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Smart meter benefits cut by old technology and rising costs

Energy companies may end up spending billions unless they can install smart meters more cheaply

The roll-out of older smart meters and higher installation costs are seriously compromising the potential benefits of the UK’s £16.5bn smart meter programme, the National Audit Office has warned.

The NAO’s Rolling out smart meters report found that costs have increased by at least £500m since the Department for Business, Energy and Industrial Strategy (BEIS) last forecast them in 2016, which is equivalent to a cost of £17 per dual-fuel household on top of the £374 implied by BEIS’s 2016 analysis.

Of the £500m increase, £300m relates to the rising costs of the Data and Communications Company (DCC), which operates the smart meter network, and £200m relates to the cost of the technology required to enable the system’s full functionality in the final 3.5% to 5% of properties.

The NAO report also highlighted the high costs of installing smart meters. Information provided to BEIS by energy suppliers shows that during 2017, the average cost of installing smart meters was about 50% more than the average installation costs the department had assumed in its 2016 cost–benefit analysis.

“The department told us that one of the reasons installer productivity is currently low is that suppliers are training new installers, and once the workforce becomes trained, productivity will improve, bringing down the cost of installations,” the NAO report said.

It warned that if productivity improvements are not as extensive or as rapid as the department hopes, there will be a significant impact on the programme’s value for money. The NAO estimated that if installer productivity does not improve on 2017 levels, the smart meter programme will incur additional costs of £1.8bn.

Among the significant costs to the industry is the replacement of older smart meters. The NAO’s smart meter roll-out report estimated that 70% of Smets1 (Smart Metering Equipment Technical Specifications) meters currently lose their smart functionality when consumers switch supplier.

About 12.5 million of these meters have been rolled out. They offer less functionality than Smets2 meters, and stop working when consumers switch energy suppliers, the NAO’s report noted.

Responding in February 2018 to a question about the smart meter roll-out, Claire Perry, energy and clean growth minister, said that as of 30 September 2017, nearly 400,000 were being installed every month.

Read more about the UK’s smart meter roll-out

But she added: “Industry information shows there are now around 450 Smets2 meters connected to the DCC system. Most of these are being operated in test conditions and around 80 have been installed in the live environment.”

The NAO said Smets2 contains many interacting components, several of which are still being tested, or have not yet been deployed or developed. “It may take years before it is known if it works in its entirety,” the report noted.

The NAO also highlighted the fact that installation of Smet2 meters in the north of England and Scotland is behind the rest of Great Britain because of problems in integrating smart meters with communications infrastructure. At the beginning of November, just 3,000 Smet2 meters had been installed in the north of England and Scotland, compared with 106,000 in the rest of Britain, it said.

Although the DCC’s cost estimates from 2016 assumed that most meters would comply with the Smets2 specification, the NAO said the industry will need to support a mix of Smets2, Smets1 and legacy meters, possibly until the end of the 2020s. This is likely to add to capital and operational costs.

Amyas Morse, head of the NAO, said: “Costs are rising, and timescales slipping, but smart meters can still succeed over time. BEIS has taken most of the decisions that matter on the programme so far. They now need to take responsibility for getting it back on track and protecting the interests of consumers, who will ultimately meet the bills.”

As Computer Weekly has reported previously, research from the British Infrastructure Group of Parliamentarians, published in July, found that the smart meter roll-out was plagued with problems, with suppliers almost certain to miss the 2020 deadline for completion.

By end of 2020, between 70% and 75% of the UK will have smart meters, but further investments will be needed for the industry to realise the benefits of the roll-out.

Long term, the NAO’s analysis suggested that energy suppliers and others could offer tailored services based on consumer data, for example advice on tariffs and saving energy. There is also the potential for consumers to save money by opting for a tariff that varies by time of day (time of use tariff).

The NAO report noted that between 2021 and 2030, energy suppliers will need to spend an additional £500m in IT costs. However, in combination with data provided by consumers’ smart meters, the energy industry could make potential savings of £7.8bn.

Responding to the NAO report, energy minister Perry said: “Millions have already chosen to have a smart meter and take control of their energy use to cut their bills. We’ve said everyone will be offered a smart meter by the end of 2020 to reap these benefits and we will meet that commitment. 

“This world-leading upgrade to our national infrastructure is the cornerstone of our move to a smarter energy system of the future and will bring benefits to consumers and industry worth up to £40bn.”

The government expects smart meters to take £300m off consumer bills in 2020 alone, rising to more than £1.2bn per year by 2030 – an average annual saving of £47 per household.

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