Smart Meters Bill

Greg Clark Excerpts

2nd reading: House of Commons & Money resolution: House of Commons & Programme motion: House of Commons & Ways and Means resolution: House of Commons
Tuesday 24th October 2017 Commons Chamber

[The Secretary of State for Business, Energy and Industrial Strategy (Greg Clark)]

I beg to move, That the Bill be now read a Second time.

The Bill, which passed its pre-legislative scrutiny in 2016, is narrow in scope and technical in nature, but it is an important Bill that supports the delivery of the smart metering implementation programme to modernise an outdated part of our energy infrastructure. Smart meters are the next generation of metering technology and are an important element of a smarter energy system. We set out in the recent smart systems and flexibility plan how smart meters will enable technologies such as demand-side response, whereby consumers can gain financially if they lower or shift their electricity use at peak times. The data provided by smart meters will also help improve investment decisions in Britain’s energy infrastructure. A smarter, more efficient energy system could drive up to £40 billion in energy cost savings for consumers by 2050. Smart meters will help with that by giving consumers greater control over how and when they use energy. By allowing homes and businesses to better manage their energy use, we open up the possibility of flexible energy tariffs. Taken together with secure smart appliances, consumers will thus be able to benefit from using energy at times when it is cheaper. Shifting demand to match supply may be cheaper than building generation capacity to meet future demand peaks.

This is just the start. New innovative and disruptive business models and systems will be enabled, and will help deliver a cleaner, cheaper and more secure energy future. The smart meter roll-out is, as the Select Committee found, a vital infrastructure upgrade which supports our ambition to make Britain a world leader in energy innovation. Indeed, this is the first step on that journey—exchanging analogue meters for a digital model—and it will in itself deliver savings.

[Alberto Costa (South Leicestershire) (Con)]

I congratulate the Government on this Bill. Does my right hon. Friend agree that it is imperative that, in addition to having advertising from Smart Energy GB on the roll-out of these meters, small energy firms that are contacted by consumers, as I have done with my own, promptly respond to them on this matter?

[Greg Clark]

I am grateful to my hon. Friend for that, and he is absolutely right in what he says. If we want to have a fully smart grid, the more people that avail themselves of that the better. When members of the public share his enthusiasm, it is very important that they should be given the chance to have a smart meter.

[Sir Edward Davey (Kingston and Surbiton) (LD)]

Will the Secretary of State explain why the roll-out of the second set of smart metering equipment technical specifications—SMETS 2—has been so delayed? I understand, probably better than most Members, the frustration he will feel about the delays to the smart meter programme. Is not the concern that suppliers are going to fit lots of SMETS 1 meters, which will be a barrier to competition and reduce the benefits of the smart meter programme to consumers?

[Greg Clark]

I am grateful to the right hon. Gentleman for raising that concern. He is absolutely right that in moving towards a fully smart system we want full interoperability, which is what SMETS 2 achieves. It has been tested and will be rolled out from July next year. The key point is that those who have a SMETS 1 smart meter will be able to access the software upgrades that will provide that interoperability. That is an important aspect of the roll-out and I am pleased to confirm it to him.

[Sir Edward Davey]

I am grateful for that clarification, because it may put some minds to rest if they know that the software upgrades will be available. There is a danger that many suppliers, be they one of the big six or others, see the roll-out of as many SMETS 1 meters as possible as a way to stop competition and lock in their consumers. That should really worry everyone in the House. Has the Secretary of State weighed up the benefits of ensuring we have more competition through the roll-out of SMETS 2 meters against the obvious downside of delaying the 2020 deadline?

[Greg Clark]

Yes, I have. Again, I am grateful to the right hon. Gentleman for asking that question. It is essential that the upgrade is available so that the smart meters that are installed under the SMETS 1 standard will be operable under the SMETS 2 standard. That has been a key part of the development and testing for exactly the reason he mentioned.

Smart metering upgrades the interactivity of the energy system in general. One big advantage of it is that if the system is fully interactive, less unneeded generating capacity needs to be invested in, with consequent savings to consumers. Even in the initial operation, it is estimated that by 2020 consumers can make net savings on their household bills to the tune of £300 million. In addition to the bill savings, smart metering will deliver benefits to the energy industry and to the economy more widely. It seems to me to be essential that if we want to plan a prosperous future, building on our strengths, this country should be the place in the world that can best integrate renewable energy and battery storage—not least in electric vehicles—with the consumer. Smart metering is an important element of that.

[Mr Jim Cunningham (Coventry South) (Lab)]

Has the Secretary of State considered people in the poorer sections of society who might have difficulty paying?

[Greg Clark]

Yes, and it is important that all consumer groups should be able to access the benefits, including lower bills. That has been an important requirement, and the Bill addresses it by extending the necessary powers to ensure that we have the regulatory ability to insist that the roll-out goes to all consumers and is not restricted to the more affluent.

[Sir Edward Davey]

I am grateful for the Secretary of State’s answer to the hon. Member for Coventry South (Mr Cunningham). Is he trying to ensure that suppliers roll out smart meters to prepayment customers as soon as possible? The benefit of smart meters to those on low incomes who use prepayment is that some of the extra costs associated with prepayment go.

[Greg Clark]

The right hon. Gentleman is right: we especially want to extend smart meters to those on prepayment meters and those who might struggle to afford their energy bills, because the benefits of the savings are disproportionately better for them.

[Amanda Milling (Cannock Chase) (Con)]

Does my right hon. Friend agree that one of the biggest issues with the energy market is apathy on the part of consumers? We must try to get consumers to engage so that they understand their energy use and bills and can switch. Smart meters are critical to engaging the public.

[Greg Clark]

My hon. Friend is absolutely right. At the moment, an imbalance in information characterises the energy market. The suppliers know pretty well the consumption patterns of their customers, but those same data are not available to the customers to help them see whether they could make considerable savings either with another supplier or in a different type of tariff that might, for example, reward the use of appliances at off-peak times. It is a very important change.

[Mims Davies (Eastleigh) (Con)]

I note that the Bill is just the start in terms of innovation. However, a local college, a training provider for placing these meters, has raised this issue with me. It said that some energy companies have outsourced the placement work and the training and that the installation is not happening because the training courses are not sufficient. Do the energy companies have a question to answer when it comes to really helping consumers?

[Greg Clark]

My hon. Friend raises an important point. I would be very pleased to take up the particular concerns of her college. The energy companies do have an obligation to roll out smart meters. If they subcontract the work, they do not escape their responsibilities. Again, the purpose of the Bill is to extend the current regulatory powers through to the end of the roll-out so that we can ensure that the higher standards apply.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

I thank the Secretary of State for giving way one more time. On projected savings, consumer benefits are estimated in the Government’s cost-benefit analysis to be £5.24 billion. How much of that is based on consumers having to switch? In the same cost-benefit analysis, supplier benefits are estimated to be £8.25 billion. How will those supplier benefits be passed onto the consumer?

[Greg Clark]

The hon. Gentleman raises an important point. There are multiple benefits. About a third of the savings come from the possible reductions in the use of energy. Just over 40% comes from the supplier’s cost savings, which is a result of not having to read meters—that gets done automatically. We expect those savings to be passed onto consumers as savings in their bill. In the 21st century, it seems absurd that we should have to rely on someone physically coming to inspect, literally, a spinning metal wheel. That is decades out of date. To have such work done automatically provides important savings. Therefore, there are benefits to consumers and to the whole economy.

[Sir Greg Knight (East Yorkshire) (Con)]

Will my right hon. Friend confirm that, if a customer does not want to have a smart meter, they will not be forced to have one installed?

[Greg Clark]

I can certainly confirm that. There is no obligation on the customer whatsoever.

The roll-out is well under way. Some 7.7 million smart meters were installed by June 2017. The current rate of installation is around 350,000 a month, but that is increasing as energy suppliers continue to ramp up their delivery. As the right hon. Member for Kingston and Surbiton (Sir Edward Davey) mentioned, it is right that we should move on to the second generation of smart meters, the so-called SMETS 2 meters. One advantage of doing so is that the next generation of meters are between 20% and 30% less costly than SMETS 1 meters, thereby providing another good reason to upgrade.

In recognition of the importance of this upgrade and the value that it will bring to consumers, we are committed to seeing all homes and small businesses being offered a smart meter—but they are not compelled to have one—by the end of 2020.

[Alan Brown]

To help achieve that 2020 target, the install rate needs to go up from 350,000 a month to 1.25 million a month. How will that happen?

[Greg Clark]

There is a significant increase of the scale that the hon. Gentleman describes. Part of the reason for ensuring that we have these powers is so that the energy companies do not regard this as optional, and have to meet their obligations.

The Government are overseeing the process and that has enabled us to take steps to protect consumers. We have put in place a licensed central data and communications provider, the Data Communications Company. The information will not be held exclusively by the supplier. It is therefore available, with the consumer’s consent, to competitors. Through the DCC, energy companies and other authorised parties are able to collect energy data remotely and securely.

Let me take the House through the specifics of the Bill. Clause 1 extends by five years the Government’s powers to direct the roll-out of smart meters. Since the first legislation was introduced, the powers have lasted for five years at a time, which seems to be the right approach, rather than having powers in perpetuity. Therefore, it is consistent with our practice to come back to the House in order to renew those powers for five years.

[Alberto Costa]

I am, once again, grateful for the Minister’s generosity in giving way. I understand why the Government require the powers to be extended by another five years, but does the Minister agree that it is imperative that all energy companies, including the smaller ones that I mentioned earlier, give consumers information in a timely manner? The message plastered across the underground and in various papers is that consumers should contact energy suppliers, but from my own experience, those suppliers are not responding in a timely manner. What can the Minister say to assure me that energy companies will respond to consumers now, rather than in two years’ time?

[Greg Clark]

My hon. Friend again makes an excellent point. Companies are under an obligation to offer households a smart meter by the end of 2020, and these powers allow the Government and the regulator to hold them to their licence conditions in so doing. If he gives me the details of the particular supplier to which he refers, I would be happy to take up that case.

The powers are due to expire on 1 November 2018, so the Bill extends them for five years. An extension of the powers is necessary in order to ensure the successful roll-out by the end of 2020, and to maximise the benefits accruing to consumers during and after the end of the roll-out.

Clauses 2 to 10 introduce a special administration regime to ensure continuity of the smart meter continuation service currently provided by the DCC. Special administration regimes are common—in fact, typical—in network companies. They are primarily designed to guard against the DCC going insolvent due, for example, to cash-flow problems if one or more of its energy supplier customers were unable to pay its charges.

The DCC licensee is deliberately designed to have limited financial assets of its own to avoid the cost of holding large capital reserves, so it relies on timely and full payments from energy suppliers to meet its own contracted obligations to its subcontractors, which provide the communications network. If, for some reason—we regard this as being very unlikely—one or more of its larger customers did not make payments, there are provisions in the smart energy code to allow it to make emergency charges on other suppliers. If these emergency charges also went unpaid for some reason, there would be a theoretical risk that it could go into administration and cease service, so the special administration regime allows the Secretary of State—or Ofgem, with the Secretary of State’s approval—to apply for an administration order to be made in relation to the smart meter communication licensee. Such an order would direct that, while it is in force, the affairs, business and property of the company are to be managed by an administrator appointed by the court.

The aim of the special administration regime is to ensure that the functions of the smart meter communications licensee, under its relevant licences, are performed efficiently and economically, pending the company being rescued or its business being transferred to another company. In the unlikely event of the DCC’s insolvency, fundamental services may be disrupted. Therefore, it is prudent to have safeguards in place, as with other network operators, such that its continued operation is protected. This special administration regime is standard practice in the energy sector, and these powers are based on similar regimes that have been introduced—for example, for networks and suppliers.

The Bill allows the Government to continue to progress with the important goal for the national economy of delivering an energy system across the country that is smarter and more flexible.

[Sir Edward Davey]

I am grateful to the Secretary of State for giving way, and I know that he is on his peroration. One big policy issue is the interrelationship between the smart meter roll-out, with the 2020 deadline, and the energy price cap he has proposed. How does he see those linking together? Does he see the price cap going once all smart meters have been deployed?

[Greg Clark]

The draft Bill the Select Committee is going to scrutinise means that there would be a temporary price cap while the current uncompetitive conditions in the market continue. As we have discussed, one of the major advantages of the smart meter programme is that it corrects the imbalance of information between consumers and suppliers, and that is something Ofgem will want to take into account in deciding when to lift that price cap. So the connection with smart meters is very important.

The Bill is an important step in making sure we have one of the smartest, most flexible energy systems in the world, enabling us to take advantage of new technologies while at the same time delivering benefits for households and small businesses. I commend the Bill to the House.

--- Later in debate ---

[Dr Whitehead]

I am very sorry—it’s Don Valley now, isn’t it?

My right hon. Friend talked about the continuing imbalance of benefit in the roll-out of smart meters, with the benefit appearing to be accruing to energy companies, as opposed to customers. For our part, we support the idea of introducing smart meters across the country to replace the dumb meter system that serves the customer very badly and has historically done so, and is certainly not fit for purpose for the requirements of the different ways of supplying, using and measuring power that are coming our way with the energy revolution that is upon us.

The gain not only to customers but to our energy systems as a whole of having collectively installed, sufficient smart meters across the country to bring in new ways of measuring and predicting use of associating smart meters with smarter grids, thereby saving enormous amounts of further future expenditure in grid strengthening and capacity additions—all to the benefit of a smarter, more resilient, more efficient energy system for the future—suggests that supporting smart meters is right thing to do.

But then we come to the process by which smart meters are rolled out, and there is much to raise an eyebrow about. First, there is the Government’s original choice of who should undertake the roll-out—the energy companies: a model not adopted by any other country managing a smart meter roll-out programme, as my right hon. Friend the Member for Don Valley (Caroline Flint) pointed out. Secondly, there is, as a number of hon. Members have mentioned, the high overall costs built into the roll-out—costs that will eventually land on consumers in the shape of bills on their doormats. Thirdly, there is the truly lamentable performance so far in getting the DCC—the communications company responsible for making smart meters communicate well and on an interoperable basis—up and running so that smart meters, once installed, really can communicate with other and with the system. That communications company has now only just gone live, at the very end of the window for doing so before serious repercussions arise. Fourthly, there was the decision, halfway through the roll-out, to transition from one type of smart meter to another—a process akin to trying to change the wheel of a car while it is driving along the road.

All these issues raise legitimate and far-reaching questions about whether the goal of having a critical mass of smart meters in place by the end of 2020 is likely to be achieved and whether, in the short time available to us, moves can be made to get us back to that goal. The recent reports in the 2016 impact assessment suggest that we are not doing very well on installation—that we are set for an almighty bunching of installations in late 2018 and 2019 that is very daunting, even if vans of installers are not starved of meters to put up because they have been told not to install the old ones and are awaiting supplies of the new ones to install. I welcome the consultation on methods of resolving the possible hiatus in supply during the changeover from SMETS 1 to SMETS 2 meters. However, I am minded—I think the Government will have some difficult decisions to make in this regard—of what we need to do by 2020 in populating the country with smart meters to the extent that we can really make these changes possible, for our collective good, given the sheer number of smart meters that have been installed across the country.

We need to judge the very modest changes to the smart meter roll-out regime in this Bill against that wider background of decisions and progress made in the roll-out itself, and of how far away we are from the goal of having a national smart meter presence that makes all the other energy innovations—and cheaper energy and gas—possible, and to decide whether we should take the opportunity to add further elements of “getting on with it” into the Bill as it progresses through Committee.

We will not oppose this Bill on Second Reading. However, I place the Minister and the Government on notice that in Committee we will closely scrutinise the roll-out provisions currently in place to look at ways in which we can make amends for some of the frankly sloppy decision making that has occurred in the progress of the roll-out, and stiffen the sinews of the programme so that it works as well as it can. It is perhaps no coincidence that the—

[Greg Clark]

Will the hon. Gentleman confirm that the programme motion is generous in providing time for consideration of the Bill?

[Dr Whitehead]

The last time I heard about the progress of the programme motion, there was no agreement on the number of days that could be set out for the Committee stage, so it may well be the case that that concern will be reflected tonight. However, I would emphasise that as far as the main purpose of the Bill—

Smart Meters Bill

Greg Clark Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Monday 5th February 2018 Commons Chamber

[The Secretary of State for Business, Energy and Industrial Strategy (Greg Clark)]

I beg to move, That the Bill be now read a Third time.

The roll-out of smart meters, on which the Bill is focused, forms an important foundation for the smart systems and flexibility plan, which was published last year, and which sets out a number of actions to deliver a smarter, more flexible energy system that supports innovation in smart products and services. It is part of our industrial strategy ambition to make Britain one of the best places for energy innovation and clean growth, to the benefit of consumers, workers, investors and the environment. More broadly, the roll-out is an important part of our reforms of the energy market, driving engagement and competition. Smart meters will offer consumers much more knowledge about their energy use, which they can use to get the best deals possible. It complements the measures in our forthcoming retail energy Bill, which will protect consumers and ensure that the market is working for loyal customers.

Before I say more about the Bill, let me take a moment to express my gratitude to Members for the way in which they have engaged with the Bill. I thank all Members on both sides of the House who have contributed to its development, especially those who participated in the Committee and Report stages. I thank my hon. Friend the Under-Secretary of State for Business, Energy and Industrial Strategy, the Clerks and the House authorities, the experts who gave oral evidence to the Committee, the organisations that took time to provide expert written evidence, and my officials, who have worked very hard and will continue to do so as the Bill proceeds.

I also thank both Opposition spokesmen. As ever, the hon. Member for Southampton, Test (Dr Whitehead) brought to bear his long-standing interest in and deep knowledge of these matters. Members have offered challenges and insight throughout the Bill’s passage, and their contributions—in response to many of which my hon. Friend has been able to make commitments—will aid this important programme.

Debates on a number of amendments have resulted in commitments to publishing more substantive annual reports on the progress of the smart meter roll-out, undertaking a public consultation on the expected cost impact on consumers before laying the licence modifications enabling the special administration regime cost recovery mechanism to take effect, and working with the Under-Secretary of State for Environment, Food and Rural Affairs, my hon. Friend the Member for Suffolk Coastal (Dr Coffey), to promote best practice in the recycling and reuse of old meters.

The extended regulatory powers proposed in the Bill will enable the Government to continue to oversee and facilitate the smart meter roll-out. It will enable them to maintain appropriate consumer safeguards, and, in particular, to act on the findings of monitoring and a post-roll-out review. It will protect smart meter services for both consumers and businesses by providing the enabling framework for a special administration regime for the national data and communications provider. Having been amended in Committee, it will also support the efficient and effective delivery of half- hourly settlement by the energy regulator Ofgem.

As the House knows, half-hourly settlement is another important stepping stone to that smarter, more flexible energy system. It will help to deliver benefits both to consumers and to the energy system as a whole by incentivising energy suppliers to develop and offer time-of-use tariffs. That will empower consumers by enabling them to use energy when it is cheapest, and reward them for being flexible about when they use energy. It will also help to make the energy system more resilient as we move towards an increasingly low-carbon generation mix.

The Bill will ultimately ensure that this country is more efficient, resilient, empowered and smart in its consumption of energy. I commend it to the House.