UK hits another smart meter set-back, only £11 benefit to consumers

In the latest unsurprising UK smart meter revelation, the estimated annual saving for consumers who opt for a smart meter has been revised downward – to just £11. Those using the technologies for both gas and electricity stand to save a whopping £26. The findings come from a new parliamentary report, supported by 92 MPs and peers, who are rather critical of the national program’s performance.

Fundamentally, focusing on the potential cost savings for the consumer was a poor decision, chiefly because the only apparent cost to the average consumer was whatever burden inflicted by having to manually read a meter and send a letter, text, or email off to their utility. As such, whenever the saving benefit is invoked, there’s some level of dissonance, as that cost is not exactly felt by the consumer – unless perhaps they’ve been stung by an estimated bill in the past.

Instead, all the marketing should have been about how these are enablers for truly transformative technologies, which provide the data needed to power the next generation of the grid. This vision of the future could then harness more renewable sources of energy, which are on track to undercut conventional generation on price, which should help lower bills in a competitive market.

In addition, the other major benefit is outage recovery, something that Florida Light and Power made a big deal of in the wake of the recent hurricane season. Having end-points that can report current statuses can let a utility or grid operator much more quickly diagnose a fault, and then implement the repairs. In terms of customer benefits, that means far less down-time – much appreciated if you live in areas prone to extreme weather, and something most would value at far more than £11 per year, when it means the difference between the food in the fridge-freezer spoiling, or going without HVAC in a home.

Further, the smart meters can also lay the foundation for the smart home, which in turn lets a utility offer services like demand response (DR) that could reduce bills. DR would essentially let the utility control the usage inside a home, in exchange for rebates or bill reductions. The popular example of this involves electric vehicles (EVs), where the utility would be able to stagger the charging cycles so that a neighborhood’s power supply isn’t compromised. But even something as simple as adjusting that neighborhood’s collective air conditioning usage by half a degree could make noticeable differences to grid stability and bills.

However, those arguments do rely on the idea that energy prices would fall for consumers, once a smarter grid comes into being. That’s not a trend that has played out historically, as energy costs are so heavily reliant on the wholesale cost of fuel. Gas prices have increased steadily, with cold winters often a cause for large rises in cost, and electricity generated from gas and coal has steadily risen too. In consumer markets, you don’t hear about the utilities cutting bills.

But renewable sources do offer a way around this generation problem. Roof-top solar generation capacity is not reliant on geopolitical strangleholds, such as pipeline disputes or economic sanctions (yet, at least), and the same can be said of wind farms. Both are far more subject to changes in weather than coal or gas, and when there are cloudy skies and slow winds, there will be a need to have back-up generation sources or sufficiently large energy storage capacity to make up the shortfall.

In that context, a utility is therefore able to source its energy needs from its own customers, if it incentivizes them to install roof-top solar and home-scale batteries. Similarly, grid-scale solar and wind farms could provide a clearer road-map than the forecasts trying to predict the future shift in fossil fuel supplies and prices. Over time, the utilities should see that renewables, in terms of a clear return-on-investment, are a path worth pursuing aggressively.

But returning to the UK specifically, its smart meter program may well end up being a textbook example of how not to go about such a national project. With a deadline of 2020, as part of a wider EU directive, the estimated 53m meters required would service some 30m homes and business, as part of an £11bn project. As it stands, that deadline is a very remote possibility, thanks to the confused approach to installation strategy.

The utilities are using third-parties to install the meters, and that’s going about as well as you can imagine. Anecdotal evidence suggests that per-meter commissions have created aggressive “sales” strategies, with some lying to consumers that there are legal consequences for not letting a utility install the new meters.

The government-side of this, the Data Communications Company (DCC), is being run by the somewhat infamous Capita – a firm well-known for receiving large public sector projects and then running them poorly. It is estimated that the DCC was 4x over budget, and over a year late. The DCC is meant to sit at the middle of the smart meters, in order to connect the meter with the utility, should a customer switch supplier.

However, the UK’s choice to create its own standard for the meters, SMETS, has backfired here. The first generation smart meters, SMETS-1, were meant to be a stepping-stone to the fully-featured SMETS-2 meters, intended to let the earliest adopters get the ball rolling.

However, SMETS-1 meters are still being installed, and SMETS-2 units will only begin to be widely deployed in 2019 – just a year before the  deadline. SMETS-1 was meant to have stopped in November 2016. The report notes that SMETS-2 was meant to be being deployed in mid-2016, but that as of January 2018, only 450 units had been installed, with just 80 in live environments.

Further, the report found that of the 1m customers with smart meters who switch providers annually, half find their meters don’t switch properly – going ‘dumb’ again. It adds that lack of proper cellular network coverage means that up to 10% of installed smart meters are operating in ‘dumb’ mode. It also points to “exploitative commercial agreements” that rip and replace working smart meters.

So, the current state of play is that just 11.06m smart meters were operational in Q1 2018, meaning that the utilities have to install 1.3m per month to meet the deadline. As it stands, the suppliers are installing around 420k per month. Costs are rising, the economic benefits appear to be slipping, and the potential fines that have been threatened apparently have no teeth. So far, this sounds like a classic British infrastructure project – perpetually behind schedule.

The report, which we should be wary of as it has political intentions, has a number of recommendations. First, it argues that the government should accept it has missed its deadline, and should revise this to 2021 or 2022, and that the cost benefits methodology should be revised to represent realistic rather than theoretical savings.

It says SMETS-2 should be fast-tracked, and that the energy regulator, Ofgem, explicitly be tasked with ensuring that the estimated 49% of the total £16.7bn in “gross benefit” savings that are attributable to the suppliers’ savings will be passed on to the consumers. Time-of-use tariffs should also be introduced as soon as possible, and that the suppliers be mandated to use all their collected data in consumer friendly manners.

It’s hard to argue with most of those points, and just to illustrate how quasi-farcical this project is, one of the report’s concluding paragraphs notes:

“Importantly though, customers are under no formal or legal obligation to accept a smart meter. Suppliers also do not have to have installed 53m meters by 31st December 2020. Rather they must display to Ofgem that they have offered a meter to all their customers and taken ‘all reasonable steps’ to complete the roll-out by the deadline.”