The UK has chosen a dumb way to roll out smart meters

The government has hit upon a very complicated and expensive way to roll out smart meters that are themselves grossly over-specified. Dan Lewis says rip it up and start again.

The over-budget, much delayed £11 billion smart meter programme is due to be rolled out at scale from next year. The main thing it is trying to accomplish is simple, to move from manual to automated meter readings, thus ending inaccurate billing complaints and the cost to suppliers of employing an army of meter readers.

The second aim is to create a new market for energy data and to encourage consumers to use less energy or, where they must use energy, to use if more efficiently. The third aim is to facilitate a smart grid and help ensure the UK’s infrastructure can cope with new demands within the distribution network.

As I argued in a recent paper for the Institute of Directors, Not Too Clever, Will Smart Meters be the Next Government IT Disaster?, the solution the government has embraced is mind-bogglingly complex, anti-competitive and needlessly expensive. Nowhere else in the world has any government been persuaded that to do the job, a new national wireless standard is required (transmitted through the cellular network) and a central body, the Data Communications Company (DCC), to harvest all the data. Or that suppliers should own the meters, and that each household will require a smart gas and electricity meter, a consumer access device, a home area network and an in-home display unit – duplicating what could be done on a smartphone.

“When government decides not only the what but the how, as it has done with smart meters, it comes at a cost in choice, competition and price.” 

It would be much harder to be sceptical about the programme if the government, or specifically the Department of Energy and Climate Change, did not refuse to publish the three reports into the programme carried out by the Major Projects Authority, citing commercial confidentiality. It really is unacceptable to spend £11 billion of consumers’ money without revealing why it is to their benefit. Step one, then, for smart meter minister Lord Bourne (one of the new intake at Decc following the Conservative general election victory) is to publish all the documents unredacted and to order a new impact assessment based on three discount rates: 3.5 per cent, 5 per cent and 7 per cent.

We still don’t know what assumptions were made to calculate the benefits, for example in terms of future oil, gas and electricity prices, peak and off-peak spreads, the rate of changed consumer behaviour and the assumed rate of technological obsolescence.

What is clear is that the published discount rate – a way of measuring opportunity cost for investment foregone – used in the impact assessment at 3.5 per cent is far too low and uncritically overstates the benefits.

Second, it is bizarre that the government has chosen to hand over the ownership and rollout of the meters to the suppliers instead of the distribution network operators (DNOs), creating a blindingly obvious conflict of interest. Why would a supplier want to sell you something that has the stated aim of reducing your consumption? A DNO and regional-led rollout, with an open competition from meter manufacturers with much lower specification, could do a lot to assuage consumer, competition and cost concerns.

The setting up of the DCC as a monopoly in particular requires much greater scrutiny from the new government. How can it be right that access as a third party to the DCC for the data (through the “adapter” gateway) may cost in the region of £100,000, far beyond the range of many small businesses and future start-ups?

It is also not at all clear what kind of ownership consumers will have over their own data either. Step two, then, is for the government to initiate a market crowding out assessment of the creation of the DCC, to identify which players will be squeezed out of the energy data analytics marketplace by the establishment of a monopoly versus the perceived benefits.

The really troubling issue, though, is that the smart meter programme is just re-­inventing multiple wheels, because it aims to deal with issues that have already been solved. The largest non-domestic sites have had advanced metering with half-hourly profile data since 1998, and medium-sized sites since 2009. None of these require a SMETS2 smart meter or the DCC for accurate billing or switching. There are also a bunch of third party data companies providing services to these companies. It was unnecessary to let the high-end meter manufacturers and the telecoms companies make the regulatory and specification running on this programme, at a cost of closing down a range of alternative competitive solutions.

You cannot fail but be impressed, for example, by the Loop gas and electricity monitors which cost only £70. These take readings every 15 minutes, are internet connected, come with a free app and are connected to the Uswitch.com API, which makes switching recommendations based on your energy consumption. Rolled out across the country, these devices would cost less than £2 billion, representing a saving to the consumer of £9 billion over the course of the smart meter rollout.

Alternatively you could use the highly successful open protocols of CHIRPS from Pilot Systems and overcome the vast interoperability challenges. Or the simplified powerline communications smart meters being installed across China at a cost of around £25 each. Or even the automated meter reading system of Energy Metering Technology called Databird.

I do not pretend to know which of these, or indeed any other solution, would work best. But when government decides not only the what but the how, as it has done with smart meters, it comes at a cost in choice, competition and price. Only a review that opens up the downstream supply chain, enables competing technologies to flourish and puts the consumer first, will be judged by future generations to have been the right decision for the country.