Ofgem publishes intended smart meter price cap cost methodology

Ofgem has proposed using the current non-pass-through smart meter net cost change (SMNCC) model for the fourth tariff cap period, if government fails to publish its own guidance in time.

The energy regulator set out possible outcomes if the government does not publish the new smart meter cost benefit analysis before October, or if it considers the new SMNCC methodology requires significant revisions after further consultation.

The current SMNCC allowance provides funding at a specific rate of installation (12.5 per cent  of suppliers’ rollout obligation in each six month period) regardless of suppliers’ actual rollout profiles, which inevitably differ.

Ofgem added that it considers the new smart metering implementation programme cost benefit analysis (SMIP CBA) to be the “best available source”, consistent with most suppliers’ views, which indicate “no compelling alternatives”.

The SMNCC is calculated in two sub-components: pass-through costs and non-pass-through costs.

Pass-through costs include charges such as those from the Data Communications Company, which built and maintains the national infrastructure for the rollout and Smart Energy GB, which promotes the benefits of smart meters.

Non-pass-through costs relate to the changes in costs to suppliers for rolling out the devices and include the cost of the metering assets, installation, in home display devices and smart-related system changes. They reflect changes in the cost of installing smart meters since 2017 and form the focus of Ofgem’s consultation.

Ofgem published its consultation in April as part of its review into the costs of the smart meter rollout within its default tariff.

Proposals include using the new SMIP CBA as a starting point, removing costs and benefits that are not relevant to suppliers and to consider whether modifying the new SMIP CBA might be more appropriate for its purposes.

Industry stakeholders have until 6 September to submit any responses to Ofgem’s proposals.