Smart Meter Programme Assessment by the National Audit Office

23 Nov 2018 03:15 PM

Today the National Audit Office has published their assessment of the Smart Meter roll out programme. It provided a summary of the programme, strategy, and benefits, key...

​Summary of Programme

Smart meters can record energy consumption in each half-hour period and communicate with energy suppliers and network companies. The government expects this to have significant economic benefits in the long term as renewable energy and electric vehicles become more widespread. The government sees smart meters as a way of reducing energy suppliers’ costs and encourage consumer engagement so to reduce energy consumption and increase competition in the market.

To make smart meters interoperable between energy suppliers, the government proposed to set new minimum standards for how they should work and connect them to a central data and communications infrastructure (the Data and Communications Company, or DCC).

End of 2020 is the date by which energy suppliers must have taken all reasonable steps to install smart meters in all homes and small businesses.

The Department forecast that the total benefits of the programme would be £17.7 billion, creating net benefits of £6.7 billion.

Key Features And Benefits For The Consumer

The Smart Meters offer an in-home display to show real-time information, which will encourage the consumer to engage with the energy system and provide knowledge and advice on saving energy. Having a smart meter will also identify vulnerable customers.

The immediate consumer benefits include greater awareness of energy consumption to help the consumer to make energy savings through either behavioral change or switching to a different supplier. It will provide accurate, timely energy bills so to avoid uncertainty and prepayment customers could also switch or control their energy use to avoid disconnection.

The long-term benefits can provide the supplier with a tailor-made service based on consumer data and can provide advice on tariffs and saving energy. The suppliers could offer a time of use tariff which varies by day (already some suppliers do). There is the potential to control the timing of high energy use, which will ensure accurate supply and cost savings for energy suppliers.

It is reasonable to believe that energy suppliers will pass on cost savings from smart meters to consumers, although currently may not be the case, the technology is a gateway of the market to become more competitive.

NAO Findings

There is an understanding that the Department is responsible for the overall success of Smart Meters. There is a recognition of the team’s achievements so far, but the NAO is keen on making sure the team culture does not become defensive, and resistant to inconvenient truths.

The findings show 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.

These are issues that need to be addressed if Smart Meters is to progress successfully and deliver value for money.

Recommendations

• The Department needs to update its cost-benefit analysis.
• Over the course of 2019, clarify for the industry what the smart metering policy landscape will look like beyond 2020. 
• Draw up contingency plans for maximising value for money in scenarios where the DCC and SMETS2 system encounters further delays or cost increases and SMETS1 meters are unable to enrol within the DCC.
• Commission an expert independent review of testing focused on determining whether energy suppliers are testing a sufficient cross-section of smart metering set-ups and scenarios.
• By early 2019, launch research to assess the potential impact of additional forms of energy efficiency advice and feedback to consumers, and consider whether new requirements should be introduced to support benefits realisation. 
• Systematically monitor the actual energy savings that smart meters achieve and continue to assess the delivery of key consumer engagement activities, intervening if necessary.

Ofgem should:

• Work with the CMA as part of its review of the prepayment price cap to understand the impact of SMETS1 meters on competition, and set out how issues will be addressed. 
• Work with the Department to improve the transparency of DCC costs, both for price control and for public and parliamentary scrutiny; and
• ensure, by March 2019, that no energy suppliers are falling materially short of their obligation to provide advice on energy efficiency.

Commenting on the publication of the NAO report into the rolling out of smart meters published today, Matthew Evans, executive director at techUK, said:

“Smart meters are an essential part of our future energy infrastructure and it is vital that we press on with their deployment. The national roll-out is a huge undertaking and the NAO report published today is important in shining a light on the challenges that it currently faces.

However, we should not lose sight of the fact that smart meters will be a cornerstone of our future smart energy system – enabling greater use of home energy management systems, solar panels and the mass deployment of electric vehicles. The NAO outlined that the potential net benefits of such a system were in the region of £20bn by 2050 and are additional to the official value-for-money business case.

The industry is determined to work with Government, Ofgem and other stakeholders to address challenges around the cost of smart meter installations as we enter the next phase of the deployment and ensuring that SMETS1 meters continue to offer smart functionality. It is encouraging that the NAO concludes that if these issues can be addressed the programme can still deliver value-for-money within the original business case of the programme.”

The Key Report Findings could be found here.

The full report could be found here.