Written evidence submitted by British Gas (PSM0022)

 

 

 

Executive Summary

 

 

  1. Since the Energy and Climate Change Select Committee last reviewed the smart meter roll-out in 2013, significant progress has been made. 

 

  1. British Gas continues to lead the way in the roll-out of smart meters, installing approximately 70% of smart meters in Britain. Since the Committee’s last inquiry, we have more than doubled the number of smart meters we have installed, with more than 1.5 million now in homes and businesses across Great Britain.

 

  1. We also continue to invest in our metering operation, and in the engineers needed to ensure the roll-out is delivered effectively. In the last year alone we have taken on 450 smart meter apprentices and we have invested £7.7 million in their training in our six academies across Britain. We now have over 1,200 engineers in the field and 500 staff in our dedicated Smart Energy Centre in Leeds.

 

  1. Over the last year there have been a number of significant industry developments, which will help to ensure that the foundations are in place before we move to the enduring phase at the end of 2015.

 

  1. Smart Energy GB, which is funded by suppliers, was publically launched earlier this year and it will play a crucial role in helping to address consumer concerns about smart meters, and deliver a cost-effective programme of consumer engagement activities on behalf of suppliers.

 

  1. The Data Communications Company (DCC), which will enrol SMETS compliant meters during the enduring phase of the roll-out, has also been appointed. The DCC will ensure continuity of smart services for consumers, irrespective of who their supplier is, thereby resolving concerns about interoperability. The DCC and Smart Energy GB are both major enablers of the mass roll-out, and now they are in place, the industry should be in a position to begin the enduring phase of the roll-out at the end of 2015.

 

  1. Since the Committee’s last inquiry, the energy industry continues to come under unprecedented scrutiny, and British Gas recognises that trust in the sector remains low. 

 

  1. We believe that smart meters have a role to play in helping to rebuild customer trust. Whilst not a panacea, they play a vital role in helping households understand their energy usage, breaking down complex units, such as the kilowatt hour, into pounds and pence. For the first time consumers can see exactly what they are spending their money on and how their energy bill is made up, helping them to take simple steps to reduce their consumption. 

 

Smart meter benefits

 

  1. Customers are already seeing the benefits of smart meters and nine out of ten customers report that they are already taking simple daily steps to review their energy usage. This year, customer satisfaction for British Gas smart meter customers was 53% higher than of our standard meter customers, and complaints for smart meter customers were 21% lower.

 

  1. We calculate that our dual fuel customers are already saving on average 2-3%, around £26 a year and we expect this to increase to around 5%, or £52, once new tools such as smart phone apps and time of use tariffs are available.

 

  1. Our smart meter customers can also receive a ‘Smart Energy Report’, which gives tailored information and insight into energy spend, compares  energy usage with similar households, and breaks down the bill by day, week and month, and by different appliance types. The report also provides personalised tips on how customers can reduce their energy usage.

 

  1. The existing in-home display (IHD) plays a crucial role in helping customers to understand their energy usage, but some households will prefer to look at their energy usage in pounds and pence on a smart phone, tablet, or computer. We are therefore developing a ‘virtual’ IHD, which will allow customers to view their smart information on a more familiar platform. This should be allowed as an alternative to a physical device to help minimise the costs of the roll-out.

 

  1. Beyond giving transparency to the market and helping customers understand and control their energy usage, smart meters are a transformational technology. They are the first step towards a smart home and smart grid, and as well as equipping customers to reduce their energy bills and better manage debt, they can make a valuable contribution towards cutting carbon emissions and managing the strain on the network at peak times.

 

  1. British Gas has started to trial time of use tariffs and, as one example, 2,500 customers are currently on our ‘free Saturdays or Sundays’ tariff, which we have been trialling since June 2014. Customer feedback has shown that the tariff has been extremely popular, with a Net Promoter Score (a standard method for measuring customer satisfaction) of 47. In addition, 86% of customers on the time of use tariff say they feel that the tariff has enabled them to make changes that will reduce their consumption and the amount they spend on energy.

 

  1. We have also recently completed a project with Northern Power Grid, where we trialled conventional cost-reflective time of use tariffs and studied the impact on the grid. This project saw customers on the tariff reduce consumption by 1.5% more than smart meter customers without a time of use tariff, and a 9.7% shift away from peak time energy use. If these results could be replicated nationally, there could be a potential 1.99-2.4GW demand reduction for the UK.

 

  1. We believe it is important that all consumers can benefit from the roll-out of smart meters, including those currently using prepayment meters. British Gas has therefore taken the lead in trialling smart meters which can operate in prepay mode – Smart Pay-As-You-Go meters. 

 

  1. 20% of our prepayment meter customers are vulnerable and smart prepayment meters will transform the way they manage their energy usage – allowing them to top-up the meter over the phone and online, or by using a smart phone or tablet. Smart prepayment will also better enable suppliers to monitor vulnerable customers’ energy usage and clarify if they are vending, particularly over the winter months. As the roll-out of these meters scales up, we also expect to see a fall in end to end costs, which we would look to pass on to customers.

 

  1. We are currently trialling Smart Pay-As-You-Go meters with 50 employees and customers, and we are aiming to start a full commercial roll-out in 2015. This will allow those currently on prepayment meters to be brought into our smart meter roll-out, in line with our credit meter customers.

 

  1. Whilst customers are already realising the benefits of the smart meter roll-out, the full benefits will not be realised until all suppliers begin to install smart meters. Given the positive impact smart meters can have on transparency, trust and customer satisfaction, as well as the potential for cost-savings, we urge the Committee to encourage all suppliers to be fully prepared for the mass roll-out phase so that consumers can see the benefits as soon as possible. In the event of any delays, particularly to the launch of the DCC, suppliers should be encouraged to explore what progress can be made without this infrastructure, and there should not be any knock-on effect on the 2020 end date.

 

Managing the costs of the roll-out

 

  1. At a time when cost of living and affordability is an issue of significant concern to many of our customers, it is essential that the costs of the roll-out are managed carefully. We fully support the supplier-led roll-out model and believe competition is the best way to both drive down the cost of the programme, and ensure that all savings are passed on to customers.

 

  1. The smart meter roll-out is a large and complex infrastructure project, with an estimated £12 billion investment needed to complete the project.

 

  1. This is a net cost to suppliers, but any savings made are passed through to our customers. This includes a reduction in the amount of energy we need to buy on the wholesale markets, savings from a reduction in the number of meter readers needed, and the savings from a reduction in customer contact, billing inquiries, and debt.

 

  1. It is right that government makes sure costs are carefully controlled and we welcome the recent debate around this issue.  We note that Which? recently suggested that a central procurement programme for smart meters may help to reduce costs. We do not believe this will be the case.

 

  1. The most effective way to drive down costs and reduce the price of smart meters is to have competitive meter manufacturing, operation, and financing markets, where different players have to compete for suppliers’ business. Competition also drives choice and we have recently seen a number of businesses in the smart metering industry develop innovative delivery models, which suppliers can choose from, depending on whether they want to outsource the roll-out or take it in-house. For example, some metering providers are working in partnership with financing companies to provide and finance meters for energy suppliers.

 

  1. Introducing a central procurement programme could also significantly delay the start of the mass roll-out. By way of example, it took over a year to make all the contractual arrangements to set up the DCC.   Changes at this stage would also result in additional costs where suppliers have already made considerable investments and contractual commitments. 

 

However, we believe there are a number of other ways to reduce costs further:

 

  1. At the end of 2015 the DCC should be able provide the data and communications services for new installations.  The existing installed stock of smart meters should be enrolled quickly to the DCC to avoid any risk of them being replaced before the end of their operational life.  In order to reduce the cost of the roll-out, we would like to see compliant meters already installed in customers’ homes enrolled into the DCC as soon as possible after going live. Without this, suppliers will have to pay for and run a separate infrastructure for these meters until they can be enrolled.

 

  1. As a result of ‘going early’ British Gas and other suppliers have approximately 800,000 smart meters in customers’ homes that are not fully SMETS compliant, although they fulfil the majority of the required customer facing functions, such as an in-home display. Under current regulations, these meters will need to be replaced by 2020. Given the importance of controlling the cost of the roll-out, and given they offer the same key consumer benefits as a SMETS meter, we believe consideration should be given to keeping these meters in customers’ homes for their full operational life (10 - 15 years). Replacing them would add avoidable costs to the roll-out and subject consumers to another meter replacement appointment, for no significant additional benefits.

 

  1. British Gas is already developing a ‘virtual’ IHD, to enable our customers to choose to see their energy usage in a way best suited to them.  However, the existing regulations do not allow us to offer customers a choice between this and the traditional IHD.  Suppliers can pay up to around £50 per IHD and our initial estimates suggest that this could be significantly reduced if virtual displays were installed. As well as reducing the cost of the roll-out, this would have the added benefit of future-proofing the display, to ensure the technology does not become quickly outdated.

 

Consumer engagement

 

  1. As the Committee noted in its last inquiry, consumer awareness and engagement are crucial to a successful roll-out. Our consumer research has shown that since 2013, the level of customer awareness has increased by 5%, and 40% of people are now aware of smart meters. British Gas has undertaken a number of awareness raising campaigns for smart meters, but it is critical that Smart Energy GB, which has been created to deliver a cost-effective programme of consumer engagement on behalf of suppliers, tackles consumer concerns and encourages households to embrace the technology.

 

  1. British Gas also supports the involvement of trusted third parties, such as Citizens Advice and local community groups, as a route to encourage consumer engagement. These organisations will become increasingly important when the mass roll-out begins and suppliers seek to engage with difficult to reach and vulnerable customers.

 

  1. By the end of the roll-out, when there are very few customers still on standard meters, it will become extremely expensive to run two types of infrastructure in parallel – one for smart meter customers and another for customers who are still using traditional meters.  It is important therefore, that government decides how the last customers, who have not engaged with their supplier, or have refused to have a meter, will be managed in order to avoid crippling costs.

 

  1. The energy industry faced the same issue when the old prepayment coin meters were replaced. In other markets, the decision has been made to add an additional charge to these customers as an incentive to switch to a smart meter.

 

  1. Given the scale and complexity of the programme, the important benefits, and the crucial stage of the roll-out we are about the enter,  British Gas welcomes the Energy and Climate Change Committee’s timely inquiry and we are pleased to answer the questions raised.

 

Questions

 

Question 1 - What progress has been made on the smart meter roll-out since our last report on this subject?

 

  1. Since the Energy and Climate Change Select Committee last reported on the smart meter roll-out significant progress has been made, both in terms of British Gas’ individual roll-out and across the industry as a whole.

 

  1. British Gas has now installed over 1.5m smart meters in homes and businesses across Britain and our operation is at a significant scale. We have over 1,200 Smart Energy Experts installing meters nationwide at a rate of one every two minutes and in the last year we have invested £7.7 million in extensive training for our Smart Energy Experts. In the last year we have taken on 450 apprentices, specifically trained to install smart meters, who have trained in one of our six academies across Great Britain.

 

  1. We have also led the way in helping consumers understand the benefits of smart meters. We have run ongoing campaigns over the last year on TV, radio and in the national press. This has seen awareness levels of smart increase by over five percentage points. We are also working with Smart Energy GB to share our learnings, which can be built into their broader awareness-raising campaigns.

 

  1. British Gas smart meter customers have been extremely positive about their experience and nine out of ten customers report that they are already taking simple daily steps to review their energy usage. In 2014, customer satisfaction for smart meter customers is 53% higher than that of standard meter customers and complaints for smart meter customers are 21% lower. This is because our smart meter customers have seen an end to estimated billing and meter readings, they have greater understanding of their energy usage and they have reduced their energy consumption as a result.

 

  1. We have also calculated that dual fuel customers are saving on average 2-3%, or £26 a year. We expect this to increase to around 5%, or £52, once new tools, such as smart phone apps and time of use tariffs are available.

 

  1. Our leading position in the smart meter roll-out means we are already able to develop additional tools to ensure that our customers can realise the full benefits of smart meters.

 

  1. We have launched the Smart Energy Report, that provides tailored information and insight into energy spend, compares customers’ energy usage with similar households, and breaks down the bill, by day, week and month, and by different appliance types. The report also provides personalised tips on how customers can reduce their energy usage. Over 70% of our smart meter customers choose to receive a Smart Energy Report.

 

  1. We are also developing a ‘virtual’ in-home display (IHD), which will allow customers to look at their energy usage in pounds and pence on a smart phone, tablet or computer.  The current IHD plays a crucial role in helping customers to understand their energy usage, but this isn’t the first choice for all customers and we are aware that some customers will only use the IHD for a short amount of time before they put it away in a drawer. We are currently discussing with Ofgem and DECC the ability to offer either an app, or in-home display, so our customers can see their smart information in a way that is best suited to them. This needs to be allowed as an alternative to a physical device to help minimise the costs of the roll-out.

 

  1. We are also trialling a ‘Free Saturdays or Sundays’ time of use tariff with over 2,000 smart meter customers. We also recently completed a trial of conventional cost-reflective time of use tariffs with Northern Power Grid, with 600 households. We found that customers on the time of use tariff reduced consumption by 1.5% more than smart meter customers without a time of use tariff, and 60% of these customers saved money through the trial. We also saw additional benefits for the grid, with a 9.7% shift away from peak time use.

 

  1. British Gas is keen to ensure all our customers can benefit from smart meters, which is why we have started to trial smart meters able to operate in prepayment mode. These meters will ensure that our current prepayment meter customers, and any customer who prefers to keep a close check on their energy spending, will be able to understand their energy usage and see the same benefits as our other smart meter customers. They will also have the added benefit of being able to top up their meter online or by phone, without the hassle of having to leave the house. As we scale up the installation of smart prepayment meters, we expect to see a fall in end to end costs, which we will look to pass on to customers.

 

  1. Energy UK, the trade body for the energy suppliers, is working closely with RNIB, on behalf of all suppliers, to develop in-home energy display that caters for the blind and visually impaired. RNIB is keen to lead the procurement activity and as a first step they are assessing the market for existing in-home displays.  This is due to be finished by the end of November, following which RNIB and Energy UK will be agreeing the requirements for a specialist display.

 

  1. There have also been significant industry milestones in the last year, which have helped the roll-out progress. The Data and Communications Company (DCC) was appointed earlier this year, which will provide the data and communications services for new installations, ensuring interoperability between suppliers – British Gas has already started to invest to transition from the foundation stage to the enduring stage infrastructure. Smart Energy GB has been created to help to increase consumer awareness about smart and the specification for SMETS 2 meters has been completed.

 

  1. Now these are in place, the essential infrastructure should be ready for the mass roll-out of smart meters, or enduring phase, to begin in late 2015. However, if there are delays for any reason, particularly to the launch of the DCC, suppliers should be encouraged to explore what progress can be made without this. Given the significant consumer benefits smart meters can bring, any delays to the enduring phase should not have any knock-on effect on the 2020 end date.

 

Question 2 - To what extent has the Government addressed the concerns we raised about smart-meter roll-out, and the concerns raised by other interested parties since we published our last report?

 

  1. The Committee raised several issues and made a series of recommendations in its 2013 smart metering inquiry. A number of these issues have been addressed already, and we believe the remaining should be resolved as the roll-out moves into the enduring phase or as we near the end of the roll-out in 2020.

 

  1. The key focus of the Committee’s last report was cost control and ensuring that government carefully manage the cost of the roll-out to ensure consumers receive value for money. This issue is now more important than ever and British Gas believes the supplier-led model is the best way to achieve this.

 

  1. Despite the referral to the Competition and Markets Authority earlier this year, British Gas believes the energy market is competitive. There are now 26 suppliers in the industry and small suppliers have 8% of the market. This has grown from 2.5% in April 2013 and by the end of the year it is expected to increase to 10%. To remain competitive, suppliers must keep the cost of the smart meter roll-out as low as possible and pass any savings on to consumers.

 

  1. The smart meter roll-out is a net cost to suppliers, but we fully believe it is worth the investment because of the benefits it brings to consumers.  Any savings we do make are passed on to our customers. This includes the reduced amount of energy we need to buy on the wholesale market; the reduced amount of contact our smart meter customers have with our call centres; a reduction in debt; savings we have made in the number of meter readers we need; and as we start to roll-out Smart Pay-As-You-Go, savings to the current prepayment meter infrastructure.

 

  1. British Gas has an ongoing focus on optimising the cost of rolling out smart meters. We have used our scale and need for a large volume of meters to secure the most competitive meter price in the industry, as part of our recent £600 million deal with global smart meter manufacturer Landis+Gyr. This has brought the price per smart meter in line with the DECC Impact Assessment and our commitment to invest early will benefit the whole industry.

 

  1. In addition, our roll-out has also been targeted primarily to replace meters that are at the end of their life, so are the lowest cost to replace. This is one of the key benefits of the supplier-led roll-out.

 

  1. We have also optimised workforce costs and productivity through union negotiations, improved planning and scheduling systems, and well controlled meter stock management.

 

  1. Despite this focus on cost, we recognise there is an ongoing debate in this area. The consumer body Which? recently suggested that a central procurement programme for smart meters will reduce the cost of the roll-out. We do not believe this will be the case.

 

  1. The most effective way to drive down costs and reduce the price of smart meters is to have competitive meter manufacturing, operation, and financing markets, where different players have to compete for suppliers’ business. Competition also drives choice and we have recently seen a number of businesses in the smart metering industry develop innovative delivery models, which suppliers can choose from. For example, some metering companies are working in partnership with financing companies to develop holistic propositions for suppliers, which include all aspects of the smart meter roll-out, depending on whether suppliers want to out-source the roll-out or take it in-house.

 

  1. Introducing a central procurement programme could also significantly delay the start of the mass roll-out. By way of example, it took over a year to make all the contractual arrangements to set up the DCC.  Changes at this stage would also result in additional costs, as suppliers have already made considerable investments and contractual commitments. 

 

  1. However, we believe there are a number of other ways to reduce costs, which are outlined further in our response to question 4.

 

Timetable flexibility

 

  1. The Committee’s previous report recommended that there should be flexibility in the roll-out timetable to avoid artificial deadlines, which will push up programme costs. Now that the key infrastructure is in place, and consumer awareness of smart meters is increasing, we do not believe the timetable for the mass roll-out should slip any further.

 

  1. Consumers have significant concerns about the cost of their energy bills, transparency around billing and not being in control of their energy usage. Smart meters resolve some of these issues, by providing customers with information on how their money is being spent and bringing the end to estimated billing. Importantly they also allow households to reduce their energy usage, which is essential at a time when many households are struggling with the cost of living. 

 

  1. The energy market is facing period of considerable mistrust amongst consumers. It is crucial that we do what we can to rebuild this trust and smart meters are a part of this.  Prolonging the smart meter roll-out may reduce costs, but it also postpones the benefits for consumers. We believe all suppliers should be ready for the enduring phase of the roll-out at the end of 2015, so households can benefit as soon as possible.

 

Customers in poor areas of connectivity

 

  1. In its last report, the Committee raised concerns about customers in poor areas of connectivity, who may have to operate their smart meter in standard mode.  DECC has appointed communications providers who, through the DCC, have obligations to ensure connectivity to a very high proportion of premises.  

 

  1. It is not possible to say today which or exactly how many premises may eventually be impacted by lack of connectivity, but suppliers will continue to explore options to bring the consumer benefits of smart metering to these customers, in particular to ensure that they are able to access and react to their consumption data.

 

Ofgem guidance on ‘all reasonable steps’

 

  1. The smart meter roll-out requires suppliers to install smart meters to all domestic premises and small businesses on an ‘all reasonable steps’ basis.  In the Committee’s last report it was recommended that government should be clear about what it regards as a reasonable effort to ensure the widest possible take-up of smart meters by consumers.

 

  1. Whilst suppliers will aim to reach 100% of customers, there will be cases where a smart install is not possible or not wanted.  Currently, each supplier will need to decide the amount of effort they take and cost they incur to achieve each smart meter installation. There will be a tipping point where the benefits of achieving some smart meter installations are outweighed by the costs.

 

  1. The Automated Meter Reading (AMR) roll-out for non-domestic customers highlighted that there is still ambiguity in the meaning of ‘all reasonable steps’. Ofgem have not yet given guidance on this issue, but we believe that this is even more necessary as we get closer to the start of the mass roll-out, at the end of 2015.

 

 

 

Question 3 - What problems have emerged during the foundation stage and how are they being addressed?

 

  1. During the foundation stage of the smart meter roll-out we have encountered a number of challenges, which we have taken steps to overcome.  We will use the learning from this as the roll-out progresses.

 

  1. Our most significant challenge to date has been explaining to customers what a smart meter is. 40% of customers are now aware of smart meters, but it is not clear if they understand what a smart meter is.  We expect this level on understanding to increase as Smart Energy GB begins to play a more active role in promoting the benefits of smart meters and addressing any concerns.

 

  1. We have also made a significant investment in training our engineers and we now have 1,200 Smart Energy Experts installing meters nationwide. Before installing smart meters in customers’ homes, our Smart Energy Experts undertake a City & Guilds Level 2 Diploma in smart metering , where they not only learn to carry out meter installation and maintenance in the academy, but they also learn valuable soft skills to help them to interact with customers and provide a high level of customer service. They also gain hands on field experience with a qualified mentor.

 

  1. We learnt at an early stage in our roll-out of smart meters that the installation process is vital and consumers see increased benefits if they are guided through the process and time is taken to explain the new meters and how they work.  All our engineers discuss with customers what a smart meter is and how to use it, so customers are engaged in the process, understand how to use the meter and are aware of the benefits. We also talk to our customers frequently about how they are finding the experience and use their feedback to tweak our processes.

 

  1. Missed appointments have also been an issue and we have struggled to limit the occasions where an appointment is agreed, but the customer has not stayed in the house to grant access to the installer. These ‘no access visits’ are very costly and as a result we have worked hard to improve booking and the call-ahead processes. Our experience in this area will allow us to maximise efficiency and customer experience when the mass roll-out begins at the end of 2015.

 

  1. We have also gained significant experience in testing and proving new equipment. Despite rigorous testing of products before they have been installed in customers’ homes, many showed behaviour that was entirely inconsistent with that of identical equipment installed elsewhere. We have found that it can be hard to predict in a controlled environment what will happen with so much potential variation in housing type, so we need to be prepared to react quickly to faults that we could not predict during rigorous testing. This learning will be particularly important with the roll-out of the SMETS 2 meters, which will be installed far more quickly and in greater numbers than previous meter types. If faults are discovered only after installation, the customer experience must be very closely managed to prevent longer-term implications for the smart meter programme overall.

 

  1. When the enduring phase of the roll-out begins in late 2015 and we begin to transition from SMETS 1 to SMETS 2 meters, it will be important to employ the lessons learnt from the early stages of the roll-out and use our knowledge to ensure that additional, unnecessary costs are not added to the programme. British Gas has already been required to oversee the transition from one set of metering equipment to another in a short space of time. We have learnt that this cannot be done quickly and there should be a long cross-over period to ensure that suppliers and manufacturers are not left with stocks of older meter types they are unable to use. We urge government to take this into consideration when planning the transition from SMETS 1 to SMETS 2 meters.

 

Question 4 - What are the remaining challenges (technical, communication or other) associated with launching the mass roll-out of smart meters in 2015, and completing it by 2020? How can these challenges be overcome?

 

  1. British Gas took the decision to roll-out smart meters early, as we want to put our customers in control of their energy use and help them to realise the benefits of smart and reduce their consumption as soon as possible. Given we already have 1.5 million smart meters in homes across Britain, we do not believe there are any significant outstanding technical or communication challenges with launching the mass roll-out in late 2015. We believe government should ensure that all suppliers are prepared for this stage of the roll-out and if for any reason there are delays, the 2020 end date does not slip.

 

  1. However, there remain a number of challenges which will need to be resolved in the medium to long term for the roll-out to complete by 2020:

 

Communication

 

  1. We believe that customer engagement will remain the greatest challenge. It can very difficult to get some customers interested or engaged in the first place, and the lengthy appointment booking process for smart meters, as a result of regulatory requirements, has a tendency to deter some customers. We will need a broad, consistent and positive message to ensure that customer grant us access to their properties to fit smart meters. Smart Energy GB will play a crucial role in delivering this.

 

A solution for tall buildings and remote sites

 

  1. There are some technical solutions that still need to be found before smart meters can be installed in all homes across Britain. It is important that government takes the lead to ensure that a co-ordinated approach is taken and industry-wide solutions are found.

 

  1. One example is the challenge we will face around installing smart meters in tall buildings. These buildings often have gas and electricity meters in the basement, where it is difficult for the communication hub signal to reach an IHD. This challenge is not insurmountable and there are various different technical solutions available, such as installing signal boosters.

 

  1. To help reduce the cost of the roll-out it is important that government ensures that one industry wide solution is adopted. Whilst DECC have started to look into the situation, we believe this process must be speeded up to ensure that customers in tall buildings can benefit from smart meters. Any delay could also slow down the roll-out of Smart Pay-As-You-Go meters as many prepayment meter customers live in tall buildings. Without government intervention, a solution is likely to be more costly as individual suppliers set up their own infrastructure.

 

‘Virtual’ in-home display

 

  1. The evidence that we have gathered so far would suggest that many customers learn lessons very quickly from the IHD and then lose interest. We are developing innovative alternatives, such as a smart phone app, that provides a platform for future innovation and sustained engagement to help our customers to keep consumption behaviour in mind, and may be more appropriate for large numbers of our customers.

 

  1. We believe customers may engage with their energy consumption presented via a smartphone more regularly and to greater effect than with an IHD. Tech-savvy consumers already see the IHD as a low-tech, single purpose device. As the rollout progresses, the IHD risks being considered as outdated or irrelevant. We are concerned that offering this additional choice to customers may be challenged by Ofgem. There may be a requirement to revisit the regulations to reflect fast-changing technology and ensure that customers have a choice and costs are minimised.

 

Cost challenges

 

  1. The scale of investment required to deliver the smart meter roll-out, estimated at £12 billion, demands that close attention is given to deploying smart meters in a cost effective way. The supplier-led roll-out of smart metering is designed to minimise supply chain and implementation costs, as suppliers need to keep costs low to remain competitive.  However, we believe there are a number of changes that could be considered, to reduce the overall cost of the roll-out.

 

  1. At the end of 2015 we will be moving into the enduring phase, from which point the DCC will provide the data and communications services for new installations.  The existing installed stock of smart meters should be enrolled quickly to the DCC to avoid any risk of them being replaced before the end of their operational life.  In order to reduce the cost of the roll-out, we would like to see compliant meters already installed in customers’ homes enrolled into the DCC as soon as possible after going live. Without this, suppliers will have to pay for and run a separate infrastructure for these meters until they can be enrolled, as well as paying for the cost of the DCC. In addition, if all meters are on the same system it will make switching considerably easier for consumers.

 

  1. British Gas and a few other suppliers took the decision to ‘go early’ in the smart meter roll-out, to ensure customers’ can realise the benefits of smart meters as soon as possible.  As a result of ‘going early’ there are approximately 800,000 smart meters in homes across Great Britain that are not SMETS compliant. As the current regulations stand, suppliers would need to replace these meters by 2020. Given the importance of controlling the cost of the roll-out, consideration should be given to whether these meters should remain in use for their full operational life (10 -15 years), as they offer the same key consumer benefits as a SMETS meter, such as an IHD.  Replacing them would add avoidable costs to the roll-out and subject consumers to another meter replacement appointment, for no significant additional benefits.

 

  1. Smart Energy GB is also a significant cost to the roll-out and we must ensure that it delivers value for money. We need to ensure a collaborative approach to the coherent and consistent promotion of smart meters, which should be led by Smart Energy GB, but make use of the existing relationship we have with our customers.

 

Engineers

 

  1. Another potential risk to the smart meter roll-out is possible engineering shortages as the roll-out progresses.  Some 10,000+ engineers are going to be required at the peak of the smart meter roll-out and resources are currently not available at this level in the industry. Training facilities as well as labour may be short, and labour scarcity could drive cost inflation.  To help mitigate this, it is important that the mass-roll out starts as soon as possible, to help smooth the number of engineers needed across the roll-out period, helping to reduce the peak number of required engineers.

 

  1. We believe the challenges we have outlined will be best addressed with strong DECC leadership and close collaboration with Ofgem, who should recognise and react to the commercial issues raised by suppliers as the full roll-out approaches.

 

 

 

Question 5 - What are the best approaches to monitoring the mass roll-out of smart meters?

 

  1. The monitoring of the roll-out of smart meters is robust. Suppliers provide an annual report to DECC on progress and readiness, a quarterly report to DECC on quantitative progress, and a roll-out forecast on a quarterly basis.

 

  1. From 2015, suppliers will also be required to provide an annual forecast to Ofgem and a progress report against each forecast from January 2016. If performance falls short, or the forecast is not justified, enforcement action can be taken.

 

  1. We believe that this existing approach to monitoring, and the additional involvement of Ofgem, are extremely thorough and will prove effective. We would not advocate further monitoring which is likely to lead to duplication and confusion.

 

Question 6 - What contribution can smart meters make to expanding the use of Demand Side Response as a means of addressing possible capacity shortages?

 

  1. Smart meters put customers in control and allow households to understand their energy use and take steps to reduce their consumption. British Gas has seen a reduction in demand as a result of energy efficiency schemes, such as the Energy Company Obligation, and remote heating controls such as the British Gas Hive Active Heating product, which is now in over 100,000 homes across the Great Britain.

 

  1. We believe that the next evolution in demand reduction will be via demand side response, which gives customers the ability to react to changes in electricity prices and decrease usage when there is a high demand for electricity and pressure on the network as a result. This will be achieved through automated systems, which can be facilitated by smart meters, but where the customer remains in control.

 

  1. We are transitioning from a world where generation is flexible and therefore capable of meeting demand needs, to one where renewable technologies have real environmental benefits, but lack this flexibility. To ensure that the grid can cost-effectively manage demand for energy, customers will need to be encouraged to move their peak time use to different times of the day through price incentives. For demand side response to be successful, the ability to remotely control appliances and monitor household energy use will be needed. This will not be possible without smart metering.

 

  1. Examples of demand side response include smart washing machines that will run loads at off-peak times, yet also have an override function should customers wish to wash their clothing at peak times. It is important to ensure that customer choice is part of any offering, so that the customer remains in control of their energy usage, or that appliances are only automated with customer consent.

 

  1. British Gas has successfully trialed these appliances as part of the Customer Led Network Revolution project in the North of England. This project involved trialling demand side response with smart washing machines in 100 homes. The washing machines were remotely switched off by the network at times when pressure on the grid was at its highest, but customers had the option to override this when it wasn’t convenient.  We are still awaiting the results of the trial, but we would be happy to update the Committee when we have this information.

 

Question 7 - To realise the full potential benefits of smart meters, is it necessary to introduce time of use pricing for electricity?

 

  1. Consumers are already seeing the benefits smart meters enable, such as accurate billing, a greater understanding of their energy usage, and the ability to reduce their consumption. British Gas agrees that further benefits can be delivered through time of use tariffs and we are already trialling a ‘Free Saturdays or Sundays’ tariff where customers can choose to receive free energy on one of these days.

 

  1. Around 2,500 customers are on this trial and feedback so far has been extremely positive. 86% of customers on the tariff feel it has enabled them to make changes that will allow them to reduce their consumption and the amount they spend on energy bills.

 

  1. We are also working with Northern Power Grid to look at some of the benefits of time of use tariffs. As part of this project British Gas has installed smart meters in 5,000 homes, and offered time of use tariffs to 600 customers. The rest of the customers formed a control group.

 

  1. Our preliminary findings show that customers on the time of use tariff reduced consumption by 1.5% more than smart meter customers without a time of use tariff, and 60% of these customers saved money through the trial. We also saw additional benefits for the grid, with a 9.7% shift away from peak time use. Our trial tariff had an overwhelming positive response from customers with 95% of customers saying they would chose a time of use tariff over a standard tariff if it were available after the trial.

  2. However, despite the benefits of time of use tariffs, we believe that mandating time of use pricing could have a negative impact at this stage of the smart meter roll-out - it may lead to decreased consumer engagement if customers are confused by the tariff, or if the take up is forced. It may also limit the ability of suppliers and new entrants to offer innovative tariffs, as time of use guidelines may inadvertently place restrictions on new offerings. Allowing the market to deliver tailored time of use tariffs, will result in products that have customer appeal, increase consumer engagement and are able to address the key issue of shifting peak load to times when the pressure on the grid is lower.

 

 

November 2014