Smart Metering: Electricity and Gas

Alan Whitehead Excerpts

Thursday 9th February 2017 Westminster Hall

[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.