The roll out of ‘smart’ gas and electricity meters across Great Britain has been billed by the government as “one of the largest and most complex investment programmes ever undertaken by the energy industry”. The Department of Energy and Climate Change (DECC) is to roll-out 53 million smart meters to all domestic properties and non-domestic sites in the UK by the end of 2019, and along with the Green Deal, the programme is one of several measures envisaged to help move Britain to a low-carbon economy. Adam Nell, director of business law firm DWF’s construction group, looks at how the initiative will work, issues that energy suppliers will need to consider and what the outcome of the exercise is likely to be
How will the initiative work?
Overseen by Ofgem, the smart meter roll-out will be supplier led and the DECC will require energy companies to take reasonable steps to install the meters for their customers. However, consumers will not be legally required to have them installed, so some may choose to opt out of the scheme.
The project will revolutionise how both consumers and suppliers monitor and manage energy use and distribution. Already in the foundation stage, the next stage of the process will be a mass, five year roll-out from 2014.
What does a smart meter do?
This two-way communication technology provides consumers with real time information on energy usage via an in-home display (IHD). Users will be able to see the real time costs of running appliances in their home, so it is hoped that this information will help householders to alter their consumption habits and therefore use less energy.
For suppliers, access to accurate usage data will negate the need to manually read meters, reducing overheads. In the long run we may also see suppliers being able to match consumption with generation, again, minimising costs.
Progress during the foundation stage
Some energy suppliers have chosen to adopt early technology and have begun to roll out ‘smart-type’ meters, and this has already allowed them to undertake trials and test installations. The big six, as well as some smaller suppliers, have been asked to feed back their early experiences to the DECC.
Learnings from these early smart-type meter installations will eventually assist the smooth mass roll-out of actual smart meters in 2014. All lower level ‘smart-type’ meters will have to be replaced with actual smart meters by the end of 2019, creating a standardised network of technology that will be interoperable to different suppliers. This interoperability of equipment, which will be achieved by common technical standards or Smart Meter Technical Specification (SMETS), will allow one energy supplier to use equipment installed by another, and is viewed as key to the scheme’s success.
The Data and Communications Company (DCC)
Another key part of the initiative project is the establishment of the DCC. Governed by Ofgem, its principal role will be to provide data and wide area network (WAN) communication services for all domestic smart meters - and likely many non-domestic smart meters too. The DCC will enable energy suppliers, network operators and other authorised parties to transfer data over a communication network remotely and securely. The licencing of the DCC is expected at the end of July this year.
Preparation for mass roll-out
Each energy supplier will have a different installation workforce and a separate cycle for replacing traditional meters. As the location of a supplier’s customer base will vary across the UK, the DECC has permitted energy companies to plan their individual smart meter roll-outs as they please, according to customer location and company logistics.
The DECC knows consumer buy-in is crucial for the scheme to be effective, and so has placed requirements on energy suppliers to create householder engagement via a central delivery body, which is expected to be set up in June 2013.
As suppliers will be required to work to a standard set by the DECC, the government intends that energy companies will collectively develop a code of practice covering how customers experience their meter change. Again, this will be monitored and enforced by Ofgem. The over-arching objectives of this code will include standards of conduct and service; fair and transparent behaviour; accuracy and completeness of information provided; and the avoidance of unwelcome sales and marketing activities at the installation visit. A draft code of practice has already been developed by suppliers and was submitted to Ofgem for approval in December 2012. A consultation on the proposed code was announced by Ofgem in February 2013 and it is anticipated it will be in place by summer.
Issues for consideration
There are a number of issues energy suppliers will need to consider when rolling out smart meters:
• Procurement of equipment: This must be in line with SMETS, and there will be a technical specification of equipment to allow customers to switch suppliers easily.
• Upgrading internal data systems: Suppliers’ IT systems will need to be updated not only to process smart meter data, but to increase the range of services suppliers will be able to provide consumers following installation of the meters. For instance, the data may be used to develop time-of-use tariffs or provide consumers with an analysis of their usage and tips for reduction.
• Training: Back office staff will need to be able to deal with queries on the new meters and provide energy efficiency advice, while installers will need to be able to fit the new meters and provide energy advice to consumers. Recruitment of extra installers may be necessary for some suppliers to complete the mass roll-out of the meters.
How could the data be used?
Smart meters and IHDs will allow consumers to see how much energy they are using, what it costs and the carbon dioxide emissions involved. Households can reduce their energy consumption by varying which appliances are used and by using these devices at different times, they can reduce their energy bills.
Previously suppliers were only privy to how much energy was consumed over a monthly period. No specific information was available about when households used energy during daily and weekly cycles. The information that will now be able to be fed back to suppliers will allow them to understand their customers better and to tailor their tariffs to meet consumer need.
Suppliers could use the daily data to influence consumer usage through dynamic pricing. By raising the cost of energy at peak times and lowering the price of energy at off-peak times, consumers could be encouraged to shift their consumption from costly peak times. Suppliers will benefit from this 'load shifting' as it will reduce system costs at peak times. Whether a consumer benefits will depend on how careful that consumer is with their energy use in light of the information from their IHDs. An obvious concern will be vulnerable customers, who may, for one reason or another, not be capable of using the information to maximise their potential savings. If prices for peak times are increased uniformly those who do not, or cannot, engage in more efficient energy consumption could potentially suffer.
A concern for some consumers will be the availability of data from smart meters to suppliers, but it is envisaged the use of information will be tightly controlled in line with the Data Protection Act 1998.
Consumers will have to 'opt in' for the data to be available to commercial suppliers. If they opt out of daily information being passed on, then suppliers will only have access to monthly data for billing – as is the current situation. If consumers want to play a more active part in the energy supply chain, however, then they will need to be fully equipped with all the relevant information and data to engage in this opportunity.
Shifting the power
In addition to the immediate benefits to both consumers and suppliers, the smart meter technology offers long term opportunities in the first steps to enabling the grid itself to ‘load shift’. By domestic devices being programmed and linked to the grid, appliances such as washing machines and dish washers could be set to operate when the grid’s electricity use is at its lowest and electricity, therefore, is at its cheapest rate.
Whilst it is potentially easy to identify the possible pitfalls, the implantation of this modern day technology has the ability to be a very powerful tool in the path to more efficient energy use. There are indications that the silicon valley investors that put their money into solar power are now considering systems that enable energy to be used more efficiently, highlighting that technologies such as smart meters are the next ‘hot spot’.