Parliamentary Committees and Public Enquiries
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MPs report on preparations for the roll-out of Smart Meters
The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:
"The idea of smart electricity and gas meters is a good one, but the programme to install 53 million of them in all homes and small businesses in the country by 2019, at an estimated cost of £11.7 billion, is both challenging and subject to significant uncertainty.
Consumers will benefit from smart meters only if they understand the opportunity to reduce their energy bills and change their behaviour. So far the evidence on whether they will do so has been inconclusive. Otherwise, the only people who will benefit are the energy suppliers.
Consumers will have to pay suppliers for the costs of installing and operating smart meters through their energy bills and no transparent mechanism presently exists for ensuring savings to the supplier are passed on. The track record of energy companies to date does not inspire confidence that this will happen.
The Government is relying on competition in the market to drive down prices. But, as has been previously reported by Ofgem, the energy market does not currently operate as an effective competitive market.
The Department should clearly set out what energy suppliers’ responsibilities will be for engaging with consumers to deliver the benefits of smart meters; and how they will be held accountable to both the Department and consumers.
Furthermore, there are obvious risks in implementing such a large IT project which cannot be ignored. They include the practical difficulties of procuring and installing the data communications service and the security of the information held. The Department must take on board the lessons learned from other large government IT projects to make sure that the system can support smart grids and that extra costs are not passed on to consumers.
Of even more concern is how the programme will affect vulnerable consumers and those on low incomes. Expecting these consumers to pay for smart meters is of itself regressive, and there is a risk that they may end up paying more through their bills where the costs of installing the meters outweigh the savings they are able to make. The Department should set out how it intends to ensure vulnerable and low income consumers do not miss out on the benefits from smart metering.
Smart meters will allow energy companies to disconnect customers without entering the property. The Department must also ensure that there are proper safeguards to protect the vulnerable, elderly and those on low incomes to ensure they benefit from the programme."
Margaret Hodge was speaking as the committee published its 63rd Report of this Session which, on the basis of evidence from the Department of Energy and Climate Change (the Department) , examined preparations for the roll-out of smart meters, including the procurement of the Data Communications Service.
Under European Directives, all member states are required to install 'intelligent metering systems' - smart meters - to at least 80% of domestic electricity consumers by 2020. The UK Government has opted for a more challenging programme, with plans for energy suppliers to install smart electricity and gas meters in all homes and smaller non-domestic premises in Great Britain by 2019. We welcome the introduction of smart meters, but have concerns over the way the programme has been planned. The Department estimates that the smart meters programme will cost some £11.7 billion. This is a large complex programme requiring replacing around 53 million gas and electricity meters with significant uncertainties over the estimated costs and benefits involved.
In particular, it is far from certain that all consumers will benefit from the regulatory requirement placed on suppliers to install smart meters in their homes. We recognise however that the Department will work to ensure that consumers do benefit from being able to monitor their energy costs. The costs of installing smart meters will be borne by consumers through their energy bills, but many of the benefits accrue in the first instance to energy suppliers. No transparent mechanism presently exists for ensuring savings to the supplier are passed on to consumers, and the track record of energy companies to date does not inspire confidence that this will happen.
The Department has acknowledged that it is accountable for delivering the programme, keeping the costs down and ensuring that consumers benefit through reduced bills from the lower costs borne by suppliers and reduced energy use. The Department insists that suppliers are best placed to deliver the programme and that competition between energy suppliers is the best way to ensure consumers benefit from suppliers' savings. We are concerned, however, that past performance suggests that competition does not work effectively in this market and should not be relied on to keep prices low.
There remain significant uncertainties in a number of key areas in the programme. Consumers may not be willing to cooperate with the installation of smart meters: the communications programme which is promised for 2012 is therefore absolutely vital to help consumers use smart meters to reduce consumption. Significant practical difficulties may arise in procuring and installing the required data communications service before the planned roll-out of smart meters in 2014 (at a projected cost of £3 billion). The Department needs to address remaining uncertainties by conducting proper trials to identify and manage the risks associated with an IT project involving such a substantial amount of money which is financed by individuals as consumers.
The Department needs to ensure that the vulnerable, those on low incomes and those who use prepayment meters also benefit from smart meters. It would be unacceptable if these consumers bore the costs of smart meters through higher charges without getting a share of the potential benefits. The Government must put in place measures to ensure vulnerable people are not readily disconnected if they fall behind with payments.
There are issues around cyber security which need to be addressed if confidence in this new technology is to be gained by the population who are expected to have smart meters in their home and pay for them.
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