Smart Meter Roll-out

Tuesday 6th December 2016 Westminster Hall

11:00

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

I beg to move,

That this House has considered smart meter rollout across the UK.

It is a pleasure to have secured this debate and to serve under your chairmanship, Mr Gapes.

I think—or at least I hope—that the subject of the debate this morning would not be described as a matter of political controversy; it is a matter on which there is broad agreement. Essentially, I approach the debate on the basis that the Government are doing a good thing in the smart meter roll-out and, as a parliamentarian, I think it is our duty to explore whether they are doing it as well as might be possible. In the early days, we estimated that the smart meter roll-out could save the UK economy as a whole something between £17 billion and £40 billion between now and 2050. Obviously, there are a tremendous number of variables in an estimate of that range and over that period of time; I am one of those people who thinks that the upper end of that estimate could be conservative.

Before the Select Committee on Energy and Climate Change was dissolved, I had the pleasure of serving on it. Our last report on the energy revolution looked at what is being done in other parts of the world and, in particular, on the west coast of America in California and Seattle. It is apparent that many technologies that will assist consumers in the demand-side management of their energy use are not that far over the horizon. The foundations that we could lay through the smart meter roll-out could be built on in a significant way, both from the point of view of consumer flexibility and choice and in contributing to some of the wider issues about fuel poverty and climate change.

The Government have a target of 100% smart meter roll-out by 2020. What I want to explore this morning is whether that target is likely to be met, and whether it may be sensible at this point to reappraise the desirability of meeting that target. Given the history of the project to date, sticking to that 2020 deadline may bring some unexpected consequences. Energy UK has told me that so far its members have installed in excess of 3 million smart meters. That is significant progress, but when it is measured against the fact that we have in the region of 27 million households, and there may be in the region of 53 million energy meters to be installed, we see the scale of the challenge that the Government now face.

My first question for the Minister, when he addresses this issue, is: what is the likelihood that we are going to get to the 100% target by 2020? At this stage, are the Government looking at the possibility of reviewing it? What conversations are they having with Ofgem and what dialogue do they have with the suppliers in the industry? From the various energy companies and consumer groups that I speak to, such as Citizens Advice and Which?, there is growing consensus that the target will not be met but that, with a determined adherence to it, we could bring a range of unintended consequences.

This is a good time to look at these things again, when there is not a great deal of political heat surrounding the subject—no pun intended. However, if we get to the point where we have to review the target in two or three years’ time, at that point, politics will come into it. I am no better than anybody else; I will be there in two or three years’ time with the Hansard of today’s debate saying, “You were told at the time that you needed to do something. Why didn’t you?”

In many areas of the country, the key to the roll-out comes down to connectivity, which has indeed been problematic for the project and the concept as a whole. This ties into other areas of Government policy encouraging connectivity, especially for the more remote and rural areas. We know the commitments that the mobile phone operators have made in terms of expanding their coverage and getting 3G and 4G coverage across the whole country. They are now looking at the Airwave infrastructure that has been put in place for the emergency services, seeing the competitive edge that has been given to EE, which is the company rolling that out, and saying, “Surely we should be allowed to use these masts as well.” This is an area where public money is being put into infrastructure for one purpose, when it could have a benefit for another purpose. Surely, given that it is all the taxpayers’ pound, someone within Government should be joining up the dots to ensure that that does happen.

The issue is the limitations of what is available through the connectivity available to our constituents. It does not meet the expectation and the promises. The danger is that something that is a thoroughly desirable proposal in concept, could be undermined by poor consumer experience.

I suspect that, if we drew a Venn diagram of areas with poor connectivity and areas where we have a high number of households living in fuel poverty, we would find a substantial overlap. That is particularly acute in my own constituency. In the Northern Isles we have poor housing stock; long, dark, cold winters, because of our geography; and an ageing demographic. The Scottish Government’s most recent figures put levels of fuel poverty at 63% of households in Orkney and 53% of households in Shetland—the Western Isles were also up there at 62%—measured against a Scottish average of 35%. In pensioner households, in Orkney the figure is 85%, for the Western Isles it is 75% and in Shetland it is 44%.

Smart metering is obviously not going to be the panacea that cures fuel poverty, but it is important as part of the suite of options available to us. It is ironic that those who stand to benefit most and have the greatest need are, again, being left behind in the roll-out process. A bit of political direction, understanding that this is not going to succeed if it is just left in the major conurbations and urban areas, and that when we say 100% across the whole of the UK, it needs to mean exactly that, would be of enormous assistance. What is being done by the Minister and his Department to ensure that those of us in what would be termed as hard-to-reach areas are not left behind?

One of the major recent challenges, which is related to the connectivity issue, has been the performance of the Data Communications Company. That is the central resource needed to support smart meters. Just before the last election, the then Secretary of State signed off a replan of the DCC timetable. That left us with an aim to deliver the first operational services from 2016, with a central planning assumption of August 2016 as opposed to the original one of December 2015. The DCC, which is managed by Capita, has since drawn down all its available contingency and will have delivered all its final releases beyond the “maximum” agreed contingency, but we still have no confirmed date for the final release. Inevitably, given that we are now in December 2016, there will be slippage into 2017. Even if we take the optimistic view that we may have operational roll-out of DCC-enabled services by April 2017, that still leaves us with, at best, three years and eight months to deliver the remainder of the target. That is how tight things are.

The delays in the DCC have other consequences. The meters that have been rolled out are, for the most part, the first version of the smart metering equipment technical specifications—SMETS1, as the jargon has it—and a range of problems comes with that. SMETS1 has been rolled out because that is the only thing available at present, but SMETS1 was only ever intended to be a low-volume learning experience. The lessons have been learned and the limitations have been seen.

Suppliers know the issues that come from SMETS1 meters and want to go on to SMETS2 meters. It is frustrating for them not to be able to. Again, we risk damaging the concept by continuing to roll out something that we know to be suboptimal. SMETS1 meters do not have the flexibility of SMETS2 technology and, in particular, do not allow the switching of suppliers, which consumers regularly hear messages about from Government. Because of that technical issue, something in the region of 130,000 of the 3 million-plus smart meters that have been rolled out are currently operating dumb as a consequence of changing suppliers.

There have also been issues about pre-payment customers—people have lost credit and payment card functionality has been lost—and we know that there will be other technical issues. There is still no industry-wide solution for what they call multi-dwelling units—what to you and I, Mr Gapes, would be a block of flats. There is a lack of dual-band communication hubs, which use a frequency of 868 MHz and which are important for thick-walled properties and for reaching over long distances.

The challenges of the DCC timetable have led suppliers to whom I have talked to conclude that they are unlikely to meet the technical challenges until probably mid-2018. With pressure, they may be able to pull that forward but, again, it all takes us closer to the 2020 deadline and makes it all the more difficult to meet that. The insistence on the 2020 deadline will bring a range of other issues for suppliers, such as equipment and training of installers. Something that can take up to 26 weeks and cost the supplier in the region of £21,000 will become an even greater pressure on them if they are working to bring in a greater number of installers to meet that somewhat artificially imposed deadline.

Essentially, as I said at the start, the roll-out is a good thing, which the Government should be doing. We should not, however, pursue a timetable that will be counter-productive to achieving what we all know and agree is a good thing. To take a step back, I suspect that, since May 2015, there has been a lot of churn in Government energy policy, with a lot of changes, particularly in relation to subsidies for renewables and other areas. A lot of high-level political decisions have had to be taken, and the Department of Energy and Climate Change has been folded into its current home. The programme looks as though it might have slipped through the cracks of Government. It needs somebody to take it up, to give it direction and to ensure that, at the end of the day, we have something that merits and is deserving of the original vision we had when we embarked on the programme. It needs a political hero, and I can think of no finer a political hero than the Minister.

11:15

[James Heappey (Wells) (Con)]

It is a pleasure to serve under your chairmanship, Mr Gapes. I will not speak for long, so that the Minister will be able to reply to the right hon. Member for Orkney and Shetland (Mr Carmichael), with whom I had the pleasure of serving on the Energy and Climate Change Committee for 18 months. I rise to endorse all that he has said. He identified a lot of issues with the smart meter roll-out, and it would be good to know that the Government are aware of them. From all my conversations with Ministers, I am confident that they see the problems and are seeking to tackle them, but the timeline that was set, which the previous Secretary of State and the previous Minister of State in DECC both told our Committee they were fully confident of achieving, does not seem quite as achievable as the Committee was told it might be.

I hope that the Department for Business, Energy and Industrial Strategy will embrace the importance of digitising the energy system and the role of smart meters within that. Digitising the energy system is key to delivering a decentralised generation system and to being able to load-shift, and therefore being able to flatten supply and demand curves and achieve greater energy security through less demand. It is also key to achieving greater efficiency in how we use energy, which, of course, will lead to lower prices. Smart meters in homes and businesses are the linchpin of achieving that.

However, I also absolutely agree that there has to be a user experience. A mysterious grey box of tricks that gets put in underneath somebody’s stairs, and if it does not have the connectivity that it should, so that it does not work, the perception is immediately that it does not do anything and is a bit useless. We need to ensure that smart meters work from the get-go. They also need to be accessible. The in-home displays are great, but there is an odd thing whereby people can only start with a certain screen. Many consumers have said that it would be better if the default screen showed the financial usage, so changing that would be helpful.

We need to make sure that the energy market is set up to allow smart meters to deliver real savings through half-hourly settlement. At the moment, all that people can really do is go round their house like the Ghostbusters, with their in-hand displays, seeking the thing that is using energy at any one time. The savings are not insignificant, but they are a fraction of the savings that could be unlocked if we properly digitised people’s home and business energy by putting smart meters in and ensuring that they worked and that the market was set up to take advantage of that digitisation.

The arrival of the Department for Business, Energy and Industrial Strategy is actually a huge opportunity within the smart meter roll-out, because under one roof there is now responsibility for not only energy policy and the energy market but consumers, tech and innovation. Seeing all those things as part of the roll-out is helpful, instead of the Department of Energy and Climate Change potentially seeing it as an energy policy issue and the Department for Business, Innovation and Skills as a consumer issue.

My final plea is that the Department seizes the opportunity to make sure that smart meters are future-proofed, so that the internet of things can be operated through and around them and the home experience really works. My sense is that people will see the benefits of having a smart meter in an IoT-enabled home not purely from an energy perspective, but in terms of the wider consumer experience, and that they will be very grateful for the energy savings that come with it.

09:00

[The Minister for Climate Change and Industry (Mr Nick Hurd)]

It is a huge pleasure to serve under your chairmanship, Mr Gapes. I congratulate the right hon. Member for Orkney and Shetland (Mr Carmichael) on securing a debate on an issue that will touch and affect every home in the UK. It has drawn quite a crowd of visitors, whom we should welcome. I also welcome the new hon. Member for Richmond Park (Sarah Olney) to her place. I thank the right hon. Member for Orkney and Shetland for the constructive way in which he framed the debate, which is exactly what I would expect given his record in the House. I acknowledge the valuable contribution of my hon. Friend the Member for Wells (James Heappey), who, as I have said on Twitter, is one of the more thoughtful Members of Parliament on the subject of energy. He is always interesting on the topic.

As the right hon. Member for Orkney and Shetland said, the roll-out is a good thing and a long overdue upgrade of an outdated system. I am talking about not just meters—the technology for which is basically 100 years old—but how smart meters fit into a broader and more ambitious strategy to upgrade our energy system, as my hon. Friend the Member for Wells alluded to. Liberal Democrat Secretaries of State in the coalition Government, in which both the right hon. Member for Orkney and Shetland and I served, wrestled with the trilemma of security, affordability and increasingly clean sources of energy. We are also dealing with the matter of how to make the system smarter and more flexible so that it delivers a better experience for our constituents—perhaps by doing away with the nonsense of estimated bills now that we are in 2016, and with calls to call centres. We desire to give our constituents a greater sense of control and, of course, the opportunity to save money.

The roll-out is not the silver bullet for fuel poverty—that is entirely right—but the data suggest that the people with the first wave of smart meters are saving about 3%, according to British Gas surveys. Those are not insignificant sums of money. For our constituents on prepayment schemes, smart meters are a better system for the ability to top up and to read balances quickly. We see smart meters as the foundation of the smart, flexible energy system that we are working towards and to which we are committed. The Secretary of State recently launched the consultation with Ofgem. That is the direction of travel, and we are extremely committed to it because there will be significant benefits to the country—not just to our constituents, but to the people we rely on to supply energy.

There is a smarter future ahead, and that is what we are working towards. The roll-out is unequivocally a good thing, but the right hon. Member for Orkney and Shetland was right to identify some big challenges, none bigger than meeting the roll-out target. However, I associate him with being someone of optimism and ambition—he is a Liberal Democrat, after all—so I say to him that we should not give up on our ambition at this stage. There is no basis on which to do so. It is a challenging target but, as he will know as an experienced politician, if we take our foot off the accelerator, people will read the wrong signals. We want to send a strong signal of our commitment to ensuring that every household and small business is offered a smart meter by the end of 2020. We will follow the evidence and see what it tells us about the feasibility of the target in a few years’ time. The right hon. Gentleman may be in a position to say, “I told you so”—he has teed that up nicely—but I hope not. Now is the wrong time to send a signal of slipped ambition.

There are other challenges, including making the early smart meters interoperable. The right hon. Gentleman is entirely right about that. We should not want our constituents to trade off the opportunity to get a better tariff against the opportunity to retain smart functionality. I assure him that the DCC has begun a project to enrol the early SMETSI 1 smart meters from 2018 in order to make them usable by all energy suppliers, rather than just the one that initially installed them. It is an issue, but one that will go away.

Another challenge that the right hon. Gentleman rightly highlighted is reaching all consumers, including those at risk of being left behind. That requires both a wide area network and a home area network. The DCC is contracted to provide wide area coverage to 99.25% of meter points in Great Britain from 2020, which is, incidentally, greater than for current television and mobile services. There are big challenges, but it is wrong to slip back on our ambition, not least because we can point to good progress being made.

The right hon. Gentleman mentioned a figure of about 3 million smart and advanced meters being in operation. Actually, as of June 2016—these are slightly out-of-date data—the official number is that there are more than 4.2 million smart and advanced meters operating under the programme. Again, we now have some data from the quite large British Gas survey, which show what cost savings the roll-out is delivering for our constituents. The current run rate is about 3%, which is slightly higher than expected. We now have a sense of how popular the smart meters are, with eight out of 10 people recommending them and high levels of customer satisfaction. We have also updated the latest cost-benefit analysis.

[Mr Alistair Carmichael]

I completely accept what the Minister says about the signals that can be sent by taking the foot off the gas, to use his analogy, but there are technical issues coming down the tracks. The suppliers are all telling us that the roll-out could take them into the middle of 2018. What is the Minister doing to engage with the suppliers to bring that date forward?

[Mr Hurd]

We are not naive about this. We have set a demanding challenge, so the ongoing conversation with suppliers to talk through some of the practical differences is an essential, fundamental part of the Government’s responsibilities and Ofgem’s responsibilities. I am keen to mention that we have recently published the latest cost-benefit analysis of this ambitious programme, which suggests that we are looking at a significant net benefit of about £5.7 billion for the roll-out—including through supplier cost savings, system benefits and energy efficiency for our consumers. That all leads me to reassert the fundamental point that we remain committed to the programme. The right hon. Gentleman suggested that ambition might have slipped a bit and that the scheme might have been a ball dropped by a busy new Department. That is absolutely not the case. The fact that the Secretary of State recently announced an ambitious consultation about the direction of travel towards a smarter, more flexible system places the roll-out in that context. It is a top priority for the Department.

I want to give the right hon. Gentleman some reassurance about his constituency. He spoke powerfully about the levels of fuel poverty there, and the data are striking. He was candid about the fact that this agenda is not the whole solution to that challenge, but his desire to ensure that no communities are left behind in the process is laudable, and is an aim that is absolutely shared by the Government.

In response to the questions on whether remote rural areas of Scotland be excluded from the roll-out and what the planned communications coverage will be, I would like to place on the record that Arqiva is contracted to provide network coverage to at least 99.5% of Great Britain’s premises in the north region, which covers Scotland, by the end of 2020. That level of coverage compares favourably with other technologies such as mobile and broadband networks. Arqiva is on track to deliver its contractual coverage commitments, having already achieved coverage of more than 80% of premises in the region. Building the smart metering wide area network in Scotland has led to considerable progress and, subject to detailed planning, the DCC is confident that the right hon. Gentleman’s constituency will have a high level of premises coverage. There is a licence obligation on the DCC to strive—best efforts—for 100% coverage.

I hope that I have given the right hon. Gentleman some reassurance regarding his constituency and the fact that, despite some slippage in timetable—a matter of a few months, which, in the scheme of things and against the backdrop to which he alluded, is not the end of the world—the Government and the new Department attach the right level of priority and importance to the roll-out, which we sincerely believe will deliver a much better experience for our constituents in interacting with the energy systems on which they depend. The roll-out is the foundation for a much smarter energy system as we move to upgrade the energy infrastructure of the country after so many years of dithering and delay. It is absolutely at the core of that strategy.

Question put and agreed to.

11:29

Sitting suspended.