Smart metering project costs billions of pounds, but are cost overruns inevitable?

The UK’s smart metering project is gaining momentum with the announcement of two major tenders.

The government estimates the total cost of the GB Smart Metering Implementation Programme (SMIP) to be £11.3bn.

ICT Suppliers have already been alerted by the Department of Energy and Climate Change (DECC) of two large workloads.

One is related to the communications infrastructure that will transport data from smart meters in homes and businesses to a central hub and to utility companies. This deal could be worth up to £4.5bn. Read more here.

Then there is an IT contract worth up to £240m on offer. Read more here.

But how will the government avoid a situation where budgets are blown away?

In July Margaret Hodge MP, chair of the committee of Public Accounts, suggested that there a significant overrun would not be a surprise.

“At the moment the estimated cost is £11.3 billion, but all our experience suggests that this budget will be blown.

Also, for the money spent to provide value, we all have to change the way we behave. It is not clear how the Department will stimulate this behaviour change. And, as technology changes, the Department will have to be properly flexible to respond with up-to-date technology for the smart meters. These uncertainties can drive up costs more than planned.

We will keep a close eye on project progress, and would urge the Department to address the risks identified in this report.”

Add to this the fact that the general public are not really behind a project that will increase costs in the short term and you have a recipe for disaster.

A survey, which was commissioned by smart meter technology provider T-Systems and carried out by the Economist Intelligence unit revealed, in June, antipathy towards the government’s plans to roll out smart meters to 30 million homes by 2020. Consumers are more concerned about the financial costs of using smart meters than the environmental costs of inefficient energy use. Fears of initial price rises and a lack of evidence on future savings could de-stabilise government plans to reduce energy consumption through smart metering, according to the survey of 1,000 consumers.

Rob McNamara, is manager of SmartGrid UK, which was set up by IT industry body Intellect to bring together IT companies, environmental organisations, government, regulators and consumer groups to coordinate the multiple stakeholders and advise the government on the project. He is conscious of the importance of getting consumers onside. At the same time he says the DECC has got its ship in order.

He told me this morning that DECC has set solid foundations since last August. He added: “If you want to avoid problems you have to ensure there is consumer engagement and that consumers understand what smart metering is about.”

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