"The implementation of smart metering in Great Britain will be the largest and most complex change-over programme in the energy industry since the switch to North Sea gas in the sixties and seventies."

On Wednesday 2 December the UK's Department for Energy and Climate Change (DECC) published its paper Towards a smarter future: Government's response to the consultation on electricity and gas smart metering (the DECC Paper) on its policies for achieving its previously stated goal of rolling out smart meters for electricity and gas by 2020 to all households in England and Wales and to see smart meters in most small to medium business premises (in compliance with the Third Energy Package).

The implementation of smart metering is a significant step forward in facilitating Government's plan for modernising the transmission and distribution networks, leading to the development of a more efficient grid capable of handling a changing generation and demand mix resulting from increasing numbers of renewable generation projects and the expected increase in the use of electricity for transport. This policy is in contrast to other options that were being considered by Government, including obliging Distribution Network Operators to purchase and install smart meters, an approach that has been adopted in other European countries.

A key element of Government policy is that a Central Communications Model for the domestic sector will be adopted. The responsibility for purchasing and installing smart meters will remain with energy suppliers (ie. 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 in their existing licences to use this central communications provider. A considerable amount of design work is now needed in determining how a Central Communications Model will be delivered. One of the reasons cited by Government for selecting the Central Communications Model is that it will encourage further competition between suppliers in terms of the types of meter and tariff structures they offer.

The DECC Paper states that electricity and gas suppliers will be required to roll-out smart meters to domestic and SME business customers. The announced strategy, although still at a preliminary stage, provides the necessary certainty for market participants in terms of who will be responsible for the roll-out of smart metering. Energy suppliers and technology developers can then consider the relevant commercial arrangements they will need to have in place for their procurement and delivery.

Smart meters for household and business electricity and gas consumption are heralded as the precursor to change in the way that energy is supplied and consumed. It does this in two ways:

  • by giving consumers real time information about their energy consumption. This enables them to make more informed decisions about energy use; and
  • enhancing smart grid functionality, by allowing network operators (both transmission and distribution networks) to access information to enable them to manage their networks more efficiently. For example, by understanding demand trends in different parts of their networks more accurately and allowing network operators or suppliers to control some elements of energy consumption.

Energy suppliers will be required to install meters which meet a minimum meter specification to ensure an acceptable standard of smart metering across the industry (for example providing a readable display). The arrangements will otherwise allow energy suppliers to deliver their own solutions, and encourage competition amongst suppliers. The minimum specifications will be developed in more detail by Government, but it has confirmed the following high level requirements:

 Click here to view the Proposals for high level functionality set out in the Consultation Document.

The Government is also requiring non-domestic sites (≥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. The policy decision does not include a decision by Government on a communications model for non-domestic smart meters.

As set out in the DECC Paper, a Smart Meter Implementation Plan will be developed as a joint DECC/Ofgem initiative with three proposed phases:

  • Prospectus: defining the scope and key principles of the smart metering solution. The Government expects this to be completed by Summer 2010 and DECC/Ofgem will shortly be launching stakeholder engagement on this;
  • Detailed Design: preparation of minimum specifications for the smart metering solution and detailed definitions of the commercial arrangements underpinning it (eg, meter functionality, telecommunications, IT Systems, and access and security arrangements). The Government expects to complete this phase by Summer 2012; and
  • Implement Design: rolling out central systems, co-ordinating preparatory work of energy companies, integration testing and implementation of metering system installation standards and system commissioning.

While this policy decision is important, there are still many significant policy and regulatory decisions to be made, including changes to the regulatory framework for licensed suppliers and grid owners and operators, and decisions on procuring the necessary services, hardware and software and protecting the data that will be collected by smart meters.

Our Clean Technology team comprises lawyers with experience in technology, environmental, IP, funds, energy regulation and the existing regulatory and contractual regime for energy metering and data collection (which we helped to develop). As such we are uniquely prepared to assist clients interested in participating in the rapidly developing opportunities relating to the roll out of smart metering and the wider clean technology market.