Smart meters will allow suppliers to offer greater flexibility and choice

The rollout of smart meters over the next few years will present new challenges and opportunities for suppliers and offer greater flexibility and choice to consumers. Anya Davis reports.

Smarter technology is revolutionising the way we work, live and travel. On top of this, it is also set to have a huge impact on how we heat our homes and keep the lights switched on nationwide. This year looks set to be a significant milestone for the energy industry: the introduction of smart meters will lead to a number of changes and challenges for suppliers, customers and regulators. As a result, we wanted to look forward to see how suppliers and new market participants will be affected in 2016 and assess how innovation could develop within the smart energy sector.

As part of their licence conditions, suppliers are mandated to install smart meters for their customers, in line with targets overseen and enforced by Ofgem. In addition, a new industry entity, the Data Communications Company (DCC), will go live in autumn 2016. The DCC will manage the data and communications network that connects smart meters to the business systems of energy suppliers, network operators and other authorised service users.

A new world for suppliers

As they race to roll out these new meters to customers by 2020, smart meters will impact a larger proportion of suppliers’ business strategy and how they choose to operate.  This year will be an interesting one for suppliers and their deployment strategies; we may see some struggle to scale effectively because this will be the first year they have to commit to installing specific volumes.

Suppliers need to ensure they are properly resourced to deal with the increased workload associated with deploying new meters and this may involve contracting out work to third parties. There will be an increased demand for those with installation and logistics skills, as suppliers look to build and plan their enduring workforce to cope with their peak rollout years.

Suppliers may also use the opportunity to introduce smarter tariffs, such as pay-as-you-go. These will enable prepayment for electricity and gas bills, suiting users with more flexible living arrangements, such as those with holiday homes and student houses. This will give customers greater control over their bills and allow them to pay in advance for the energy they use.

Smart tariffs will also help customers to budget their energy use more effectively. While ‘topping up’ currently requires a trip to a post office or shop, customers will eventually be able to do so online or using an app, making the process less onerous. There are also considerable benefits for the supplier: currently prepayment products require a physical meter change; however, this will soon be conducted remotely, reducing manual effort and costs.

Unlocking benefits for customers

Smart metering will bring greater choice and flexibility for customers, allowing them to change their supplier more easily. Whereas switching suppliers could traditionally be time consuming and frustrating, more accurate measurement systems and a more integrated industry framework will make the process much more straightforward for consumers and suppliers.

Most consumers struggle to link their energy consumption behaviour to the associated cost implications. With the aid of a smart meter, customers will be able to manage their consumption in a more sophisticated way, through more accurate energy bills and the smarter data they will receive from their in-home display. One interesting example was a customer we spoke to who could not work out why her energy bills were so high. By using smart data, she was able to work out that her usage peaked at the weekend when she held her hot tub parties! Moving from two-yearly readings to readings every half-hour will provide greater visibility over consumption patterns and deliver insights that should help to reduce bills.

Potential for innovation

This new frontier of technology offers a considerable opportunity for energy providers to innovate over the coming years. We may see the introduction of more sophisticated tariffs, for example those that reward customers for using energy at off-peak times. As well as leading to cheaper bills, this could also have additional benefits pertaining to network resilience, helping to manage the pressure on the energy grid. We may also see suppliers or other interested parties proactively managing vulnerable customers, combining insight on weather data and consumption patterns to help those in most need.

The greater quantities of accumulated data will undoubtedly lead to the further development of apps and dashboards to monitor energy usage. This will mirror the progress made in B2B markets to help companies interpret their energy usage and focus on reducing costs. We could see a lucrative market for third parties who are interested in interpreting energy data; however, this does present additional challenges around data security, which need to be considered and accepted by customers.

The emergence of energy home control systems is a developing trend. Customers are now able to control their energy remotely; progress has already been made in this area through partnerships such as British Gas and Hive. We anticipate further development in areas such as home security and comfort control.

Looking to the future

The upcoming changes to smart metering will prove to be a seismic moment for the industry. It will present new challenges and opportunities for suppliers and new market participants, and will give choice and flexibility to energy users. They say that knowledge is power – smart technology will put information in the hands of the customer; however, education and choice will be instrumental in whether consumers change their energy consumption.

Anya Davis is a director at Baringa Partners