"The implementation of smart metering in Great Britain will be the largest and most complex change-over programme in the industry since the switch to North Sea gas in the sixties and seventies." (UK Department for Energy and Climate Change, December 2009).

The recent announcement by the UK Department for Energy and Climate Change (DECC) that smart meters for electricity and gas will be rolled-out by 2020 presents significant opportunities for a range of future participants in the smart meter supply chain, in particular for the energy and TMT sectors, and it is the first step in a move to a smart grid in the UK. For our Energy group's bulletin on this announcement, please click here.

The ultimate goal of smart metering is to drive a move towards smart grid functionality, allowing energy network operators (both transmission and distribution networks) to access information to enable them to manage their networks more efficiently. Network operators and suppliers will be better able to understand demand trends in different parts of their network and will have more control over some elements of energy consumption – for example enabling or disenabling gas consumption in certain circumstances or controlling household appliances remotely.

A key element of Government Policy is that a Central Communications Model ("CCM") will be adopted for the domestic sector. The responsibility for purchasing and installing smart meters will remain with energy suppliers (i.e. electricity and gas suppliers), while communications from these meters will be co-ordinated centrally on a national basis, by a communications provider. All suppliers would be obliged under the terms of new licence conditions to use this central communications provider. However, there has not yet been a decision on which delivery model, such as CCM, will be used for the non-domestic sector.

The next step will be to appraise the regulatory and commercial implications of the policy decisions set out in the Government response and translate these into the proposed Implementation Programme. It is anticipated, therefore, that significant further detail will emerge over the coming months, the implications of which will need to be evaluated in the context of commercial strategies and in the procurement process itself.

The implementation of this strategy will require significant input and co-operation across a range of industries, including:

  • energy suppliers, to provide energy supply and hardware into homes;
  • manufacturers, to provide the hardware used in homes and the grid;
  • telecommunications companies, to provide data transmission; and
  • IT companies, to provide data storage, optimisation and processing.

The switchover will ultimately create a new universal data network across the UK, potentially allowing households, business and even individual appliances and machinery to be linked and managed much more efficiently. However, the scale of the undertaking and need for absolute robustness means that this is a considerable step on from the Machine to Machine ("M2M") services currently available in the market. Issues that will arise are likely to include:

  • determining the structure and legal framework for giving electricity suppliers access and input to a centralised database and systems (and, possibly, access on a local level to data from smart meters), and working with the suppliers to develop a smart grid capacity;
  • developing new ways of using and processing data – the smart meter roll-out may result in market developments that have not been predicted, driven by innovation in the telecommunications and IT sectors;
  • opening-up the communications system on a commercial basis to enable third party to have use of the services and facilities set up to accompany smart meter roll-out;
  • accommodating new market entrants – as smart metering opens up, so too does the potential for management services beyond energy supply;
  • ensuring compliance with data protection, liability and regulatory regimes that may change over time as the full scope of smart metering and smart grids is realised; and
  • potentially, introducing additional physical data links between the grid and consumers as a smart grid develops to include more sources of power, microgeneration and smart appliances.

There are also strong analogies between the commercial funding and implementation structures that will be needed to support smart meter roll-out and those structures that were used (or proposed to be used) to support the move to both consumer fixed and mobile next generation mobile networks. Furthermore, as the UK is leading the EU market in its introduction of smart meters and its compliance with the Third Electricity Directive, the development of a UK smart meter market will create, for its participants, the opportunity to roll-out the new technology and processes they develop across Europe in the coming years.

Next Steps

Implementing the smart meters programme will require a large and complex series of public procurement programmes, including for central systems, the telecommunications network, the smart meters themselves and the installation services. The current expectation is that DECC and Ofgem will jointly develop a Smart Meter Implementation Plan with three phases:

  • Prospectus – to be completed by Summer 2010. This will set out the scope and key principles of the smart metering solution. DECC/Ofgem will shortly launch a stakeholder engagement programme;
  • Detailed Design – to be completed by Summer 2012. This will contain minimum specifications for the smart metering solution and detailed definitions of the commercial arrangements (e.g. meter functionality, telecommunications, IT Systems, access and security arrangements); and
  • Implement Design. This will involve rolling out central systems, co-ordinating preparatory work of energy companies, integration testing and implementation of metering system installation standards and system commissioning.

The Government is also requiring non-domestic sites (using less than 750 Mw/h) to have smart meters installed by 2020 subject to certain exceptions which relate to sites with advanced forms of metering already installed by 2014 or contracted to be installed.

In the near-term, the announcement heralds a complex public procurement exercise and an investigation of appropriate regulatory and funding models to support the infrastructure roll-out. It also paves the way for accelerated convergence in the energy and TMT sectors.

In the longer-term, smart metering and smart grids will revolutionise the potential for clean technologies including electric and plug-in hybrid vehicles as well as renewable and microgeneration, significantly opening up models in this area as existing hurdles are brought down.