Smart meters have been identified as having the potential to reduce unnecessary energy use and emissions, cut consumers’ energy bills, and enable a more efficient, flexible and competitive energy market.
It is generally accepted within the energy industry that they are an important component in delivering infrastructure fit for the 21st century and, from the consumer side, a significant majority of customers who have had a smart meter installed are positive about the benefits it offers.
So far, so good, then. The fly in the ointment is that current installation rates and levels of consumer engagement suggest, at best, a level of ambivalence to among the public that makes it highly unlikely that all of government’s initial roll-out aspirations will be met. It is no surprise, then, that in a recent open letter, the UK’s energy regulator, Ofgem appears to ratchet up the pressure on energy suppliers to boost widespread adoption.
With the UK Government setting a target of 50 million smart meter installations by the end of 2020 – the original target was 53 million by the end of 2019 – electricity and gas suppliers are under an overarching obligation to take all reasonable steps to ensure this happens. Set against this is the fact that there is no obligation on consumers to accept a smart meter.
Suppliers of gas and electricity are obliged to submit smart meter roll-out plans, with the largest suppliers also required to submit binding annual installation milestones.
In the open letter outlining its observations on suppliers’ progress reports and roll-out plans, Ofgem said that, for 2017, the number of smart meter customers energy suppliers had was “in line” with the agreed annual milestones. However, it called on suppliers to step up their consumer engagement activities.
While it accepted that consumers are not obliged to have a smart meter installed, Ofgem said suppliers should consider appropriate re-contact strategies based on reasons for not previously accepting a smart meter, for example.
The clear message from Ofgem is that it expects suppliers to “up their game” in certain areas, including in relation to consumer engagement strategies. However, general consumer interest in smart meters appears significantly below what government had assumed when it carried out its original cost-benefit analysis, and there are limits to what energy suppliers can realistically achieve, even with the most sophisticated engagement strategy.
At the same time, the overall net benefits have been eroded as the total cost of the roll-out has continued to rise. Whilst general awareness of smart meters does now appear relatively high, that has not necessarily translated into customer demand.
Using more innovative contact strategies may help stimulate demand, but is unlikely to deliver the step-change in consumer interest that is needed if the roll-out is to deliver all the net benefits anticipated by government.
In saying that, there is no doubt that the smart roll-out continues to offer significant potential benefits in terms of enabling a more flexible and connected energy market and empowering consumers to manage energy consumption more proactively.
However, it looks increasingly unlikely that Ofgem’s 2020 aspirations will be met and, given some of the technical and operational challenges of implementing the roll-out outside the direct control of energy suppliers, as well as the apparent general ambivalence of the public, it would be unfair to blame missed deadlines on the UK’s large energy suppliers.
Instead, as various parties have said, government would do well to revisit the timetable to enable an orderly roll-out over a longer period.
Chris Martin, partner and specialist in smart metering and technology at law firm Pinsent Masons.