Jury’s still out on smart meter benefits and 2020 deadlines

By TIM GOSWELL

In the post-election period as Parliament returns to work the febrile political atmosphere continues to throw up conflicting messages, including around the smart meter roll-out.

The Conservative Party manifesto pledged to ensure an “offer”, rather than installation, of smart meters to every household and business by the end of 2020, signalling perhaps a dilution of the long-standing policy in this area, which has already been subject to considerable delay.

But media reports at the end of last week suggested that support was emerging in government for making better use of the potential of smart metering, perhaps as an alternative to price caps. In the recent Queen’s Speech, the government signalled it would bring forward legislation to extended the period that it could exercise its regulatory power in this area beyond 2020.

This is against the backdrop of a smart meter roll-out policy that has had to say the least very mixed success to date.

In Energy Spectrum we recently evaluated trends in roll-out progress and how different commercial responses, business models and partnerships are already developing across the domestic supplier community.

Smart meter technology has long been seen as an enabler of increased domestic energy consumer engagement.

The theory runs that increased adoption of smart meters will facilitate innovation in building Time of Use (ToU) tariffs, incentivising optimum consumer behaviour from a cost and energy efficiency perspective.

However, uptake to date has been limited, probably because suppliers fear they could face a cost risk if their smart meter tariff customers behave too differently from the standard trading profiles used to clear the wholesale market.

The central finding of our analysis is this: the 2020 target continues to look extremely challenging, and there are now some mixed political signals about the role and level of ambition of smart metering.

But the indications are that the market is stepping up the pace of delivery – even if this is unevenly spread across suppliers – with more than the beginnings of a supply chain to allow some cautious optimism about this pace continuing. There is also emerging evidence that smart meters are beginning to drive at least some decisions about customer propositions.

The benefits of this technology, and the true commercial value to suppliers and consumers, will only be realisable once the reforms to settlement catch up. Half-hourly settlement remains the key, and should clear the way to suppliers offering ToU tariffs.

Without these core ingredients, smart metering will simply be a hugely expensive exercise with a £12 billion price tag in allowing suppliers to issue accurate bills.

Consumers will see what they have consumed, but will have no ability to achieve the considerable £6 billion net benefits claimed by the programme from adapting their behaviour. 

In this respect, how and when the regulator steers the market from elective to mandatory half-hourly settlement are increasingly critical questions. The process on this by OFGEM has begun, but few are confident about delivery, and the pathways to implementation are complex.

In an energy market with so many moving political and regulatory parts right now, there must be some expectation that it won’t be quick or easy to achieve, even if the technology foundations of smart meters are now being laid a little faster than before.

The above was published in the weekly Energy Spectrum publication from Cornwall Insight.