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Energy companies raise alarm over £11bn smart meter rollout

16 July 2017

By Nathalie Thomas and Energy Correspondent, Source: FT.com

"Smart meters are here - and they put you in control," reads one of the emails energy companies are bombarding customers with as they battle to roll out the digital devices.

But as energy suppliers work towards a government target to offer every home in Britain a smart meter by 2020, people in the industry warn the £11bn infrastructure delivery programme is increasingly shrouded in complexity, while costs are mounting.

Vincent de Rivaz, chief executive of French-owned power company EDF Energy has called for the UK government, the regulator and suppliers to "take stock" of the problems.

"We need to be honest with ourselves on all the issues: security, safety, quality, costs and timeline," he told a conference in London this year.

For UK energy suppliers such as British Gas-owner Centrica, EDF, Eon, Npower, ScottishPower and SSE the stakes are high. Failure to meet the target could potentially carry a fine of up to 10 per cent of global turnover.

The companies are also frustrated by the rising costs of building and maintaining the IT infrastructure needed to support smart meters, which is now estimated at £3.13bn over 18 years, up from an earlier estimate of £2.47bn.

Consumers also stand to lose out: the costs of delivering smart meters are ultimately passed on via energy bills.

Nearly 7m smart meters had been installed by the end of March, replacing traditional electricity and gas meters. They are meant to provide accurate, real-time data on how much energy customers use and an end to the opaque practice of estimated billing.

So far the devices fitted are first generation technology - known as "Smets1". These are generally more expensive, less sophisticated and are considered less secure than the second version - Smets2 - which was intended to be the main model rolled out to the market. An IT programme that will allow suppliers to communicate with the newer devices via a central network has suffered long delays.

Crucially there is a chance the older devices will go "dumb" if a customer chooses to switch energy provider, as the new utility company may not be able to access the data.

Households are not aware of these pitfalls, according to Citizens Advice. "Consumers need all the facts so they can choose whether to have the meter fitted now, or wait until the next generation is available," says Victoria MacGregor, its director of energy.

But persuading households to have a smart meter fitted is a growing problem, according to numerous suppliers, particularly in light of recent negative press reports about problems such as wildly inaccurate meter readings. 

"We are having customers who booked an appointment saying I don't want a smart meter any more," says one supplier, which spoke on the grounds of anonymity. Another says out of 100 customers it contacts, as few as 35 might give a positive response.

Ministers and the company in charge of delivering the IT programme - the Data Communications Company (DCC), part of the UK-listed outsourcer Capita - are aware of the danger that early devices may go dumb and are working on a solution for making switching simpler.

Energy companies say they have little confidence this will be delivered quickly and question at what cost, given the infrastructure to support second-generation meters was meant to be delivered in the autumn of 2015. The technology was officially launched in November last year but suppliers say second-generation meters will only be rolled out in any great volume at the end of this year at the earliest.

"We want to be confident that the system works well before we scale up," says one big six supplier.

Rather than wait, some energy companies and communications suppliers are looking at their own solutions to make sure customers with the older meters can switch easily, although this can come at an added cost.

Questions have also been raised over the efficiency of the UK approach of sending engineers to homes that agree to a smart meter. In other countries, smart meters are fitted by distribution network operators (DNOs) - the companies that own local power cables delivering electricity to homes, which will generally try to fit a whole street at the same time.

"The vast majority of other countries have given the responsibility to the distribution network operators," says Steve Jennings, UK power and utilities leader at PwC. 

Ministers argue that when the smart meter programme was designed in 2009, it was deemed that DNOs - regulated monopolies - would have fewer incentives to keep costs low.

A spokesman for the Department for Business, Energy & Industrial Strategy says it is sticking to the 2020 deadline and insists the programme will deliver significant benefits. "Smart meters are a vital upgrade to our energy system and will take £300m off household energy bills in 2020 alone, after taking into account all costs.

"Nearly 7m smart meters have already been installed, consumers are seeing real benefits, and a vast majority of them would recommend their smart meter to friends and family."

Copyright The Financial Times Limited 2017

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