Smart metering rollouts around the world are now delivering significant benefits to consumers. In this Market View, Ryan Hledik of The Brattle Group reveals how Britain's programme could do the the same,
From Canada to New Zealand, new innovative retail energy products are reducing energy bills and promoting decarbonisation. In parallel, smart metering has enabled global improvements in grid efficiency and reliability.
Britain’s smart metering programme could ultimately deliver these same benefits. However, challenges have persisted since the programme’s inception in 2011. Fortunately, lessons of the past seven years provide a useful foundation for pivoting towards a national deployment strategy that will maximise future programme benefits.
Critiques of the smart metering programme have highlighted cost increases and technical challenges. According to the National Audit Office’s (NAO’s) recent review, communications costs and the delay of SMETS2 meter deployment present two significant risks to the business case. These challenges are material, well known, and widely documented.
However, a more fundamental challenge to the success of the programme is often overlooked. This challenge can be referred to as “consumer inertia.” Simply put, despite genuine efforts by the government and energy suppliers to encourage adoption of smart meters, consumer interest remains tepid.
Great Britain’s progamme is rare in that smart meters must be offered from energy suppliers to consumers as a voluntary product. By contrast, the vast majority of rollouts in other international jurisdictions deploy smart meters on a compulsory or default basis, simply treating the meters as a piece of necessary energy distribution infrastructure.
The Business, Energy and Industrial Strategy, [BEIS] business case for the smart metering programme assumes 100 per cent of households will adopt a smart meter by the end of 2020. This will not happen. The voluntary nature of the rollout will prevent adoption from reaching this level over any meaningful time horizon, let alone within the two years that remain until the government’s deployment deadline. Consumer inertia is too steep a hurdle for 100 per cent voluntary adoption to be realistic.
Analogies from other programmes illustrate the challenges of voluntary adoption. We reviewed consumer participation in a variety of offerings, including energy efficiency interventions, recycling programmes, seat-belt use campaigns, retirement savings programmes, and energy supplier switching rates. Voluntary participation rates across such programmes range from 20 per cent to, at best, 60 per cent.
Consistent with this experience of other programmes, only between 33 per cent and 56 per cent of consumers in Great Britain have indicated that they want a smart meter, according to analysis of recent Smart Energy GB [SEGB] data. At these levels of adoption, the smart metering programme ultimately would be a net cost to consumers, a stark contrast to the £200 per household in savings (NPV) estimated in the BEIS business case.
In a recently released discussion paper, my colleagues and I summarise in detail the risks to the success of the smart metering programme. Based on this review, our study defined two paths for mitigating the risks and advancing the programme.
The “Refocused Rollout” path concentrates the scope of the rollout on the most cost-effective customer segments, rather than on all customers. This approach would maintain the programme’s original focus on voluntary, customer-driven adoption of smart meters, but at a lower cost. The Refocused Rollout path includes the following elements:
- Revise supplier deployment targets to exclude costly/difficult installations
- Revise supplier targets to emphasise performance metrics other than number of meters in the field, such as cost-effectiveness of the meter deployments
- Clearly define the requirement that suppliers take “all reasonable steps” to install smart meters, such that the definition includes identified best practices in customer engagement
- Establish an option for an industry-coordinated approach to installations, to address technical inefficiencies
- Expand the in-home display (IHD) deployment requirement to include alternative informational offerings
Alternatively, the “Default Deployment” path transitions to the model utilised in most international jurisdictions, where smart meters are treated as essential energy infrastructure. The meters are rolled out in a manner more closely resembling mandatory deployment. The Default Deployment path includes the following elements:
- Accelerate recertification of conventional meters (pre-2020)
- Tie eligibility for government subsidies (e.g. the electric vehicle grant) to smart meter acceptance (pre-2020)
- Eventually transition to a fee-based opt-out model, where customers who choose not to install a smart meter are charged a fee set to cover some or all of the costs of maintaining the redundant legacy metering and billing systems (post-2020)
- Provide optional education at point of installation, in order to lessen the perceived time burden of the installation appointment
- Implement a post-2020 engagement campaign focused on energy management
- Explore opportunities for sharing functions/costs across suppliers
- Expand IHD deployment requirement to include alternative informational offerings
2019 will be a critical year for the smart metering programme. Meter deployments are projected to ramp up significantly, the deployment of SMETS1 meters is expected to conclude, and efforts to address significant communications challenges will continue. It would be prudent for government and industry to evaluate possible programme revisions before these ongoing activities progress past a ‘point of no return’.
The experience of the first seven years of the rollout can inform the development of a revised approach to full-scale deployment that delivers on the potential benefits of smart metering in Britain.