The global utilities industry is beginning to implement next-generation smart meters, but different countries are upgrading at very different rates. This is an opportunity for the utility industry to capitalise on a data-rich environment and improve the customer experience, operational cost structures and overall industry performance.
And it’s not just smart meters revolutionising the sector: customers are starting to take an active interest in their own energy usage, and companies now have access to a huge amount of previously scarce data.
With the new big data challenge in the industry come opportunities for energy suppliers to grow their bottom line and provide additional value to customers. Smart metering enables advanced features such as connected homes and accurate billing via time-of-use pricing – a clear win for both customer and supplier.
Time of use is based on the idea that by altering pricing throughout the day, suppliers can encourage customers to change the way they use energy with the help of an app. Suppliers can then pass on their savings to customers via dynamic pricing. For example, Singapore has recently rolled out a dynamic pricing pilot and managed to reduce peak residential loads by 3.9 per cent and total energy consumption by 2.4 per cent. The UK should follow suit.
Smart meter rush
Since 2016, the UK utility industry has been working to keep prices as low as possible for consumers while also decreasing its reliance on fossil fuels in order to meet the EU’s “20-20-20” CO2 targets. To meet these targets, the UK government instructed energy companies to roll out 53 million smart meters by 2020. The rush to meet the unrealistic deadline and avoid fines resulted in a huge number of customer complaints.
Millions of customers discovered that they had new meters that did not work if they transferred suppliers, and millions more have not even received a smart meter yet. The government has now pushed back the deadline to 2024, but this means that the total cost of installing the new equipment is likely to rise to more than £13 billion.
The new deadline is intended to give firms time to fix their ongoing technical issues and ensure that their technology is futureproof. Adding to these problems, the future benefits of smart meters for both consumers and businesses have not been successfully communicated.
Contrast in Italy
The situation is completely different in Italy, which has one of the best examples of a successful smart meter mass-rollout strategy. The Italian regulatory authority AEEG recognised the benefits of smart metering, and made the installation of smart meters mandatory in 2006.
State-controlled energy provider Enel had a target to install about 30 million smart meter devices. Today, more than 99 per cent of electronic meters have already been installed in Italy, meaning Enel is well ahead of the deadline set by the European Commission to have at least 80 per cent installed by 2020. It is now developing and installing the second generation of smart meters to replace the old ones at the end of their expected lifetime of 10-15 years.
Italy’s smart metering revolution also revolutionised Enel’s business processes, from its relationship with customers all the way up. By leveraging its rich customer data, Enel was able to build an effective communication plan to educate customers on the details of the replacement campaign and spread awareness of the benefits of smart metering, such as accurate billing. Another stimulus for energy companies to spearhead this transition was to curb power theft and fraud.
Three major challenges
Efforts to install smart meters in the UK have not been successful. There were three major challenges to the mass-rollout project in the UK; without a framework that would allow providers to effectively address all three of these challenges, suppliers have continued to miss deadlines and fail customers.
• Planning: the planned rollout of smart meters has failed, with 39 million old-fashioned meters yet to be replaced. Due to missing deadlines, the cost of per household of having a smart meter has risen. Replicating what AEEG did, the UK should look at making the smart meter rollout mandatory, as this allowed Italy to meet the EU target of 80 per cent of households to have smart meters well before the 2020 target.
• Implementation: in the UK, 12.5 million first-generation smart meter devices, known as SMETS1, were installed; in 2016 a second generation of meters (SMETS2) was launched. To make things complicated for customers, 70 per cent of SMETS1 meters went “dumb” when customers switched energy supplier and suffered from a number of technical issues, including weak mobile network signals and interoperability problems. This has led to costs of the rollout being added to customers’ energy bills. Experts say the cost of the scheme could have been reduced if the government had chosen to take a “simpler, lower-cost approach”.
• Engagement: in the UK, the lack of customer education and engagement has been one of the key reasons it has fallen behind Italy. From the start, an environment of distrust and disengagement was prevalent among the general public.
Restore customer faith
Even though public confidence in smart meters has been damaged, the potential benefits that smart meters present still outweigh the costs. A complete rollout could deliver a £20 billion financial benefit to Britain.
Many consumers have managed to reduce their energy consumption and this has reduced their emissions.
The new deadline presents an opportunity for utilities to restore customer faith by fixing technical problems and ensuring customer service is invigorated as the rollout continues.