Delayed smart meter programme fails to hit targets and secure public support
20 October 2023
- PAC report warns about built-in obsolescence and forced installations
- Concerns smart meters are disproportionately benefitting wealthier consumers
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Progress on rolling out smart energy meters remains too slow, and the Government has not done enough to convince the public of their benefits. In a report published today, the Public Accounts Committee (PAC) warns that not enough has been done to ensure that the rollout, which has failed to meet its original targets and repeatedly shifted its deadlines for completion, has the support of the public.
Though Government considers there is demand for smart meters from people that do not yet have one, the PAC’s report found that those consumers with traditional meters are less interested in having a smart meter. Reports of bad practice last winter of forced switching of consumers onto smart meters may have put people off from having one installed.
The inquiry also heard that energy suppliers under pressure from Government-imposed smart meter targets can put pressure on consumers, who can feel threatened by contacts and correspondence from suppliers into having one installed. Given that only 57% of all meters in Great Britain were smart at March 2023, over a decade after the rollout began, the PAC is calling for a strategy review to drive demand for the programme.
As well as the fact that around 3 million (9%) of smart meters were not working properly at March 2023, the report highlights concerns about built-in obsolescence in those smart meters already installed. Components for an estimated seven million smart meters (out of around 32.4 million installed at March 2023) will need to be replaced because they will lose functionality when the 2G and 3G mobile communications networks are closed. Billpayers will ultimately bear the likely significant costs of these required upgrades.
The report finds that consumers who are older, male, on high incomes, or homeowners are more likely to have smart meters, raising concerns that certain, often wealthier, consumers are disproportionately benefitted by smart meters. The PAC calls on the Government to update its evidence (some of which dates as far back as 2015) on whether smart meters are actually saving consumers money as it anticipated. The Government should also improve its limited understanding of why smart meter coverage is lower in some areas – particularly London, rural and remote areas – compared to others.
Dame Meg Hillier MP, Chair of the Committee, said: “The rollout of smart meters was first conceived in 2008, with a planned completion date of 2019. Some 15 years later and four years after that missed target, and its vision of access and support for every household to control their energy efficiency remains a distant one. There are functionality issues with many, millions will have to be replaced when they become obsolete, and the evidence is unclear whether their benefits are even working as advertised.
“On top of this, smart meters have serious reputational obstacles to overcome with the public. In particular, our inquiry has found that consumers’ enthusiasm for adopting one has been understandably harmed by recent shocking reports of forced installations. The Government must now get onto the front foot and explain how it is going to sell this troubled programme to the public – and how it will successfully deliver during a cost of living crisis for those it ought to benefit the most.”
PAC report conclusions and recommendations
Progress rolling out smart meters is too slow and the Department has not done enough to ensure consumers are convinced of their benefits. The Government’s original target was to effectively complete the rollout by 2019. However, it has adjusted its deadlines three times and reduced its target installation levels for smart meters from “‘all homes and small businesses’” in 2019, to its current target of 74.5% of homes and nearly 69% of small businesses to have smart meters by the end of 2025. At the end of March 2023, more than a decade after the rollout started, only 57% of all electricity and gas meters were smart. The Department told us suppliers are currently installing 80,000 to 85,000 smart meters each week. Although the Department considers that there is demand for smart meters from people that do not yet have one, energy suppliers argue that the remaining consumers with traditional meters are less interested in having a smart meter. Smart meters have also been the subject of much negative media attention, particularly around the forced switching of consumers to smart prepayment mode. While the Department is ultimately responsible for the Programme and Ministers have a role in promoting the benefits of smart meters to consumers, the responsibility for consumer engagement rests primarily with Smart Energy GB (a not-for-profit organisation funded by suppliers).
Recommendation 1: The Department should work with Smart Energy GB to review its public engagement strategy to ensure it drives demand for the rest of the Programme, including by clearly setting out how smart meters can benefit consumers.
We are concerned that smart meters are not achieving the consumer benefits they are supposed to and are benefitting certain, often wealthier, consumers more than others. The Department’s most recent estimates of consumer energy savings are based on data from installations that took place between 2015 and 2018 (with consumption data up to 2019). These show energy reductions of 3.3% to 3.6% for electricity and 2.9% to 3.1% for gas. However, the Department needs more up-to-date data to be confident that smart meters are saving consumers money on their energy bills, as it anticipated. If consumers are older, male, on high incomes, or homeowners then they are more likely to have smart meters. Wealthier people are also more likely than less wealthy people to be able to purchase new replacement appliances (such as washing machines) if their smart meter suggests relatively high running costs of older appliances they may own. Previously, there special smart meter tariffs were available that offered lower prices, for example for off-peak consumption —however, these have been withdrawn due to current conditions in the domestic energy market, thereby removing an incentive for smart meter installation.
Recommendation 2: The Department should:
- update its evidence base on the benefits consumers are actually receiving; and
- carry out further assessment of how to maximise the benefits of the smart meter network for all consumers, particularly those groups currently less likely to have them to encourage them to apply for one.
The Department has limited understanding of why smart meter coverage is lower in some areas – particularly London, rural and remote areas – compared to others. The extent of smart meter installation varies across Great Britain, from 5% in the Isles of Scilly to 69% in Chesterfield as at March 2023. Installation rates in London are 43%, some way below the 57% being achieved across Great Britain. The Department thinks this is due to the challenges of installations in blocks of flats (where it is more difficult to place meters and in-home displays in sufficient proximity to each other), and also because installers cost more and are less available. Remote areas such as the Highlands and Islands of Scotland also have lower coverage, as do some rural areas such as the Cotswolds. The Department says that the Data and Communications Company, which operates the central communications and data platform for smart meters, is looking into options for the 0.75% of homes that sit outside its ‘wide area network’ coverage (known as “not-spots”) for smart metering. The Department referred to the ‘few hundred thousand’ homes in these areas as located in ‘not-spots’. However, we also note that some suburban areas such as the constituency of Richmond Park can have low coverage but have neither the characteristics of inner London nor rural or remote areas.
Recommendation 3: The Department should set out in its Treasury Minute response how it will:
- a) increase its understanding of the reasons for variation in geographic coverage, and what it is doing to increase smart meter uptake in those areas that are lagging behind;
- b) set out how those households who are unable to install smart meters will be supported.
Ofgem risks neglecting the importance of consumer engagement and behaviour change by focusing on penalising suppliers for missing targets. Energy suppliers have binding targets to install smart meters, which should be enforced by Ofgem, the energy regulator. However, energy consumers are not required to accept an offer of having smart meters installed and only one large supplier hit both its 2022 gas and electricity smart meter installation targets. Ofgem is in discussions with suppliers that did not meet their targets, and has previously used its enforcement powers to require an energy supplier to contribute more than £1m to a “‘redress fund’”. It told us it is now considering more severe financial penalties than this. The Department and Ofgem are also in the process of reforming the energy retail market, to increase its resilience whilst enabling innovation that helps support achieving net zero. This may require Ofgem to adapt its regulatory approach, moving beyond merely considering performance against targets, to take account of suppliers’ investment in the innovation and consumer engagement that encourages consumer behaviour change in line with net zero.
Recommendation 4: Ofgem should consider how its approach to regulating suppliers, on both the rollout and in relation to net zero more widely, takes account of the need for suppliers to engage their customers to promote behaviour change.
Too many smart meters are not fully functioning and millions more will be impacted when the 2G and 3G mobile communication networks close. In March 2023, around 3 million (9%) of smart meters were not working properly in total. Of these, 1.6 million are “transitory” issues according to the Department, but the remainder were faulty, and either not sending energy use information to suppliers or not displaying usage to consumers, or both. Suppliers are supposed to take “‘all reasonable steps”’ to replace smart meters that are not working properly, but the government’s rollout targets mean suppliers have much clearer incentives to prioritise the installation of new meters rather than replacing broken ones. Consumers are only guaranteed for a year the benefits arising from being able to monitor their energy consumption in real-time - because if their display breaks after that, the supplier currently has no obligation to replace it. An estimated seven million communications hubs (part of the electricity smart meters) will also need to be replaced, because they will lose functionality when the 2G and 3G mobile communications networks are closed. The costs of these upgrades could be very significant, and, like other costs of the rollout, are ultimately passed on to billpayers.
Recommendation 5: The Department and Ofgem should set out:
a) what they will do to ensure suppliers assign more importance than at present they do currently to replacing those smart meters (and their in-home displays) not functioning properly;.
b) a timetable for replacing the communication hub element of smart meters that will lose functionality when the 2G and 3G mobile networks are switched off;
c) measures to ensure that suppliers use future-proofed technology – for example, by excluding 2G or 3G connectivity – in all new smart meter installations.
The smart meters programme has been going for more than a decade and it is not clear how the Department takes important decisions relating to its future, including how it will decide when to bring the Programme to a close. The government first announced its intention to mandate suppliers to install smart meters in 2008, and energy suppliers have been rolling out smart meters since 2012. The Programme is one of the largest across government by whole-life costs; however, despite this, the Department has not published updated costs and benefits information since 2019. The Department estimates that both costs and benefits have increased since then, and acknowledges the argument for reporting more of this data to Parliament, while noting that it would want ministerial consent before agreeing to do so. Furthermore, the Department recognises that the smart meters rollout needs at some point to stop being a change programme and become business-as-usual, but considers that there remains significant demand amongst consumers that do not yet have a smart meter, which can be met through its ambitions out to 2025. However, it only has a plan for the Programme to 2025, and does not know when it will be able to bring the Programme to a close.
Recommendation 6: The Department should:
- report programme costs and benefits to Parliament on an annual basis, alongside progress of critical success factors; and
- set out how it is using this information to inform decisions on the future of the rollout, including when it will bring it to a close.
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