Smart Metering – A way forward at last?

On 11 May 2009 the Department for Energy and Climate Change published a further consultation on Smart Metering for electricity and gas. The consultation document sets out proposals for the domestic and small to medium sized business premises. The consultation document focuses on two issues; the level of functionality which the new meters will require to have, and the arrangements for rolling out and managing the new technology.

DECC's Proposals

DECC have indicated that their preferred arrangement is the centralised model. Their view is that this delivers the "highest net overall benefit", retaining flexibility for energy companies and allowing for a faster roll out, whilst ensuring interoperability by utilising a central communications centre for data management.

A centralised model will allow for central management of gas and electricity settlement, reconciliation and supply information through a national provider, although this could entail significant costs in remodelling systems as well as changes to the regulatory model. Another key issue is the management of data and how it will be accessed, protected and stored by the new central agency.

There may be data protection and privacy issues in relation to processing customer data. Data security will be another major factor and it is likely that the roll out will necessitate major IT and systems upgrades for suppliers. Significant changes may be required both to deal with the new arrangements once implemented and to ensure that existing metering arrangements remain in operation while the preparatory work takes place.

Other Issues

  • Functionality – DECC have suggested that all domestic smart meters should be accompanied by real-time display units to encourage customers to manage their energy use and reduce consumption.
  • Cost - Who will pay for the roll out? It is not yet clear whether the cost will be borne by the taxpayer or the energy companies. The Industry is keen for the cost to be centrally managed, particularly given the risk that customers may switch suppliers before the cost of the equipment has been recouped. Another factor is the ongoing Energy Supply Probe and the pressure on suppliers to ensure that pricing is cost reflective. For energy suppliers, there is the cost of replacing meters which have not reached the end of their economic life. DECC has indicated that it does not intend to establish a compensation fund and that the cost of removing existing meters will lie where they fall.
  • Installation – Concerns have been raised about the perceived inefficiency of having a number of different energy suppliers installing smart meters in the same local area. A regional franchising model would avoid this inefficiency however it remains to be seen whether the energy companies, with or without the assistance of the UK Government, will co-operate during the installation period if the centralised model is chosen.