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Smart meter benefits millions of pounds less than first thought, admits BEIS

The gross financial benefit from the national smart meter rollout could be hundreds of millions of pounds less than first thought, but the costs of the programme are still rising

The government may be heading for another major IT failure, after a Department for Business, Energy and Industrial Strategy (BEIS) cost benefit analysis report revealed the gross benefit of the delayed smart meter programme was likely to be £16.7bn, £415m lower than the £17.1bn forecast in 2014, while the gross costs of the scheme had increased by £54m to £10.98bn during the same period.

This means the net present value (NPV) of the smart meter project, which aims to slash energy bills and reduce dangerous carbon emissions by using connected internet of things (IoT) meters to give consumers a much more in-depth view of how they use gas and electricity, is now just £5.75bn, down £469m on the previous estimate.

The BEIS report was written in August 2016, but was only published last week. According to the Evening Standard, which first reported the story, an undisclosed source in the energy industry had suggested the government had purposefully released it while the news cycle was dominated by the election of Donald Trump as the next president of the US. This was denied by energy minister Baroness Lucy Neville-Rolfe.

In the report, which is available online to download, BEIS said it was committed to updating the evidence base for the smart meter roll-out to reflect its progress, and the report reflected both the latest available information ahead of the start of the Capita-backed Data Communications Company (DCC) service operation and evidence from energy supplier roll-out programmes.

BEIS said a number of factors had combined to influence the smart meter project’s decline in NPV, including updated values for carbon emission factors and carbon pricing, changing energy consumption levels among consumers and businesses, and lower-than-expected inflation.

Changes to the planned design and build of the DCC network, following new developments that have changed the requirements for how smart meters communicate back to the network, have also had an impact, said BEIS.

The government now plans to compress the roll-out of 50 million units into a shorter timescale, meaning BEIS will be forced to apply uplifts to installation and asset costs above a threshold of 17% per annum to reflect pressure on the supply chain and workforce availability, while the costs of continuing to maintain and read traditional meters will also rise as their numbers decline. At the same time, however, a greater number of expiring traditional meters than previously modelled will be replaced with traditional meters, not smart ones.

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In September 2016, the Science and Technology Committee criticised the government for mishandling aspects of the smart meter roll-out.

“It would be easy to dismiss the smart meter project as an inefficient way of saving a small amount of money on energy bills,” said committee chair Tania Mathias MP. “But the evidence suggests there are major national benefits, including establishing a smarter, more secure energy grid. The government needs to have more clarity around this so householders are clear about the true benefits.”

Mathias said there were more valuable long-term benefits around enhanced energy security for the UK, as well as the urgent reduction of greenhouse gas emissions that were being understated.

In the past, industry bodies such as the Institute of Directors (IoD), along with Computer Weekly, have suggested that the smart meter project was fundamentally flawed. Before the last general election in 2015, the IoD lambasted the project owner, the now scrapped Department for Energy and Climate Change (DECC), saying smart meters were “unwanted by consumers, devoid of credibility and mind-blowingly expensive”.

Writing on his website, TechMarketView analyst Anthony Miller said that the business case for smart meters had never made sense to start with, as the calculations for the value of the costs and benefits of the scheme were made in 2011 and based on an 18-year timeframe. That was assuming the roll-out completes as scheduled in 2020, which is now extremely unlikely.

Miller called for the government to end the scheme now, before any more taxpayer money was wasted chasing an “impossible dream”.

“By all means, let the energy companies continue to install smart meters at their own pace and cost,” he said. “But the plan to create an integrated smart-energy network for the UK is as fanciful and flawed as was the NHS National Programme for IT.”

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