Written evidence submitted by ScottishPower (PSM0033)

 

 

Introduction and Summary

  1.                ScottishPower remains fully supportive of the implementation of smart metering.  We are convinced of the long-term strategic business case that is facilitated by Smart Meters both in terms of enabling better, more efficient customer service and helping customers to engage better with energy efficiency.  We welcome the Government’s continuing commitment to the GB roll-out.
  2.                We continue to liaise closely with DECC in support of its efforts to deliver the SMIP to the timescales and budget it previously outlined to the Committee. However, there have been a number of delays, particularly to delivery of the final technical specifications, which will have a knock-on effect on the start date of unconstrained rollout of SMETS2 meters.  In turn, these delays may make the 2020 deadline increasingly challenging. 
  3.                The Committee’s 2013 report called for some flexibility in the timetable, emphasising the need to avoid cost escalation; we would echo that view. We think the compression of roll-out timescales might lead to a scarcity of installation resources which could drive up costs, and believe it would be appropriate for DECC to consider a relaxation of the target 2020 deadline.  Maintaining an appropriate pace for rollout of SMETS2 will reduce the risk of cost escalation and customer inconvenience from revisiting premises.  While the delays we have experienced to date are a disappointment, they are a reflection of the importance of the programme and the need to get things right.  Setting off on the mass roll-out with a defective technical solution would help nobody.
  4.                Since the Committee’s 2013 report, much of the responsibility for delivering the work of the programme has shifted from DECC to the DCC (although not the key technical specifications), with a focus on testing to ensure the DCC systems are able to operate together and with User interfaces and meters. This work has yet to exit the planning and consultation phase and we remain concerned that the compressed timescales, mentioned above, might adversely impact the testing regime.  It will be essential to a good customer experience that testing is not compromised.
  5.                We continue to plan and to put in place the supply chains to support our mass rollout activities once DCC services go live, and we have plans for a limited rollout of SMETS1 meters.  We learned valuable lessons from a previous pilot programme, and believe that a limited installation of SMETS1 will help our understanding of the field issues we will encounter during our mass rollout of SMETS2.
  6.                A key reason why we have chosen to limit our SMETS1 installations is the absence of a suitable assurance/accreditation regime to promote consistency of the SMETS1 solutions being deployed.  This creates a risk of reduced interoperability, which could ultimately make the DCC’s adoption of these meters more challenging, creating uncertainty around their costs and increasing operational risk.
  7.                We would also like to see more encouragement for collective purchasing, which could reduce costs considerably.  In particular, this would address issues with inconsistency and interoperability identified above, and offer economies of scale.

Response to the Committee’s Questions

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

  1.                Since the Committee’s 2013 report, much of the responsibility for delivering the work of the programme has transferred from DECC to the DCC, although matters of policy remain firmly with the Government.
  2.                Progress with the programme has been slower than expected.  While it is essential to get these matters right before starting the roll-out, we still do not have finalised versions of two documents essential to Manufacturers, Users and the DCC in designing their smart metering systems. These are the Great Britain Companion Specification (GBCS - primarily used by manufacturers to produce SMETS2 smart metering equipment) and the DCC User Gateway Interface Specification (DUGIS). The delay to these documents may create uncertainty amongst industry stakeholders thereby challenging the 2020 delivery deadline.
  3.            In addition, it has been necessary for the go-live date for DCC to slip from September 2015 to December 2015. Figure 1 below illustrates the chronology of delays to the DCC go live date since the Smart Metering programme began:

Figure 1

  1.            We think the resulting compression of timescales in the mass roll-out might lead to a scarcity of installation resources which could drive up costs.  We therefore believe it would be appropriate for DECC to consider a relaxation of the target 2020 deadline.  A measured pace for rollout of SMETS2 will reduce the risk of cost escalation and customer inconvenience from revisiting premises.
  2.            We continue to plan and to put in place the supply chain to support our mass rollout activities once DCC services go live. We also have more immediate plans for a limited rollout of SMETS1 meters.  Our reasons for limiting our numbers of SMETS1 meters are the lack of an assurance/accreditation regime and uncertainty over costs. Nevertheless, we expect our experience installing SMETS1 meters will significantly help our understanding of the field issues we will encounter during mass rollout of SMETS2 meters.

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 regards timescales, we have already seen the end date put back to December 2020 to accommodate a delay to the start of mass rollout. In our view, a degree of uncertainty regarding the start date will remain, at least until the full SMETS2 specification (including the GBCS) is finalised. Such uncertainty may present difficulties to the establishment of the necessary supply chains, further challenging the 2020 deadline.
  2.            An important precondition for the success of the rollout is the robustness of the end to end security framework (incorporating the meters, the Users’ systems and the meters themselves) and that this framework is subject to annual, independent, expert audit.
  3.            As regards end to end system testing, the extent of this will largely be left at the discretion of the DCC Users (i.e. the DCC will offer facilities for Users to perform end to end testing, but there will be no absolute requirement on the Users to make use of them), although it is clear that the DCC will test Users’ ability to interface and interoperate with its systems as part of an entry process.
  4.            While we think this largely addresses the concern expressed by the Institute of Engineering and Technology (IET), we would still urge a more gradual approach to the rollout as a sensible measure that might, in the event that technical issues are encountered, obviate the need to replace installed Smart Metering Systems.
  5.            As regards consumer concerns over data privacy and data protection, we believe these will be addressed by Smart Energy GB’s consumer engagement strategy, which will explain the very secure nature of the rollout, the communications that will flow over the network, and the requirement for large suppliers to undergo annual data protection assurance audits.
  6.            In the remainder of this section we set out our view of progress in some of the key areas where the committee highlighted, in its 2013 report, a need for further clarity.

Keeping the overall costs under control

  1.            The likely overall costs of the programme have broadly been known for some years as they were used to inform the Government’s impact assessment and subsequent procurement of the DCC and its principal service providers.  However, delays in finalising the technical specifications have added some £25m to these costs, according to the DCC’s figures[1].  This cost is of course small compared to the possible cost that would be involved in setting off with a defective specification.
  2.            Consumer engagement is being managed centrally, through Smart Energy GB, with all suppliers contributing proportionately to the costs. This approach is intended to help keep costs under control, e.g. by maximising economies of scale and synergies. However, there is a risk that this approach may not realise the expected synergies, given that the rollout is unlikely to exhibit any clear geographic or demographic dimensions.  It is also very important that all relevant Suppliers are fully involved in finalising the marketing and communications plan.

The relationship between Smart Meters, demand-side response and a smart grid

  1.            Ofgem, through its Smarter Markets initiative, is engaging with the industry to ensure the wider potential of Smart Meters does not go untapped. Key areas include faster switching (enabled by smart), electricity settlement reform (necessary for time of use tariffs) and developing a framework for DSR.  Ofgem’s involvement is vital, given the complex market and regulatory interactions and the need to balance consumer benefits against costs.

Consumer engagement

  1.            New licence conditions, which had already been added to the gas and electricity supply licences by the time the Committee’s 2013 report was published, led to the establishment and funding of a Central Delivery Body. Requiring considerable commitment from the industry, this body has assumed overall responsibility for consumer engagement and public relations. Rebranded as Smart Energy GB, their work got underway in earnest with a major launch in early 2014, followed by a period of strategic planning.
  2.            Geographic dispersion, which constitutes one of the principal challenges facing Smart Energy GB, is an inevitable feature of a rollout managed by energy suppliers. This is different from, say, the digital changeover, which benefited from an inherent strong regional focus that better lent itself to central delivery co-ordination. Nonetheless, we expect Smart Energy GB to work with suppliers and other stakeholders to ensure that appropriate messages are conveyed to the right consumers at the right time – it is of the utmost importance that such messages do not create a demand too early for it to be fulfilled.

Smart meter coverage and inter-operability

  1.            We acknowledge DCC’s commitment to increasing its coverage area throughout the term of the mass rollout, and to keeping suppliers informed as to the extent of coverage in any given area. This aligns clearly with the Government’s aspirations and commitment to a successful rollout, and should help suppliers enormously in both planning and delivery.
  2.            However, as explained above, we think the lack of an assurance regime for SMETS1 may lead to interoperability issues with that solution. If this leads to meters being exchanged during change of supplier events, the customer experience might be compromised.
  3.            We are also concerned that, while it is known that the primary (2.4GHz) solution is not suitable to all premise types, an alternative (868MHz) solution may not be available in time for go-live, and we would urge the Government to apply maximum effort to resolving this.

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

  1.            We have always been clear that the best interests of our customers are served by us making sure we get our implementation right, first time. To achieve that, we made an early decision that we would await the final specification before commencing installations; taking the time in the interim to plan, to make strategic partnerships, and to take steps to integrate the new technology into our systems and processes.
  2.            As a key part of our preparations, we undertook an exercise to ensure that we had a comprehensive picture of the types of premises in which we would install these meters, and of the issues we would likely encounter when we came to carry out the work. This exercise yielded a great deal of information that we believe will be invaluable to us during mass rollout. The issues identified were mostly centred on premise types and issues with the Distribution Network Operators’ equipment.

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.            The timeframe is an extremely challenging one. While we still think it possible to achieve it, we need to be clear that we cannot continue to absorb delays to the start of unconstrained[2] rollout of Smart Meters without commensurate extension of the 2020 deadline.
  2.            As already indicated, we welcome the DCC’s commitment to its coverage targets, as these will be crucial to the overall success of the rollout. If the coverage area of the communications network turns out to be less than predicted, however, that would have a knock-on effect on the success.
  3.            We would also reiterate the considerable challenge facing the programme to find suitable solutions to cover all premise types.
  4.            The technical solution is a complex one, particularly with regard to security. It presents a significant challenge to industry stakeholders as they seek to integrate the solution with their systems and processes.  The GB rollout will be one of the most challenging Smart Meter deployments in the world to date. Such complexity suggests that proper testing will be at the heart of a successful delivery of the DCC service; yet little is known about the detailed progress of these tests. Given that these tests will have significant bearing on the overall advancement to initial live operation of the DCC, this lack of transparency creates uncertainty in the programme’s delivery.

How can these challenges be overcome?

  1.            The challenges could be overcome through a combination of more flexibility in the programme timescales (particularly around the 2020 deadline), greater effort in the endeavour to develop a solution for all premise types, better planning (to obviate further delays), and greater transparency of DCC’s testing activities.

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

  1.            DECC and Ofgem have each set out their own requirements for suppliers to report progress throughout the implementation. DECC’s requirements have already been translated into licence conditions, whereas Ofgem’s requirements have only recently been formalised. While we broadly agree that these reports are pitched around the right level, we think the focus of reporting and monitoring needs to be maintained on the most critical aspects, rather than attempting to draw in wider issues.  This would assist in aligning these reports to the extent possible[3] and reducing the overall reporting burden, the costs of which should not be underestimated.

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

  1.            In the absence of operational data, it is difficult to estimate the extent that domestic Smart Meters will contribute to DSR, and what will be the most cost-effective way of achieving this contribution.  Possible models include dynamic time of use tariffs (where consumers (or their pre-programmed devices) respond to a dynamic price signal, and demand aggregation service providers who contract with consumers to reduce consumption at periods of peak demand.

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

  1.            For some consumers, simply getting the messages from the IHD or other devices will be enough to encourage reduced consumption and other behavioural changes. For many, however, such energy efficient behaviours are already a feature of everyday life, making it unlikely that further reductions will be achievable without additional interventions. The most obvious such intervention is the provision of tariffs that reflect variable pricing and incentivise peak shifting. However, in order to develop such tariffs, it will be necessary for a suitable body of evidence to be gathered and analysed to inform that development. This will take some time to achieve and will depend, to a large extent, on the willingness of consumers to engage with us in the process. Ultimately, it will be for customers to decide the degree of energy flexibility they are willing to pay for but, as with DSR (above), we would expect them to then become relatively passive players, with service providers largely managing that flexibility on the customer’s behalf.
  2.            We are also aware of the consumer protection issues in this area.  In particular, we are aware of the risk that consumers might misunderstand time of use tariffs and run up higher bills than expected.  This suggests that there may be practical limitations on the extent to which a supplier will wish to pass the cost of the sharpest peaks to time-of-use consumers.  To an extent, this could reduce the effectiveness of such tariffs.

 


November 2014

 

[1] Consultation on Changes to the DCC Integrated Solution Delivery Plan dated 3 April 2014 and DCC Conclusion on Consultation on Changes to the DCC Integrated Solution Delivery Plan dated 8 May 2014.

[2] I.e. from when smart metering equipment is available in the marketplace at volume; full end to end testing and trialling has taken place and is accepted by participants; and an industry agreed plan for HAN and WAN roll out is in place.

[3] The detailed reporting requirements of DECC and Ofgem will differ. Ofgem’s role is to monitor suppliers’ progress towards completion of mass roll out, whereas DECC is responsible for ensuring that the Impact Assessment is delivered.