Smart meter rollout at ‘breakeven’ point

The smart meter rollout has passed the “breakeven” point, meaning every additional device added to the system is contributing to the net benefits of the programme, the government has announced.

In its 2019 cost benefit analysis (CBA), published today (16 September), the Department for Business, Energy and Industrial Strategy (BEIS) says the results show an increase in consumer benefits of £2.3 billion compared with the most recent CBA published in 2016.

BEIS says its analysis reflects the latest installation rates and forecasts by energy suppliers, with a new policy framework assumed to be in place from 2021 onwards.

Each individual household is estimated to see a net benefit of £250 over the appraisal period 2013-2034, with estimated total bill savings to households of £5.6 billion and carbon emissions reduced by nearly 45 million tonnes of carbon dioxide equivalent (CO2e).

Small businesses meanwhile will also see “significant benefits” from the roll-out, for example through the £1.5 billion realised through energy consumption reductions over the appraisal period.

Furthermore, BEIS says the devices will have an “increasingly important role” beyond the end of the appraisal period. It cites the Committee on Climate Change which estimates the costs of reaching net zero emissions in 2050 could be up to £16 billion per annum higher without a more flexible energy system, of which smart meters are a part.

The report says “significant progress” has been made in delivering the roll-out, with millions of meters installed, technical issues overcome and the move from SMETS1 to SMETS2 “largely being completed”.

According to the latest figures from the Smart Data Communications Company (DCC) two million SMETS2 meters are now operational.

The latest from BEIS reveal 14.9 million smart meters were in operation in the UK at the end of Q2 2019.

The report does however state that supplier benefits have fallen since the 2016 CBA, largely due to changes in the energy retail market unrelated to the rollout.

As an example, BEIS says some consumers now provide meter readings themselves allowing energy suppliers to bank some (but not all) of the efficiency savings that the installation of a smart meter would otherwise bring.

Yet the benefits to be enjoyed by energy suppliers are expected to amount to £8 billion over the appraisal period.

Costs in the period to 2030 have reduced by £300 million, compared to the previous CBA.

The analysis shows that increases in the costs of installations and the DCC have been more than offset by lower asset costs and the fact that as more meters are being installed beyond 2020, costs are incurred later.

Once a steady state is reached, costs are around £670 million per annum – broadly similar to the level of cost in the previous analysis, meaning the roll-out continues to show a good return on investment for domestic and non-domestic consumers and Great Britain as a whole.

Overall, from 2028, the programme is expected to deliver net benefits of around £1.2 billion per annum.

In addition to its CBA, BEIS is proposing to extend the rollout beyond the 2020 deadline to 2024.

Specifically, the department proposes to introduce a monitoring framework period from 2021 to 2024. During this time milestones would be introduced, with the achievement of a minimum smart meter coverage of 85 per cent at the end of the framework period.

BEIS says this would be expected to deliver an additional net benefit of around £1.5 billion compared to a “do nothing” policy where the New and Replacement Obligation (NRO) is the sole obligation on energy suppliers relating to the installation of smart meters.