Consumers will accept smart meters more readily if they see how useful they can be

Without more detailed energy consumption data, customers are unlikely to understand the benefits of smart meters, or be able to tackle excess energy consumption, says Jeremy Carey.

Quietly, the UK smart metering rollout is making progress toward its target completion date of 2020. About 15 per cent of the UK’s estimated 47 million gas and electricity meters have already been replaced with smart meters and the Data Communications Company (DCC) is now ready for business.

But utilities are starting to find it harder to persuade consumers of the benefits of smart meters and are resorting to “deemed” appointments to try to meet their meter installation targets. If consumers do not see the benefits of smart metering, then not only will the rollout struggle to meet its completion date, but the anticipated benefits may also be significantly reduced.

Perhaps it is time to step back and look at improving the consumer value proposition for the programme to be successful – for example, by giving households richer information about their demand patterns or appliance use?

In 2016, a cost/benefit analysis from the department for Business Energy and Industrial Strategy (BEIS) estimated a total cost of around £11 billion to cover meters, installation, the DCC, utility back-end IT systems and administration. With about 47 million gas or electricity meters in the UK, the cost is about £460 per home for those households with two meters (gas and electricity).

Although smart meters are installed “free”, there is a working assumption that the cost will eventually be passed on to consumers. To justify this cost, BEIS estimates the total benefit will be about £17 billion and suggests it will be split with roughly one-third going to the consumer (through demand reduction) and two-thirds to the utilities.

The utility saving is divided between energy suppliers through lower cost of service and lower cost meter readings, and the networks and generation capacity operators through reductions in peak demand, partly enabled through “time-of-use” tariffs.

Looked at another way, the cost savings are roughly equally split between meter reading and customer support cost savings, and “nudge” effects on consumer behaviour. However, these benefits accrue over 18 years at an effectively “risk-free” discount rate of 3.5 per cent. In other words, with the tacit assumption that consumers will not only grudgingly accept the installation, but they will also engage with the technology and accept the nudge toward a sustained change in consumer behaviour.

Well-informed consumers now realise that unless the meter is a newer SMETS2 type, it is unlikely to be connected to the DCC and so when they (almost inevitably) switch supplier the meter will no longer be smart. Rational customers, who appreciate the benefits will take years to accrue, might choose to wait a few months to be offered a SMETS2 meter so they only have to be at home and disrupted once for a single install. In contrast, suppliers interested in customer retention may see merit in supplying a trusted SMETS1 device to discourage early switching.

If even getting the meters installed is a struggle then how effective is the nudge effect likely to be? The evidence from the low-cost “clip-on” devices with wireless in home displays is not encouraging. These devices have been widely available for more than a decade and provide most of the nudge potential of a current smart meter. However, it is widely accepted that their behavioural impact is typically limited to turning off a few lights and lasts only days or weeks before the device is ignored and discarded with little sustained impact. Dynamic price tariffs are likely to help keep the device relevant in the consumer’s mind but the evidence suggests that consumers need to be presented with better information if they are to make better decisions about energy use.

Most consumers are simply not interested enough to analyse their consumption information, relate it to loads in their home and make informed decisions about how to use their appliances to reduce their bills. A single measure for consumption is just too difficult for consumers to relate to. However, academic studies have shown that if you can separate out the different loads and help people understand how they are using electricity, then they will go on to make bigger reductions in demand than if you simply give them an aggregate consumption figure.

One recently announced technology based on the Triple Ohm platform aims to tackle consumer engagement by using very high frequency electricity consumption measurements and algorithms built into future smart meters. Although the additional chips will have a negligible impact in the overall cost, the vision is that consumers will be able to see not only total energy use on their smartphones, in home displays or bills but also see how that use was split across each appliance type.

This approach will help consumers understand which loads they should actively try to use less or at different times, and consider whether it is worth upgrading an old power-hungry tumble drier or using the dishwasher less frequently each month. It could also help them to decide on the benefits of turning off an appliance rather than leaving it on standby.

If all smart metering included demand disaggregation in the future, consumers might start to perceive greater value in obtaining and using a smart meter. This would be good news for all members of the smart metering value chain because it will both accelerate and de-risk the rollout. On the other hand, if a single utility or meter manufacturer were to offer the technology exclusively, it might secure a significant competitive advantage.