Energy regulator Ofgem has launched a consultation as part of its review into the costs of the smart meter rollout within its default tariff cap.
The regulator is seeking views about its approach to reviewing “efficient” smart metering costs. As part of their licence conditions energy suppliers are required to take all reasonable steps to ensure smart meters are installed by the end of 2020.
One component of customers’ energy bills, which Ofgem had to consider when calculating the price cap level is the net cost of suppliers providing smart meters.
The price cap, which came into effect at the start of this year, was introduced to ensure default tariff customers pay a “fair price” for the energy they consume, reflecting its underlying costs, Ofgem said.
It was updated on 1 April where it was raised to £1,254 – an increase of £117. The price cap for pre-payment meter customers increased by £106 to £1,242 a year for the same period of a six-month “summer” price cap.
The review is for the purpose of setting the cap. Ofgem calculates the smart metering net cost component (SMNCC) in two sub-components: pass-through costs and non-pass-through costs.
Pass-through costs include charges such as those from the Data Communications Company, which built and maintains the national infrastructure for the rollout and Smart Energy GB, which promotes the benefits of smart meters.
Non-pass-through costs relate to the changes in costs to suppliers for rolling out the devices and include the cost of the metering assets, installation, in home display devices and smart-related system changes. They reflect changes in the cost of installing smart meters since 2017 and form the focus of Ofgem’s consultation.
Ofgem said: “As the cost and pace of rolling out smart meters will evolve over time, we only set the non-pass-through SMNCC for the first two cap periods – covering 1 January to 30 September 2019.”
The regulator now proposes to update this model based on the new smart metering implementation programme cost benefit analysis.
It acknowledges this will not be in time for the third cap period and therefore has set the proposed allowance as “broadly” the same level as the first two periods.
The regulator said it welcomes responses from suppliers, consumer groups, stakeholders and the public.
Ofgem will launch a consultation on the fourth cap period and subsequent cap periods in late August or early September.
Responses to the smart metering costs review are required by 30 May.
Responding to the news Gillian Guy, chief executive of Citizens Advice, said: “We’re all paying for the smart meter rollout through our bills.
“It’s essential that Ofgem has up-to-date information on how much it’s costing consumers when it sets the level of the price cap.
“There have been significant changes to the smart meter programme in recent years, but the last cost benefit analysis was published in 2016.
“The lack of new information means there is little transparency over the costs of the rollout. This is now beginning to impact on other key decisions that need to be made”.