Public Accounts Committee 

Oral evidence: Update on the rollout of smart meters, HC 1332

Thursday 22 June 2023

Ordered by the House of Commons to be published on 22 June 2023.

Watch the meeting 

Members present: Dame Meg Hillier (Chair); Mr Jonathan Djanogly; Sir Geoffrey Clifton-Brown; Mr Louie French; Peter Grant; Anne Marie Morris; Sarah Olney; Nick Smith.

Gareth Davies, Comptroller & Auditor General, National Audit Office, Simon Bittlestone, Director, Value for Money, NAO, Adrian Jenner, Director of Parliamentary Relations, NAO, and David Fairbrother, Treasury Officer of Accounts, were in attendance.

Questions 1 - 128

Witnesses

I: Daisy Cross, Head of Future Retail Markets, Energy UK; Anne Pardoe, Principal Policy Manager, Energy Retail, Citizens Advice; Marcus Shepheard, Senior Analyst, Climate Change Committee.

II: Clive Maxwell, Second Permanent Secretary, Department for Energy Security and Net Zero; Neil Kenward, Director for Strategy and Interim Director for Markets, Ofgem; Daron Walker, Smart Metering Implementation Programme Senior Responsible Officer, Department for Energy Security and Net Zero.

Report by the Comptroller and Auditor General

Update on the rollout of smart meters (HC 1374)

Examination of Witnesses

Witnesses: Daisy Cross, Anne Pardoe and Marcus Shepheard.

Chair: Welcome to the Public Accounts Committee on Thursday 22 June 2023. Today we are looking at the rollout of smart meters, a programme that was first mooted in 2008; here we are in 2023, still discussing a project that is not yet completed. Energy suppliers are now legally obliged to meet smart meter installation targets set by Government for both domestic and small business customers in Great Britain, but the latest data shows that only 57% of all meters are smart, meaning that they can provide near real-time information to suppliers with the aim of saving around £6 billion for both the supplier and the customer. One of the things we want to pick out today is actually what the customer gets out of this.

We are going to be questioning witnesses on how the rollout is going and what some of the technical challenges are, although that might be quite challenging because there are an awful lot of technical issues still involved in the later rollout. To help us in understanding all of this and assessing how Government are doing, we are very pleased to have a panel of expert witnesses ahead of our experts from the Department itself.

I would like to welcome the first panel today. We have Daisy Cross, who is the head of future retail markets at Energy UK, which represents the energy companies. Welcome to you, Ms Cross. We have Marcus Shepheard, who is a senior analyst at the Climate Change Committee. Of course, a lot of the point of the rollout of smart meters is to help us all better manage our energy use for the future of the planet. We have Anne Pardoe, who is the principal policy manager of energy retail at Citizens Advice. A very warm welcome to the three of you.

Q1                Peter Grant: Good morning to our witnesses. Ms Cross, some of the written evidence we have received raises concerns that, once a smart meter has been installed, it allows the supplier to change the customer on to a different tariff, including changing them onto a very high prepayment tariff, without the customer’s consent. First of all, is that something that is technically correct? Does the smart meter give suppliers the ability to do that?

Daisy Cross: One of the benefits of smart meters is that you can change tariff without having to change the meter. If you have a credit tariff, you can change to a prepayment meter tariff without having to have a new meter installed. In terms of switching on to a different rate, that would be down to a customer’s consent. If a customer rolls off their existing tariff on to what was formerly an out-of-contract rate, that is now protected by the price cap. In reality, we are seeing most customers are not switching at the moment.

Q2                Peter Grant: You said it was by consent. Does that mean that, even if a customer is in arrears, the supplier will not require them to go onto a prepayment meter as a way of clawing back the arrears?

Daisy Cross: If the customer is in debt, the supplier will make every attempt to contact the customer to talk about the debt that is accruing and they will try to put in place a number of different measures to help the customer out of that debt. There are prepayment plans. There are also many millions of pounds-worth of support that is being provided to customers, particularly during the gas crisis.

Q3                Peter Grant: The things that would prevent the tariffs being switched are legal and regulatory restrictions. If somebody decided to change those regulations, do the suppliers at the moment have the technical ability to switch somebody on to a different tariff simply by pressing a button somewhere in the head office?

Daisy Cross: If the legal requirements were changed, would they be able to?

Q4                Peter Grant: I am not asking just now about whether they legally can; it is whether it is technically possible. People are now having these meters installed into their homes, which means that ability may become available at some point if the regulations changed.

Daisy Cross: As I say, you can switch customers on to various different tariffs. That is one of the benefits of smart meters, but there is customer awareness and consent involved in that process.

Q5                Peter Grant: Ms Pardoe, I know that Citizens Advice have raised a number of concerns about both the theory and the practice of how smart meters affect some consumers. What are your thoughts on the answers we have just heard? Does that reassure you that consumers’ rights are going to be protected?

Anne Pardoe: What we saw last winter was widescale bad practice across the prepayment meter sector. We saw significant numbers of people switched on to prepayment meters, both traditional prepayment meters and smart meters, where that was not safe and appropriate to do so. We saw some really heartbreaking cases of people being switched to a prepayment meter—from smart mode to prepayment mode—where it was not appropriate. Sometimes people did not know that they were going to be switched to a smart meter.

We saw some cases where people were in hospital and would come home and find that they had missed the communications from their supplier because they were in hospital, and they had been switched. There were also some people who were at home and, for whatever reason, had not received those communications. They found they had been switched to a smart meter, which they could not top up, and were cut off as a result.

One thing I would say is that, where a prepayment meter is safe and appropriate, smart prepayment meters are vastly superior to traditional prepayment meters. Where those are appropriate, we would actually encourage suppliers to prioritise prepayment meter customers in the smart meter rollout. Traditional pre-pay is absolutely awful and smart at least gives people a range of ways to top up. It is much easier to get support to people.

We are pleased to see that Ofgem is taking action in the prepayment meter market. At the moment, no forced switching is allowed until suppliers have demonstrated that they can do that safely and appropriately, which is the right answer.

Q6                Peter Grant: Ms Cross, another issue that I know a lot of us have had in our constituency mailboxes—and it has also been raised in some of the evidence we have received—is the situation where a meter, possibly because it is beginning to get to the end of its useful life, is still sending information back to the supplier but it is basically not providing any benefit at all to the consumer. The consumer thinks the meter has stopped working because the display is not working and so on.

Are you absolutely certain that, in those conditions, the supplier is still complying with data protection regulations and still has the explicit consent of the consumer to carry on collecting very detailed information about them while the consumer is getting nothing back in return?

Anne Pardoe: Just to clarify the question, the meter is working. The customer does not have an IHD or—

Q7                Peter Grant: There are cases where the meter is working as far as the supplier is concerned. The meter is continuing to send all the information back to the supplier, but, from the customer’s point of view, it is not working. They cannot see the information that they are supposed to get in order to manage their own energy usage. In those circumstances, are you certain that suppliers will still have explicit consent from the consumer to carry on collecting what is sometimes very detailed personal information about them and their family?

Daisy Cross: When a customer signs up to a tariff and has a smart meter, there is consent around sharing that data. It is definitely an area we need to work on, because a massive benefit of the future of smart is being able to access customer data, aggregate it and really learn a lot more about customer usage off the back of that. That is definitely an area we need to look more into.

If the customer cannot use their IHD for whatever reason or is waiting for a new one, they are still seeing the benefits from the meter side of things in terms of understanding better their usage and getting more accurate bills. They are actually seeing some benefits. There are also the broader network benefits that the NAO Report alludes to, which means that, overall, it is a positive outcome.

Q8                Sir Geoffrey Clifton-Brown: Good morning, everybody. Can I perhaps start with you, Ms Pardoe, please? Which groups of people are potentially being excluded from the benefits of smart meters?

Anne Pardoe: It is fair to say that, for consumers, the real benefit of smart meters is when you have a working in-home device that allows you to understand your energy usage and reduce it. That is the real benefit for consumers in the short term. We will see more benefits to consumers coming down the line as we see more dynamic tariffs and smart homes becoming a reality. All of those rely on smart meters.

At the moment, as I mentioned, the real benefits right now for consumers are for prepayment meter customers. At the moment, we are not seeing those installed at the pace that we would like. The benefits there are that, if it is safe and appropriate to be on prepayment, the issues that we saw last winter aside, it is vastly superior in terms of giving people more ways to top up. It also easier for suppliers to get support to people through a smart prepayment meter, like the energy bill support scheme vouchers that we saw the Government give over the winter. For smart meters, that can just be added to someone’s tariff, whereas a traditional consumer needs to go and physically cash that in.

We want all traditional prepayment meters off the wall as soon as possible and smart meters fitted instead. You can also switch people back to credit mode more easily if you have a smart meter. Also, it can be more difficult for people in rented properties, because they do not own the property. More support for people talking to their landlords about that, as well as any kind of pressure that can be put on landlords to get those smart meters in where people want them, would be really helpful.

Broadly, we just need everyone to be sold the positive case for smart meters, rather than feeling like they need to be forced on to them. We see a huge rise in people coming to us because they are reluctant to have a smart meter; they feel like they are being forced into it. We would like to see a really positive case made across the board.

Q9                Sir Geoffrey Clifton-Brown: Following on from that answer, Ms Cross, I do not know whether you have seen the NAO Report. Paragraph 1.11 on page 27 references this rental group that Ms Pardoe was talking about—the 18-to-24-year-olds—and the very comparatively lower percentage number of properties in London. Presumably that is because there are a large number of flats in London. Can you tell us, technically, how this new technology Alt HAN is getting on in being able to identify meters in a basement, say, of a block of flats and therefore install smart meters in each individual flat? How is that getting on and how might that affect this particular group?

Daisy Cross: It is definitely a big part of the benefits case that those groups of customers can benefit from smart meters. The Alt HAN device has been in progress for some time. Our members initiated the project. They identified the issue and initiated the project originally. It is essentially a range extender. You have your meter in the basement and you want to use your IHD in your flat, to make sure you know what you are using and reap those rewards from the smart meter. A pilot is underway and we have seen early successes from that, so it is very encouraging.

Already, as the NAO Report points out, there is 96% coverage and we are expecting that to go well up into next year when the technology is rolled out on a wider basis. At the moment, everything is looking quite positive.

Q10            Sir Geoffrey Clifton-Brown: I hear the positivity in your answer, but I am a chartered surveyor, and thinking about some of these blocks, the fact is they are often situated in the basement, with very thick walls and floors. Often flooding is a problem; asbestos is a problem. As an industry, how positive are you that you are going to be able to get to these groups of people?

Daisy Cross: These are all things that have cropped up as the rollout has progressed. They have been identified as things to be considered. For instance, there has been a lot of work done by Government and industry on things like crowded meter rooms. The new meter might be slightly bigger, because of the bit on the top that communicates to the network. We are working on building around that and making sure that that works. Asbestos is also included as one of those issues that might crop up that that we address.

Broadly, these things were identified quite early on because we did, as an industry, realise that a particular uptake from the groups Ms Pardoe was mentioning would be really good for the benefits case of smart.

Q11            Sir Geoffrey Clifton-Brown: I have two further questions for you. I do not know, again, whether you have seen the maps of our individual constituencies and the percentages of people who are on smart meters. I live in the Cotswolds, which is a very big, rural constituency where mobile phone signal is often non-existent. Even if there were any, I live in an old house with very thick walls. I doubt very much whether the current smart meters would work in my house. How do you reassure my constituents that they ought to be thinking about a smart meter?

Daisy Cross: The DCC has a target to expand coverage of smart meters continually and, at the moment, there are some areas where network coverage is not there. Industry and Government are working very well together to come up with solutions to that. A range of different technologies is being considered, but it is reassuring to hear that there is demand for uptake in those areas where it is being flagged. We just continue to work hard to resolve those issues.

Q12            Sir Geoffrey Clifton-Brown: The other group of people who are having trouble with meters is those who have installed the first generation of meters that are actually not working in smart mode. What more can your industry do to update those meters?

Daisy Cross: The vast majority of those SMETS1 meters have now been upgraded to SMETS2, the current technology. There are some that may need to be swapped out if they do not upgrade successfully, but the industry is working very hard to make sure that that happens. There is a good degree of confidence. In terms of installing new SMETS1s, that is not typically happening.

Q13            Sir Geoffrey Clifton-Brown: The NAO Report makes it clear that 57% of total households are connected to smart meters but, of those, 9% are not working in smart mode. That is still quite a large number of households, despite your answer. They almost ought to be a priority because they wanted a smart meter in the first place. They do not have what they expected. Surely your industry ought to doing more to upgrade those to the second generation of smart meter, almost ahead of installing new smart meters.

Daisy Cross: The industry has set hard targets, which prioritise the installation of a new smart meter over replacing one that is not functioning. That is something that we have flagged as an area to consider. For example, we talked about the particular benefits to prepayment customers. Should we be allowed, within the targets, to identify and make sure that they have a smart meter ahead of some of the other customers? It is an important question that we need to consider.

Sir Geoffrey Clifton-Brown: Are those targets in the public domain?

Q14            Chair: We have some already. We have seen some of that. Are the targets that you would like to see in the public domain?

Daisy Cross: We pushed back at the outset on the concept of a hard targets framework. The hard targets framework drives first-time installs at pace. The suppliers on the ground are seeing that high levels of customers are not engaged, and some are rejecting smart meters.

Q15            Sir Geoffrey Clifton-Brown: The question was slightly different. We are going to hear from the Department in a minute. All the Government effort is towards expanding the number of smart meters. What I am saying is that it is really important that we upgrade those people who have had the first generation of smart meters, which are not working in smart meters mode; they are not getting what they expected. I really want to know what your industry is doing positively to upgrade them. You say there are targets. Are those targets in the public domain?

Daisy Cross: It is a 100% target. There is an “all reasonable steps” obligation on suppliers to make sure that they replace any SMETS2 meters that are not working. That is in licence. Suppliers are working very hard to achieve that, alongside installing against their targets.

Q16            Chair: Just be clear, the 9% that do not work are effectively rolled into the 100% target, so they do not count. You are starting again with them.

Daisy Cross: Yes.

Q17            Mr Djanogly: I would like to just try to get to grips with and have a closer look at the challenges that the suppliers are talking about. We have had quite a lot of written evidence on this from the suppliers on the challenges that they are facing on the rollout. I am going to take a few examples and then ask you to comment on them.

OVO Energy in document 9 says that it strongly believes that additional policy measures are now required to drive the rollout forward and increase smart penetration through wider Government intervention, which balances incentivisation for consumers with increased legislative and regulatory measures to reflect the increased urgent need for customers to engage with smart. Specifically, it is talking about there being little in the way of incentivisation for customers to opt in at present, as suppliers are not able to offer specific incentives.

Then we have SSE, which says that, while domestic customers are likely to engage in a consistent manner, non-domestic customers are diverse in nature and require bespoke engagement strategies, and DESNZ modelling does not account for this diversity.

E.ON says that there have been a number of technical problems that have been largely out of the energy suppliers’ direct control. Again, specifically it wants to move away from a voluntary opt-in to an opt-out scheme, as we have seen in other sectors such as workplace pensions.

There are many issues coming from suppliers. I could go on. Frankly, it is very hard to weigh their relative importance. Could I perhaps ask you to comment on what you think, Ms Cross, are the key challenges that they have?

Daisy Cross: What we have seen, which is backed up by research we have commissioned, is that the number one barrier is customer uptake. You have the customers who have accepted a smart meter, customers who have said no and then a big chunk who have not responded at all. One supplier in particular has said to us that, in order to meet its targets, it will need to convert everyone who has previously said no to a smart meter into saying yes to a smart meter, based only on just contacting them in the usual ways—by phone and email—plus the big campaign that it funds.

It is a sophisticated, large campaign, with lots of data behind it, but really we believe there is only so much you can achieve through that framework, through, at this point in the rollout, simply continuing to ask a customer, “Can we come and fit your smart meter?” and not getting a response. We have talked with suppliers about other ways that you can drive uptake. For example, there is some non-binding guidance around homebuilders. When you build a home, we think the home should be built to make sure the smart meter works in it, for instance by not having thick walls.

The Government have worked hard to come up with some non-binding guidance, but it is non-binding. There are also questions like why smart is not part of an EPC rating? Why is smart not a requirement when you have an electric vehicle charge point installation, for example? There are things that you can do to tweak around the edges to drive some uptake. There has been some analysis done that suggests that, by 2025, the end of the rollout, this could make millions of meters-worth of difference.

Q18            Mr Djanogly: You are talking about tweaking around the edges. These guys seem to be talking about more a fundamental shift in terms of Government policy. Would either of the others like to comment?

Anne Pardoe: A couple of things drive people to come to us with concerns about having a smart meter. A lot of them centre around people’s worry that they are going to have a loss of control. In theory, smart meters should give people more control because you get accurate bill readings and you can monitor your usage more effectively, but people are worried about things like being switched over to prepayment meter mode. The prepayment meter scandal has not helped with that. People are worried about what is going to happen with their data. People are worried about what happens if the smart meter works.

There are a few things that can help with getting people more on board with smart meters. The first is not playing into the concerns that people have around smart by the bad practice that we have seen around switching people to prepayment meter mode. Do not play into those fears.

Another is really hammering home that positive case to people. This is why we are concerned about moving towards a mandatory approach. When people feel like they are being forced into it, they really react quite strongly because of that point about lack of control. We want to see a focus on a positive case as well.

There is a final thing. I am not going to say that everyone is going to go to the pub and talk to their mates about how amazing their smart meter is but, when people are talking, you want them to say, “I have a smart meter and it is great because I get accurate meter bills and meter readings, I can do this.” What is more likely is that when people have had a bad experience of having a smart meter fitted—it does not work properly; the installation is clunky; they do not understand it; the IHD does not work; it is a real faff—you are going to have people saying, “Actually, I have a smart meter and it was an absolute nightmare.”

Where there are those interactions with consumers and people do want to have a meter on the wall, we need to prioritise making sure that that experience is positive and that smart meter actually works for people. It is more about quality over quantity. Let us get it right. It is a very expensive programme as well. Let us focus on getting it right for those that want a smart meter, rather than making people feel like they are being forced into it. We also want people to engage with their meter and get those benefits, which they will not do if they feel it has been forced on them.

Marcus Shepheard: I would recognise those remarks, but I have nothing to add.

Q19            Anne Marie Morris: Mr Shepheard, what do you think the impact of the delayed rollout is going to be? I am thinking of environmental consequences or financial consequences for the Government and for the suppliers. What are your thoughts?

Marcus Shepheard: Thank you for your question. It is a really good one. In our view, smart meters are a really important bit of kit. They broadly sit on the critical path to net zero but they are not essential. You do not need a smart meter to have, say, a low carbon heating system or a more energy-efficient house. The delay in the rollout does not directly slow down other things, but it definitely does not make things easier.

One of the main challenges we see with the transition to net zero in buildings is basically bringing customers along. The UK has been the victim of its own success. We have had a very good energy system that works so well. It is almost transparent. People do not necessarily have a good understanding of how their home uses energy, how energy is wasted and what the change that is coming, in terms of low carbon heating and stuff like that, means. Smart meters are a really important part of that and they form part of a pitch-rolling exercise to bring consumers along.

In that sense, delays are problematic because they mean that it will take longer for the public at large to understand the underlying shift that is happening. We have to move to low-carbon heating to reduce our emissions. This will bring other benefits. The energy shock following Russia’s invasion of Ukraine has obviously increased the salience of this, but, if you are on a traditional meter, you will see it in the bill that comes out of your bank account, but you will not necessarily link that to your behaviours. In that case, they are very important.

The other thing is, at a system-wide level, one area where you really do need smart meters is to enable things like smart tariffs. There is the idea that you can have a rolling half-hourly tariff that will deliver benefits to the consumer; they will be able to access cheaper rates by doing things like heating their house, charging their EV or doing their laundry at different times. Reducing the amount they spend on electricity is good, but also it reduces the amount of investment we need to make as a country in energy generation and energy transmission infrastructure.

We are in the process of preparing new research and analysis on this question at the CCC. It is a question we really want to answer, but the evidence that is out there suggests that, as noted, the savings from flexibility to the system are in the order of billions of pounds, which is not trivial. It is, I would say, highly rational for the Government to want to promote any approach that can save those kinds of sums. In that case, having a slower rollout will postpone the point at which energy suppliers can make key investment decisions around infrastructure, whether it is building more renewable capacity or building more distributional transmission grid capacity.

It is definitely not ideal and, while the transition to net zero will proceed anyway, the fact that it is going slower is not making things easier.

Q20            Anne Marie Morris: That is very helpful. What you are saying is that, although it will not directly impact the environmental goal, it is a necessary tool because of the education, communication and visibility. My question is, given the challenge we have had to try to get uptake of these things, did we do this the right way around? One of the arguments that people make for not taking them up is they cannot see the benefits. Colleagues will ask questions about that. If we had done it the other way around and the Government had actually invested in helping the infrastructure you describe, absolutely getting the equipment with proper labelling so you can see how much is used, with all of the benefits up and running first, then put in the smart meter, might the rollout have been much quicker?

Marcus Shepheard: That is a really big question. I am not 100% sure whether we could have done it the other way around. Correct me if I am wrong, but I think implicit within your question there is a question about whether the Government could have perhaps done more, or should be doing more, to tell a story about why this is happening, contextualising: “This is not just us coming in to make this small, incremental improvement. This is part of a bigger improvement in your life.” You could not have delivered the cheaper tariffs and stuff first and then brought the smart meters in. They have to come step by step with each other.

Daisy may have a better view on that than I do, but definitely there could have been more in terms of communicating clearly why we are doing this and telling that story.

Q21            Anne Marie Morris: Ms Cross, there is clearly an indirect environmental impact of the delay. Presumably there is also a cost in this, because there is a cost to a supplier of continually trying to get these things rolled out, and the delay in their investment plan must have an impact. What do you see as the financial impact to the supplier and, indeed, any other impact from the delay of the rollout?

Daisy Cross: There are a number of reasons why it is very much in the suppliers’ interest to roll smart meters out as quickly as possible. First, as long as they have a mixed portfolio, with some with smart and some without, they are going to have to run two types of tariff. Meter readers are still going to be out there. That is quite a fundamental cost.

Also, as Mr Shepheard was alluding to, in terms of bringing forward the tariffs and products of the future, when more people will have electric vehicles and want to charge them overnight, you need a smart meter to do that. They are not able to bring forward those tariffs to as many people as efficiently as if the majority of people had a smart meter.

Also, going back to the wider benefits, even if you do not use your smart media—you have it installed but you do not ever look at your display—if everyone has a smart meter, the NAO Report talks about the billions of benefits to networks. Networks are already seeing these benefits. They can detect outages quicker. They can, in future, know where exactly to invest or upgrade the infrastructure sooner. All of these things are going to reduce the cost of the energy system overall, and every customer will benefit from that.

Q22            Anne Marie Morris: Ms Pardoe, let me ask you then, finally, what you see as the impact of this delay, particularly on the sort of people that come to Citizens Advice?

Anne Pardoe: Just picking up on the point Daisy made around running those two systems, there is a risk that, as more people get these smart meters, you will be left with a core of people who either do not want them or cannot have them because of their building make-up. We are really worried about those people being left behind in seeing the benefits of smart and also receiving an increasingly bad level of service as it becomes increasingly inefficient to serve them. Do they end up not only not getting the benefits of smart, but receiving an increasingly bad service as we all move forward into the smart world?

Also, particularly for those groups of prepayment meter customers for whom those benefits are most pronounced, that certainly had an impact. The number of traditional prepayment meters on the wall is a real problem. It is also really worth bearing in mind when we talk about costs that, ultimately, it is consumers who are paying the cost of all of this. We really support the smart meter rollout, as I have said, but ultimately all of these costs are passed through to consumers’ bills. The longer the programme goes on and the more difficult it becomes, those costs are going to increase.

One thing we have not touched upon is 2G and 3G. All of the meters currently on the walls and being installed at the moment are going to be offline over the next five or six years—

Chair: The NAO Report lays that out very clearly.

Anne Pardoe: We are going to have to go back and make amendments to all of those meters. That is additional cost for consumers too. That is something that is also really important to bear in mind.

Q23            Nick Smith: I am trying to synthesise your answers as to where we have got to so far. I am trying to pull out the actions necessary to maximise benefits. My main question is what else can Government and suppliers do to maximise the benefits of smart meters for consumers?

Ms Pardoe, you talked about the possibility of dynamic tariffs and you talked about not playing into the fears that consumers had. Ms Cross, you talked about building smart meters possibly into the guidance around EPC ratings. Mr Shepheard, you talked about, in a way, using the shock of energy costs to promote smart meters to consumers. Is there anything you would particularly emphasise that you think will work, especially for those people that just have not replied to request a smart meter so far?

Anne Pardoe: That is a really difficult question. For me, it is about getting the rollout right rather than being quick. We need to be making sure that those meters that go on the wall work properly and that people understand them and are getting the benefits from them, so that suppliers do not have to go back to fix them and sort them out. That is additional cost. It also means the consumer gets that benefit and you do not get those damaging stories in the press and people talking to each other, saying, “Smart is terrible. Do not get smart. I had one and it was awful.” We should prioritise getting it right first time, rather than racing to get them on the walls.

Marcus Shepheard: There is a range of things, but there are two things I would focus on. The first is, as you noted, using smart meters and promoting the idea of using smart meters as a way for people to understand how their homes use energy, and particularly linking that to other sources of information such as EPCs. Those are something we have called for improvements to because they are not, in our view, currently fully fit for purpose.

Q24            Nick Smith: Can I interrupt you there? Why do you think those benefits do not have traction at the moment?

Marcus Shepheard: They do. Speaking anecdotally from my own smart meter use and that of my friends and colleagues, people who have a smart meter do gain an ability to really appreciate when they are using more energy than they realised. Having a smart meter makes it much easier to do that and raises awareness of your own energy use. Part of maximising the benefit of that is also just getting them into houses. If people do not have a smart meter, they cannot realise that benefit.

Q25            Nick Smith: Forty per cent. of people do not have smart meters.

Marcus Shepheard: That is definitely a problem, yes. I would agree. If I could just add one other thing, one other way to maximise the benefits is to acknowledge that this is more than just smart meters. There are lots of other bits of technology coming in—smart thermostats, electrical vehicle charging, heat pumps and other forms of heating systems. It is incumbent on the Government not to have a siloed approach. They need to ensure that, where possible, the data from smart meters, the underlying standards and stuff are interoperable, secure and transmissible, so that the technologies can all enable each other and make things easier for the consumer.

Daisy Cross: I completely agree with what Ms Pardoe and Mr Shepheard have said. To maximise the benefits of smart, you need more smart meters in homes and, to do that, there is work that we really need to do. The report is quite focused on the smart metering team within Government, but a cross-governmental approach is needed here. Government are writing policy to deliver net zero based on the assumption that everyone will have a smart meter. If that does not happen, those benefits will not be realised.

The No. 1 thing is to take a holistic, cross-governmental approach. We have mentioned a few different policy levers and the Report mentions a couple. How can we use those to drive uptake and also send a message to customers: “This is not just about the meter; this is about a national upgrade”? It is the same scale as putting in place the rail network. That was expensive and difficult at the time, but it is upgraded routinely and there are already billions of net benefit. That is only going to increase into the future.

Q26            Mr Djanogly: Where do you think we are heading after 2025? Where should we be heading?

Daisy Cross: I refer back to the comments about changing the approach to consider what we can do to drive uptake beyond just asking customers to have a smart meter. There are also things that can be done. The report mentions difficulties suppliers are having around installers. This is just an example of where you could take a creative approach. If you think about all the electric vehicle chargers that are going to have to go in in the future—heat pumps, solar panels—it is going to be a huge infrastructure upgrade, not just the smart network.

You have very experienced engineers, very highly skilled people installing smart meters at the moment. A regional approach is also going to become less and less viable as the grouping of non-smart customers becomes more disparate. Could you take, for instance, a region-by-region approach, skill those installers and then upskill them to do the other kinds of work, like EV installation, for example? A more holistic approach could be taken and used as a springboard to addressing the shortfall of between 37,000 and 59,000 skilled engineers per year. Could that be an opportunity to address that problem as well?

Q27            Mr Djanogly: Do you have any great ideas for when the targets-based approach finishes, Ms Pardoe?

Chair: Perhaps we can hear from Citizens Advice more about the impact on the consumer.

Anne Pardoe: I have two quick points. One is that the benefits of smart for people are in the long term, so more long-term support and engagement will be needed rather than a “fit and forget about it” rollout. The consumer benefits should be monitored to ensure that they are realised and the meters are meeting people’s needs.

The second point, which I have already made, so I will not talk about it too long, is making sure that those without smart meters are not left behind. We say that the rollout is complete in 2025. They will not be 100% smart. We just do not want those groups of people, who will probably, as is usually the case with these things, be those in lower economic and vulnerable circumstances, to end up with a really bad experience and be left to languish.

Q28            Sarah Olney: Mr Shepheard, you mentioned earlier on future rollouts of other technologies and other developments, many of them much bigger than smart meters—things like car charging and heat pumps. What do you think the Government should be learning from their experience of rolling out smart meters that can help to support those rollouts and make sure that we can get things right first time, as Ms Pardoe was saying?

Marcus Shepheard: That is a really important question. To give you some context, if we take heat pumps as an example, our data suggests that last year there were about 73,000 heat pumps installed in homes across the UK. The year before that it was 55,000. The market is growing, but the Government’s own target is 600,000 by 2028, which is not a long way away.

One of the main things the Government should be looking to learn from the smart meter programme is around optimism bias. We know that things are always harder in practice than in theory. In terms of the process of actually delivering some of this stuff, while the smart meters do not have as obvious a hook as a heating system—boilers break and need to be replaced—they are fundamentally quite a simple bit of kit compared to a heat pump, in terms of cost and disruption. Understanding the realities of going into homes and delivering change is something very important to learn.

Another key piece of learning, which links to another point, will be around models of engagement and how you do delivery models for these things. The Government should be thinking about who owns relationships with homeowners, who can provide trusted information to homeowners, who can link up some of the things around funding, data and stuff like that in a coherent way. The supply-led model is a rational one. The model for heat pump deployment is definitely going to be more complex. The clean heat market mechanism involves manufacturers and installers.

Chair: As much as we are interested in heat pumps, let us not get too much into the technicalities of that. We look at those in other sessions.

Marcus Shepheard: Retaining the institutional knowledge and capabilities developed by Smart Energy GB would be a good thing. It seems to have learned a lot from this that could be applied to things like heat pumps or EVs. It would be good for the Government to try to carry that over and take the learning around things like engagement and delivery models with them.

Q29            Mr French: You spoke quite a lot about the benefit to the industry of the rollout of smart meters. One of the issues that is perhaps not helping the industry to increase the number of people signing up is this big issue that the market has and consumers have around standing charges. Standing charges still make up a large chunk of consumers’ bills and, as we all know, disproportionately impact people on lower incomes and on prepayment meters. I would ask Ms Cross what plans the industry have to help reduce standing charges to consumers.

Daisy Cross: I am afraid I would have to take that one away.

Q30            Mr French: There is no plan at the moment to help.

Daisy Cross: There may well be, but I would have to come back.

Chair: If you can come back to us in writing on that one, we will pursue that.

Q31            Mr French: Just to give an example, I know Octopus Energy helped around 100,000 of its poorest customers by giving them a standing charge holiday. I wonder if other companies might be looking at similar policies, because all of the stuff we discuss here is all well and good—they are all good, long-term objectives—but, until we can help consumers that are getting hit the hardest at the moment, and standing charges is a good example, you will not get the buy-in for a lot of this stuff. I do not know whether Ms Pardoe wants to comment on that from a Citizens Advice perspective?

Anne Pardoe: I do not want to get too much into the technicalities of it, but certainly standing charges can be a really big problem, particularly for those who are on prepayment meters. For example, over the summer some people will not be topping up their meters. Those standing charges will build up and then you can find that, when you go to top up your meter, you might put £10 on it—

Chair: As much as it is important, we are in danger of straying away from our discussion about smart meters.

Q32            Sir Geoffrey Clifton-Brown: Could I come to you please, Mr Shepheard? One thing we have not talked about at all this morning, but that the Report does talk about, is the difficulties of engaging small business in the smart programme. Have you any ideas for the Committee of how that could be addressed?

Marcus Shepheard: Do you mean getting small businesses to adopt smart meters?

Sir Geoffrey Clifton-Brown: Yes.

Marcus Shepheard: That is a very good question. I have a colleague who focuses on non-residential properties who I could ask. I could come back to you.

Q33            Sir Geoffrey Clifton-Brown: The Report talks about the difficulties of interruption to business and the cost to business generally, and that is why there is difficulty. Ms Cross, do you have any thoughts on this?

Daisy Cross: Non-domestic customers are an example of customers where there is a particularly strong benefits case. I do not want to labour the point about the policy levers, but that is an example of a group of customers where you could do some trials because the benefits are particularly high for them. There are particular issues rolling out smart meters to small businesses. They will have to turn off their businesses for a period of time. It is not always obvious who the person in charge is, who has the key to the meter room, etc., like you would know in a domestic household. These are areas that we have looked at.

There has also been some dedicated campaigning. Smart Energy GB has done a lot of research in that area to see what the triggers could be for businesses, but what we have seen is that overwhelmingly it is financial benefits. Once those have landed with the business and they have taken that time out of their day, having to depower their business, they are seeing significant benefits in terms of end bill.

Q34            Sir Geoffrey Clifton-Brown: I have two quick questions for you. I want to come back on this issue of the 9% of meters that are not working in smart mode; 9% does not sound much, but it is actually 32 million meters, so it is a big problem. I was not clear from your earlier replies whether you as an industry have a target for addressing that problem or not—not the overall target but just addressing that 9%.

Daisy Cross: Suppliers have to, as part of an “all reasonable steps” obligation, which the NAO Report mentions, actively replace any meters that are not working in smart mode. That is alongside their hard targets, but if they replace a non-working smart meter, that action does not count towards the—

Chair: That is what we were confused about.

Q35            Sir Geoffrey Clifton-Brown: It does not count towards the Government’s target, does it?

Daisy Cross: No, it does not.

Q36            Sir Geoffrey Clifton-Brown: There is a difficulty here, is there not? Given that a few years ago there was likely to have been a different installer, you are asking a different installer to replace somebody else’s work. There is an added disincentive, is there not, to wanting to go back and install new meters in these areas where the meter is only in non-smart mode?

Daisy Cross: Each supplier will have a different approach to its rollout. They might do a regional rollout, in which case, if that is part of that cohort, it makes sense to install. There are some assumptive installs going on. It is quite a complex picture.

Q37            Sir Geoffrey Clifton-Brown: It may be something that I want to ask the Department about, and they have listened to the question. There is another problem on top of that. Ms Pardoe touched on it and the report touches on it. It is replacement of 2G and 3G meters. Do you have a number for those and, again, what is the incentive to reinstall those meters?

Daisy Cross: There is a number in the report about how many are to be replaced. I do not have it to hand, but it is something that has been factored in. Any big infrastructure upgrade is not a one-off. This is why I keep coming back to the idea that it is not about the smart meter. It is about the upgrade of the grid. 2G and 3G switch-off will be part of that. It is part of a natural upgrade to the system. There are costs associated with it, and a lot of those costs are associated with the install, which, by the way, is not necessarily going to be as involved a process as a full smart meter gas and electricity installation. It could be a lot lighter-touch than that. However, it will require people to be in the field. That has a cost, which is why we want to talk to Government about the installer workforce and how we make sure that is in place—

Q38            Sir Geoffrey Clifton-Brown: It is another big challenge that has to be factored in.

Daisy Cross: Yes, and we want to do it as cost-effectively and efficiently as possible.

Q39            Chair: On all of these ones where you might have to be replacing them, or indeed even upgrading, there could be old boxes left. Is it a requirement that your members have to remove the old, non-working meter when they install a new one?

Daisy Cross: Yes. I believe they are removed and recycled.

Nick Smith: Ms Cross, in terms of this 9% that Sir Geoffrey has identified and tried to pursue you over, which could be 32 million meters, can you please get back to us with more granular detail on how your individual operators are dealing with this? This could be a bit of a weeping sore. Ms Pardoe has talked about the pub talk of meters not working. It really undermines all of your efforts and we just need to know that everybody is pulling their weight and doing their very best with this segment of your market.

Q40            Chair: Ms Cross, you said some do it by geographical area. You are basically saying that, when they are in the area anyway, they will mop them up, but others may not do. It would just be helpful to get a flavour from your members about what approaches they are taking and where the not-spots might end up being.

Daisy Cross: Sorry, I missed the beginning of the question because of the bell. Was it about the 9% that are not operating in smart mode?

Chair: Yes, some of which will need replacing. You suggested some of it will done by geographical area. Some companies will work on a geographical basis.

Daisy Cross: It would differ by supplier, but I can go back to suppliers and ask for more information about how they would approach that.

Chair: What Mr Smith is driving at is there are people who will just be left behind, as Ms Pardoe highlighted as well. We would want to keep an eye on how that is going, again because we will also raise questions with Government about this, not just in this session but in future as we watch this with our sister Committees.

Nick Smith: They will not just be left behind. They will be moaning about it all the time and undermining all of your efforts.

Chair: You have a champion in Mr Smith.

Q41            Peter Grant: Ms Cross, a number of energy suppliers, which presumably make up your membership, have submitted evidence suggesting that, for example, the Government should make it mandatory to have smart meters installed. Others have said, for example, all new-build housing should be required to have smart meters installed. Does Energy UK have a view on going that far in order to achieve 100% smart meter installation?

Daisy Cross: The word “mandatory” has a number of different meanings. When we have talked about it in the past, what we mean is, as we have about talked before, it is about having extra policy levers and more assertive incentives on customers to accept a smart meter. We are not supportive of forcing customers to have one. There is no way that we can see that you would be able to do that. It would damage the programme. We are not supportive of anything that forces a customer to have a smart meter.

There is a long way to go. You can get a lot further by just generally changing the nature of the programme to a cross-governmental push for an updated grid, as opposed to, “Time to get your smart meter.”

Q42            Peter Grant: Would that also apply to effectively removing choice? For example, a local authority or a housing association could decide to install smart meters in all of their properties. Prospective tenants would be left in the position that they do not have to take a smart meter but cannot get a house without accepting one. Would that be a step too far, in your view? Would it be an acceptable measure?

Daisy Cross: Sorry, I missed the first part of that question.

Q43            Peter Grant: I am talking about the position where, although it is not mandatory on a resident or a tenant of a house to allow someone to come in and install a smart meter, a housing association or a local authority might decide to install smart meters on all of its properties. For people who needed that kind of housing in that area, they are not being forced to accept it in the house they are in just now, but they cannot get a different house without one: “We are not forcing you to have a smart meter, but you are not getting a house if you don’t accept it.” Would that be a step too far? Would that count as forcing people by the back door?

Daisy Cross: There are a few different things interacting there. You can install a smart meter and not operate it in smart mode if it is not appropriate for the customer. You can also require that it operates in credit mode. Ofgem has done a lot of work in this area, which we are very supportive of. If the concern is switching to prepayment mode, for example, there are now lots of very high thresholds in place and that activity has not restarted yet. There is a high threshold suppliers have to meet before that activity restarts but, when it does, there are again very high measures that need to be met—many calls, conversations and attempts with the customer and an actual site visit. There are significant protections around that prepayment process that are coming in, which should protect.

Going back to Ms Pardoe’s point about the benefits of smart, it is those customers that could stand to benefit the most from smart. Some 94% of customers with a prepayment smart meter said it was much easier to use than a legacy prepayment meter, for example, and much easier to top up. Suppliers were prioritising prepayment installs during the pandemic because there was no need for customers to leave the house to go to the shop and put themselves at risk. There is a huge suite of benefits that are the first things to be considered when you are talking about those sorts of tenants.

Q44            Sir Geoffrey Clifton-Brown: Mr Shepheard, you will have heard that I have been pressing Ms Cross about the 32 million meters that are not able to operate in smart mode, which will need to be replaced. I am now hearing that the number of 2G and 3G meters that will need to be replaced is at least 10 million, perhaps into the tens of millions. That is 42 million meters out of 57 million. Not only does that mean that the 2025 target is not likely to be met, but does it not put the whole smart programme in jeopardy, or am I being too pessimistic?

Marcus Shepheard: It is perhaps a bit too pessimistic to say that the whole smart programme is in jeopardy. There are perhaps ways that the Government could leverage other programmes they are doing around things like energy efficiency and heat to drive improvements. They could partner up improvements to the 2G and 3G meters as part of that, which would be an efficient way to do this. The 2025 target is, however, looking quite unrealistic at this point. The trajectory does not suggest that it will get there.

Chair: We are going to now move to our next session. Can I thank our witnesses very much indeed? You are very welcome to stay and listen in, but the transcript of this session and the next will be available on our website uncorrected in the next couple of days, and we will be producing a report. That is likely be in September or in the autumn because of the recess that is looming. Again, I thank you very much indeed.

Examination of Witnesses

Witnesses: Clive Maxwell, Neil Kenward and Daron Walker.

Chair: Welcome back to the Public Accounts Committee on Thursday 22 June 2023, where we are looking at the Government’s programme on the rollout of smart meters. Thank you to the first panel for giving us their evidence. We now have in front of us the witnesses from the Government.

I am pleased to welcome Clive Maxwell, who is the Second Permanent Secretary at the Department for Energy Security and Net Zero and who leads on this for the Department. He is joined by Neil Kenward, who is the director for strategy and the interim director for markets at Ofgem, so a pretty critical player in this field. Daron Walker is the smart metering implementation programme senior responsible officer. I do not what those initials spell out, but anyway, it is a big title, Mr Walker, and a very big programme that you are responsible for also, of course, at the Department for Energy Security and Net Zero.

Q45            Peter Grant: Why has it taken so much longer than intended to get these smart meters installed, Mr Maxwell?

Clive Maxwell: I will kick off by saying a few words about the set-up of the programme, because it is important to recognise the role of Government, the supply chain and the energy companies. It is an industry change programme. It has been initiated and driven by Government, which are involved in setting the targets.

Q46            Chair: Mr Maxwell, in fairness, we know that and the Report covers it very well, so just cut to the chase.

Clive Maxwell: The Government are also involved in resolving some of the technical issues. I pull out four issues to look at. The first is about how long it took to resolve some of those big, up-front technical issues that we have been working on. The last time this Committee looked at smart metering, it set out what some of those technical issues were that needed resolving. All of them have since been resolved. We are now moving on to another set of big technical issues that we will no doubt talk about.

The energy suppliers were slow, in some cases, to mobilise the investments and supply chains required. To give them credit, that had reached a strong point ahead of Covid. Covid itself marked a significant challenge for the programme. Installation involves visiting people’s homes. Clearly, that was affected by the lockdown rules. Since then, we have also seen the suppliers, in some cases, finding it difficult to get those supply chains up and running and to regain productivity. Those are the sorts of issues we have been dealing with.

The broader point I wanted to draw out, which we heard coming through in some of the discussions earlier, is that there is sometimes a bit of inherent tension between the Government wanting to set ambitious targets about this programme and energy suppliers themselves wanting to manage some of their regulatory risks, investment timetables and things like that. There is sometimes an inherent tension there between the suppliers and what Government want to achieve. Even though, in the end, we all want to achieve a smart meter rollout, it is about the pace.

Q47            Peter Grant: Apart from Covid, all the things that you mentioned should have been foreseeable. In fact, according to the initial target, we would pretty much have had the whole thing done and dusted before Covid struck. Why were these difficulties not properly assessed and identified at the start? Was it just optimism bias, as we heard from one of our earlier witnesses?

Clive Maxwell: First, sometimes with programmes like this you need to set ambitious targets to get people aligned and pushing towards something. Many of the things we were trying to do through this programme were genuinely first of a kind. The UK and the players involved in this rollout were trying to do things that had not been done before, so those targets were based, in some cases, on best estimates of when things could be done by.

I understand that the energy suppliers themselves believed it would take something like five years from the set-up of the central communications hub, the DCC, to be able to do this rollout, and that proved not to be long enough to get to where we needed to.

Daron Walker: If I may just go back to the point about the different strategic incentives and alignment between us and the suppliers, we both want to complete the rollout, but we want to complete it earlier because it brings earlier benefits to consumers. The 2020 end date that we held from 2013 all the way up to 2019 was about driving the suppliers to invest to get up to scale. If we had not held that line, some of them would not have invested. Their incentive is to defer, so they want to complete it but on a much longer timescale.

For example, I was sitting with a Minister in 2015. One of the major companies came in and said, “I would like to move that end date further back because we need more time.” The individual was asked, “How many have you installed so far?” and he said, “None.” He was looking to defer investment because he has lots of other challenges. If we had not held that date, we would not have driven them up the investment curve. We have now moved to a different regime where there are fixed targets. That is a really important dimension to the whole process, because they want to do it but they want do it slower than we want them to do it.

Q48            Peter Grant: Mr Walker, the NAO Report highlights a number of issues that have meant that, on any particular day, there are probably several million smart meters that are not working properly. What are you doing to get those meters working the way they are supposed to?

Daron Walker: Fundamentally, at the heart of this, it is for energy suppliers to fix these problems, but obviously we are not leaving them to do that on their own. There are around 3 million out of the 32.4 million meters that are not operating as they should.

I will just break those down into three main categories. The first one is that the meter is installed on the day, but the commissioning process does not get finished. That might be because it is a new build and they are not commissioning it on the day. It might be that something goes wrong in the commissioning process and they have to come back at another time. About a third of the 3 million are in that situation.

The second category is that, through a change of supplier process, sometimes things do not work as they should. Maybe the inheriting supplier does not realise that that meter is transferred and is smart, so there are issues around either the industry data or their own systems. These are all resolvable and transient. Those first two categories make up just over half, and what you find is that people cycle in and out. It is not the same people every quarter that we are reporting on for those.

The third category is perhaps the most knotty one, which is 40% or 45% of the 3 million. These are smart meters that are having some form of communication challenge. In that category of circa 1.4 million meters, there are around 500,000 SMETS1 that the industry is still trying to enrol and that have gone temporarily, but then there are other things that might happen.

You are dealing with 6,000 installers. They all have to follow processes. Some of them develop their own hacks, such as commissioning the gas meter next to the comms hub so that it all works. Then they move it in situ and it can no longer communicate across that distance. That then creates a problem of that meter being intermittent. If firmware updates have not got through, there are constant improvements to make everything more stable. That is perhaps the most knotty issue. Some of those might end up needing replacement. Up to 500,000 of the SMETS1 might need replacement. That is how it breaks down.

Q49            Chair: Could you explain what a SMETS1 smart meter is?

Daron Walker: It is the first-generation one. Sorry, I am so embroiled in it that I forget that not everyone knows all the acronyms. The way this process worked is that we created standards at the beginning to have a smart meter so that it would do all the same things. It would have common standards of functionality and communications. Suppliers rolled those out independently with their own comms networks. The idea was that you get the rollout started, you start to mobilise and you start to get benefits.

Alongside that, we built the DCC, which is the central communications body. When everything is working and enrolled, all the communications and data flows through that system. The first-generation meters were working with suppliers’ own systems. On some occasions, they were using common service providers, so when you switched, you could carry on using it with the new supplier, but sometimes you would switch to a different supplier that had a different comms set-up. When that happens, the new supplier cannot talk to the smart meter.

Those first-generation meters have been gradually enrolled into the DCC. There are about 15 million smart meters of the first-generation type. Just under 12 million have now been enrolled, and they are now working as they should. There are almost 3 million of meters that are active, so they are working with the supplier. People have not switched to a supplier that cannot operate them, and those are still being enrolled right now.

Chair: You are going through those numbers very fast. Can you just repeat that? There are 15 million.

Daron Walker: There are circa 15 million first-generation in total. 12 million have been enrolled.

Q50            Chair: When you say “enrolled”, can you be clear about that?

Daron Walker: You are trying to bring them into the DCC ecosystem.

Q51            Chair: Just to be clear, the DCC is the central data collection point, which is a subsidiary of Capita run to collect the data to help you plan.

Daron Walker: You are doing a better job of explaining it than I am.

Q52            Chair: We also need to have it clear in our minds. The 12 million are enrolled, but what does “enrolled” mean? It means that they are on the move.

Daron Walker: Before they are internalised and enrolled into the DCC, you have the supplier talking directly to the meter through their own comms set-up. When they are enrolled into the DCC, the supplier talks to the DCC as if it was a second-generation meter. They can talk to that meter through the DCC. If the consumer then switches, the new supplier can still talk to it through the DCC.

Q53            Chair: One of the big problems for the first generation is that the data is not going to the central collection point.

Daron Walker: It was, and it is being resolved.

Chair: Twelve million are enrolled.

Daron Walker: Nearly 12 million are enrolled, and just over 15 million in total. There are around 500,000 dormant meters, which are the ones that have temporarily gone down. We may struggle to enrol all of those.

Chair: The NAO Report highlights that particular point.

Q54            Peter Grant: At the beginning of your answer, you said it is for the suppliers to deal with it. Is that not a kind of abdication? It is a Government scheme; it is not a supplier scheme.

Daron Walker: You are absolutely right. We do a lot of work with energy suppliers to address this. Ultimately, we are not going out and installing the smart meters, fixing them or changing the systems that talk to them, but we have regular engagement with the energy suppliers to understand best practice for those who are doing a good job of fixing the non-operating meters.

We have developed a good practice guide that is all about doing two things. How do you fix the examples of when a smart meter has gone into this non-operating mode? What are the processes? What are the fixes that you can do, either remotely or sometimes with a site visit? That is one thing. We are making good progress. Not that I should give you another stat that is not so good but, at its worst, 20% of meters were not working as they should, partly because of this first-generation problem. Every quarter, that is being reduced because we are working to try to identify solutions to all these things with the suppliers. Obviously, they are doing the business.

Between last quarter and this quarter, we reduced the number from 11% down to 9%, and we continue to work on that. As I said, some of these are transient, so a consumer, at any one point in time, might be in this state of non-operating. Within a few weeks or months it comes on, but there are other ones coming into the system.

Finally, not only do you want to fix them when it has happened; you want to do it before it happens. One of the things that we are doing through the good practice guide is trying to reduce the number that go into this transient state. We are doing a lot of work with them. There is a lot of good working between us and the energy companies.

Q55            Sir Geoffrey Clifton-Brown: Thank you very much, Mr Walker, for clarifying those numbers on the 9%. It is 9% of the total installed, so it is 3 million meters. That is the difference between the 15 million and the 12 million.

Daron Walker: If I may interject, it is not quite that. We need to separate the generation. That 3 million is the SMETS first-generation meters that have not yet been enrolled, but they are working in smart mode because they have not switched to a supplier that cannot operate them. Those are not the same 3 million; it is just a coincidence of numbers.

A chunk of the 3 million are first-generation. I have talked about the 500,000 of them that are in that state and may not be fixable. There are 400,000 people switching from smart to smart each month. Some of those, if that process does not go well, enter this transient phase. There will be meters that are installed but not yet commissioned. That will be part of it.

There will be the other things that I talked about that go wrong in terms of the install process or a comms problem that emerges later because of the way it was installed. It is across the whole estate, but the majority now are probably second-generation issues rather than first. That is not because there is a problem with the technology, but because we have not quite optimised all the orchestration.

There is a massive amount of complexity to this. You have 6,000 installers that all have to do the right thing when they go out there. All the supply systems have to integrate with all these meters through the DCC systems. There are new types of comms hubs being devised, and some of the orchestration might need to change. These are all learnings that are going to get better. Over time, that number will continue to come down. I am clear that it will come down next quarter and the quarter after.

Q56            Sir Geoffrey Clifton-Brown: On top of that, there is now the problem of replacing the 2G and 3G meters. I am told there are at least 10 million, and the number is probably into the tens of millions. I pressed the previous panel on this. What is the incentive for suppliers to do the right thing and replace these meters?

Daron Walker: There are several questions there. If I start with 2G and 3G, it is worth stepping back. We have a business case running from 2013 to 2034. In that business case, we have assumed that meters will come to the end of their life and be replaced.

For example, all these SMETS1 meters have been installed. The last ones were going on in 2018. Those ones will come to the end of their life ahead of the switch-off of 2G and 3G. They would have been replaced as part of ongoing business as usual, because they need to be replaced. When they get replaced, the new comms hub will be 4G, so those are already embedded in our business case.

Some of the SMETS2 meters that were installed in 2018 or 2019 will come to the end of their life, so they are likely to be replaced as part of the natural lifecycle. The issue that we are going to have to work closely with industry on—we have already started on this—is that the whole system was designed so that the comms hub was modular and you do not have to go and replace the whole metering set.

We reckon that, when you take account of all the meters that will come to the end of their life, there are probably around 7 million in the comms hub—this is an estimate at this stage—that will need to be replaced ahead of 2033. The exercise is going in and swapping out the comms hub. The rest of the kit can stay in situ and the meters will carry on working as they should.

That is the nature of a programme of this scale with all this technology. You are going to need to upgrade it over time. There will be another version of that in 10 or 15 years, but that will make sure that these smart meters continue to operate and deliver services into the 2040s. We are thinking about these things longer term.

Q57            Sir Geoffrey Clifton-Brown: I need to ask you two other technical questions that we covered in the previous session. One is about the issue of my constituents who have very poor mobile phone coverage. If you look at my constituency coverage, it is an island of low coverage compared to people surrounding me. I am talking about the Cotswolds. If you look at the map, you will see that I am a little island there. There is the UK, and mine is right in the middle. How do you overcome that problem?

Daron Walker: I do not know exactly what the coverage of the wide area network is in your constituency but, if I start at the macro level, we do not use a standard set-up. We effectively have a bespoke element of communication. You might not have a mobile signal with your particular telephone provider, but we have built a system that is covering 99.25% of the population. There are a few hundred thousand homes that sit in the 0.75%, but the coverage of the wide area network across GB is 99.25%.

The fact that you might not have a mobile signal does not mean that you will not have a signal from the DCC system. Again, we would have to look into the specifics of your constituency. There will be other reasons why you might be ahead or behind in terms of penetration of smart meters, but the system has very high levels of coverage across GB.

Q58            Sir Geoffrey Clifton-Brown: The other category we covered in the earlier hearing was the issue of flats and the Alt HAN technology. Are you confident that that is going to work? When will we see a significant ramp-up in places like London and other big cities, where they have lots of blocks of flats using this new technology?

Daron Walker: I am going to take advice from the Chair here on explaining a bit more so that we can talk on the same basis. There are two things that you have to worry about. There is the signal going from the energy supplier or the DNO all the way to the home; that is what we call the wide area network. That reaches a comms hub, and then that comms hub establishes its own secure wireless network, which is called the home area network, or HAN.

That HAN, in effect, allows you to talk to the gas meter, which could be further away from the electricity meter, where the comms hub sit. It is also quite important that it is not near electricity, so you have to talk to it through this wireless network. Then the in-home display also uses that same secure home area network.

What you are describing and asking about is the home area network aspect of the rollout rather than the wide area network. There are two things that DCC and industry have developed since 2018. One is this thing called a dual-band comms hub. This is a comms hub that can work at two bands or two frequencies. It can operate at a lower frequency, which penetrates further through thick walls and longer distances. That took the home area network coverage from around 70% up to around 96%. That was around during the Covid period. In 2020, that reached sufficient quality to then start rolling out at scale.

Then the last bit, which is pertinent to high-rise and bits of London, is something called the alternative HAN. That is, in effect, where you might have your meter rooms at the bottom of a high-rise and there is no way the standard process can communicate. We effectively commissioned industry, quite a few years ago, to develop a solution that would deal with those high-rise situations. That is currently being piloted right now in small numbers. There have been tens of installs, but they are working successfully.

Q59            Chair: When you say tens of installs, that is 10 blocks of flats.

Daron Walker: No, tens of properties. You go really slow until you have tested it. The ambition is that that will be ready for starting to roll out at scale, mounting up over time from the end of July.

Q60            Chair: How did you find those pilots? Did you go through the industry?

Daron Walker: Yes, through the industry. They have customers who want smart meters who live in these properties.

Q61            Chair: There has not been an attempt to, for instance, engage a local authority.

Daron Walker: No, not at this stage because the numbers are quite small, but that is exactly what we will be wanting to do.

Q62            Chair: Where you have a largely tenanted property, then you have one landlord who can work very closely with the residents.

Daron Walker: Alongside the regional data that we have published in May, there are loads of new opportunities for thinking differently. If you think about London, London needed dual band for high levels of coverage, and it also needed the alternative HAN solution because of the high rise. You are now in a world where you have 99%-plus eligibility. You can start thinking about going into areas and offering it because you know you have a solution for every type of household. That will transform the opportunities.

Q63            Chair: Are all the engineers already geared up for doing all of this technologically? There was a little sigh there from the Second Permanent Secretary.

Daron Walker: London has its own challenges around access to installers, which we could talk about if that is helpful. Maybe I will stop talking now.

Chair: Yes, we might come back to that.

Q64            Sir Geoffrey Clifton-Brown: I have very simple questions for you, Mr Maxwell. There is clearly some good news in terms of technology on the way that will help the rollout of this programme. Nevertheless, there are a significant number of consumers out there who are sceptical about smart meters, for one reason or another, whether it is what they have read, whether the smart meters work or whether the electricity price is going to go up when they have installed smart meters. One colleague told me that he had his normal bill of £250. When he installed the smart meter a month later, he got an estimated bill for £750; I do not know why he needed an estimated bill with a smart meter. These stories go around. What steps can your Department take to overcome the scepticism of this group of people?

Clive Maxwell: First, I would say that consistent surveying by Smart Energy GB shows that there are a significant number of customers out there who are very keen to get smart meters. Something like 35% to 40% of people surveyed say they really want to have a smart meter in the next six months, so there is a willing market out there for the energy suppliers to work with. However, as you say, there are also customers who are less keen and who identify some of those sorts of worries.

The work to date has involved working with Smart Energy GB. One of the earlier witnesses referred to its work in running communications campaigns nationally. It has also looked at the way in which it can work with local partners, for example, to help to break down some of those myths and concerns and to be able to engage with particular groups of customers. One of the issues for us to look at is how you go about targeting information to particular customer groups if you see those customer groups lagging behind. That might be by virtue of their housing tenure, the types of properties they are in or other characteristics.

Q65            Sir Geoffrey Clifton-Brown: Based on that survey information, are you able to have, or are you thinking about having, specific communications with those groups who have specific worries about these smart meters to try to convince them that they should install them?

Clive Maxwell: The leading responsibility for doing that lies with Smart Energy GB. It has the expertise. It works with the energy suppliers and with other partners like local authorities. The Government play a role in having the policy around this, and Ministers discuss the benefits of smart meters and the programme, but that sort of engagement with customers is primarily a role for Smart Energy GB to be pushing forward.

Q66            Sir Geoffrey Clifton-Brown: Right at the end of the last session, I raised the issue of small businesses. We have not talked about small businesses much today. What is your strategy for trying to engage more small businesses?

Clive Maxwell: First, that discussion earlier drew out some of the challenges there. For some small businesses, it means closing down or not having the business open for a period of a few hours while the smart meter is being installed, for example. The challenges around the small business side are different from the residential side.

Q67            Chair: You said that there is no incentive for suppliers to do it outside working hours. Obviously, some businesses are 24/7, or their IT might be.

Daron Walker: There is an incentive in the sense that there is a target within the target framework for the non-domestic part of the rollout. We consulted earlier this year. Previously, that was for suppliers that serve both sectors. They could do an exchange between the domestic target and the non-domestic target. What we consulted on earlier this year was to make it so that you had to hit the non-domestic or small business target irrespective of whether you overhit some of the others. There is now a defined regime.

The other thing we have done since we were before the Committee last time and since the last NAO Report is that SEGB now has its own micro-business campaign. Again, you have much more complexity in terms of the solutions for small businesses. They often have bigger power requirements, so they need a different type of meter. It has taken longer to get some of those technologies available. They are all available now, so SEGB has a campaign that is specifically about segmenting and targeting those customers.

Q68            Sir Geoffrey Clifton-Brown: Mr Maxwell, you heard Marcus Shepheard say—I hope I do not misrepresent him—in his answer at the end of the last session that the 2025 target is going to be extremely difficult to meet. If you do not meet it, what is the Government’s contingency?

Clive Maxwell: The targets that are being set for individual suppliers to deliver against are the responsibility of Ofgem to police and enforce against. We already have data coming through about the 2022 performance, and some of that is in the Report from the NAO. Ofgem has the powers to be able to enforce and take action against suppliers that are not stepping up to tackle those sorts of targets. That is the key point there.

Neil Kenward: We are in the process of enforcing it. As the NAO Report points out, a large number of the suppliers did not meet their targets for 2022. We think it is important that the smart meter rollout proceeds as planned. We think there are huge benefits for consumers, which we have already heard about this morning. We are taking robust and broad action against the suppliers that have not met their 2022 targets.

Q69            Sir Geoffrey Clifton-Brown: Are you confident that you are going to make the 2025 target, even with that enforcement action?

Neil Kenward: The role Ofgem can play is to provide a really clear signal, and potentially quite a powerful incentive, to get the suppliers making that investment and taking the targets extremely seriously. Obviously, it is the Government’s job to set those targets, but we are doing what we can to make sure they are implemented by the suppliers.

Q70            Chair: What is the sanction if they do not?

Neil Kenward: There are options around fines, for example. That would be the standard sanction.

Q71            Chair: I know you have a range of fines you can place upon people, but what sort of range would you be looking at?

Neil Kenward: We would obviously want the fines to have a meaningful impact. This is a current and ongoing set of cases.

Q72            Chair: That is your ultimate stick, is it not?

Clive Maxwell: It might be worth saying that you have used those sorts of enforcement powers in the past around smart metering and imposed those sorts of penalties.

Neil Kenward: Even under the “all reasonable steps” regime, which was harder to enforce against, we did impose, in previous years, what were not strictly fines but contributions to redress funds.

Q73            Chair: What scale are we talking about?

Neil Kenward: They were relatively modest. The largest was over £1 million, paid by OVO in 2019, but there is scope to go further than that in future.

Daron Walker: Can I just clarify one point? The targets have been set for 2022 and 2023. We are consulting on the level of targets for 2024 and 2025. That closed a few months ago and we are looking to confirm the targets. There is not a 2025 coverage target set at this point. That will come before the summer so that the suppliers can then plan for next year and the year after.

Q74            Nick Smith: Mr Walker and Mr Maxwell, if I could just boil down your evidence so far, it seems to me that you have said, “We have showed lots of ambition, but there are real-world conditions on the ground and the suppliers have let us down”. That is essentially what you are saying here. How can you be sure that rollout is slower than planned solely because of the supplier failings or genuine difficulties on the ground that we have heard about and understand? What do you think you could have done better?

Clive Maxwell: I should come back to some of my opening comments. I was not saying it is just about energy suppliers. I drew out the fact that there were some big technical questions that were first of a kind. Being honest about it, it took longer to get solutions to some of that. Government and the industry were involved in that. That was one of the issues. The other has been the effect of Covid.

This is also about the suppliers stepping up to recruit enough people and train enough engineers, and indeed to find ways to involve households and customers in the right sorts of logistics around that.

Mr Walker can say more on the sharing of data. We see that some of the lessons about how to manage the logistics, such as how to reduce the number of missed visits and practical things like that, can have quite a big impact on productivity and the number of installs. It is about how you generate those sorts of lessons as early as possible.

Q75            Nick Smith: Mr Walker, you have done a great job moving this programme forward, but could you have done anything better from the Government side?

Daron Walker: I do not want it to come across as if I am saying that suppliers are not doing a great job, because there is lots of amazing stuff going on. There are 80,000 to 85,000 meters going on every week, and they are working hard.

On the point about misalignment and them wanting to go slower, that is not because they have let us down; that is because they have a different set of commercial incentives. That is what makes the programme extra difficult. We are trying to drive them to go faster than they want to go.

In terms of what we could have done differently, we were perhaps too optimistic about how quickly the DCC could get up to scale with the second-generation meters. That was not through a lack of effort by us, energy suppliers or the DCC. That took a bit longer.

Q76            Chair: Did the Department make an over-optimistic judgment, or was this collectively?

Daron Walker: I see this as a completely collective effort. We are all trying to make this happen. The suppliers are working hard every day to make this happen. At that point, you are trying to bring together up to 60 different suppliers, lots of different types of meters, different types of properties and different comms hubs. All of that had to be tested. You needed to make sure it worked all the time, particularly for pre-payment customers. That took a long time, and we did not go live until it was ready. We took sensible decisions collectively to take it live when it was properly ready, and that just took a bit longer. That is one thing.

The next thing is that we have gone down the voluntary approach. We designed it to be voluntary from the get-go because we want to engage consumers in the way they use energy. Other jurisdictions did two things that we have learned from. First, some people made it mandatory and there was mass rejection of the whole thing. For those that made it semi-mandatory, what you found is that people let the meters in but they did not engage with any of the material. We want people to engage with their energy because that is where all the benefits are coming from.

We underestimated how hard it might be to engage some of the consumers. There are not that many people who reject smart meters or actively do not want one. The bigger chunk of people is those who cannot quite be bothered to have one or do not understand why they need to have one. We perhaps underestimated those consumers who are difficult to engage, partly because this product is massively powerful for consumers and for the system, and we underestimated, thinking that they would be as excited about it as I am.

Chair: Mr Walker, one of the things this Committee loves is enthusiasm. We also like to drill down to the numbers, of course.

Daron Walker: The other thing that has happened is that all these non-operating meters are not helping us, because that is about word of mouth. We need to crack that. We need to drive that down.

Back to things that could have been done better, we probably overestimated the suppliers’ sophistication in engaging with consumers as well. They deal with consumers all the time, but in a traditional world it is mainly people calling in to complain about their bill being wrong or something not working. We have had to work collectively with them to get better at that outward engagement and segmenting. They have got much better because, while it is getting harder to engage, we are still installing at a right old pace. Maybe that is another thing we underestimated.

Then it is about getting the various technologies for covering eligibility. Each one has taken longer than we would have liked.

Q77            Nick Smith: Mr Walker, your enthusiasm is palpable and is genuinely good to see in a public servant. As we were considering this session, it occurred to me that I have three routers in my study, which I have had for the last 10 years to make my computer work in one way or another. We have talked already about the technical obsolescence of first-generation smart meters. Give us some comfort that your second-generation smart meters have sufficient longevity that we are not going to have the problems that we have talked about with first-generation, and so that we can have comfort that the next stage of the programme is going to be developed in good time to high spec.

Daron Walker: I can give you confidence about that. With first generation, we knew that there was a risk that, when they switched, they might not operate in smart, but we also had a strategy to bring them into this central system. The beauty of the second generation is that they are installed with the central system from the get-go. They are interoperable from the get-go. If a consumer switches, subject to some of the things that need to be ironed out between suppliers on their process and back office stuff, it will work.

That whole longevity point has been thought about carefully. These meters will work for 15 years and then they will need to be replaced. There may be a new generation, but it will build on the success of that rather than replace because they are obsolete.

Q78            Anne Marie Morris: I feel that the poor old consumer is right at the bottom of the list here. Everything you have talked about has been, “It is the right thing to do. We must get there. We must beat the supplier over the head, make sure we set targets, and maybe even fine them,” but the supplier cannot force a consumer.

I am delighted to hear that you are not going to make it compulsory, because that would have me very upset. You cannot expect the supplier to meet a target when there is absolutely nothing that they can do to force the consumer to buy in, so I am very worried that so little has been done, and the Government have to take overall responsibility for the consumer message. You are leaving it to industry. To your evidence, Mr Walker, they are not doing a very good job of it. I have more constituents coming into my office saying, “I have just had this letter. I have just had this phone call from the energy company. Is this compulsory?” They are terrified.

What is happening is that the process, as it is being rolled out, is one that is absolutely disincentivising people from getting engaged in this. Something is going very wrong. The more pressure you are putting on the suppliers, the more pressure they are putting. I have seen some of these letters and calls. They sound pretty threatening. I had one myself. What are you going to do to try to deal with the consumer end? If they continue to feel frightened, threatened or that something is being forced on them that they do not really want, with no explanation of the benefit—that is a big missing piece—we are not going to get anywhere. Mr Maxwell, what are we going to do?

Clive Maxwell: I am worried if customers and members of the public are receiving letters that in some way are threatening or perceived as such. Something is not working there, and so I am very happy to look into that if you have examples of those. Primarily, of course, it is the job of the energy supplier to get those sorts of things right. It is not in their interest to be sending correspondence that makes people worry, because they are likely to push back against the proposals.

I come back to some of those earlier stats. We are seeing up to about two in five households being very keen to have a smart meter installed in the next six months. That statistic has remained reasonably constant despite the fact that many millions of homes have already had smart meters. That shows that there is a latent demand out there for the energy suppliers to be working with, but you are right that over time we need to make sure we are engaging with the rest of the customers.

As Mr Walker said, the biggest group we need to worry about are the ones who are just not interested, in the sense that they are neither negative nor positive. It is the ones who are not very interested; they have other, more important things going on in their lives. The strategy so far has been to work through SEGB and for the energy suppliers to work with them.

Daron Walker: We have not really talked about the benefits that are flowing. Benefits are flowing. Look at the energy bill support scheme that went round over the winter.

Chair: We will come to the benefits in a moment.

Daron Walker: This is part of what will help. The more good news stories and the more we tackle the non-operating meters, the more the positive momentum will build.

Clive Maxwell: We know that seven out of 10 pre-payment smart meter customers would actively recommend other people getting similar smart meters. Something like two thirds of normal smart meter customers would recommend to their friends and relatives that they get a smart meter. That word of mouth is pretty positive. We also still need to tackle the small minority who are having the bad experiences.

Q79            Anne Marie Morris: Bad news travels much faster than good news.

Clive Maxwell: It can do, yes.

Q80            Anne Marie Morris: If we are going to get this right, particularly in light of what Mr Walker said, the Government have to proactively take a role in communicating, maybe through a TV campaign, as to what the benefits of this are.

The data that you currently have suggests that 40% would be keen to have it. When we look at those sorts of surveys, we found that when people hear about it as a concept, they think it is great. When they get to the reality, they are not so sure. There is usually a chunk of that 40% that you say are willing who, when it comes to it, do not want it.

Unless and until we can get the benefits out there, which are not out there, I am not quite sure how a lot of sticks and targets and penalties is going to deliver. Will the Government take responsibility for getting the message out there?

Forgive me for digressing, but we had similar conversations about water and metering. Until and unless Government get the message out there that these resources are in short supply and we need to be careful, and unless we make it easy for people to see how they are using these things, whether it is gas, water or electricity, we are not going to get the change.

Clive Maxwell: There has been extensive advertising. That has been done on television, as well as radio, print media, online and things like that, led by Smart Energy GB, which has the expertise to deal with those customer groups. The Government contribute to that, but SEGB should be in the driving seat.

Q81            Mr Djanogly: If I could just look a little bit more at the suppliers’ investment in improvements, I see that in April of this year, Ofgem told suppliers that they should have the capacity and flexibility of resource to meet their smart meter instalment targets. Is that still the position of Ofgem?

Neil Kenward: Yes, absolutely, and we expect them to make the investments necessary to meet their targets.

Q82            Mr Djanogly: Then it is over to Government. How confident are you that suppliers have the capacity to make these necessary investments?

Daron Walker: When you say “capacity”, do you mean money or the installer capacity?

Mr Djanogly: I mean both installers and money.

Clive Maxwell: It is worth saying that the targets that have been set have been set on the basis of evidence and data, which the Department has been involved in looking at. Therefore, they have not come out of thin air. They reflect where the Department and the Government think those suppliers can get to.

Daron Walker: The incentive regime and the enforcement regime is part of what will be important to drive the suppliers to invest at higher levels than they may have invested at last year.

Our role as Government is to give clarity on what we want to be achieved. Energy suppliers knew back in 2019 that there was going to be a framework beyond the end of 2020. We delayed the start of the new framework by a year because of Covid, but they knew their targets for last year and this year 18 months ahead of that time, and confirmed six months ahead. They were very clear about what was needed.

It is their responsibility to recruit installers, and we work closely with them to share best practice on that. They use some in-house installers and they contract with third parties as well. Again, sending that signal about what is needed is important for the third parties and meter manufacturers to invest. That is what we are doing to create certainty around what needs to be achieved.

Last year, some suppliers did a good job and got quite close or did meet their targets; some were less good. What will be important is a strong signal from the regulator that we expect suppliers to hit these targets. They are working hard, but they might want to invest slightly less than we would like them to.

Q83            Mr Djanogly: When they are less good, what is your role in all of this?

Daron Walker: We do lots of work with them. Back in 2018, we started a process of benchmarking across a range of operational stuff, for example. We effectively look at key indicators and then we look across all the suppliers. Then we share that data and we say, “This is where you are on these key metrics”.

We have also developed best practice guides. There is a consumer engagement and operational fulfilment maturity model, where we effectively measure them across a range of different characteristics and then benchmark them against each other. We can then say, “Look, you are really good at this, but someone over here is doing something much better on these things over here.” That drives performance improvement.

No one else can do that convening other than us. People can share stuff with us, and then we can anonymise it and share it with others. We have bilaterals every six months. We talk them through their performance and advise them on things that we are seeing being done better elsewhere. We are active in that space.

Q84            Chair: Has the contraction of energy suppliers made a difference? If you had one that was good at something and you have had a whole radical change to the energy market, has that made a difference to the capability?

Daron Walker: There are pros and cons to that. The con is that, when new customers are picked up, it takes a bit of time to process and make systems work, so that has slowed things down. On the other hand, if you have an organisation that is really good, they then apply all of their really good stuff, but it takes time. With the supplier of last resort stuff, 4 million customers moved, and that took quite a lot time to process through.

Chair: Yes, exactly. We looked at that. The pros and cons probably balance each other until it was resolved.

Q85            Sarah Olney: Looking at the constituency breakdown that we have all had, what it highlights is that installation rates are much lower in London than elsewhere. Also, looking at figure 8 in the Report, installation rates for those who are privately renting are also much lower. I wonder if you could give us an explanation, Mr Maxwell.

Clive Maxwell: When you look at the geographical data, there are two areas. First, you have dense inner-city areas, especially in London, where we are seeing lower rates. The second category is the most remote areas. You are typically talking about offshore islands and things there.

In the case of the first of those categories, we think it is down to some of the technical issues that we have been talking about already. There is the need to have the right sorts of communication systems within high-rise buildings, for example, or complex buildings that are subdivided up into lots of different spaces. There are some technical issues. As Mr Walker said, we have made some real progress with those.

The evidence also suggests that certain types of housing tenure may have some impact here. People in short-term lets and things like that may feel they have less incentive to organise getting a smart meter installed. They may be less sure with their landlord about who is responsible for making this sort of thing happen. Again, that is more of a characteristic in some of those urban areas. You probably have some issues about the building stock and some issues about the housing tenure in those areas.

Q86            Sarah Olney: It is quite a generalisation. It sounds as if you have not actually looked. For example, I am looking at my own constituency, Richmond Park. It is quite a suburban constituency. It is not populated by lots of high-rises, and yet we are significantly lower than some of my colleagues on the Committee. I do not feel like that is a full enough answer, if you do not mind me saying.

Clive Maxwell: At 40% or so, you are a bit below the average. You are right.

Q87            Sarah Olney: Have you looked specifically at some of the issues across London?

Daron Walker: I can talk a bit more. I do not whether I will be able to satisfy you, because he has said some of what I was going to say.

The first thing to say is that, in terms of the data we published in May, this is the first time we have reached a point where it could be a regular statistic, so it is very exciting. We are still absorbing the data and understanding how it all manifests in what is happening. There is a much higher PRS in London.

Clive Maxwell: PRS is privately rented sector housing.

Daron Walker: Sorry. SEGB has done a lot of research on this. We found that the tenants are hesitant about having it because they are not sure they can do it. They are not sure they are allowed to. They might have heard that landlords do not like these things. Actually, landlords are pretty supportive because, if you have accurate bills, you are more likely to pay your bill on time and it is not going to be a problem later.

What SEGB has been doing—and some of my team have been working with them—is to start breaking down some of those myths, making sure that tenants know that they are allowed to ask for a smart meter. It is probably good practice to advise your landlord, but you can do it. There is work to try to remove some of the clauses in tenancy agreements around needing to check with the landlord before you change metering. Part of that was a legacy thing. Traditionally, they probably did not want pre-payments in there without being consulted, because when you then want to rent the property, maybe it is not so attractive to the next tenant.

Then we have worked with DLUHC to change how to rent and how to let to include information about tenants’ rights. That is a big feature. It is fair to say that there are many more homes that need the specialist type of comms hub. That has not been around for that long, so that will be another factor.

On installers, it is harder to recruit installers in London because of wage expectations. This is across the industry. They are now having roaming installers who can come into London and then do a blitz of things, but that had to stop during Covid because of lockdown. That is another reason for things being behind.

Again, the local data is really exciting. One of the major suppliers is talking to UK power networks and the power distributors to start doing the messaging. They want these to be installed because they get their benefits as well. There is lots of stuff, now that we have a full eligibility suite, where you can start to drive more installs in London.

Q88            Peter Grant: Mr Maxwell, the NAO Report tells us that, in 2019, you estimated the gross cost of the rollout at £13.5 billion and total benefits of £19.5 billion. What is your current estimate of those two numbers?

Clive Maxwell: I can talk through both of those figures, if you like, and the direction in which we think we have moved. I do not have a precise answer to both of those, but I will explain how we think both of those numbers have changed since then.

You are right that that was the 2019 cost-benefit assessment. To be clear, those numbers were in 2011 prices. On the cost side of the baseline, the two big cost elements in the rollout of this programme are, first, the hardware that needs to be supplied, such as the meters themselves and things, and then you have the labour supply and the costs associated with that.

What we have seen going on—some of this comes through in the NAO Report—is that the hardware costs have been pretty much what the estimates were based on. They have not risen or fallen particularly. The labour costs, on the other hand, have increased. Those labour costs have been affected by two trends. The first is that, especially during the Covid period, we saw much lower productivity from labour. People were doing many fewer installs than was expected, and therefore the cost per install from that labour was significantly higher. The other thing that is going on is that the labour rates have risen. Mr Walker was talking about that in London. We are seeing an upward pressure on those costs; they are higher than expected.

Equally, on the benefits side, it is worth saying that some of the things we are seeing are showing significant upward movements in the benefits rates as well. A big contributor to the benefits is the amount of energy saved. If that energy is more costly because energy prices are higher, the value of those benefits increases. In a much higher energy price world, as we have been in for the last year or so, we estimate those benefits to have significantly increased.

We are seeing some evidence that shows that the expected percentage reduction in energy use is being maintained. We are seeing at least the same level of reduction in energy use than the business case was based on, which is very welcome there. We have also seen that the value of carbon that is used for these sorts of forecasts and cost-benefit assessments has risen significantly. That is another reason why we think the benefits number will end up being significantly higher than in that 2019 picture.

Net-net, we are seeing the cost rise a bit but we are also seeing the benefits rise significantly. If we look at the most recent year’s data—Mr Walker might say more about this—we are getting to a point where the benefits exceed the costs.

Q89            Peter Grant: One of the comments that you made was that, if the price of energy goes up, then the money saving from a 5% saving on your bill increases. Originally, the costs and benefits were based on up to 2034. How close to 2034 do you think we are going to be when people are still seeing electricity prices two and three times what they were a few years ago? Are we not expecting the prices to come down and therefore the cash saving to come down during that time?

Clive Maxwell: I am not going to forecast energy prices out to 2034. Where we have looked at the impact of higher energy prices on the benefits, we have only looked at energy prices to date. That does not involve any element of forward forecasting. There were forecasts built into the 2019 cost-benefit assessment, but we have not updated those forecasts for the purpose of those calculations that I set out.

Q90            Peter Grant: Have you estimated and published what those costs and benefits are at 2023 prices? That is very different from the 2011 prices they were originally put into.

Clive Maxwell: I do not have those. No, we have not published them.

Daron Walker: We have done about seven cost-benefit analyses, or CBAs, over the time. In 2011 prices, it allows you then to compare where you were as you go through time, but obviously 2011 prices are applied to the benefits as well, so they are in a lower base year as well as the costs. That allows you and others to see the real change in costs and benefits rather than it being confused by inflation and other bits and pieces.

Q91            Peter Grant: We know that, in terms of scale and the size of the investment, this is one of the biggest infrastructure investments the UK has ever seen. It is unusual in that most of the money is being put in by the private sector, and most of the costs will be paid either by the private sector or by the customers rather than directly by the Government. Given the scale of the project and the length of time it is going to be running for, why have you not published more regular information for Parliament so that MPs can keep an eye on how it is going as well?

Clive Maxwell: You are right that it is an expensive programme. There is lots of money being spent on it. Nearly all of that comes through the energy suppliers, and they face the incentives to minimise that spend. I know that the Department and Government publish a huge amount about the numbers of meters being rolled out. We talked about some of the geographical data, but I note that one of the recommendations here is that the Government should publish more about the cost data for Parliament, and I can see the case for doing that.

Q92            Peter Grant: You can see the case for doing that. Are you in a position yet to say you will do it, or is it still something you are looking at?

Clive Maxwell: If it was about reporting to Parliament, I would want to make sure Ministers were content with doing that because of the obligation to Parliament, but I see the argument for doing that.

Chair: We would certainly take it up with Ministers if they did not want to do it, because that would be a bit odd.

Q93            Anne Marie Morris: Value for money is more about the overall win, if you like, for the different stakeholders, not just about the money spent and the energy saved. There are three stakeholders here: the Government, the suppliers and the poor old consumer. The consumers are the ones, through bills, who are effectively subsidising this. Do you think they have had value for money out of this, Mr Maxwell?

Clive Maxwell: Yes. If you look at where the benefits for this flow through, they flow through in households with smart meters using less energy and therefore saving money on that. The benefits flow through from lower costs of operating the energy system, and that flows through to their energy prices.

Q94            Anne Marie Morris: Ultimately, the cost and the charge to the consumer is spread across all the consumers, so all of us are paying for the investment that each energy company is having to make to get the kit in place. What you are talking about is a benefit after the event. There are still a relatively small number of people who are getting that benefit.

Are you looking very carefully at the way that the burden of doing this is being shared? Right now, it seems to me that the poor old customer is disproportionately having to pay out when they get less benefit. The supplier, au contraire, gets the benefit of not having to go out and read meters. I appreciate they are having to make a huge technology investment, but at least there is some upside. Looking at the consumer, are they really getting value of money out of this?

Clive Maxwell: Just running through those, you are correct that there is a slice of the benefits that only accrues to those customers who have smart meters. The expected reduction in energy use applies most directly to the customers who are using less energy, and they make savings from that. I agree with that.

Many of the other benefits are spread across the whole of the market, for both customers who have smart meters and customers who do not have smart meters. The benefits in reductions in some of the transactional services that energy suppliers operate, for example, would be expected to flow through to all customers, because they do not typically have different charging structures for those with and without smart meters.

Some of the grid-level benefits of being able to plan for and use electricity in different, more dynamic ways, will again come through in the market as a whole for the benefit of all customers. I would not agree with the argument that it is only the people who take up smart meters who benefit from them. Others see some benefits as well, albeit those who have smart meters get the biggest benefits.

Q95            Anne Marie Morris: Everybody is still paying for it.

Clive Maxwell: Moreover, it is not a minority, of course. We have seen that 57% of meters are now smart meters, so it is the majority of customers who are getting the benefits from smart meters directly from their own use.

Daron Walker: Just to add to that, we have done some work on the cost and benefit per meter in last year’s stats. The NAO Report, in particular, pointed to what has happened to costs and benefits. Based on our latest analysis, again in 2011 prices, the cost per meter for 2022 was around £28 per meter, and the benefit was £48. Part of that is energy prices being high, but the benefits are significantly outweighing that.

Q96            Chair: Over what period of time is that for?

Daron Walker: For that year.

Chair: It is installed in year one.

Daron Walker: It is the cost per meters that were installed plus the ongoing costs of keeping the ones that are already in the estate. That is covered in that annual cost, because obviously you have to service the meters that are there. That was around £28 last year. The benefits that are flowing across the system per metre—

Clive Maxwell: It was about twice that.

Daron Walker: Yes, £48.

Q97            Chair: That is to the consumer. When you say the system, it is the supplier and the consumer combined.

Daron Walker: Ultimately, the suppliers reduce costs, and that flows through to lower costs for the consumer.

Neil Kenward: If I can just add one example, last winter there were concerns about security of supply. As you are probably aware, National Grid ran a demand response exercise where they paid consumers to turn down their demand temporarily. It was a pilot for what the future will look like, with much more flexibility on the system. Consumers benefited from that if they participated, but they could only participate if they had a smart meter. It is a good example of how you can generate benefits for the whole system, but also for consumers themselves.

We heard anecdotally that a lot of suppliers were then contacted by householders saying, “I do not have a smart meter. I want to be part of that programme.” The benefits will grow over time as we move to a more flexible system.

Q98            Anne Marie Morris: Mr Kenward, you articulate the point very clearly. The benefits are coming too late. You need to be giving the benefits and explaining those benefits much earlier.

Looking at the cost-benefit for the Government and for the supplier, I am very curious about why we rolled out these first-generation meters. I think it was Mr Walker who said that you ultimately knew that a lot of them would not work and would not connect. Was that not a wasted investment? Would you not have been better off waiting until the technology was right, then rolling it out once you were at the modern version that you knew would work? You would therefore not have the same customer resistance.

Daron Walker: We actively decided to do it this way, and I can explain the rationale for that. The data that is in the Report is the analysis of customers who had a smart meter between 2015 and 2018, which is a sample of 500,000 getting benefits, according to that study. That is at least in line with the business case, so 3% electricity savings and 2.2% gas. Those were all based on those first-generation meters.

If we had waited until SMETS2 was ready—I will talk about why SMETS2 needed SMETS1 as well—then we would only have got started towards the end of the decade. Millions of customers would not have been benefiting, and you would have been saying, “Why is this rollout not going faster, Mr Walker?”

The other thing is the technology that we built into SMETS1, such as all the functionality and much of the stuff that is in the meter, was then used for the second generation. It was developed and built on. Without the first generation, getting to the ones that worked and are interoperable from day one would have taken longer. All that learning, the stuff that we have optimised, how the journey goes for consumers and what advice they should get was based on those first-generation meters. I would say it was fundamental to us getting to where we have got to.

Q99            Anne Marie Morris: Mr Kenward, the supplier is in a very difficult position because he is being forced—at one level, one might say rightly—to invest. At the same time, as we have seen, suppliers are absolutely up against it in the market. A number of them have gone under. We need them to remain resilient. How are you going to make sure that we get the balance right? If you drive through too much stick and too much by way of penalties, all you are going to do is create a number of supplier failures. That is not in anybody’s interest.

Neil Kenward: We do not want to force or lead to any supplier failures through this exercise. We do not think it will. One critical thing to say here is that a number of suppliers did meet their targets for 2022. They are achievable. As per the NAO data, EDF got very close to meeting their target, so even the larger suppliers with lots of incumbent customers can deliver this.

The other thing to say is that we allow suppliers to recover their costs from the smart meter programme through the price cap. The vast majority of domestic energy consumers are now on the price cap tariff because of the crisis that we have had. There is an allowance within that for the costs to be recovered, so suppliers should not be out of pocket from this. They have been funded to deliver the programme and the targets that have been set.

Q100       Anne Marie Morris: The amount they are funded by is sufficient.

Neil Kenward: We base it on an assessment of the costs that they face.

Q101       Anne Marie Morris: Is that actual cost or expected cost?

Neil Kenward: I believe it is actual cost, but we make adjustments. As the programme matures, we revisit those numbers and we adjust them to match the costs that should be incurred by suppliers.

Q102       Anne Marie Morris: I will ask you one final question about this data that is collected and about the comfort that we need that it is being responsibly stored and used. One of the biggest challenges that I hear from customers, quite apart from the threatening letters, is about how their data is being used. How safe and secure is it? When do they have the opportunity to say how it can be used?

Maybe, Mr Maxwell, you can explain to me a little bit about this data, consent to collect it, consent to use it, the purposes for which it is used, its security and its neutrality. Clearly, one of the challenges is that, if that data is to be used for other purposes, people want to know that it has been anonymised in some way.

Clive Maxwell: First, I need to start by saying that the fitting of a smart meter is itself not mandatory. It is a voluntary thing. People are choosing to have a smart meter.

Q103       Anne Marie Morris: They still want control of their data, having given consent.

Clive Maxwell: When they have a smart meter installed, they are asked to go through a series of different choices about their data. In particular, they choose how frequently the data is provided to the energy supplier. On time-of-use data, whether it is half-hourly or on a less frequent basis than that is a matter for the customer to decide on.

Daron Walker: In terms of lessons learned and what we could have done better, this is something we got right from the get-go. We learned from other countries about the importance of consent from consumers. We established this data access and privacy framework at the get-go that effectively requires suppliers to get different levels of consent from consumers, depending on what level of granularity of data they collect.

For billing purposes, it obviously makes sense that they can have a monthly read. If they want more granular or regular data, so daily, the consumer has an option to opt out of that. There is an opt-out. For half-hourly, the consumer has to actively opt in. That entire framework was consulted on and put in place. We worked closely with the CAB about that because other things have been derailed, where people had concerns about what their data is going to be used for.

There are very strict rules about how they can use that data. They cannot cross-sell to other products. It is very strict. There are clear rules of engagement, so that it is not an opportunity, as you install, to cross-sell other types of things. There are very good protections for consumers in that, and it has stood the test of time. In other places, there was a lot of rebellion because people were concerned about that. We have not seen that in this rollout.

Q104       Chair: Who oversees the cybersecurity of that? There is obviously a potential cybersecurity issue. You have outsourced this. Are they responsible for that?

Daron Walker: The cybersecurity is something that was built in by design. We work very closely with NCSC.

Chair: NCSC is the National Cyber Security Centre.

Daron Walker: Sorry. I am not sure I would have known that exactly.

Chair: You will get a gold medal in acronyms.

Daron Walker: That was designed at the get-go, exactly for the reason that you say. It deals with privacy and cybersecurity. The way the system works is that only authorised users can send messages to the system and to the meter. If it is a message that is supply-affecting, it needs to be dual signed off by the central system. They check that it is coming from an authorised user with all the right credentials. They then sign it off and it gets sent on. If there are too many dodgy messages, there is an anomaly detection and it gets quarantined. The meter will only listen to messages that are signed in that way.

It is a very robust system, and it is designed so that you only have to trust the parties that you are monitoring. There is a whole load of process around people and systems. The processes in the organisation are to make sure they are all meeting high levels of security standards. There is a whole raft of things that we have put in place to make sure that it is as robust as it can be.

Q105                                                                                                                                       Anne Marie Morris: This data, nonetheless, is going to get used and aggregated. Do the customers understand how it is going to be used? Do they really understand the decisions they are making? What are the top three things that you are going to use that data for? How do you clean that data to make sure that the aggregation absolutely ensures that there is no way of identifying where that data came from?

Daron Walker: It may be that I need to come back to you on some of your questions. Just to be clear about where the data sits, there is not a central repository that is holding this data. In effect, the data sits on the meter. The energy supplier extracts the data that the consumer consents to, so there is not some other database where all this sits. It is a bit like a traditional meter. The data is sitting on it, but it is just not very useful on a traditional meter.

In terms of the consumers, they very clearly know where that data is going, as far as the supplier is concerned. If they have signed up to a time-of-use tariff that needs half-hourly data so that they can change the price according to the time they use it, then they know that half-hourly data is going back to the supplier.

Where data is used and anonymised is with the distribution network companies, and they have robust processes. They have to aggregate and anonymise it. They do not know exactly where the household is that that data refers to, but it allows them to then track and look at demands so that they can start thinking about planning for reinforcement. Where the data is used in that way, it is anonymised and aggregated.

Q106       Anne Marie Morris: We have been talking about value for money and cost-benefit. At some point when you designed this, I presume you must have had a “go/no-go” situation. At every point of the project you say, “Do we pause it? Do we stop it? Do we abandon it? Are we doing so brilliantly well that we are going to carry on?” How does that system work?

Everything in the report indicates that you have now got to a point where it is difficult to get sign-up. For everything you have said, nonetheless the message in the report is that you have the hard-to-reach consumers. The meters are not quite up to the modern standard; they do not talk to each other; we cannot get through the walls. There are all of these barriers to take-up. At what point do you say, “With all these barriers, instead of continuing to force the suppliers to roll this out, does it make more sense to stop, pause, fix those things and then move on?” How does this “go/no-go” system work? At what point might you look at these sorts of issues or complexities that are a barrier.

Clive Maxwell: As with other big projects in Government, we go through a series of business case iterations. You get to a final investment decision or full final business case where you agree that a programme should go forward, and that is typically when you start spending significantly. That is usually based on the sorts of cost-benefit analyses that we have been talking about.

Then you use the same sorts of tools when you have to take significant decisions about changes to the programme or particular inflection points. Again, the decision around the use of those first-generation meters, for example, would have been informed by the same sort of analysis. The programme has long recognised that, at some point, it needs to stop being a change programme and just become part of the way in which the market operates. There are a series of practical, logistical and technical issues about how and when you do that.

The programme has been developing a set of criteria against which it wants to be able to assess the programme. It is not there yet, but they are in development. These are about the point in time at which it makes sense to think about this no longer as a big change programme but just as what energy suppliers do. They have smart meters and they carry on installing new ones. When they break down, they install other new ones. That is just how the energy market works. There is a set of pieces of work around that.

The bit I will continue to disagree on is that there is significant latent demand out there to fit new smart meters. We are seeing 35% to 40% of customers actively saying they want one in the next six months when asked. In my view, we are some way off being in that position. Indeed, the sort of framework we have talked about, going out until 2025 at least, recognises that as well.

In principle, having a set of criteria to judge when the programme stops being a change programme and instead becomes business as usual for Ofgem, the energy suppliers and others to work together on is a decision that we all need to take at some point.

Q107       Chair: Business as usual would mean upgrades over time as well.

Clive Maxwell: Yes, indeed.

Q108       Anne Marie Morris: As and when you get these criteria sorted, would you be willing to share those with us so that we understand the journey you are going on?

Clive Maxwell: Yes, very much so. There will be quite practical ones about where the install rate has reached, what the benefits and costs are of going further beyond that, how the technology has evolved and what the big issues are that are still facing us.

Q109       Chair: If you look at the cost-benefit, there might be those last few who just do not get a smart meter.

Daron Walker: You have already started using the change programme element and the business as usual. The operating environment that will be business as usual is still in flux. Ofgem is working on a relicensing of the central communications body, and that will take time to process. They are looking at that right now, and there will be a process in due course that will lay that out.

There is a whole reform of the industry code governance that is going on. At the moment, industry, through the SEC—smart energy code—panel, has responsibilities for modifying the DCC system, change control and all of that kind of stuff. That will be changing. There will be a new process, which Ofgem is leading on, for all the different codes and who is responsible for those. That part of the operating environment is still not complete.

Then there are loads of different players in the system. It is a complex transition. It will not be a big bang moment. There will be bits that we transfer to the enduring governance, and there will be bits that we continue to have to do inside the Department.

Longer term, innovation and making sure that the benefits of the system are deployed across other policy areas will be something that will continue to sit in the Department, but there is lots more work to do. We will have to think carefully. The report suggests that this will be necessary and we are already thinking of doing it. What is the right framework beyond 2025?

In terms of timeframe, we will be aspiring to get as close to 100% as possible because, as you were saying earlier, all consumers are paying for this. If a consumer wants one, they should get one, because they are paying for it. That is the counterbalance in this system.

Q110       Anne Marie Morris: What are you going to do in the system? We have the same problem with the rollout of broadband. There are those places in which people will never get broadband. They are notspots. What are you going to do for those individuals and those homes that can never get a smart meter, for whatever reason it might be? They will lose out on some of these benefits.

Daron Walker: We are working on that. DCC is currently looking at a set of options for how they can deal with the 0.75% of notspots. There is one particular option that is interesting. In effect, with the consumer’s consent, it piggybacks on their home broadband service. You might not have coverage from the DCC, the central communications service, but this would be a possibility if the consumer is willing to do it. It will take some time to develop, and it is one of a number of options that the DCC is looking at.

We are continuing to look at options for filling that last 0.75%. That is quite an attractive proposition because there is quite a bit of overlap with people who have broadband and who do not happen to have mobile phone signal at this stage. That is quite a promising avenue for doing exactly what you are asking.

Clive Maxwell: You are talking there about a very small number of homes that are in that last category. It is less than 1%.

Q111       Anne Marie Morris: Okay, but it is clearly important if they are going to have all these benefits.

Clive Maxwell: It is important, but it is less than 1%.

Chair: Ultimately, if they need one, they should still get one.

Anne Marie Morris: This is a good one for you, Mr Walker. It is about vision. You are the man of energy and the man of dreams.

Chair: That is a barbed comment. Dreams are all very well, but dreams without delivery are not a good thing, in our book.

Daron Walker: I just heard that I am a man of dreams, and I am happy with that.

Q112       Anne Marie Morris: Where is the vision? Everything that you have all said is that there is this wonderful sunlit upland where we are all going to have the ability to use things more efficiently and understand what we are using. What is the vision? For me, I want to have something on my kitchen wall rather than in my cellar, where I can see gas, electricity and water. I want something on my smartphone that will show me what I am using. If I say, “Today I only want to use X amount of electricity,” it will ping when I have gone over my limit. Where is your vision? That is mine, and I am not even in the business. What are you going to do to make me, and the average consumer, as excited as you are? That needs to be invested in now.

Chair: I think we are in the middle of two enthusiasts here.

Daron Walker: The basic proposition that you get when you have a smart meter is that you have a display that is not in the cellar. You can put it in your kitchen. It tells you how much you are using in near-real time. Every 10 seconds it is pinging. It tends to have a traffic light system, and you can see when things get turned on. You can see it changing from green to amber to red. It tells you how much you are spending right now. It tells you how much you spent today, last week and last month. All that data is available through this thing called the in-home display. We have made it mandatory to suppliers that that is part of the offering. They not only have to offer you that; they also have to explain how it works and offer you energy-efficiency advice.

One of the things we learned from the early learning project that we ran back in 2012 and 2013 was that, to drive these benefits, you need to have this near-real-time data, which confirmed our theory of change. Also, the energy-efficiency advice needs to be there. If you tailor it to the house and you have a look around, that will drive even bigger savings. That part of the vision is working.

The broader vision is where all these exciting services can build on the capability of being able to charge different amounts for a different half-hour. We are already seeing some of the more innovative companies offering tariffs that are based on the half-hourly price. Once the market goes back to normality, then perhaps you will start to see some of those being marketed. People with EVs can be on a tariff that saves up to two-thirds of the costs of charging if they charge at the right time of day. You need a smart meter for that. Neil was talking about this scheme during the winter where people could get involved, save money and get payments. That was good for the system. We have done some innovation research on apps.

Clive Maxwell: These apps do what you are asking for.

Daron Walker: There are a couple that we supported through the Department’s innovation programme. We ran a competition, but there were two in particular that were really exciting; they were finding 4% to 5% gas savings above what we assume in the business case. One was about doing exactly what you said, so having a smart thermostat that then pings you to say, “It is a bit warmer today, so you might want to turn your heating down”. That gives you that real-time information to change your behaviour. There was another one that was based around gamification, which is basically trying to get you to compete against other people with smart meters. Both of those were very successful at driving savings way above what we are assuming.

We need the energy suppliers to innovate on the back of that, but there are definitely exciting opportunities, if that is visionary enough for you.

Q113       Anne Marie Morris: It is a very good start, Mr Walker, and I am sure there will be more to come. I have a final question before the Chair needs me to stop being so excited about all this. You can measure how much you use, but you need to know how much energy dishwashers or washing machines use. It is one thing knowing how much I have used, but I need to be able to know how I then change my consumer behaviour. I almost need a little plaque next to my thing on the wall that actually tells me. How are you going to work with the manufacturers in terms of that mindset?

Clive Maxwell: Some manufacturers are already offering you smart plugs and things like that that allow you to turn different appliances on and off at different times, to take advantage of things like half-hourly settlement arrangements. For example, you can use a washing machine at a time of day when the power price is cheaper. Those sorts of innovations are out there in the market. It is about the market stabilising and people being able to have those sorts of tariffs.

Q114       Anne Marie Morris: Are you going to be driving that sort of thinking?

Clive Maxwell: I am going to make sure that Mr Walker is not too distracted, because his job is to get smart meters installed.

Daron Walker: One thing that is in a similar space to your question is the in-home display. When people first get it, they spend quite a bit of time engaging with what is happening in their household. That is how some of these savings get embedded in. You start noticing that it is going amber or red and you say, “What is it that is driving that?” You suddenly realise that the oven has been left on or that the tumble dryer is turning, and that makes you start thinking both about changing your behaviour, but also potentially about whether it is time to upgrade your freezer. That is part of what this real-time data does that you just do not get in a traditional sense.

Q115       Sarah Olney: Mr Kenward, the central platform service is currently being relicensed. We expect that in 2025, although the current term might extend. How are you going to use the opportunity that the relicensing provides to improve the performance of the platform in the future?

Neil Kenward: It is worth saying that we have the performance regime already in place for the DCC, so there are incentives for them to perform well. You are right that there is an opportunity, as the licence comes up for renewal in 2025, to consider how we might do things differently. We did indeed put a consultation out last September, seeking views from stakeholders and putting out some options.

One option is to essentially run the same sort of price control and the same sort of regime we have at the moment, but open it up for competition, so Capita would compete with others to have the licence beyond 2025. An alternative is to move to a not-for-profit arrangement. We have set out those two options in our consultation. We are inviting views from stakeholders. Indeed, that consultation has now closed and we are going to be coming up with our views on the matter shortly.

Q116       Sarah Olney: Are you confident that there will be competitive interest when tendering for the new licence?

Neil Kenward: We would expect so but, as I say, that is that choice we have set out. We could go for a not-for-profit option as well, so there are some interesting options for us to explore.

Q117       Sarah Olney: Mr Maxwell, how is the 2G/3G switchover going to be paid for? Obviously, this is a change that is needed because it is something that is beyond suppliers’ control. Are you expecting them to meet the costs of this or will it be paid for some other way?

Clive Maxwell: We expect it to be paid for by the suppliers and by the energy industry, not by Government. As Mr Walker set out, the numbers of meters requiring changes and the communications hubs is a subset of those that have been installed. Mostly, it will be a change of the communications hubs that attach to them rather than the meters as a whole. 

Daron Walker: They are responsible for paying for metering and the communications stuff. A lot of these costs have been built into the business case from the get-go, except for that comms hub change for the meters that still have life as we approach the end of 2G/3G. That is how it will work.

Q118       Sarah Olney: When you say you expect the suppliers to pay, do you mean you expect the consumers to pay?

Daron Walker: Consumers are paying for this whole rollout through the fact that they are getting energy services, but the thing to remember in that is that consumers are also getting savings. The net savings now for someone with a smart meter far outweigh what it is costing them. Yes, they will pay, but they are actually saving as a result of having a smart meter. That is the beauty of this.

The way I think about the business case is that you have the cost that industry is bearing, and then you have the benefits that industry gets over time across the different people, such as the network operators and the energy suppliers. They broadly net off over the period of the business case. The consumers then get the benefit of saving energy.

Q119       Sarah Olney: Presumably, low-income consumers will already be very careful about their energy usage. The installation of the smart meter may well bear down on some of the costs for them, but they are already being quite frugal. If they have these additional costs coming through their bill to pay for things like the 2G/3G switchover, how confident are you that those consumers, particularly those in that most vulnerable group, are going to continue to see a net reduction in their energy costs?

Daron Walker: From the early learning project at the very outset of the rollout, we found that people who were fuel-poor were benefiting similarly to people who were not. That is one proxy that answers that.

On the additional costs, we thought this question might come up at the Committee. For the comms hub replacement exercise, you are talking about £2 per household towards the end of this decade. That is the scale. The current saving for a consumer with a smart meter right now is around £56 a year.

Q120       Sarah Olney: Is that true even for low-income households? You were talking earlier about people replacing their washing machines, which they will not be able to afford to do, so they perhaps cannot realise the savings that are possible. Do you see what I am saying?

Daron Walker: I do. As we have gone through the rollout, we have heard this anecdotal evidence that people understand a lot about their usage, but what we are finding is that even customers who are frugal and careful get more information off the real-time data that they did not know about before. We are finding that all types of consumers can benefit.

Some of them do it the opposite way round. They have been worried about their bill. They have been worried that the costs are too high, so they are keeping themselves in less comfortable positions. They then choose to spend a bit more because they can afford to be a bit warmer, and they take comfort instead. That information also benefits in the opposite direction.

Q121       Sarah Olney: Finally, Mr Maxwell, what are the lessons you think you can draw from the rollout of the smart meters that will help you in other programmes, such as decarbonisation of heating?

Chair: It is interesting. We were thinking that your Department is at the forefront of changing the behaviour of a lot of members of the public.

Clive Maxwell: There are quite a lot of things here. One we have talked about quite a lot today is about consumer engagement. Your witness from the Climate Change Committee, for example, pointed to the opportunity to use a body like Smart Energy GB to take a lead in helping with other sorts of consumer communications on other energy issues. That is an interesting idea, for example.

For me, there is something here about how you set up a programme where you are having to work with a set of different suppliers in an industry to create common facilities and mechanisms. We have had a lot of success stories on this programme that we would want to bring to bear on other things in Government, for example around some of the technical changes and technological developments that have been required, and some first-of-a-kind activities that have been developed. There are some positive things there as well.

To Mr Walker’s credit, I would say that having a well-resourced team in place, with an SRO who has stayed in the job for a decent length of time to allow that sort of capability and consistency to be developed, is also a really important point for Government to work on.

Q122       Peter Grant: Mr Kenward, who is responsible when either the hardware or the software stops working? Some of the original smart meters are now near the end of their design life. One of my constituents is an almost blind man who was told that, because the meter stopped working, they would not send someone out to read the meter. He had to read his own meter and then type in a 20-digit ID number to submit. I have another lady who used to get somebody from her family to go and read the meter for her. Two constituents had problems when the home display unit stopped working, so they were getting no benefit from it. One of them was told Ofgem policy prohibited the supplier from replacing it after the first year. What is the position? Who is responsible for repairing or replacing the kit when it stops working?

Neil Kenward: Suppliers are 100% responsible for maintaining, repairing and replacing kit if it needs to be replaced. There is an issue with in-home displays in that there is a requirement for them to be functional for a year. That is an obligation on the suppliers, but it does not extend beyond that period. We obviously encourage suppliers very strongly to replace any in-home displays that are not currently working for whatever reason, but the vast majority of the kit absolutely has to be kept in good working order. That is an obligation on the suppliers.

Q123       Peter Grant: The in-home display is what delivers the benefits to the consumer. Are you saying that the only thing that the consumer is guaranteed is that they will have these benefits for a year? If their display unit breaks after that, the supplier can just refuse to have anything to do with it. Am I understanding that correctly?

Daron Walker: The 12-month initial policy was, in effect, that the customer had the first 12 months to accept an in-home display, or IHD. Some people did not accept an in-home display at the get-go. They had up to a year to ask for one. This is an area we are actively looking at right now. Some of my team are working with Citizens Advice and with the energy sector to develop some voluntary principles around the IHD for exactly the reason you say.

Some of this might be back to the non-operating meters rather than the IHD itself not working. Obviously, we are trying to fix that through other means. According to the voluntary principles, which we are still working with, a consumer will be able to get an IHD. Some might end up paying for that if it is a replacement. Some suppliers are already giving them for free after a year for people on the priority services register, but we are on to that. If the voluntary agreement does not work, we always have the option to regulate.

Q124       Peter Grant: Could I ask you to send the Committee details of what the exact policy requirements are? From what you have said, your office might be getting quite a few emails from my case workers quite soon, and I suspect from a lot of other case workers as well.

Neil Kenward: Of course, we can write to the Committee.

Q125       Chair: My final question is on a completely separate matter. Mr Walker, you have been the SRO since 2015. This Committee has been long pushing for senior responsible owners to be longer in post. That does not mean forever, because you cannot always be on a project forever. We also note that the Civil Service is not good at rewarding, in terms of promotion and salary, people who stay in a senior responsible owner position.

We had a senior person recently who said that they have given up the opportunity for promotion in order to stay focused on a project. Have you made that sacrifice, or have you been supported in staying as SRO?

Daron Walker: If the Committee wants to recommend a pay rise for the SRO, I am really up for that.

Chair: It is a serious point, because it can prevent people staying and delivering.

Daron Walker: That is right. The Government are gradually recognising that having longevity, especially in posts for delivery, is really beneficial. The mood music is changing around that. You can get special allowances for staying, in terms of retention.

Personally, I really care about getting this programme done, so that is why I am staying.

Chair: We got that message.

Daron Walker: But it is a very good point. It is like any big organisation. You have to think about whether promotion is the only way you can reward people. Sometimes, expertise in role is more important than promotion.

Q126       Chair: On that, because you have been there a long while, the danger is that you are so enthusiastic that you have over-optimism and you believe it will all happen. That can happen in projects. We have seen plenty of that in this Committee. Where do you make sure you get that challenge from? Obviously, you will get it from your Permanent Secretary and Second Permanent Secretary, but where else do you get that challenge?

Daron Walker: There is challenge on this programme all the time. The suppliers are challenging it. There is a whole range of stakeholders challenging it. I also have a strategic reference group where I have non-execs. That is a safe space for me to think about and challenge things, and for them to challenge. They have a range of expertise, whether it be telecoms, business process or energy expertise.

Q127       Chair: Was it your idea to set that group up?

Daron Walker: It was my programme’s idea. I can claim it. We were not required to do it. I have access to people who are really passionate about this, people who used to work on the programme who are experts from industry. They still talk to me, help me and guide me.

We also have access to external experts in the programme who bring massive expertise. Without those guys and girls, we would not be able to do all this benchmarking stuff. They understand, deep down into the systems, how the business processes work. We are getting challenges around that so that we can say to suppliers, when they say A and B, whether A and B is true or not. There is constant challenge from the whole system.

Q128       Chair: Mr Maxwell, is there anything you want to add to that? You could offer a pay rise.

Clive Maxwell: Having the right capability and the right people to lead projects like this, and then indeed to work in those teams, is really important, both in the core Department and in the other bodies that we sponsor and lead. It is a really big part of setting the framework for successful delivery.

Chair: Can I thank our witnesses very much indeed for their time on this hot June day? As I mentioned before, our transcript will be up on the website uncorrected in the next couple of days, and I give warm thanks to our colleagues at Hansard for their work to deliver that.

We will be producing a Report on this in the new year. We may want an offline discussion with you about some of the technical questions that we did not get into in enormous detail about today, because it is not quite the place of the Committee, just to make sure that our Report is on point on those technical challenges. Thank you very much.