If the Government gets its way you will, within a few years, have a small digital display screen somewhere in your home that will show you exactly how much energy you are using and how much it is costing you. It may even show how much carbon your home is emitting. This will, I suppose, be a bit like a taxi meter and as you see it whizzing round extra fast you will start to rush around the house turning off lights, and berating your teenage children for leaving their televisions and computers on stand-by instead of switching them off.
The Government believes that this will contribute towards a more parsimonious use of energy, and will help it to meet the four goals of its energy strategy, which are: to cut CO2 emissions by some 60% by 2050; to maintain the reliability of energy supplies; to promote competitive markets in the UK and beyond; and to ensure that every home is adequately and affordably heated.
Some contribution towards this must come from the domestic sector, which is responsible for one-third of the nation’s carbon emissions. According to the Energy Savings Trust, UK homes waste more than £900m each year by leaving appliances on stand-by, and there is evidence that if confronted by such waste we will change our habits. A two-year study carried out by Canadian researchers showed that the combination of real time monitors, allied to price incentives, could reduce overall consumption by up to 10%. In this country the Carbon Trust has found that in trials consumers cut their energy consumption by 5%.
But their impact upon consumer behaviour is not the only incentive for introducing ‘smart metering’. Other advantages will be the end of estimated and inaccurate bills, the opportunity for home owners to feed energy generated from, for example, solar panels back into the grid (this is known as ‘microgeneration’) and the introduction of variable tariffs. The latter would allow energy suppliers to offer cheaper gas or electricity in off-peak hours, allowing customers to save money by running the washing machine or dishwasher, for instance, in the small hours of the night.
In order for a display screen to function it must be linked to the meter. A simple device that can be attached to certain types of meter will transmit information to the display screen. This enables the householder to see how much energy he is using, but no more. In order to involve the energy supplier, the existing ‘dumb’ meter must be replaced with a modern ‘smart meter’. The main attributes of smart meters are:
(i) They can be read remotely. Rather than having to shine a torch at the dial and then attempt to identify the numbers, the meter will automatically send the reading to the energy supplier, either via the power cables or a short-range radio link. This does away with estimated bills, and would also consign ‘the man who comes to read the meter’ to history.
(ii) The meters display energy consumption in monetary terms, rather than kilowatt hours. If the display screen is taken from under the stairs and put somewhere it can be seen, then it will be a constant reminder of the cost of a home’s energy consumption.
(iii) The information gathered from the meter, both in terms of total energy consumption and also the pattern of use could be neatly displayed in graphic form and read via the internet. This means, for example, that if you are on holiday you can check to see if any energy is being used at home.
This all seems unequivocally like a good idea. But unfortunately it is not as simple as it sounds. In a White Paper published last summer the Government said that it would like to see every home have a smart meter within 10 years, and now it is engaged in a process of consultation to define the details of its strategy.
Given that the beneficiaries of smart meters are those people who can use them to reduce their energy bills – i.e. you and I – you may think that they should be asked to pay for them. But the Government, no doubt correctly, has no expectation that the nation would exhibit such common sense, and in consequence is looking for the energy industry to implement the scheme. The obvious flaw to this approach is that no industry is going to rush to pay for devices that will encourage its customers to use less of its product! Furthermore, during the many years that it would take to switch all meters to smart meters, the supply industry would be required to run parallel systems for the old and the new types of meter. So the Government will undoubtedly have to provide sticks and carrots.
The costs per household are not huge, but both in aggregate and in relation to the potential energy savings, they are not insignificant either. Although this has met with criticism from those who say that display screens are not much use without smart meters, one of the stated priorities of the Government is to provide free display devices for electricity users. In its own calculations it has a cost of £15 for the device, £11 for installation and £3 for subsequent customer service and maintenance costs. Other cost estimates have been made by the energy charity Sustainabilityfirst. It assumes a £25-£30 cost for the visual display, and £50-£100 for a smart meter. On top of this is the cost of establishing and maintaining the network that will allow three-way communication between the meter, the energy supplier and the customer.
The communications network is essential to ‘interoperability’, which itself is essential to the solution to a problem known as ‘asset stranding’. In order for the industry to work efficiently and competitively it must be possible for customers to switch from one supplier to another at will and without having to install a new meter each time. So the industry, under the aegis of the Energy Retail Association and Ofgem, is working to agree a set of minimum standards that can be applied to all smart meters.
This would reduce the problem of ‘asset stranding’, the term given to the situation where a meter is replaced before the end of its life. However, asset stranding is not only an issue that arises when a customer wants to switch from one supplier to another. It is also a problem that concerns those companies that have supplied and installed the ‘dumb’ meters that we use today, and will want some financial compensation for these if they are to be replaced with smart meters.
The Government has suggested three different strategies for the introduction of smart meters. The first of these is to ensure interoperability, and then do nothing, essentially leaving it to suppliers to take things forward. The second option is to insist that all new and replacement meters are smart. This would ensure that about 3m smart meters would be fitted each year meaning that over a 10-year period approximately two-thirds of the meter population would be replaced with smart meters. This would remove any necessity to replace meters before the end of their life or before the end of a contract period, but it could mean that a supplier of both gas and electricity would find that a customer had a ‘smart’ meter for his electricity but a ‘dumb’ meter for his gas – an inefficient state of affairs. The third option is to require that all dumb meters are replaced by smart meters within 10 years and leave it to the industry to work out the details. This seems to be the most sensible approach although by forcing the industry to replace existing meters before the end of their life it raises the problem of ‘asset stranding’.
So the details are being thrashed out, but ultimately we could see about 40m existing gas and electricity meters replaced with smart meters and display devices, at a cost of, say £100 a time. This is a big business opportunity – and one that only represents the domestic market and excludes office and industrial premises. Whether or not it will prove to be a good investment opportunity for you and I is another matter. The White Paper says that ‘there is a range of smart metering products on the market, together with compatible display devices, ’ and this is confirmed by a quick search on the internet. So we need to follow the debate carefully, and take care to sort out the winners and losers.
