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Ofgem begins consultation on dynamic price caps

Smart meters make it possible to manage the electricity grid in a more flexible way, but millions are facing connectivity issues

Ofgem, the UK’s energy regulator, has launched a consultation into the feasibility of introducing a more dynamic price cap on energy prices. This would be based on time of use-dependent unit rates to encourage consumer flexibility.

Recognising the changes in the way consumers use energy, such as the use of electric vehicles, heat pumps and solar panels, Ofgem said the UK’s renewables-dominated electricity sector should reward consumers for shifting the time of their electricity consumption, which will in turn reduce costs for everyone.

Tim Jarvis, Ofgem’s director general of retail and markets, said: “While the price cap played an important role in protecting consumers from the loyalty penalty that existed before its introduction, the energy market is changing as we move to net zero, and we recognise the systems we have in place may need to change, too.  

“We’re looking in detail at the elements of the price cap that have worked well and the challenges we’ve identified in recent years, while also considering how a wide range of future consumers will use and pay for energy, to make sure we develop the right measures that will protect and benefit consumers across the board,” he said.

Energy providers that offer dynamic pricing rely on data being sent from people’s smart meters, but this technology has been plagued with problems. Figures from the Department for Energy Security and Net Zero (DESNZ) show that over four million smart meters are not working.

In October last year, the Public Accounts Committee (PAC) warned that an estimated seven million communications hubs (part of the electricity smart meters) will need to be replaced, because they will lose functionality when the 2G and 3G mobile communications networks are closed. In a blog posted last February, TechUK noted that Virgin Media O2, which signed a 15-year contract to deliver connectivity to smart meters in 2013, has no 3G sunsetting plans as of now, and there are plans for a 4G upgrade.

In terms of networking, the PAC said a few hundred thousand homes sit outside the wide area network of coverage across Great Britain for smart meters. DESNZ told the PAC that the Data and Communications Company (DCC), which collects smart meter data, is thinking about piggy-backing on a consumer’s home broadband service. However, this will take some time to develop, and is one of a number of options being considered.

Data collection

As of March 2024, DCC reported that it was collecting data from 18.7 million second-generation (Smet2) smart meters. There are, however, over 11.6 million of the older-generation (Smet1) meters still installed. Older devices have been reported to lose connectivity when a consumer switches energy providers. Some of the newer Smet2 devices have also experienced connectivity issues. Once connectivity is lost, the meters can no longer be read remotely.

Industry watchers have warned that energy providers have targets to roll out new smart meters, but there are no incentives to get them to repair or replace faulty devices.

There are numerous reports of consumers facing financial hardship due to broken or unconnected smart meters.

Read more smart meter stories

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