A smarter approach: mandating the outcome, not the technology

By the end of 2020, every household and small business in the UK should have been offered smart electricity and gas meters. Value from the smart meter rollout will be derived through operational savings, energy efficiency and better customer engagement. Impact on consumer behaviour, primarily encouraging people to use less energy, is a key success factor in the rollout - both financially and politically.

Smart meters can be a really useful tool in giving customers up-to-date information on energy use and enabling accurate billing. Smart meters provide data that helps energy companies stop the practice of estimated bills, be more transparent, and make energy consumption easier to understand. However, on their own, smart meters just create more data; they do not automatically reduce consumption and bills.

To achieve reductions in energy use, Decc mandated all energy suppliers offer domestic customers an In-Home Display (IHD) with their smart meter, so they have easy access to real-time consumption and tariff information. At first this seemed a sensible requirement, but it has attracted significant criticism since the mandate was put in place.

Why? Unfortunately, the data generated by a smart meter hasn’t proven to be inherently interesting to consumers. Without consumer interest and attention, IHDs cannot impact consumer behaviour and help consumers save energy. In fact, several studies have shown very few consumers use their IHD, and of those who do, most IHDs are consigned to a drawer in less than six months and not used again.

In order to unlock the potential of smart meters, utilities must find ways to make the data engaging to consumers. Solutions must give homes and businesses the clear, actionable insights they need to better manage their energy use, not just an “ECG” of their electricity consumption. Against this backdrop, new rules published by government last month pertaining to the provision of IHDs are significant.

Specifically, the government has introduced a different licence condition which in turn establishes a derogation mechanism, giving suppliers the freedom to trial alternatives to IHDs. This rule change could remove at least £200 million from the cost of the rollout for all of the larger suppliers, based on a cost of £15/IHD and 30-minutes of engineer time per household to install and explain the device.

IHD alternatives could vary from home energy reports to consumer access devices but, crucially, the government is clear all trials must not disenfranchise specific groups within society. In short, this means a smartphone app, for example, is only ever going to be part of the puzzle given the pervasiveness of smartphones/tablets and current utility app download rates (according to Deloitte, smartphone penetration among UK adults is currently around 76 per cent). In addition, evidence from around the world shows that whilst apps have some consumer engagement appeal, nobody has yet designed an app which delivers the sustained and scaleable energy savings Decc now demands.

Crucially, there is no cap on the scale of the trials allowed under the derogation, allowing large-scale introduction of options such as software – typically at a tiny fraction of the cost of an IHD. Thus, the government is no longer mandating the technology, but is mandating the energy efficient outcome in allowing utilities and their chosen technologies to compete in order to deliver the best and cheapest outcome for consumers.

This new policy is fantastic news for British bill payers, energy suppliers, and the government, providing an opportunity for the UK to deliver energy efficiency in an affordable and measurable way. The option for energy suppliers to trial IHD alternatives when installing smart meters opens the door for consumers to save money, for utilities to innovate and build better relationships with their customers, and for government to de-risk the smart meter rollout.

At its centre, the smart meter rollout is a behavioural change programme. It is only with actionable insight that smart meters will deliver value to British homes. This type of “behavioural energy efficiency” can help ensure massive smart meter investments deliver what they are designed to do: help consumers reduce their energy consumption and their energy bills.

This IHD derogation means the UK can continue benefitting from such an approach, and well-structured legislation means trials will run in parallel with the smart meter rollout, meaning no delay to the programme.

The application window is expected to open in late March this year, from which point suppliers will have six months (until 30 September) to make their applications, and a further year to gather evidence on a sufficient scale. Energy suppliers will need to explain how they intend to measure the savings; Decc points towards Randomised Control Trials (RCTs) being the likely requirement. In the RCT, a randomly selected user group with IHDs (i.e. the ‘control’) will have their energy savings measured against all the other customers. Decc will be looking at the difference and trend in energy savings.

At an estimated cost of £11 billion, the UK smart meter rollout is one of Decc’s – and the government’s – biggest capital investments of this Parliament. The programme, and its management, has been much criticised in recent years. However, this low-key and highly technical change will go down as one of the most critical decisions the government has made about the programme since its inception. In essence, the smart meter rollout just got a whole lot smarter.