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Stephen Metcalfe (South Basildon and East Thurrock) (Con)
I beg to move,
That this House has considered the Sixth Report of the Science and Technology Committee, Evidence Check: Smart metering of electricity and gas, HC 161, and the Government response, HC 846.
It is a pleasure to serve under your chairmanship, Mr Turner. It is good to see some fellow Committee members here for what I am sure will be an interesting debate for us, and hopefully for the Minister and shadow Minister.
By way of background, the Government’s smart metering implementation programme requires energy suppliers to offer smart electricity and gas meters to all homes and small businesses in Great Britain by 2020. The idea behind smart metering is that the meter communicates directly with the supplier using wireless technologies, removing the need for meter readings or estimated bills and allowing price information to be transmitted to the home. Through an in-home display, the customer can see in pounds and pence how much electricity or gas is being used, nearly in real time.
The smart meter roll-out is a major project, with total costs of nearly £11 billion and projected benefits of around £16 billion. Millions of people already have some experience of the roll-out of smart meters, and millions more will be offered one in the next few years. It should be no surprise, then, that the Select Committee on Science and Technology was not the first to look at smart metering. Colleagues on what was then the Select Committee on Energy and Climate Change examined the beginnings of the smart meter roll-out in 2013 and again in 2015, and the Public Accounts Committee held an inquiry in 2014. Their work provided an excellent foundation for the Science and Technology Committee’s scrutiny.
My Committee’s report was published on 24 September 2016. It was the output of a short inquiry concentrated specifically on the evidence behind the smart metering policy, rather than on exploring the roll-out’s progress from a value for money or project management perspective as other Committees had done. The inquiry took place under the direction of my predecessor as Chair, my hon. Friend the Member for Oxford West and Abingdon (Nicola Blackwood), to whom I am grateful for all her work in guiding the Committee so well before she was promoted to Government. We received the Government’s response at the end of November, shortly after I became Chair.
This debate is timely. A few months after our report, the Government published an updated cost-benefit analysis of the smart meter roll-out that shed further light on the issues explored by the Committee. We were pleased by the publication of that document, as it fulfilled our recommendation that an update to the 2014 figures should be provided. However, the analysis included some concerning figures and information that I am sure will feature prominently in this debate. In my remarks, I will focus on three of the report’s recommendations in particular: first, the need to act with greater urgency to address some of the technical limitations of the early first-generation smart meters; secondly, the need for the Government to be clearer about the national benefits of smart metering, as opposed to those for the individual consumer; thirdly, the need for excellent consumer engagement to realise the benefits of smart metering before, during and after installation.
We learned during our inquiry that the roll-out began in 2013 with a foundation phase of smart meters built to a specification known as SMETS 1, if Members will excuse the ugly acronym. The latest quarterly figures from the Department for Business, Energy and Industrial Strategy show that there are now more than 4 million such meters in homes across Britain. We are now moving towards the mass roll-out phase, which will use meters described as SMETS 2. However, SMETS 2 meters rely on the implementation of a piece of national infrastructure, the Data Communications Company, which has been delayed several times in going live.
During our inquiry, we heard that the early SMETS 1 meters had some unfortunate technical limitations. One relates to interoperability among suppliers: customers who switch their energy supplier after installation run the risk of losing the meters’ smart functionality. Depending which supplier they switch from and to, the meter could revert to being a “dumb”—or, perhaps more kindly, a traditional—meter. Last year, The Daily Telegraph reported that more than 130,000 smart meters were now operating in dumb mode as a result of switching.
It appears that it might be technically possible to modify the early meters to work with the national communications infrastructure—the phrase is “adopt them into DCC”—to ensure that smart functionality is retained when the customer switches supplier. The DCC has been commissioned to undertake a feasibility project to assess the options, but at present, the Government merely have an ambition to sort it all out by 2020. The problem is that the scale of the task of adopting the early meters into the DCC is growing by the day.
As the Minister will know, the DCC finally went live in November, but the delays mean that suppliers will still be installing SMETS 1 meters for some time to come while the DCC undergoes testing. The latest cost-benefit analysis suggests that 8 million SMETS 1 meters will be installed in total during the roll-out, far more than the 5.4 million estimated during our inquiry and double the 4 million installed so far. In fact, the DCC estimates that there could be more than 10 million SMETS 1 meters, affecting more than 6 million households. From a consumer point of view, that means that 6 million households, or around one in five, will effectively have to choose between smart and switch. If they switch supplier to get a better deal, they risk losing smart functionality, but if they stay with a bad tariff, they get a better idea of what their bills will be and are more able to take action to reduce them.
I am sure that hon. Members will agree that it is a difficult choice. Those who wait for SMETS 2 can have it all, but until the problem is solved, those with SMETS 1 meters will be forced to choose. The most extreme scenario is the early adopter who received a meter in 2013 but must put up with the situation until 2020, or perhaps even longer if the Government’s ambition is not met. I am sure that we would all agree that seven years of waiting for the full benefits of smart is a long time. I would not blame someone in that situation for being somewhat unimpressed with the roll-out.
Our report recommended timely action, not least because the problem was known at the very start of the programme. The Government’s response to us was essentially that it is a work in progress, but we know that the scale of the problem has grown. In his remarks at the end of this debate, will the Minister address the need for greater urgency to prevent a poor experience for up to 6 million households? Moreover, will he consider setting a hard deadline by which suppliers must take necessary steps for their SMETS 1 meters to work with the DCC system?
The Government also told us that they had put in place protection
“to ensure consumers are appropriately informed that they may lose smart services”.
Effectively, it is a condition of suppliers’ licences that they provide that information at the point of installation, and when the supplier gains a customer through switching. However, in a Citizens Advice survey last year, just 3% of consumers said that they had received information about the limitations of SMETS 1 before installation and only 13% thought that their meter functionality would be affected if they switched. Is the Minister confident that customers are receiving information about the limitations of SMETS 1 and that they understand that information?
The second theme that I would like to explore is the need to better communicate the national benefits of smart metering. Put simply, one of the advantages of the communications link between the supplier and the meter is the scope for offering time-of-use tariffs. Some hon. Members may be familiar with the idea of economy 7 meters, which have a day rate and a night rate. Smart metering enables a concept that is broadly similar but much more flexible. Broadly speaking, if suppliers can incentivise customers to run their dishwashers while the sun is shining or their washing machines when the wind is blowing, they can take advantage of renewables without the network cost of having to store the electricity until it is needed. As a result, they may be able to avoid having to build a new fossil fuel plant. As we know, there is a problem with peak demand; if we can smooth out electricity use and lower the peak, we will not need quite so much fossil fuel capacity in the energy network to keep the lights on.
There is also an element of future-proofing. In coming years, we may all be driving electric vehicles. The first thing someone will do after coming home from work will be to begin charging the car so that it is ready for the morning commute the next day, which could mean a huge spike in demand in the early evening. Smart meters could pave the way for smart charging—charging in the sense of replenishing the battery—to balance the total demand on the network, and hence the price, against when cars need to be charged. They may not need to be charged straight away to get to 100% capacity by 8 o’clock the following morning. Optimising when they are charged may mean being able to avoid having to fire up gas plants to deal with the evening surge in demand.
That is my very general description, with no numbers attached, of some of the national benefits of the smart metering project. The Committee concluded that, without a proper description,
“there is a risk that the project will become viewed solely as an inefficient way of helping consumers to make small savings on their energy bills.”
When the Committee published its report, the estimated saving for the average dual fuel bill through smart metering or through the behaviour change that it prompts was £26 per year by 2020—about 50p per week. That is the national figure, although I accept that for some people the saving may be considerably greater because they have used the installation of a smart meter to change their own habits at home. The latest assessment downgrades that benefit to only £11 per year by 2020. Surely that is a harder sell to a consumer if the Government cannot explain why smart metering is good for the country too and why it is a valuable investment for the future.
The Committee was clear that the national benefits of smart metering need to be communicated
“alongside emphasising savings for individual customers.”
Unfortunately, the Government dismissed that recommendation on the basis that successful smart metering projects in other countries
“have messages focussed on benefits that are immediately relevant to consumers and not complicated by references to longer-term benefits.”
Will the Minister confirm whether that is still the Government’s view?
We asked the Government to provide us with more information on the national benefits. Disappointingly, that information took the form of a list of three items, which were,
“reduced need for new generation capacity to be built…more efficient use of existing generation assets… and…avoided investment in transmission and distribution networks.”
I think we would all agree that there is a distinct lack of specifics there. Perhaps we are wrong and the national benefits are not of any significance, but if so, the analysis needs a rethink.
If hon. Members had time last week, which I suspect they did not, they may have watched an ITV documentary on smart meters, which concluded that
“the only ones who are sure to benefit are the power companies themselves—and to millions of hard-pressed bill payers, that will sound all too familiar.”
Is it any wonder that reporters are focusing on the tensions between benefits to the individual and to the suppliers, when there appears to have been little attempt to communicate the much wider national benefits of smart metering? If the project is considered only in such simple terms, the Government may have millions of annoyed consumers on their hands. I ask the Minister to address in his remarks the need to explain the national benefit as well as the saving to individual households of £11 a year.
The final theme that I would like to highlight from the report is the need for consumer engagement in order to realise the benefits of smart metering. Witnesses to our inquiry told us that “fit and forget” was not an appropriate approach, because the smartness lies not in the technology itself but in what can be done with it. We told the Government that there must be no compromise on consumer engagement in the rush to meet the roll-out deadline of 2020. If suppliers skimp on their obligations to get as many meters on the wall as possible, consumers will not have the confidence to make use of the information that they provide. I was encouraged by the Government’s response:
“The Government agrees with this recommendation. Consumer engagement is at the heart of the smart meter roll-out in Great Britain. It is central to ensuring consumers realise the benefits of smart metering…The Government is…carrying out further work to assess the provision of post-installation support for vulnerable and pre-payment consumers and will seek to ensure good practice is shared across industry.”
Will the Minister tell us a little more about how that work is going?
Does the Minister think that there is adequate aftercare for consumers? What form is it taking? After all, a new gadget can be quite intimidating for some people. If that gadget ends up in a drawer, it has all been a waste of effort. Vulnerable and pre-payment customers have the most to gain from smart meters, but they strike me as the ones who are most at risk of being neglected after installation. What does the Minister think is the minimum standard of aftercare that we should look for? Is he confident that it is being delivered at the moment?
To allow other hon. Members plenty of time to speak, I will draw my remarks to a close, although the Committee’s report explores many other interesting themes that I am sure will be touched on in the debate. I will conclude with the words of one of the Committee’s final recommendations, which might provide a helpful segue into many other aspects of the project:
“The Government has invested in trialling smart meters and in studies of their impact. Smart Energy GB is also making use of evidence in understanding consumer behaviour. Despite the growing evidence base underpinning the project, there are a number of areas where the Government clearly believes there are misconceptions and misunderstandings about the utility, impact, and security of smart metering. The Government should reflect on these in the context of the mass rollout and consider how best to communicate with consumers on some of these topics.”
Today’s debate could serve as a helpful way of communicating with Members and the wider public on these topics, given that people may already have concerns about the smart metering programme. I look forward to contributions from other hon. Members and to the Minister’s response, which I am sure will address many of the concerns that have been raised.
Mr Andrew Turner (in the Chair)
Members have about 10 minutes each. I call Patricia Gibson to speak.
Patricia Gibson (North Ayrshire and Arran) (SNP)
Thank you, Mr Turner, for calling me to speak, and I also thank the hon. Member for South Basildon and East Thurrock (Stephen Metcalfe) for introducing this debate.
I have always been very supportive of the programme to install smart meters. I always believed that smart meters gave consumers control over, and information about, the energy they are using, in near to real time. Smart meters enable the transmission of readings for the amount of gas or electricity being used in each property, as well as the transmission of information from suppliers to consumers, such as current tariff rates. What could possibly go wrong? An in-home display, or IHD, connects with the smart meter and shows consumers exactly how much their bills will be. The Government’s smart metering implementation programme requires energy suppliers to offer 53 million meters to homes and small businesses in Great Britain by 2020. For all these reasons, I was always very supportive of this initiative.
I had understood that high levels of satisfaction with smart meters had been recorded and that consumers were using the technology to help them to gain some control over their energy consumption. I believed that smart meters supported households as they tried to change their behaviour and conserve energy, which would be good for the environment as well as the purse.
Smart Energy GB found that 82% of smart meter users had taken at least one step to use less energy, that 80% of smart meters were checking their IHD regularly and that 81% of users said they would recommend smart meters to other people.
Smart Energy GB’s campaign seemed to be creating a positive shift in the levels of understanding of smart meters and the propensity to have them installed. Research suggested that the number of people who understood in detail what a smart meter was, what it did and what it could do had risen to 33%, and of those people 71% said that they would be interested in having a smart meter installed if they did not have one already.
However, like the hon. Member for South Basildon and East Thurrock, who spoke before me, I have learned—with some concern—that the Science and Technology Committee has found that the Government do not appear to be clear on the benefits of smart meters. The Government listed 11 different objectives for the project, including saving customers money on energy bills, and yet the amount of money saved by individual consumers is, it seems, expected to be small.
The Committee’s report said that the Committee would continue to monitor the implementation of the smart meter programme. I am very interested in longer-term monitoring of it, because the contradictory pictures that are emerging are confusing for consumers. I have been deeply alarmed by some of the findings of the report, which has pointed out that the cost of providing smart meters, some £10.9 billion, is being borne by consumers through their energy bills—an average of £215 per home, including installation costs.
Concern has also been expressed that the smart meters currently being installed are not of the highest specification in terms of function and data security. Indeed, the Committee took evidence that
“the smart meter network is being installed before its requirements as an Internet-connected energy system have been fully determined”.
In addition, in March last year the Financial Times reported that GCHQ had “intervened” in smart metering security and that the agency had discovered glaring loopholes in meter designs. That poses real questions, and consumers need to be reassured that their data and security are robustly protected in the course of this roll-out.
In Scotland, the priority of the Scottish Government is to press the UK Government to ensure that the programme is delivered to the greatest number of Scottish consumers at the lowest possible cost, while enhancing the benefits to the most vulnerable in our communities and those at risk of fuel poverty.
Concerns have also been addressed that the smart meter roll-out may be hindered by a lack of focus and clarity about its purpose. At the heart of this programme, we need consumer satisfaction and a genuine, hard commitment to tackling fuel poverty. If the documentary referred to by the hon. Member for South Basildon and East Thurrock is correct that the biggest beneficiaries of smart meters are the power companies themselves, that would be most alarming.
Of course we want consumers to be more energy wise, to be more informed and to have greater control over their energy use, and we want to use all the means at our disposal to tackle fuel poverty. However, this report by the Science and Technology Committee on the costs and benefits of smart meters for consumers can only be described as alarming. It is to be hoped that the recommendations of the report are acted upon as soon as possible.
If smart meters genuinely empower consumers, help them to save money and help to tackle fuel poverty, we await longer-term independent analysis, which will help to illustrate these things unequivocally. I hope that analysis is forthcoming. Consumers are waiting; we are all waiting.
Derek Thomas (St Ives) (Con)
I am glad to have the opportunity to talk about smart meters. I remember when we did the inquiry; it was something that I thoroughly enjoyed and learned a great deal from. I thank my hon. Friend the Member for South Basildon and East Thurrock (Stephen Metcalfe), who is the Chair of the Science and Technology Committee, for introducing the debate today.
There is no doubt that we should welcome the roll-out of smart meters, and we do welcome it. There is a genuine opportunity to bring an end to physical meter reading. I live down a very long lane and twice a year some very delightful gentleman finds his way down to where I live, to read the meter. I will talk a little about how successful that has been later on.
I am not looking to put people out of jobs, but where technology helps us to get accurate information and manage our energy use, as well as to provide data that can help to manage the nation’s energy supply and planning, it needs to be welcomed, and I think the smart meter roll-out is welcome.
As we have heard, smart meters have clear benefits. Their introduction has the potential to help consumers to reduce their energy consumption, shift their energy demand away from peak periods, which the Chairman of our Committee referred to earlier, and improve customer choice. Choice is a particularly interesting angle; if smart meters allow people to switch suppliers quickly and to access better tariffs, they must be welcome.
All of these measures will help constituents in west Cornwall and on the Isles of Scilly. We already know that 80% of smart meter owners are taking steps to reduce their energy consumption. According to Smart Energy GB, individuals are turning off lights, switching off the heating at certain times and changing the way in which certain household appliances are used, all in a proactive effort to engage with their energy usage.
I was pleased to hear the hon. Member for North Ayrshire and Arran (Patricia Gibson) mention fuel poverty. My concern is that once people on limited budgets realise how much energy different appliances use, they will start to behave in a way that is harmful to them—particularly older people during winter months. So we need to be very careful about how we communicate with people and empower them to get the best out of their homes.
The smart meter roll-out on its own is not really good enough. I know that this is a slightly separate issue, but the Government must consider how we can improve the efficiency of people’s homes, particularly those of vulnerable people. Otherwise, the smart meter roll-out might actually be detrimental for those households.
Dr Sarah Darby of the Environmental Change Institute has said that smart meters are effective, smart systems that bring together every-day human intelligence and technical ingenuity. We are beginning to hear about some problems with the roll-out, and I am glad that we conducted the inquiry last year. We are well into the programme for 2020. As an elected representative in my first Parliament, I recognise that 2020 is coming around very quickly; it keeps me on my toes every weekend. Far more important, however, is the roll-out of the smart meter programme.
Technological advances should always benefit the consumer; it is really important that that is clear, otherwise we will never get proper engagement. However, the delay in the data communications company’s go-live date has put these benefits at risk. Originally, the company was meant to go live in autumn 2015; in reality, it was late in November 2016—more than a year later—and it was even later for the north of England.
That delayed start has meant that the 2020 deadline for the roll-out of smart meters across the country is rushing up on us. It has created an impractical timetable for suppliers. I am particularly concerned about the smaller energy suppliers. We are trying to encourage them into the market, yet we have created quite a challenge for them to supply their customers with smart meters. The delay to stage 1 of the roll-out has placed the availability of SMETS 1 meters under strain, as purchasing was done on the knowledge that their installation would have been completed a year earlier. I have been speaking to the smaller suppliers, and they are talking about the massive difficulty they have in sourcing the meters and the qualified competent engineers to fit them. There is now a need to extend the roll-out period for SMETS 1 meters to meet the delay in the go-live date and to address the functionality concerns about the SMETS 2 meters, which are being used for the mass roll-out of the scheme.
The lack of planning for the launch and the deadline for the roll-out of smart meters has increased costs and uncertainty for suppliers, who still have to meet the legally binding deadline of 2020. We know full well that if costs increase for suppliers, those costs will only ever go to the consumer. I am always referring to people struggling on limited budgets to meet their energy bills. The strict timetable has also meant that there is less time to test and learn the system, which could lead to greater problems down the line and has meant that many promised benefits for consumers cannot be delivered.
Additionally, part of the changes to the DCC functionality has removed the ability of consumers to switch between credit and prepay modes. In the inquiry, I remember talking about those with prepay meters and the kind of revolution that smart meters would bring for them. Prepay customers pay more for their energy, and they pay up front. Some of the people I meet have no choice; they are in properties that belong to other people. When I talk to social landlords, they see the roll-out of smart meters as an opportunity to help their tenants to reduce their bills and manage their finances more easily. What we are finding is that they are not able to switch between credit and prepay modes. The meters cannot deliver in the way we expected. That is a disadvantage for millions of prepay meter customers across the country as they cannot gain access to the market.
Dr Sarah Darby’s definition of smart meters also pointed to the importance of shaping human behaviours. We have already heard about that today. Improving energy use practices and consumer’s energy know-how are essential to ensuring that the full benefits of smart meters are realised. Data from the “Smart energy outlook” show that awareness of smart metering and its benefits rose by only 7% in the past year. That needs to be improved, and that is despite Gaz and Leccy. Gaz and Leccy are enormous role models for my children. We watch their adverts regularly. If you do not know Gaz and Leccy, Mr Turner, you must go home and do the research. It will add value to your life. I share an office with three other MPs, and they have spent considerable time in research, watching Gaz and Leccy. They are fantastic adverts. They are absolutely worth watching, and they help to get across the point that we are not in control of the energy we use. However, if we are seeing only a 7% increase in awareness, despite that brilliant media campaign, we are not getting the information out in the way we should. Unless consumers understand the benefit of smart metering, we are not going to win the battle.
I was a builder before I came here. I used to do barn conversions. For many years, in every barn conversion I completed, a smart meter was installed, but often concerns about how the data would be used meant that it was never used. Instead, it was just left on the side. Because it was not integral to the structure of the building, it would just be unplugged. Customers would tell me, “I don’t want my energy supplier knowing when I am making a cup of tea or when I’m getting out of bed or when I’m doing this or something else.” There is a real need to make customers aware of what data are collected, why they are collected, for whose benefit and how they are used. That is a battle we have not yet fully dealt with or addressed.
Smart metering will improve the temporal resolution of energy data, but it will still not differentiate between heating and other energy demand, nor will it show where in the building energy is used so the need to address energy efficiency in the home remains.
There are some connectivity issues with smart meters, and I want to talk about my experience. We did the inquiry last year. I explained that the gentleman walks or drives down my lane a couple of times a year. On an unusual occasion I met him, and he said, “Do you know, your meter is still showing ‘blank’”—I had an old-fashioned meter—“so I have not been able to take a reading for four years?” I said, “Okay. What can I do about it?” He said, “I don’t want to tell you this, because it will put me out of a job, but you ought to put a smart meter in.” I applied for a smart meter and had one fitted. The energy company had estimated how much energy I had used in the past four years. I disputed it and, with the help of my children, managed to reduce the estimate. The energy company gave me a new bill that was considerably less, although that is a matter for another debate altogether.
The smart meter was fitted. Once a month, I have to go outside and take a photo of my smart meter and send that photo over broadband to the supplier, because I do not have connectivity. My smart meter is not connected to anything, because I do not have mobile phone signal. That will be a challenge if we are going to provide 20 million smart meters—or however many we are supplying; it is quite a lot—by 2020.
I am the local MP and, interestingly, the local BBC presenter recently emailed me to say that he had a smart meter fitted, and he has to do exactly the same thing. It is a bit worrying if we are to win public support for smart meters if the local MP and the local BBC presenter have meters that do not work. Clearly, this is a private meeting, so I am not telling the world that my smart meter does not work, but I do enjoy telling the story.
Graham Stringer (Blackley and Broughton) (Lab)
I have no idea where the hon. Gentleman lives in Cornwall—he is clearly not getting a signal—but it is a much more general problem. At the present time, the smart meters are not functional in tall buildings. Does he consider that to be as big a problem as the one facing those living in the remoter parts of Cornwall?
Derek Thomas
The hon. Gentleman is absolutely right, and I thank him for that intervention. I raised the issue because I am wedded to the idea of getting smart meters. If we get them right, they are a fantastic thing, and we should be ambitious, but the roll-out will be flawed and difficult to recover if we cannot deal with the connectivity issues. The issue is not just for the Minister; it is for the whole of Government to recognise the challenge of giving each of us the best available modern-day technology. I will move on, because I am probably taking too long.
The roll-out of smart meters will undoubtedly help my constituents in west Cornwall and the Isles of Scilly, but there is work to do to convince them of the benefits and how smart meters can help them manage their energy better and in a different way, so that we do not place such a demand on, dare I say it, fossil and nuclear power. In Cornwall, we generate more energy than we use, such that wind turbines are turned off. If we get it right, and we learn to store energy, we will get people moving to electricity and away from oil for heating. We will be able to be much smarter about the generation and use of energy.
Smart meters have an important part to play, but the Government need to look at the challenge of delivering the programme by 2020. There is a real need for an independent review of the safety, cost and deliverability of the roll-out of smart meters. We must consider the pressure that suppliers are under to find and retain qualified engineers, to source the meters that will do the job and to ensure that they are fitted in a way that helps rather than hinders the consumer. The 2020 deadline is too ambitious. The cost and expertise required for installing smart meters has been underestimated, and if we stick to the current deadline, the impact on consumer experience will undoubtedly be negative. That is a shame, because this is a once-in-a-lifetime opportunity to get it right.
To conclude, it is clear that the intentions behind the roll-out of smart meters are good. I am absolutely a fan of the ambition, but we have to accept that the timetable is over-ambitious and potentially harmful to consumers. We therefore must use caution, re-evaluate the timetable and draw on the words of Benjamin Franklin—we must prepare properly, or prepare for smart meters to fail. I did not write that last bit, and I am not sure that it is the best bit of my speech. Thank you very much, Mr Turner.
Graham Stringer (Blackley and Broughton) (Lab)
It is a pleasure to serve under your chairmanship, Mr Turner.
I think there is something in the pathology of Government in this country—civil servants and Ministers —that means that we do not seem to learn from every new IT or technology project that goes wrong; we just wait for the next one to come along and that goes wrong. I think it was as long ago as 2000 that the then Minister of State in the Cabinet Office, Sir Ian McCartney, produced a special report, which, from memory, covered 12 IT projects that had gone wrong at horrific cost. Everybody said what a good report it was—which it was—but have Government learned from that? No. One could go through NHS recordkeeping, the Home Office, national insurance record systems, Libra—there are a whole series of IT projects that have put huge costs on the public accounts.
There are some real difficulties with smart meters, and I agree with the hon. Member for North Ayrshire and Arran (Patricia Gibson). We have good reason to be alarmed, however sensible it is to be in support of people having more real-time information about the energy they are consuming. Who could disagree with that as a reasonable objective? But let us look first at the Government’s cost-benefit figures, which the hon. Member for South Basildon and East Thurrock (Stephen Metcalfe), the Chair of the Select Committee on Science and Technology, referred to.
Written evidence to the Committee said that the process the Government had used to get a cost of £12.1 billion and a net benefit of £4 billion was intellectual slosh, when compared to eight other international studies, and asked some fairly fundamental questions. Why, when Texas has 350 pages of regulations to cover its smart meter system, does our system have 7,000 pages? I have not only had the pleasure of taking part in the Science and Technology Committee’s report; I also sat on the Select Committee on Energy and Climate Change with the shadow Minister, my hon. Friend the Member for Southampton, Test (Dr Whitehead). We asked just how many pages there were on the SMETS 2 meters, and it was a huge number of pages. One has to ask why there is no comparison. Why is it that in Italy and Spain the individual cost of meters is about half the price that they are in this country? The hon. Member for North Ayrshire and Arran pointed to one of the reasons. There are 11 objectives and in anything with 11 objectives, things will get lost.
One of the major objectives, however it is stated, is to stabilise the energy network. It can be destabilised because we are using intermittent sources of energy, such as photovoltaics and wind farms. When there is a big change in the wind or sunshine, that can destabilise the network. Smart meters can help to stabilise that. That is one objective. It is a national objective, the costs of which have been put on the individual energy consumer. I do not think that is fair. The German assessment—one of the eight other studies referred to—found that there was really only a benefit of moving to smart meters when individual consumption was more than 6,500 kwh per annum. That means there would only be a benefit for 10% of consumers.
There is a great deal to be worried about, including the background, the assessments and the principles. The incompatibility between the SMETS 1 and SMETS 2 systems, which has also already been referred to, is a real problem that is yet to be solved. An even bigger problem is that when Ministers were asked by the Energy and Climate Change Committee—my hon. Friend the Member for Southampton, Test may well have asked the question—what will keep the costs of the project down, because the Government have no control over that, the answer was “competition”. When British Gas are the near-monopoly supplier of the meters, that is not good enough.
The costs are going up, there is no compatibility between SMETS 1 and SMETS 2 meters, and if someone changes energy supplier, the meter will not work, so all the benefits of knowing the level of consumption disappear. That points to a fundamental flaw in the design. The meters should have been supplied, owned and paid for by the network supply companies, not directly by the electricity suppliers. If competition is what is going to keep price down, but a customer cannot move easily and get the benefit of a smart meter, it simply will not work.
I would almost guarantee without asking that every person in this room has a smartphone—we meet some people without smartphones, but very few indeed. In a common-sense world, a sensible system of trying to get immediate information—I accept it would not work at the moment in the more remote parts of Cornwall and perhaps Scotland—would be for someone to get the information directly to their smartphone and to have the control on their smartphone as well. That would solve the problem of the system not working if they changed supplier and of having to go somewhere to look at the meter.
I was in the British Embassy in Finland nearly 17 years ago, when a representative of Nokia showed me how he could close the curtains in his house and change which electrical appliances were working. Yet we started 10 years later, putting in systems that are less good than that Nokia system was then. We have to answer the question of why the system we are putting in is essentially obsolete, and chunky. It does not seem sensible.
One point that has not yet been made is that of security. We had a private briefing from GCHQ, which was quite reassuring, but we also got contradictory evidence from the Royal Academy of Engineering, which told us:
“The smart meter network is being installed before its requirements as an Internet-connected energy system have been fully determined”,
and that
“the threat of cyber attacks—either to gain information, ‘steal’ electricity or disrupt supply—is real and pressing…Disruption to energy and gas supplies at a massive scale is possible, either from cyber attack or errors in software.”
It went on to say that those are not the only threats to the system, and that it could be threatened by rogue programmers.
I think the idea of having complete knowledge of the energy that one consumes is a desirable objective, but we are doing this in a way that will be not appreciated by the consumer and will probably cost them money. I have one final question for the Minister. There has been a large assessment of this scheme, and I understand that there were four years of freedom of information requests before the document was published. Will the Minister put it into the House of Commons Library? If he will not, will he explain why?
Carol Monaghan (Glasgow North West) (SNP)
It is a pleasure to serve under your chairmanship, Mr Turner. I thank the hon. Member for South Basildon and East Thurrock (Stephen Metcalfe) for securing this debate. I have learned this afternoon that there are two things I need to see: first, the ITV documentary, if I can get it on catch up; and, secondly, Gaz and Leccy, which I have not seen, but then again I do not watch television—that is my excuse and I will stick to it. It is interesting that the documentary said that energy companies have so far been the biggest beneficiaries of smart meters. That fact was reflected in the comments of several hon. Members.
Smart meters were billed as transformational—they were going to revolutionise the way we use and monitor energy—but, a number of years into the smart meter roll-out, it seems that the benefits to consumers are limited and amount to a few pounds a year. The cost of the roll-out—£10.9 billion, or £215 per household—certainly seems far greater than any of the benefits. The hon. Member for Blackley and Broughton (Graham Stringer) talked about the different price in parts of Europe where similar schemes have been rolled out at a much lower cost. We need to look at that.
There are great benefits to using smart meters. Up-to-date billing allows consumers to spread the cost of their energy use, which can be very important in tackling fuel poverty, and the real-time usage information allows consumers to monitor what is going on. One of the things we do with our smart meter at home—these are the great games that we play as we do not have a television—is to see how we can reduce the house’s energy consumption by going round switching things off and seeing what difference it makes. It is incredible to see the difference that switching on a kettle can make. Things such as that can make consumers think more carefully about how they use energy, so it does have benefits. Meter data can be used to smooth demand on the grid, as the hon. Member for South Basildon and East Thurrock spoke about in detail.
There are lots of challenges to the roll-out. The fact that the mobile phone network is being used to relay the information to the energy companies is problematic in some areas, and completely restrictive to the point of not working, as we have heard, in others. We know that that is a problem in rural areas—the hon. Member for St Ives (Derek Thomas) said that he has to take a photograph and send it to the energy company. The roll-out will obviously be more challenging in rural areas—I am thinking about the highlands and islands of Scotland in particular. It is easy to install a lot of meters in an area of high population density, but it is more difficult when people are scattered widely across an area.
The hon. Member for Blackley and Broughton mentioned flats and offices. That is an ongoing issue, which has to be looked at far more seriously than it is at the moment. The lack of qualified installers means it will be a challenge to reach the 2020 target, which the hon. Member for St Ives spoke about. I visited Scottish Gas’s training centre in Hamilton near Glasgow a few months ago. I saw smart meter installers being trained, and I looked at the equipment they use. Scottish Gas has lots of apprentices, and they are being trained not only in installation but in customer service and engagement. I am not sure every consumer gets service as good as those installers are being trained to provide.
A number of hon. Members mentioned the issue of data. Obviously, data can be used by energy companies to monitor consumption, but in our inquiry the Science and Technology Committee looked at the issue of who, other than the energy companies, is able to access the data. We asked whether, for example, somebody would be able to see that a person’s energy consumption had dropped, and therefore infer that they were not at home or on holiday. My hon. Friend the Member for North Ayrshire and Arran (Patricia Gibson) raised the issue of GCHQ’s intervention in smart meter technology.
We know that certain demographics are more reluctant to engage with technology—I am thinking of elderly people in particular. Some of these meters are extremely user-friendly, but that is not always the case. The hon. Member for South Basildon and East Thurrock talked in great detail about the difficulties with SMETS 1 meters—first-generation meters. The problem is not just the incompatibility of those meters. There is also the issue that some of the new meters being installed are of a far lower standard than others. There is great variety in the meters that are being installed. The ones that I saw at Scottish Gas were all-singing, all-dancing, and could probably make a cup of tea as well, but the meter I have got is far less interactive. There is a real danger—we have seen this happen—that after a short time people toss the meter, or at least the display unit, in a drawer or a cupboard somewhere.
Dr Tania Mathias (Twickenham) (Con)
I agree with all the hon. Lady’s points. I do not think this issue was covered in our Committee’s report, but is she concerned that the cost of a second meter falls on the customer? The report shows that there is not enough advantage for the customer, compared with the energy companies.
Carol Monaghan
Absolutely. As I said at the start of my speech, the energy companies are the biggest beneficiaries of the smart metering programme. If a customer has to pay another £250 for a second meter because they have changed suppliers, it makes changing too costly. The hon. Member for Blackley and Broughton talked about the use of smartphones as a display, instead of using the units. Perhaps that is something for the future.
Fuel poverty was mentioned by a number of speakers, including my hon. Friend the Member for North Ayrshire and Arran and the hon. Member for St Ives. The hon. Gentleman talked about vulnerable consumers seeing the amount of energy they were using and possibly being unwilling to heat their homes. That is a danger, but the biggest danger in that case is possibly the cost of energy and fuel poverty, rather than the meter.
To finish, I have a few questions for the Minister. First, what support will there be for people who have first-generation meters that could be obsolete even before the 2020 roll-out? Secondly, what will the Government do to increase consumer engagement, to make people more energy savvy and allow them to see how best to use their meter? Thirdly, will the Minister reassure all of us that the 2020 target for smart meter roll-out must not be met at the expense of the consumer?
Dr Alan Whitehead (Southampton, Test) (Lab)
I congratulate the Science and Technology Committee on its excellent report, which has been the subject of our discussions this afternoon. I also congratulate the hon. Member for South Basildon and East Thurrock (Stephen Metcalfe) on his success in obtaining the debate and on his presentation of the Committee’s concerns, which started an exceptionally well-informed debate about smart meters and their roll-out. I add a caveat, however: the problem is that the more we are informed about the subject, the more questions arise about what has happened, what will happen and what is going on with smart meter roll-out.
A number of those questions arise from what the Select Committee characterised as the multiplicity of aims set out by the Government for smart meter roll-out, and from the dissonance between what are presented as the benefits of the roll-out and what the various benefits actually are. Across this Chamber, I think we would say that those benefits from smart meters are real and considerable over a period time, but they are not necessarily cast as much for the public’s benefit as they are presented.
We do not need to look at a television documentary to tell us where and how the benefits fall, because the Select Committee report provides a helpful breakdown, derived from the 2014 impact assessment of the smart meter balance of benefits. The report sets out, perhaps more widely than in some of our discussion, what range of benefits occurs to what section of the industry and to consumers as a result of the smart meter roll-out.
For example, the Select Committee report sets out the estimated total benefits of smart meters, once they have been installed completely: more than £5 billion accrues to consumers from energy saving and micro- generation; but supplier benefits—the big six energy companies and others—come in at £8 billion, arising from avoided site visits, fewer inquiries and other such things related to the management of energy supply. The benefits also spray out to the rest of the energy industry: network benefits from reduced losses, reduced outage notification calls, fault fixing and so on come in at an estimated £1 billion; and generation benefits from avoided investment in generation from peak shifting through time-of-use arrangements and so on are getting on for another £1 billion.
That picture of the estimated benefits—based on Government figures—clearly shows that the consumer benefit is a fraction of the overall figure. The entire cost of the smart meter roll-out, however, will clearly be borne by that first group I mentioned, the consumers. I worry a little that that continues to be obfuscated in any presentation of what is happening with smart meters.
For example, the 2016 impact assessment—which by the way considerably downgrades the total benefits available and substantially increases the amount for the costs engaged in the system, in particular for DCC—insists on stating:
“Energy suppliers will be required to fund the capital costs of smart meters and IHDs. They will also pay for the installation, operation and maintenance of this equipment plus the communications hub (which links the smart meters to the supplier via the DCC).”
I imagine that that paragraph looks okay from the Government point of view, because it emphasises that the Government are not paying. At the other end, however, consumers are.
Consumers will probably pay somewhere between £130 and £200 on their bills to recover the costs of the installation of a smart meter on their property. Just this week two of the big six companies announced sky-high increases in their bills. They stated that the increase is as a result of the price surge in rising wholesale energy prices and—admitting this, I think, for the first time—the Government’s smart meter policy. They specifically state that of the 10% increase, a substantial element is because of the smart meter policy.
Among other things I would like to hear from the Minister this afternoon—it would save me some time, because I sent him a written question on this precise issue, so perhaps we will short-circuit the reply process—is, what are energy companies doing about their recovery of money from smart meters? If what is being said about the recent price rises is an accurate depiction of where the increases come from, at the very least energy companies are seeking to recover the cost of smart meters up-front in tariffs, rather than spreading it over a longer period. If that is the case, the £100 increase on the fuel bill as a result of price increases by the two companies can be depicted as a recovery of between £30 and £40 of smart meter costs in that price alone, which looks like a substantially greater amount of recovery than should have been the case given the spread out nature of the installation of smart meters and what is meant to be the recovery of costs over a period of time.
Has the Minister had any discussions with the energy companies about their policy for the recovery of the cost of smart meter introduction? How will they do that and what will be the impact on bills, bearing in mind that we know that consumers will be paying for it?
I have a great deal of sympathy with the point that my hon. Friend the Member for Blackley and Broughton (Graham Stringer) made that it does not seem right for consumers to bear the whole cost of the introduction and roll-out of smart meters in the way that has been described, particularly given that the benefits are spread across the industry.
The other point that worries me on the basis of better information is the progress of smart meter roll-out. The Select Committee drew attention to that issue, but it is also apparent from the most recent impact assessment, which came out in late 2016, and the announcement at the end of 2016, which the Chair of the Select Committee pointed out, that DCC had finally gone live-ish at the end of November. I make two points about the significance of DCC going live. First, it announced that it had gone live on precisely the last day before it would have started paying penalties for not going live. It announced that it was going live in only two out of the three areas that it operated in, and that it would go live in the third area a month later.
Secondly, the going-live document contained pages and pages of “workarounds”—in English, that means “things we haven’t resolved yet”—and those appear still to be substantially outstanding. I understand from talking to people who rely on DCC going live to get going with SMETS 2 meters in a coherent way that a good proportion of those workarounds and the way things are presently configured render it difficult reliably to go live on those meters. So, to paraphrase a phrase that we have heard recently, is DCC going live actually DCC going live? Are there still issues with DCC, and particularly SMETS 2 roll-out, that we need to look at?
Finally, one of the consequences of roll-out not having started very quickly and SMETS 1 meters having been rolled out that may well be obsolete and need to be replaced in the second phase of roll-out is that in the 2016 impact assessment, there is a curve for roll-out—not just the roll-out itself but the speed of the roll-out—with a gradient that bears no resemblance to the gradient of the curve in the 2014 impact assessment. Contrary to previous suggestions that about a million and a bit meters per year would be installed between 2017-18 and 2018-19 before the finishing date of 2020, it is now suggested that 2.5 million meters should be installed per year. The industry says that it will be impossible to do that over that period.
All that adds up to the suggestion that the hon. Member for St Ives (Derek Thomas) made that it may be time for a review of what is going on, so that we are clear that we can achieve the roll-out on time and it will have the expected benefits for customers, on the basis of a fair distribution of costs and benefits.
Mr Andrew Turner (in the Chair)
I call the Minister, who has until 2.58 pm.
The Minister for Climate Change and Industry (Mr Nick Hurd)
It is a great pleasure to serve under your chairmanship, Mr Turner. I hope that you have got something out of the debate. At the very least, we have had an introduction to Gaz and Leccy, courtesy of my hon. Friend the Member for St Ives (Derek Thomas).
I congratulate the Chairman of the Science and Technology Committee, my hon. Friend the Member for South Basildon and East Thurrock (Stephen Metcalfe), his Committee and its previous Chairman for an extremely useful report and debate. He described our commitment to ensure that every household and small business is offered a smart meter by the end of 2020 as a “major project”. I think he rather underestimates it, and we need to bear that in mind.
It is absolutely right and a central part of a functional democracy that Select Committees and Opposition parties probe, prod, ask tough questions and even, in our view, tip over the line into spreading alarm. That is how we operate, and it is entirely right, particularly when we are faced with a project on this scale, not least as the past is littered with good intention and bad execution, as the hon. Member for Blackley and Broughton (Graham Stringer) pointed out. I therefore entirely welcome the challenge that we have heard during the debate, but I urge hon. Members not to lose sight of the context.
We are talking about an upgrade of a significant part of our infrastructure—a 100-year-old technology that means that far too many people receive bills on which their consumption is estimated. We do not tolerate that in the supermarket, so why on earth, in 2017, should we tolerate it at home? Our energy system is absolutely functional to a smart and prosperous economy, so why should people continue to be dependent on a technology that is so out of date? That is the context: it is about upgrading out-of-date infrastructure as part of a bigger transformation and transition process in our energy system.
I think there is cross-party agreement about the opportunity and need to move to a smart system that is more flexible and ultimately cheaper, and which our constituents feel they have more control over. I do not think there is any real resistance to the direction of travel, but the debate sits in that important context. Hon. Members have posed tough questions and challenges, which I will do my best to respond to, but those who know anything about system change and consumer behaviour change should recognise that some of the momentum is genuinely encouraging, and we must not lose sight of that. Almost 5 million customers now have smart meters, and the economic analysis continues to suggest that they will have a net benefit of £5.7 billion. We do not obfuscate about that in any way, and that analysis is regularly updated.
[Robert Flello in the Chair]
The Chairman of the Select Committee talked about the benefit to consumers. I know the point he was trying to make, but we are all aware that consumers are concerned about costs. Evidence from British Gas surveys suggests that consumers with smart meters save 3% or so on their energy bills, which, in my experience, is material, and I think he also knows that those savings will grow as we move towards 2030.
One important piece of information that has been missing from this debate is that consumers like smart meters. Surveys suggest that something like eight out of 10 people with smart meters would recommend them to their friends. There are of course big challenges around implementing them—how could there not be?—but we are driving hard a process that our constituents like and which is an important part of upgrading the country’s infrastructure.
I will do my best to address the issues that have been raised, particularly by the Chairman of the Select Committee, whose points were valid. He quite rightly presses us on the need to tackle the technical limitations, which are real. A conscious decision was taken to proceed with SMETS 1, because first-stage smart meters do deliver some benefits and were an essential part of the process of getting a supplier system moving and helping to prepare for installation. Of course, we do not want our constituents to trade off the opportunity to get a better tariff against the opportunity to retain smart functionality. That is clear.
I assure my hon. Friend the Member for South Basildon and East Thurrock that the DCC has begun the project to enrol the SMETS 1 smart meters from 2018 in order to make them usable by all energy suppliers rather than just the one that initially installed them. This is an issue I feel strongly about and the Government will be watching extremely carefully. There has been a consultation. Nothing I have heard gives me cause for alarm at this stage but it is extremely important that we end up at a destination where the early smart meters are usable by all energy suppliers and constituents do not face trade-offs between tariff and functionality.
My hon. Friend pressed me on national benefits and the need to make a broader case than the simple proposition, “This will save you money.” That is an interesting debate, and it is the same kind of debate and challenge that I am wrestling with, as Minister for Climate Change, in engaging people with climate change. Do we try to frame it in language that talks simply about things that are closer to home and more relevant to our constituents, or do we try to put it into a bigger picture of public good? Most of the advice suggests that when trying to propose something to a consumer or our constituents, it is better to focus on the issues and concerns most directly relevant to them.
I would draw a distinction between, as it were, a marketing proposition to a consumer and our constituents and the need for this place, with its processes of accountability, transparency and scrutiny, to be clear about what we are trying to do and what the wider benefits are. That is entirely valid. My hon. Friend wanted more information about the system benefits, which are a clear part of the net benefits analysis, and I think they are real. They fit into the broader strategic thrust that the Department is now leading on, in moving towards a smarter system. He may be aware that we put out a call for evidence recently and we are receiving information on that. That information about how smart meters fit into a broader strategic thrust to make the system more smart and flexible will be transparent and open to accountability and scrutiny.
My hon. Friend asked about consumer engagement. He is entirely right about that, because ultimately smart meters must be a fantastic consumer experience; otherwise, these things will sit in drawers and get ignored—everything that the contributors to the debate have rightly pointed to. That is why we mandated the setting up of Smart Energy GB and mandated energy suppliers to engage with their consumers before, during and after installation. Smart Energy GB is working with trusted third parties, including Citizens Advice, National Energy Action, the National Housing Federation and Age UK, among many others, to ensure that customers can access advice about the roll-out. I should add that we are conducting our own research into consumers’ experience about the service they get after installation, which is a point he made specifically.
Dr Mathias
I am concerned about the exaggeration of the benefit for customers. In the Select Committee we found that we have one of the smallest variations between peak and standard demand of almost any country in the world. I put it to the Minister that we should be honest with consumers and say, “No, it is the companies and the Government, in policy making, who will benefit from this most.”
Mr Hurd
I am not sure that is entirely right. My hon. Friend is right that the benefits are not restricted entirely to consumers, but that has been made public; we have been open about that. Missing from the debate is an acknowledgment that suppliers face costs associated with installing the meters, which need to be recovered. Yes, there are system benefits, but this is not something that does not benefit our constituents and consumers. We want less cost in the system and a smarter system, and if the meters contribute to that, that is good. I come back to—not estimates, but actuals, if we believe it—the large British Gas survey of their customers, who are achieving 3% savings. That is not immaterial, particularly because, as she well knows—she is close to her constituents’ concerns—we are in a climate where people are concerned about rising energy costs, as we saw the other day.
Dr Mathias
This is not what we investigated, but, as the Minister knows, the direct debit monthly bills for customers with smart meters still use estimates.
Mr Hurd
We need to move on from estimates—that is part of the point. We do not make purchases or pay estimated bills in other areas, so why should we in this area? The whole point is to move to a system where we can pay for what we use. The point I am labouring is that the actual data, not the estimates or predictions, suggest that people are saving money now, and not in an immaterial way. If the projections are right, that will grow.
I want to say something briefly about privacy and reach, which I know from having tackled this in a previous debate is a particular concern for many communities in Scotland. Suppliers must take all reasonable steps to reach all households in Great Britain, islands included. Privacy has been an important issue from the start; in fact, I remember constituents raising it with me. Let me assure the House that a robust privacy framework is in place. The central principle of the framework is that consumers have control over who can access their consumption data and only authorised parties can access consumption data through the Data Communications Company.
I hope that I have addressed some of the principal concerns. Let me address a point made by my hon. Friend the Member for St Ives and others, questioning the ambition and pace. We hear that point, not least from suppliers, and we tend to hear it from those suppliers who are performing less well than others. I think the House is savvy enough to know that some of the motives behind such questioning and challenge may be mixed. Our position is that we recognise that the situation is challenging, but we are driving system change and it needs to be driven hard. We review the situation and will continue to do so and to listen.
I do not see any argument at this stage that the Government should send a signal of weakening ambition. Far from it. Actually, given the prizes attached to this, if we want to get it right—a lot is work in progress in tackling some of the thorny, difficult issues that underlie it—it is not right to send any signal of slipping ambition. For that reason, I come back to my main point, Mr Flello —it is good to see you in the Chair. This is not a trivial issue; it is a fundamental piece in the broader picture of how we upgrade our critical energy infrastructure to deliver a better system for our constituents.
Stephen Metcalfe
Welcome to the Chair, Mr Flello. I thank the Minister for his words and for some of his assurances. Forgive me if I failed to recognise the scale of the challenge. I do not; I get that it is a huge undertaking. However, he will agree that the role of the Science and Technology Committee is to provide challenge where possible. We all recognise that there are huge potential benefits to be found through smart metering. We want those benefits to be available as quickly as possible and for them to be rolled out in a way that we can all understand.
We heard praise and concern in all the contributions. I have a long list of people, which I will not have time to go through, but they covered issues around fuel poverty and who actually gains: the consumer or the supplier? The one issue I had not imagined would come up this afternoon was using a smart meter as a replacement for a television, running around the house, seeing what to switch off. However, from my experience, I know when someone has left their straighteners or a television on in the house, because the meter goes into the red, and we do benefit from that.
We all want this programme to work, and with enough effort I am sure we will get it to work. We will continue to keep an eye on it, and I am sure that the Minister will also—
Robert Flello (in the Chair)
Order.
Motion lapsed (Standing Order No. 10(6)).