Time to go shopping

John Peters urges energy suppliers to use the extra year gained from the delayed smart meter rollout to get their procurement strategy in order

The 12-month delay to the smart meter rollout announced in May was welcomed by many in the industry. In providing a year’s grace, the Department of Energy and Climate Change (Decc) listened and acted on stakeholder feedback concerning the challenging timescales and the need to ensure a fit-for-purpose communications and data service infrastructure. There were concerns, too, about the regulatory framework, and issues around consumer engagement and protection.

Suppliers now have more time to get things right and solve some of the complex technical and business issues involved in the programme. However, there is no place for complacency. There is a great deal to consider in terms of procurement, and that are several risks and challenges ahead.

Each of the suppliers is taking a different approach to planning for rollout in the foundation stage. However, most suppliers are now gearing up their supply chains and system capabilities for a large-scale rollout in autumn 2015 and all expect to complete the rollout on time.

To do this successfully, suppliers will need to ramp up and train their field force, finance new assets and ensure their technology is compatible with the approved government specifications. They will need to assess strategic vendors, comply with technical and regulatory standards, engage credible partners with robust technologies and ensure their business can scale up for the rollout, both in financial and logistical terms.

Additionally, there will be new licence conditions to meet that will stimulate progress towards delivery while protecting consumer interests, and other issues to address such as consumer engagement. Research from Decc last year revealed that while almost half of people in the UK have heard of smart meters, three-quarters knew little or nothing about them. The recent launch of the Central Delivery Body (CDB), which has been given the task of educating consumers about the smart meter rollout, will help with this.

In terms of procurement, the key issues are:

Technology and testing. The market is new with many different providers with competing technologies that have not been delivered before on the scale and in the configuration required. To add a layer of complexity, the smart metering system has several components: the electricity meter, gas meter, in-home display, and a communications module, all of which need to be interoperable and which may be the responsibility of different providers.

Suppliers will have to choose between new technology players or companies with a track record in the legacy world of metering. There are risks with both options, so due diligence and testing will be critical and it will be particularly important to allow adequate time for the robust trailing and testing of the whole smart metering system.

If suppliers decide to work with smaller, start-up companies, they may wish to consider producing innovative commercial agreements that drive down prices, reduce their risks and secure production.

Interoperability challenges. The government has named Capita as preferred bidder for the Data and Communications Company (DCC) contract. Suppliers will need to ensure their smart metering systems work seamlessly with the provider.

The communications service providers (CSPs), who are responsible for the core communication network for smart meters, will be procuring the communications hub – the device that links the smart metering system to the wide area network so that data can be sent to and from the DCC. Suppliers will need to procure all other components of the smart metering system, including the smart meters and in-home displays, and make sure they work with whatever communications hub the CSP provides.

Suppliers will also have to ensure their technologies comply with the Decc smart meter equipment technical specifications (Smets). Smets 1 and 2 set out the requirements and functions of each element of the smart metering system and provide a stable baseline against which suppliers can procure their smart metering systems.

Financing equipment. Most suppliers will seek to keep the costs of smart meters off their balance sheets and rent the assets from an asset financier, often referred to as a meter asset provider. In the procurement stage, suppliers have just as much at stake getting the right commercial financing as they do in getting the best price for the meter itself.

Preparing the field force. Fitters of legacy meters have typically specialised in either electricity or gas, but for the smart meter rollout, meter fitters will probably need to be dual fuel trained in addition to understanding the multifaceted communications of the smart metering system.

All field staff must comply with a smart metering installation code of practice, which sets out the rules suppliers must follow when they install smart meters, and how they treat customers to ensure the best possible service levels during their transition to smart meters. Suppliers will therefore need to ensure that all meter installers are trained in time for the rollout and that they comply with the rigorous standards laid out in the code.

Suppliers thus need to ramp up their meter installation capability to meet the rollout schedule. They will also need to manage the impact of recruiting or sourcing a large number of people, considering that all suppliers will be doing the same, avoiding a resource vacuum in the process. All these challenges will be harder for smaller suppliers and could even prove a barrier to them getting up and running in time for 2015, especially procuring field assets ahead of time such as the high volumes of vans and other ancillary equipment needed to fit meters. In the current economic climate, securing finance is tough and this aspect could also prove challenging.

The sheer complexity and scale of the programme means the delivery risks are significant. New technologies need integrating with new systems and need to be operated by new recruits who require training. The smearing of costs across a larger customer base will make the transition easier for the larger suppliers, but delivering change can sometimes be easier in a smaller organisation. Not all aspects can and will be done at once. Different retailers will take different approaches. Some will go early and others who might be more risk adverse will go later. There are pros and cons of each approach.

Equally, every procurement strategy will be different. Every company has its own business drivers, its individual attitudes to risk, different technologies in place and existing relationships with suppliers. Our advice would be for suppliers to carefully consider all elements of the procurement cycle and select suppliers based on their credibility, innovation, future proofing, price and logistical fit.

While there is still a great deal to get done by 2015, the new timetable for rollout is workable. However, a successful procurement cycle takes around 12 months from start to finish, including time for testing solutions. So there is no time for delay, despite the year’s delay in the rollout timetable.

John Peters, managing director, Engage Consulting

This article first appeared in Utility Week’s print edition of 13th September July 2013.

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