Written evidence submitted by Siemens (PSM0027)
Executive Summary
An introduction to Siemens in the UK
Our Energy Management Division is one of the leading global suppliers of products, systems, solutions and services for the economical, reliable, and intelligent transmission and distribution of electrical power. We employ around 2,200 people in the UK. As the trusted partner for the development and extension of an efficient and reliable power infrastructure, the Energy Management Division provides utility and industry companies with the portfolio that meets their needs. This includes facilities and systems for the low-voltage and distribution power grid level, smart grid and energy automation solutions, power supply for industrial plants, and high-voltage transmission systems.
Smart metering is a critical aspect of the Smart Grid system as it allows consumers to actively participate in the energy market and, by providing information to galvanise behaviour change, to also make a contribution to climate protection. Smart Grid Operational Services, part of Siemens Energy Management Division, delivers metering solutions from consulting, software as a service and fully managed services, right through to utility field services, covering the complete metering value chain. The portfolio of our Smart Grid Operational Services business is well complemented by a further Siemens business, ‘eMeter’, which is a market leader in the provision of meter data management systems and Automated Metering infrastructure (AMI) Adaptors. eMeter have been actively working with a number of large Energy Suppliers on major projects during the foundation phase of the implementation programme.
Siemens is a keen supporter of the smart meter agenda and an active participant in various forums on the topic. We submitted evidence to the Committee’s original inquiry on Smart-Meter roll-out in 2013 and have since become a Party to the Smart Energy Code, working closely with DECC and other stakeholders to deliver against the aspirations of the smart metering implementation programme in a number of areas such as Smart PAYG, Shared HAN infrastructures for multi-dwelling units and DCC related services. As a consequence, we feel well placed to contribute to your Inquiry and would welcome the opportunity to discuss any of the points made below in more detail.
Siemens Response
The Committee invited responses addressing some or all of the following issues. These issues are listed along with an accompanying Siemens response:
What progress has been made on smart meter roll-out since our last report on this subject?
1. The roll-out of smart meters over the last year has been slow. Many of the largest Energy Suppliers continued to argue the case for delaying installation until a technical specification for the enduring market was formalized. Furthermore, even amongst the more ambitious Energy Suppliers happy to install Smart Metering Equipment Technical Specification (SMETS) 1 devices, there is evidence of slowing down programmes, to a point where installs at the end of this year will fall well short of their individual publicised targets.
1.1. The latest smart metering impact assessment provides a good indication of how the industry has continued to underperform installation projections. At the end of January 2014, DECC estimated that approximately 3% of all domestic meters would be smart by the end of the year. This forecast has fallen from a 10% projection only a year before, yet all evidence to date suggests that the industry will certainly fall short of even the 3% target.
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?
2. In answering this question we would make the following points:
2.1 Keeping the overall costs under control
2.1.1. Siemens recognizes the importance of keeping the overall costs of the smart metering implementation programme under control. However, despite efforts earlier in the year to re-assess the costs and benefits or the programme and provisions made in the Smart Energy Code, Siemens has concerns over the realism of some of the key assumptions made in the programme costs and believes that the Government could do more to help keep costs to a minimum.
2.1.2. As a leading independent provider of metering services, Siemens has gained invaluable experience in installation related work during 2014. Our experience would suggest that the Government’s decision at the start of the year to retain a modeling assumption of £68 per dual fuel installation with uplifts in later years is unrealistic.
2.1.3. Siemens is confident that the market price for dual fuel installations is considerably greater than the Government projections. This is driven by a combination of factors, including a scarcity of trained dual fuel installers and staff retention issues. Whilst mass market volumes are likely to lower costs, these gains are expected to be offset by fundamental system changes amongst meter operators to ensure that they can operate in the enduring market.
2.1.4. In the last Energy and Climate Change Committee Review it was recommended that DECC draw up a ‘Co-Operation Protocol’ to encourage collaboration amongst suppliers in relation to smart metering installation. Siemens is not aware that any such initiative has been introduced, but is supportive of this suggestion and believes that it should extend to engagement with Local Authorities and landlords, particularly to facilitate early adoption of smart technology by tenants within social housing.
2.1.5. Siemens believes that social housing and multi-dwelling units present an excellent opportunity for a collaborative approach to installation activity. Independent research has proven that shared HAN infrastructure is the most cost effective approach to deploying full smart metering systems within high-rise buildings, yet there has been slow progress towards formulating an industry solution. From Siemens perspective an extended HAN solution should:
2.1.6. DECC’s recent introduction of a range of Technical and Business Design Group (TBDG) sub-groups to address 868MHz and alternative HAN solutions is welcomed. However, Siemens believes that DECC should show more leadership around this issue and take responsibility for defining a single solution which all suppliers can sign up to. This would help ensure that all households can access the benefits of smart metering early and that programme costs do not spiral out of control through allowing suppliers to deploy their own individual technologies.
2.1.7. Siemens recognizes the provisions that the Government have been made within the Smart Energy Code to facilitate cost effective access to DCC Services. There are a wide range of users that will need to adapt their systems to access these services including Meter Operators and smaller Energy Suppliers. Provisions that enable shared access will facilitate lower costs of entry to the DCC and should be welcomed.
2.1.8. Whilst Siemens acknowledges that shared platforms for DCC access will deliver economies of scale, we are concerned over recent statements regarding the publication of a consultation paper for a new delivery plan that may delay and/or descope the programme.
2.1.9. Although Siemens welcomes the intent to set out a realistic approach, the continued uncertainty means that many SEC parties are delaying decision making. Inevitably late decisions result in greater risks and higher delivery costs. Whilst the focus is currently on agreeing a realistic delivery plan for the DCC, it is also important that SEC parties are afforded the opportunity to decide upon and implement their own plans so that they can make cost effective decisions.
2.1.10. On a wider note there are still many unresolved areas in the DCC arena that impact on the costs for SEC parties wishing to utilize the DCC, such as the specific security controls that are required. Whilst we recognize the progress made in developing the DCC specification, codes of connection and other documents, there remains much to be resolved.
2.2. The relationship between smart meters, demand-side response and a smart grid
2.2.1. Siemens has seen little progress in relation to addressing concerns raised in the last Energy and Climate Change Committee Report with respect to defining and promoting the wider benefits of smart metering in the context of a smart grid. The early outputs from Smart Energy GB indicate that smart metering promotion will initially focus upon better control of bills, rather than wider considerations such as sustainable energy supply.
2.2.3. Whilst Siemens acknowledges the combined work of DECC and OFGEM through the Smart Grid Forum, it is clear that demand side response progress is only likely to take place in the longer term. A Government focus on simplifying domestic energy, as a result of the Retail Market Review, can only hinder progress in the shorter term.
2.3. Consumer engagement
2.3.1. Siemens recognizes the vital importance of effective engagement to the success of the smart metering programme. Given the criticality of engagement and energy saving and general industry reluctance to innovate, it believes that the Government could do more to support new ideas in this area through funding programme initiatives. This is all the more important when research earlier in 2014 from the then Smart Metering Central Delivery Body, highlighted that whilst 84% of consumers had heard of smart meters, only 44% wanted one.
2.3.2. In the absence of significant smart metering installations during the foundation phase of the programme, Siemens believes that there are excellent opportunities to test new forms of engagement with customers. A good example of this is pay as you go customers, where smart meters can deliver new experiences.
2.3.3. The Government’s decision to mandate the introduction of a basic pre-payment capability as part of the Initial Live Operations (ILO), is to be welcomed. Siemens have worked in partnership with a leading Energy Supplier to bring Smart PAYG capabilities and new forms of consumer engagement to market, but believe that the Government could do more to support innovation in this space.
2.3.4. Opportunities to test new approaches to consumer engagement do exist and during 2014 Siemens participated with DECC in some qualitative Smart PAYG research studies. However, we believe that there are limited opportunities to secure further funding for new engagement models and full working prototypes through current Government structures. Such an approach would help deliver the 2.8% energy saving which is so critical to the smart metering financial case.
2.4. Consumer savings
2.4.1. Siemens would challenge the assumption that consumer savings will automatically emanate from operational cost savings delivered by smart metering. Evidence to date during 2014 would suggest that despite calls for greater transparency as part of the Government backed Retail Market Review, the industry is not feeling the competitive pressure to transfer operational cost savings. Wholesale energy price reductions have simply not cascaded down to consumers and some Energy Suppliers have even publicly acknowledged this.
2.5. Smart meter coverage and inter-operability
2.5.1. Siemens acknowledges the work that the Government has completed during 2014 in providing clarity around the adoption of early generation smart meters into the future centralized infrastructure. This should have provided re-assurances to Meter Asset Providers and Energy Suppliers to introduce more smart meters during the foundation phase, although there is little evidence to suggest that this had any major affect.
2.5.2. As indicated earlier, Siemens has concerns about the lack of progress in relation to agreeing a shared HAN infrastructure for high rise housing. This will have an impact upon the ability to offer a full and inter-operable smart service to all GB citizens. Even with 868MHz capable devices available in late 2016, there are a large number of properties that will either not be able to exploit the full benefits of a smart metering system, or will be able to do so, but with compromised service levels.
2.5.3. Siemens has concerns that current 868MHz technology will not deliver the level of service required of a smart metering system. This includes refresh rates to an IHD, providing an end consumer with visibility of their individual appliance use. We would like to see more Government supported research in this area to ensure that all consumers get a positive first experience of smart metering.
What problems have emerged during the foundation stage and how are they been addressed?
3. As highlighted above, perhaps the biggest problem during the foundation phase has been the lack of significant trialing of smart metering technology across the industry. Only one Energy Supplier has deployed advanced meters in any sizeable volume and Siemens would therefore question whether the industry has been able to extract sufficient insight into the true costs and benefits of smart metering during this initial phase.
3.1. The main reason given for lack of industry progress during the foundation phase has been the lack of an enduring market technical specification. With work on SMETS2 and more recently work on the GB Companion Specification more certainty exists for device manufacturers. This helps to address industry concerns over stranded assets and interchangeability.
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?
4. From a Siemens perspective there are a number of remaining challenges associated with launching mass roll-out of smart meters. These include the formalization of an industry approach to multi-dwelling units and greater support for new industry engagement models.
How can these challenges be overcome?
4.1. Siemens has provided views on this in earlier responses.
What are the best approaches to monitoring the mass roll-out of smart meters?
5. Energy Suppliers progress towards meeting their installation targets should be monitored on an ongoing basis. This can be facilitated through the Data and Communications Company who will have visibility of both pre-installation and post-installation activity and the security credentials of installed devices.
5.1. It is understood that the DCC is looking at developing a suite of different reporting outputs. Smart metering installation against individual suppliers should be part of this suite if it is not already. This could assess total installations, as well as tracking breakdowns by credit and pre-payment configurations, on a monthly basis and be published.
What contribution can smart meters make to expanding the use of Demand Side Responseas a means of addressing possible capacity shortages?
6. Siemens believes that smart meters can make a positive contribution towards expanding the use of demand side response. These changes can be facilitated by both Energy Suppliers and Distribution Network Operators and will need to be supported by careful profiling, attractive economic incentives and industry wide changes.
6.1. With sufficient levels of opt-ins to half hourly data retrieval, Energy Suppliers can build up vast repositories of understanding of the consumption patterns of customers. Profiled and priced correctly, certain segments will be well placed to adopt new tariff arrangements. These arrangements will need the support of new settlement arrangements and greater tariff freedoms than those borne out of the Retail Market Review.
6.2. In a similar way, smart meters are well placed to offer Distribution Network Operators (DNOs) new opportunities for managing localized network constraints. With access to appropriate data, DNOs could profile consumers and introduce incentives for constraint at key times. This would not require changes to settlements processes, but may require changes to the regulatory framework under which electricity distributors operate.
6.3. As a provider of market leading Meter Data Management System technology, Siemens is already actively engaging with Energy Suppliers and Electricity Distributors in terms of how they can leverage full value from more granular smart metering data. We would welcome increased Government support to create the right environment for greater progress in Demand Side Response.
To realise the full potential benefits of smart meters, is it necessary to introduce time of use pricing for electricity?
7. Yes. Siemens believes that the Government would be missing out on major potential benefits associated with smart metering, if it does not do its best to put in place the appropriate framework for introducing time of use pricing of electricity.
7.1. Electricity is becoming increasingly costly to generate, transmit and distribute. This combined with a lack of effective storage mechanisms and variable demand, means that there should be attractive incentives available for consumers willing to change their usage patterns.
7.2. Time of use pricing facilitated by smart metering systems and changes to settlement processes will help to keep household energy bills low. Active participation will keep generation costs, network investment and imbalance costs to a minimum.