Smart Metering: Electricity and Gas

Andrew Turner Excerpts

Thursday 9th February 2017 Westminster Hall

[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.

--- Later in debate ---

[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.