Written evidence submitted by EDF Energy (PSM0032)

 

 

 

 

 

 

 

 

 

EDF Energy’s response to your questions

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

  1. There has been significant progress on the smart meter rollout since the last report in 2013. The design, build, integration and testing of the central DCC systems has commenced. This is a significant piece of work and its completion is reliant on the finalisation of the GB Companion Specification (GBCS), which sets out the messages and functions that the DCC and their service providers must support.

 

  1. The delivery of the GBCS was delayed and a finalised version will not be available until December 2014. It is imperative that the DCC and Suppliers are provided with sufficient time to incorporate this finalised version into their design and then commence system building, integration and testing.

 

  1. EDF Energy has made significant progress in developing its systems in preparation for the rollout of smart metering. We have started the design and build of areas that we can, but require the DCC to finalise their design in order to identify how we send messages to the DCC. These delays have impacted our plan and ability to be ready for integration testing with the DCC. We are concerned that the most recent DECC plan does not reflect the consequential impacts that these delays have had on the industry.

 

  1. There is a cost associated with this work. Suppliers have been funding the DCC since September 2013 at a total cost of £63.1m to the end of this financial year. We believe that any escalation in DCC costs should be scrutinised and challenged in the interests of customers. Suppliers are incurring internal costs as they prepare for the smart meter rollout. In 2014 our programme costs were in excess of £100m. Customers are therefore facing the costs of the smart metering programme today, and the industry must start to deliver smart assets to these customers so that they can also start to realise the benefits.

 

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. As identified by the ECCC in the previous report, we continue to believe that there is value in providing guidance to Suppliers as to how Ofgem and DECC regard the “All Reasonable Steps” requirement. Clarification as to what steps would be unreasonable from a cost or customer experience perspective would maintain the commercial incentive on Suppliers to undertake a cost effective rollout whilst ensuring that the costs of the rollout are constrained.

 

  1. We believe that now is the correct time for DECC to review the timetable to ensure that it is set up for success. Maintaining an unachievable and unrealistic timetable risks delivering an unproven platform that is costly to rectify and delivers a poor customer experience. The smart metering benefits could be at risk if customers are not prepared to accept smart meters and engage with them.

What problems have emerged during the foundation stage and how have they been addressed?

  1. The technical challenges and complexities of this programme have been greater than expected. This has resulted in delays to the delivery of the technical documents and specifications for the smart metering system, which have had a consequential impact on the delivery of the DCC’s technical design and specifications.

 

  1. Delays to the equipment specifications have impacted our SMETS 2 meter procurement activity as we require a finalised specification to procure against and for meter manufacturers to design and price against. Delays to the DCC technical architecture impacts on the completion of the design and delivery of the systems which we will use to transmit and receive messages from the DCC.

 

  1. With the 2020 end date mandated in Suppliers’ Licences, we are faced with the choice of either deploying sub-optimal SMETS 1 assets without the DCC, or to delay the rollout and compress our delivery period. Both choices are likely to increase costs to the consumer, deliver a sub-optimal customer experience and introduce unnecessary risks to the GB programme and the delivery of the expected benefits.

 

  1. It has also proven challenging to procure a metering asset that we are confident will deliver the full SMETS 1 functional requirements. EDF Energy has contracted with CGI, who are also providing IT services to the DCC, and it has taken much longer than expected to integrate the SMETS 1 meters with these systems. This has resulted in an increased reliance on smart type meters that will have to be replaced prior to the 2020 end date.

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?

  1. There are critical parts of the national infrastructure that need to be delivered to ensure that the smart meter rollout is optimised. These key enablers were developed by all Suppliers through Energy UK and are tracked and monitored by DECC. These key enablers include:

 

Delivery of these key enablers will ensure that we are able to offer all customers a smart metering system and services using a secure, national interface at the lowest cost. We do not believe that these will be ready for 1 December 2015.

  1. To address this we believe that DECC and DCC need to re-plan the timetable to ensure that sufficient time is available to deliver, test and prove their systems at increasing volumes. This will ensure that the services we rollout to customers in the early years are proven, and the risk of failure in a live environment, impacting on customers is minimised.  As DECC and DCC are responsible for delivering this infrastructure they are best placed to identify what is a realistic and achievable timetable. Suppliers will then be able to incorporate this into their plans.

 

  1. If the start of mass rollout and delivery of these key enablers is delayed then the 2020 end date should also be reviewed, to ensure that the full five years of unconstrained mass rollout is available to Suppliers. We believe that this would be compatible with the EU’s requirement of 80% of electricity customers having a smart meter by 2020. Without an amendment to the end date, EDF Energy will have to choose between starting the rollout with sub-optimal meters and without the DCC to ensure that our rollout window is maximised; or waiting for the delivery of the key enablers and compressing the delivery period. Starting ahead of the key enablers will increase costs, leave a large percentage of households ineligible for smart meters in the early years and deliver a poor customer experience as smart services are not supported on change of supply. Waiting for the key enablers without a change in the end date would compress our rollout period increasing our operational and support costs, and delivering a poor customer experience if the focus is on the number of completed installations by 2020.

How can these challenges be overcome?

  1. These challenges are being driven by the current timetable which does not reflect the complexities of the programme or the recent delays that have materialised. The pragmatic solution would be to review the timetable to ensure that the programme is set up for success and an excellent customer experience can be delivered.

 

  1. Providing sufficient time to undertake complete end-to-end testing and enabling the DCC systems to be proven at increasing volumes of smart meters will also provide the programme time to deliver HAN solutions that will take the programme to 95% coverage. This will benefit consumers by ensuring that robust systems and procedures are in place when smart meters are rolled out, and also reduce the number of aborted installations and thereby costs.

 

  1. EDF Energy continues to believe that there is value in Government and Ofgem providing guidance to suppliers on the application of “All Reasonable Steps”, both from a customer experience and cost perspective. We have already entered into third party contracts based on our current interpretation of the requirement to take “All Reasonable Steps” to install a smart meter, we remain concerned that the lack of guidance from Ofgem and Government could result in cost escalation as suppliers take increasingly expensive steps to meet the smart metering mandate and the Government’s expected 100% penetration level. We believe that guidance on the application of “All Reasonable Steps” in terms of what steps would not be appropriate due to customer experience and cost would ensure that the costs of the smart metering rollout are constrained.

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

  1. Suppliers are already mandated by Licence to provide regular reports on their rollout to DECC and Ofgem, including both their rollout plans and their success against these plans. Under Ofgem reporting, suppliers will be deemed to be in breach their licence if the number of meters they install at the end of the year is less than 95% of the number forecast to Ofgem. As such there is significant monitoring of the supplier rollout plans.

 

  1. The SEGB will be monitoring public awareness, understanding and acceptance of smart meters to ensure their media campaigns are effective and to address any emerging trends. Combined with the DECC and Ofgem reporting, information should be available to understand not only how the smart meter rollout is progressing, in terms of numbers and cost, but also how this is being perceived by customers.

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

  1. It should be recognised that the GB’s reliance on electricity for heating (or cooling) is not as great as other nations. As such the ability to provide significant Demand Side Response (DSR) is limited until there is a greater penetration of electric vehicles or of home storage.

 

  1. Smart is a key enabling tool to help customers understand their energy usage and costs, and to unlock the potential of DSR. With current technology, this will require the customer to actively manage their demand, reducing consumption at a point in time by turning off appliances. Projects in Europe have identified that automation of this functionality will deliver more savings and a better customer experience. The next step therefore will be the development and rollout of appliances that can respond to signals from the smart meter.

 

  1. Customers will only be prepared to invest in these appliances if they can identify and understand the benefits and have had a positive experience of smart metering. If customer experience is poor and unreliable, it is unlikely that they will invest in an expensive appliance which responds to the smart metering price signals. It is therefore imperative that we get the early stages of smart metering set up for success if we are to realise the long term goal and objectives.

 

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

  1. Suppliers already offer Time of Use pricing to customers through two rate tariffs (e.g. Economy 7) which are designed to encourage energy consumption at times of lower demand. Without any changes to these tariffs, it is expected that the rollout of smart meters will help customers to understand their energy usage and encourage them to shift their demand to lower cost periods.

 

  1. It is also likely that with increasing penetration of intermittent and non-variable energy generation, the lower cost energy periods may not coincide with the traditional night-time off peak demand and result in increased pricing variations between seasons. There may be a further benefit in introducing more advanced time of use tariffs in the future. At the same time, Ofgem has introduced Retail Market Reform to simplify the retail arrangements. We believe that these reforms are a vital part of re-establishing trust with consumers. The introduction of more advanced time of use tariffs therefore need to be supported by regulatory reform and introduced in response to customer demand rather than forced on customers. We continue to believe that this is best left to the competitive market, once the regulatory barriers have been addressed.

 

 

November 2014