UK Government Launches Consultation on Smart Metering

On 11 May 2009, the UK’s Department for Energy and Climate Change (DECC) confirmed the Government’s plans to install smart meters in all households by 2020 and launched a public consultation on smart metering for electricity and gas in Britain (the Consultation). The national roll-out of smart metering will be a massive undertaking, requiring the replacement of approximately 50 million meters in the domestic sector alone. DECC recognises that no other country has so far implemented energy smart metering on such a scale and that all the proposals it has examined would require extensive industry changes.

The Consultation covers proposals for the roll-out of smart meters for energy supplies to domestic households and also certain small and medium non-domestic (business and public) sites. The Consultation is likely to be of interest to a large number of players including energy suppliers, distributors and consumers and also those in other sectors, such as communications and technology providers, and water or other utilities, for whom the roll-out might create new business opportunities.

What are “smart” meters?

There is no agreed definition of a “smart” meter but the term usually refers to a meter that transmits data back to the energy supplier remotely, thus negating the need for manual readings (or unreliable estimates) and offers a range of other “smart” functions. DECC’s proposals include that all domestic energy smart meters should have the following functionality:

o Remote provision of accurate readings/information for defined time periods
o Two way communications to the meter system
o Home area network based on open standards and protocols (this would include provision of “real time” information to an in-home display)
o Support for a range of time of use tariffs
o Remote disablement and enablement of supply

In addition, DECC proposes that those smart meters used to measure electricity consumption would be required to have load management capabilities to deliver demand side management, exported electricity measurement capabilities and the capacity to communicate with a measurement device within a microgenerator. A number of these proposals will certainly prove controversial but it is likely that environmental campaigners will welcome the proposal to require in-home displays.

Legislative Background

“Smart” metering was introduced to European Member States in the EC Directive on Energy End-Use Efficiency and Energy Services (2006/32/EC) (the “Directive”). The Directive lays out an energy savings target of 9% for the ninth year of application of the Directive, to be adopted by each Member State. Subject to certain exceptions, article 13 of the Directive obliges Member States to provide energy customers with individual meters that accurately reflect their energy consumption and provide information on actual time of use and also seeks to introduce EU wide improvements in billing; however no longstop date for the implementation of these provisions is laid down in the Directive. There will also be provisions relating to smart metering in the new Directive concerning common rules for the internal market in electricity, due to come into force shortly.

The Energy Act 2008 was passed on 26 November 2008 and brought into force important provisions relating to gas and electricity metering (88 – 97 and Schedule 4) in anticipation of the smart metering roll-out. They give the Secretary of State powers for five years to modify electricity and gas distribution and supply licence conditions in order to require a licence holder to provide or install meters or to require a licence holder to make arrangements to do so. Modifications may include a range of details including technical specifications for meters, provision about the use of a meter remotely to disconnect a customer’s premises, and provision about access to information from meters. Schedule 4 allows the creation of new licensable activities connected with metering, including the provision, installation or operation of relevant meters, including infrastructure, or the provision of services, in connection with the communication of information by or to such meters. The Energy Act 2008 has been drafted widely to account for the areas where decisions are still to be made, for example, who will be responsible for installing meters and what technological capabilities the meters will have.

Advantages of smart metering

DECC has identified a number of potential benefits; these include:

• Suppliers and network companies

o Elimination of on-site meter reading and inaccurate estimates
o Data collection that will allow better management of the network and more informed investment
o New profit opportunities and reduced costs for some operations (e.g. reduction in billing enquiries, call centres and debt management)

• Consumers

o Elimination of on-site meter reading and inaccurate estimates
o Facilitation of switching between suppliers
o New opportunities to reduce demand/ save costs

• Society/Environment

o Energy demand reduction and reduced peak demand
o Reduced carbon emissions (if consumers use information to reduce energy use)
o An essential stepping-stone to smart grids, smart houses, electric cars and microgeneration.

The Consultation

Domestic metering

The Government announced in October 2008 that it intended to mandate electricity and gas smart meters for all households by 2020. The new Consultation provides an introduction to DECC’s proposals and discusses the policy context.

The Consultation makes proposals in two areas fundamental to rolling out smart meters:

• The delivery model or market arrangements for installing and on-going management of smart meter infrastructures and services

The Consultation considers several options, including leaving all elements to be delivered by existing market structures, or establishing a regional or national monopoly for provision and installation of both the meters and the communications backbone on which they will rely. Overall, DECC prefers a mixed “centralised communications” model, the key features of which are as follows:

o Energy supply companies would have responsibility for provision, installation and ongoing management of smart meters.
o A single national communications provider would be appointed centrally to provide communications services for all smart meters across Britain.

The Consultation recognises that there is no perfect model but suggests that DECC’s preferred approach would deliver more benefits, less cost and fewer difficulties concerning communications (e.g. interoperability) than a purely “market” solution, while reducing disruption to the existing competitive metering market and allowing this to continue to drive innovation and quality.

Detailed design work will be necessary once a decision has been reached at high-level.

• Smart meter functionality

DECC’s proposals for the high-level functional requirements for the domestic smart metering system are set out in the Consultation. Detailed design work will follow finalisation of the high level criteria. It is interesting that DECC has made no assumption about how the functionality is to be delivered (i.e. within the meter, modularly or through some other solution) or how data will be transmitted (although GSM GPRS has been used to assess cost).

Non-domestic metering at medium and smaller non-domestic sites

In July 2008, the Government issued a consultation on advanced/smart metering for small and medium sized (commercial and public sector) sites in Britain. Such sites account for about 2.2 million electric and 1.5 million gas meters and the new Consultation proposes generally requiring the same minimum functionality that would be required in the domestic market, subject to certain exceptions where the minimum functionality would only need to match that required for less sophisticated “advanced” meters. DECC has requested views on such exceptions but would seem to envisage domestic style smart meters becoming the standard on such sites and roll-out being completed by the same 2020 deadline applicable to the domestic market.

In light of its proposals for the domestic sector, the Consultation also requests views as to the implications of adopting the centralised communication or other delivery models on this sector of the market.

Other observations

The Consultation makes a number of other important observations, including the following:

• DECC recognises the importance of ensuring consumer engagement. The Consultation asks for views on how to ensure local involvement in the roll-out and suggests that smart meters would be rolled-out by local areas to allow more targeted, and hence effective, public information campaigns.
• DECC recognises that its proposals would require serviceable “dumb” meters to be removed before the usual end of their economic life but DECC does not believe that a compensation scheme is appropriate.
• DECC accepts that data access and data protection issues will require careful consideration.

Next steps

• The Consultation is open and will run to 3 August 2009. For further information, please click here.
• DECC intends to do further work during the consultation period to review whether energy distribution network businesses should have a greater role in relation to smart meters, and invites views on this possibility.
• DECC will consider results from the on-going Energy Demand Research Project (EDRP) which is currently testing a variety of smart meter options and consumer responses. Around 50,000 households across Britain are involved in the EDRP, with about 18,000 homes trialling a variety of “smart” meters. The EDRP’s work to-date has already demonstrated some of the technical difficulties that will need to be solved.