If you live in the UK, then chances are you will receive a knock on the door over the coming years from your energy supplier offering you a smart meter. To meet the government's targets, some 20,000 a day will need to be fitted across the nation, once the rollout begins in earnest.
The cost of converting the UK to smart meters has been put at more than £11bn, but beware of alarming headlines suggesting the bill will be dumped on to consumers via hikes in electricity and gas bills. According to industry experts, that simply won't be the case. So, who will pay for the smart meter revolution? To help answer that question, experts and analysts from across the sector met for a special roundtable last month at the Guardian headquarters in London. The event was attended by senior figures from energy suppliers as well as independent academics. To encourage frank discussion, the event, which was sponsored by T-Systems, was held under the Chatham House rule, which allows the views of participants to be reported, but not the identity of the speakers.
"Who pays for smart meters? Everybody pays, but everybody benefits", was a typical response from the participants. There was universal agreement that the cost would be spread around, but less clarity about which groups would pay for what. Part of the reason for this is the complexity of the UK energy market, which is separated into generation, distribution and supply, with some companies specialising in just one of these, and others taking on a mixture.
Yet the free market has its limits: overall control comes from the government and the gas and electricity regulator Ofgem, which in this case have decided that smart meters should be introduced, but have not yet revealed full details of how they wish it to be done. As a result, participants at the roundtable said, there is great uncertainty over many of the key aspects. "The government took the initiative and mandated the rollout of smart meters and it is now trying to herd the industry along," one said. "But because we operate in a competitive market, companies that move ahead of others before we get clarity over specifics are taking a big financial risk. They risk having stranded assets."
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Because UK consumers have the right to change electricity and gas suppliers with a simple phone call, it is important that smart meters installed in their homes are compatible with the systems run by every company. And each must be able to perform the same basic functions, such as being able to collect and send information to allow automatic meter readings. This is one reason for the slow progress on the government and regulator side of the smart meter project: at the last count, smart meters were reckoned to be able to provide more than 140 potential services.
Suppliers that offer smart meters with more services may attract more customers, but if those services are not included in all smart meters, then their option may be more expensive. And the reverse is also true: companies that offer cheaper meters without certain capabilities may find customers unwilling to give them their business. It is for ministers and Ofgem to decide where to draw the line and decide what UK smart meters should look like – based on input from all involved. "Someone has to make a decision. Democracy isn't really helping us at the moment, particularly as someone has to pay," one contributor said.
There are a startling number of potential uses of smart meters. At their most far reaching, the meters could benefit not just consumers (who get more accurate bills) and energy suppliers (who save money on meter reading and on dealing with complaints over estimated bills), but electricity generators and manufacturers of white goods such as fridges and dishwashers too. Even car companies could turn their interest to smart meters if there is the anticipated surge in take-up of electric vehicles.
Yet, many of these services do not immediately benefit existing energy suppliers, who will pay for the smart meters to be installed in the first place. And, once the system is in place, it will be easier for new entrants to the electricity and gas markets, such as supermarkets perhaps, to set up and attract customers from the traditional energy companies. "There are big threats to existing suppliers once we make it easier for others to enter the market," one participant said. "Why would retailers be interested in putting in expensive pieces of kit that then help distributors and act as a platform for others?" another said.
For this reason, many present said they viewed the UK smart meter revolution as a two-phase operation. During the first phase, the technology is rolled out and consumers become aware of the advantages. The benefits and the beneficiaries of this stage are relatively easy to define: consumers are able to choose more flexible tariffs and become more aware of their energy use, which should reduce bills. And energy suppliers gain from the phasing out of meter readings and estimated bills. Once smart meters are commonplace and widely accepted, then the second phase would begin. "I am much more uncertain about the prospects in the second phase," one contributor said. "The benefits there seem much less clear."
The path of this second phase could depend on how much the UK is able to use the widespread deployment of smart meters as a platform to push the broader development of a smart grid – which would bring added advantages such as being able to better match energy supply with demand – such as through smart appliances. "Research shows that with smart meters alone, the direct benefit to consumers are estimated at savings of £3 to £7 a year per appliance," one attendee pointed out. "If smart meters are used to support a smart grid system, then the wider benefit to consumers, generators and others jumps up to as much as £75 per appliance."
"The shift from where we are today to smart metering is awareness of consequences," another contributor said. "It is difficult to understand how turning a light on or off contributes to differences in bills at the moment because you can't see it. People will move from not knowing or caring to being aware. Society has to go through a learning curve and that phase only happens once, so it is really important to get it right."
Many participants acknowledged that the power-supply industry does not have the best reputation with consumers and consumer groups. Could that affect smart metering? "If suppliers suggest smart meters, then customers think it will be just for our benefit, not for theirs," one participant pointed out. "Trust is an issue in this industry and the evidence suggests that customers trust suppliers less when they operate in a competitive market," said another. A third said: "I get very uncomfortable when I see job adverts for meter installers that offer incentives for selling additional services."
Help from the government and Ofgem is needed here, every participant in the roundtable stressed. "The messages from industry can't exist in a vacuum," one participant said. "Five or 10 years ago we would have seen a nationwide campaign to encourage take-up of smart meters. We all know money is tight now but the government has to take some responsibility."
Many suppliers grumbled about the way ministers and some members of Ofgem were quick to criticise them to gain popularity with consumers. "The government should get behind us, not engender mistrust," one claimed. "We all dance around it but with or without smart meters, energy costs in the UK are going to go up," another said.
"The UK can do this right," insisted one participant. "In countries where the rollout of smart meters has been led by the energy distributors, the focus has not been on consumers. There is a very complex system in the UK, but this is our chance to be the best and put consumer choice at the heart of it. If we get this right, the world will follow."
