports are available from the date of publication on the NAO website, which is atwww.nao.org.uk. Hard copies can be obtained by using the relevant links on our website.

The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Amyas Morse, is an Officer of the House of Commons and leads the NAO, which employs some 860 staff. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of almost £1.2 billion in 2012