By Jason Brogden and Tom Hainey from Engage Consulting
Once again, Great Britain’s market will follow a trail in the energy sector unlike anywhere else in the world – this time it is smart metering. Jason Brogden and Tom Hainey from Engage Consulting explain why and what it means for the energy industry and potential service providers.
On May 11th, the Government Department of Energy and Climate Change published their consultation on smart metering. The Impact Assessment confirms the strong business case that industry has been suggesting and DECC has published their policy preferences in a number of areas.
Will this kick-start the smart meter roll-out now? Well, no not yet. It has increased the probability on how smart metering will be rolled out, but we will have to wait until the conclusion of the consultation towards the end of 2009 before we can be certain. There are still open questions on what network requirements might look like and the ENA and their members are working on this and there is still no definition of what the transformation programme might look like, but it definitely feels like we have moved forwards.
So what does the Government preferred market model look like? The Central Communications model retains the existing principle that metering is a Supplier responsibility.
The central communications model is unique around the world. Engage maintains a Google map of international smart metering as part of our work for the Energy Retail Association (http://tinyurl.com/33ajnh) and we have not found a similar model anywhere else in the world – so why is GB different? There are key factors that complicate smart metering roll-out in the GB market. We have:
- an unbundled, competitive metering market in place now
- competitive metering is the responsibility of the supplier to provide
- a true dual fuel (electricity & gas) retail market
- a fiercely competitive retail market with over 100,000 customers switching supplier every week
- a high proportion of prepayment customers that need to be accommodated
All of these factors have influenced the Government’s choice of a market model that retains the existing principle of Suppliers responsible for competitive metering services, with the need for a new communications infrastructure to service both gas and electricity metering as a new industry service.
In almost all other international markets, metering services are the responsibility of network businesses under regulated arrangements, so GB can't just take an off-the-shelf solution from elsewhere internationally.
So what does the central comms model mean for service providers? For the big, integrated smart metering service providers, you can't just sell an end-to-end smart metering/smart grid service to a utility, because the supply chain has been broken up and there will be different purchasers of services/components through the supply chain. If we start by looking at the central communications service, there is still a long way to go in its definition.
We believe that the key to the central communications service is to define the interfaces, data exchange formats and service levels and assess service providers who respond to say they will meet these requirements.
The earlier that industry tests the market with an RFI to see who is really out there to provide communications services, the better the definition of the service will be, as industry can learn from service providers.
Any central communications service provider is likely to need a range of skills and products: communications networks, data management, asset provision, financing, ICT and System Integration to name a few.
This is likely to result in consortia bidding and in the absence of detailed firm service definition, there is a lot of talking between potential providers as to how this might look. This business equivalent of speed dating is likely to continue until there is more certainty about what will be procured and by whom.
Metering services (install, maintain, finance) will be retained as a Supplier responsibility in the central comms model and therefore the competitive market will continue. We are yet to see how the competitive metering services market will pan out, but with accurate, consistent metering data so important to retailers in the smart metering world, it would be a reasonable assumption that suppliers will want to control and manage metering services themselves.
Interoperability is essential to ensure that metering systems are not changed on change of supplier and this must consider commercial/contractual arrangements (e.g. meter asset provision agreements on change of supply).
Ensuring that there is an orderly run-down of the legacy metering market is a substantial challenge that should not be underestimated, particularly with existing service providers who may not be successful in winning smart metering service tenders. There will be dwindling numbers of legacy meters to maintain and service for meter operations, asset provision and meter reading/ data collection. Unless we are careful with the transition from legacy to smart, we may miss the opportunity to start afresh with a clean set of data.
The customer should be at the forefront of everyone’s minds and the opportunities for energy management and information services to customers will be a key growth area. Standardisation of the provision of data through an in-home interface will enable innovation and development in customer display and services.
In our work with metering service companies, we are seeing a wide variety of opportunities and business drivers that should ensure diversity in offerings.
The meter functionality set out in the DECC consultation is well aligned with the ERA SRSM specification that the Engage Consulting team has been working on, therefore there should be no great surprises for meter manufacturers. However, there are challenges for meter manufacturers across European markets and Engage has collated a European meter standards resource for one of our clients that shows the breadth of standards across Europe and where there are gaps. There is much work to be done to complete meter standardisation across Europe and we believe that any European standard should be flexible to allow all jurisdictions to operate their versions of smart metering or smart grid. To enable this, we believe that development work should concentrate on the functional requirements (the what), rather than existing standards and defining specific existing or new standards as the solution to be adopted Europe-wide for smart metering (the how).
There are two topics in the DECC consultation that ask open questions of respondents: what are the requirements of network operators for smart metering; and what issues and next steps need to be followed?
Network Operators are working on their requirements and some of these will have an impact on meter functionality, but more important and potentially much more significant could be the impact of network requirements of any communications network. If active network management requirements dictate higher service levels of the comms network (e.g. near real-time response) then that might require a totally different high performance comms network.
The next step after the conclusion of the consultation is for Government to initiate the major industry transformation programme they describe as soon as possible.
In conclusion, smart metering in GB will not look like anywhere else in the world and with good reason. There are great opportunities for service providers within this market and the sooner the market model is defined in more detail, the sooner these can be realised. It is still uncertainty that is holding up the market, but momentum is picking up again.