The introduction of smart metering technology to the residential gas and electricity market in Great Britain will see a major step forward in the range of products and quality of service available to consumers. It will be the first time any country in the world has brought such a radical change in metering technology in a fully competitive, dual-fuel environment.
Not only will suppliers be able to offer innovative products based on up-to-the-moment data from consumers' homes, but households will be better informed than ever before about their individual energy consumption. As a result, it is hoped, households will become more energy conscious and understand better the relationship between using energy hungry appliances and their energy bills. This, in turn, will help us all become more energy efficient, reduce our carbon footprints and so contribute to helping save the environment. It could even reduce the need for new electricity generation and increased reinforcement of the gas network as customers learn to be more careful with the energy they use.
And estimated bills – often a source of annoyance to both consumers and the energy suppliers – will become a thing of the past thanks to the real time transfer of consumption data to the supplier.
But while the benefits of smart meters are obvious to all who look at this area, there are a number of hurdles that must be overcome.
Replacing every gas and electricity meter across Britain is an enormous undertaking. Installing 45 million new meters across the country is on a par with decimalization, the provision of North Sea gas to homes and the introduction of Chip and PIN – and will require meticulous planning to ensure minimal disruption and cost to consumers.
That's why the Energy Retail Association (ERA) has been looking at the best ways of achieving this ambitious objective. We are currently waiting for government to give the green light to the mandatory installation of smart meters over the next ten years. Without this commitment, it is impossible for the industry to plan ahead with any degree of certainty. We in the energy industry want to get started but we can't begin the vital detailed discussions to deliver smart meters – because of legal constraints – until the government gives us the formal mandate. If given the mandate, the industry hopes to roll out smart meters at no cost to the consumer. The industry would foot the bill through cost savings made through greater efficiencies in the business and through carbon savings set against the industry’s carbon emissions reduction target (CERT).
There are some who still champion the cause of simple “electricity display devices” which show the approximate electricity consumptions of households in real time from a “clip-on” device rather than the meter. While these have their uses in terms of customer education, they do not come close to providing the very wide range of enhancements which smart meters provide. In particular, the consumption information is not shared with the energy supplier, so benefits such as accurate billing and new tariffs would not appear. We believe that, despite their merits, a requirement for suppliers to fit such devices would detract from, and delay, the introduction of a national smart metering program.
Another area that has been the subject of much discussion concerns how best to organize the enormous meter replacement program that would be required. Every home in the country will have to be visited by competent, trained engineers. Unlike in other countries where smart meters have been introduced, gas and electricity meters are no longer owned by monopoly infrastructure providers. Instead, there is a competitive market for metering services which poses its own, unique challenges and opportunities.
There are a number of ways in which the installation project could be organized and we have examined several in some detail.
As a result of that analysis, we believe that the “regional franchise” model provides the best opportunity for the successful, cost effective deployment of smart metering. It is important not to underestimate how competitive this model can be. Contract tender and contract renewal from an independent industry Central Metering Authority will ensure a competitive market with the contract structured to encourage service innovation on a regular basis. Importantly, the regional franchise model reduces the barriers to entry for new suppliers as it would enable metering systems, communication infrastructure and other elements to be provided on the same financial basis for all suppliers.
The introduction of smart metering to every home in Britain is, as I've said, a major undertaking and not one to be considered without due care and attention to detail. But that does not mean we can afford ourselves the luxury of taking time in reaching decisions. First, we need government to give the energy industry the mandate to roll out smart metering technology and to rule out the unnecessary distraction of electricity display devices. While the UK leads the way on much energy policy, including having the most competitive energy market, we lag behind our European neighbors in not having, so far, government endorsement of the introduction of smart meters.
Then all interested parties need to get together and develop a detailed, pragmatic and practical plan for installing the meters and their associated infrastructure.
We are increasingly seeing greater political demands for more and more energy efficiency, set against a backdrop of increasing global energy costs. Smart meters will help government meet its energy efficiency targets while helping consumers cut their energy use. The time to take these historic decisions is now.