The costs and benefits of smart energy meters continue to be fiercely debated in the run up to the government's policy announcement at the end of 2008, as Steve Hobson found at the 2008 annual SBGI smart metering seminar.

The Department for Business, Enterprise and Regulatory Reform (Berr) confirmed that there will no meaningful results from the Energy Demand Reduction Programme (EDRP) by the end of this year, leading to renewed fears that the government may again defer its decision on a smart meter rollout.

Berr is due to publish a revised impact assessment on smart metering in November and ministers are expected to announce their preferred option for a national domestic metering rollout at the turn of the year. But delays in installing the 18,000 smart meters that will be compared with visual display units and other measures in the EDRP mean that the November 2008 report from the £20 million project will have little useful data.

Addressing the SBGI smart metering seminar in Birmingham on 18 September 2008, Berr regulatory economist Louise van Rensburg said: "Contracts were signed in July 2007 but it has taken longer than expected to install the smart meters and most were not installed until the third quarter of 2008. There is a lot of disappointment about the delay but this is a ground-breaking approach."

The EDRP will conclude in 2010 with six monthly intermediate reports in May and November till then. "We may not have much data when the government takes its decision later this year but we have been learning from doing," van Rensburg said.

Reassurances
Despite reassurances from Rob Thornes, deputy head of metering and billing policy at Berr, energy suppliers and meter suppliers eagerly awaiting a government mandate for a 10 year domestic rollout now fear ministers will use the delay as a reason to again postpone a decision, possibly until it receives the final report from the EDRP.

"We are on track for a decision on domestic and small businesses by the end of the year," Thornes told the seminar. "The decision will be evidence based as far as possible but it is fraught with difficulty."

Early evidence from the installation of clip on visual display units has vindicated the Look Smart campaign mounted earlier this year by the Energy Retail Association, Energywatch and Utility Week. The campaign convinced government to delay introducing a requirement for energy suppliers to hand out free clip-on displays and instead focus on mandating smart metering.

Consumers offered visual displays as part of the EDRP have shown little interest in the devices, while one supplier insisted they were not safe for consumers to install and had them fitted by trained technicians. There were problems with installation in 40 to 50 per cent of cases, and when the batteries ran out 50 per cent of those who did have them installed failed to replace them. When VDUs were posted out, 20 per cent of consumers did not even collect them from the post office.

Moderate scale
The EDRP is a moderate scale trial, involving 18,000 households and, as its name implies, is focused on measuring the effectiveness of a range of measures including smart meters in persuading consumers to reduce their energy consumption. It is being funded 50/50 by Berr and the four suppliers taking part - EDF Energy, Eon UK, ScottishPower and Scottish and Southern Energy. It is split into four elements, with 10,000 households being given better billing information, advice on energy efficiency offered to 14,000 customers, clip-on displays given to 8,500 and smart meters fitted in 18,000 homes.

While Berr is willing to be convinced that a national domestic rollout of smart meters could yield significant energy and hence carbon savings, its first impact assessment indicated that costs - put at £8 to 14 billion - would outweigh the benefits - estimated at £7 to £12 billion.

The energy industry questions these figures, arguing that the benefits of a reduction in carbon emissions to UK plc were left out of the analysis. Berr is therefore revisiting its impact assessment using additional data submitted by industry - though hard evidence from the Ofgem trials will not be available for some time.

Thornes pointed out a long list of risks associated with a national roll out of 46 million meters, including higher costs, increased customer complaints and low energy and carbon savings. "The government must evaluate and balance the risks and rewards," he said. "It is very complicated which is why there was no immediate decision this year."

One risk highlighted by van Rensburg was that better information on the cost of energy might lead vulnerable and fuel poor customers to self-disconnect. On the flip side, other better off consumers might in fact use more when they see how little a unit of energy costs.

Strong case
The government has decided that there is a strong business case for smart metering business users, and a consultation on a roll out to all small to medium enterprises (SME) market ends on 17 October. A consultation document on the communications infrastructure required to support a national smart metering programme is also due to be published shortly. On the thorny issue of stranding of meter assets, Thornes said Berr was "awaiting Ofgem's inputs" while a consultation on the various proposed market models would also be circulated very soon. The plan is to include the legal provisions necessary to implement the selected market model in the Energy Bill, which is due to complete its passage through the Lords in the next few weeks before returning to the Commons.

This raft of deliberations is all feeding into Phase 2 of Berr's smart meter programme, due to end in November in time for the ministerial decision on the way ahead due at the end of the year. "Some Phase 1 work is running into Phase 2 but we are broadly on track," Thornes said.

Garry Felgate, recently appointed chief executive of the Energy Retail Association, reiterated the retailers' stance that without a government mandate - preferably for their preferred regional franchise market model - the economics of domestic smart metering did not stack up. "There is no business case for suppliers in the current market," he said. "There will be significant benefits for suppliers but we see other benefits that do not accrue to suppliers."

Chief among these are the benefits to the UK and indeed the whole world of reducing carbon emissions through reduced consumption and especially spreading electricity demand to avoid bringing on the dirtiest power stations at peak periods. "Energy savings do not benefit suppliers," Felgate pointed out, "so a government mandate is required."

Net benefit
According to Petter Allison, director of British Gas' smart metering programme, a national roll out could yield £2 to 3.4 billion benefits in the next 10 to 20 years from consumers reducing their energy bills while costing suppliers £1.3 to £2.8 billion. "Cutting 5 per cent from a customer's annual bill will save them £30 while the saving to the supplier is £10 a year per meter, so the business case is not made to me," he said. "But if the business case is positive for UK plc the government has a duty to mandate."

However, Allison asserted retailers needed smart meters "as a platform to deliver" their growing energy efficiency obligations under the Carbon Emissions Reduction Target and the expected new supplier obligation post 2011. He said innovative tariffs such as time of day charging could shift demand from the morning and evening peaks and so prevent the equivalent of two 500MW gas stations being called onto the grid. "We could invite customers onto time of use tariffs and then move onto automatic load management," he said. "We start at the meter then move to appliances and then smart grids."

He added that "epayments" and "continuously variable credit management" where customers move "seamlessly from credit to pay as you go to PPM" were a solution to the problem of 15 per cent of UK customers currently on prepayment tariffs. "Prepayment has a high cost to serve and there are significant problems with customer service," Allison said. "We spend an inordinate amount of time on this sector."

With around one million new dumb meters a year currently being installed by the industry, the issue of stranded assets was also key, and the ERA "needs a decision on stranding from Berr and Ofgem", Felgate said. Another critical issue was "how smart we need to make the meter to take advantage of future opportunities". Key features for retailers include: two-way communications; remote configuration and management to support flexible tariffs; data storage and display; remote disconnection and reconnection; remote switching between credit and various forms of debit payment such as prepayment and pay as you go; the ability to handle power exports from domestic microgeneration.

Customer engagement
Just as important as the technical and economic aspects would be customer engagement, as without this many of the potential benefits would be lost, Felgate warned. He called for the establishment of a Strategic Design Authority to oversee the roll out and ensure "we don't lose sight of the long term vision". And while smart metering was not the answer to fuel poverty and climate change, Felgate insisted that "without smart meters we cannot address those issues".

This point was reinforced by Steve James, smart metering development manger at Eon Energy Services. He said energy services companies (Escos) were designed to help address the three key challenges of climate change, energy costs and security of supply by providing better information on usage, more energy efficient products and services, and new technology such as microgeneration and solar panels. "Smart metering will be an important technology in transforming the industry," James said. "It has the potential to be the enabling gateway for energy services."

Eon is taking part in the dual fuel and kitchen display elements of the EDRP and has already found ways in which better information is "helping us to have a conversation on how to cut usage". In his own home, James had been able to work out how much his "20 year old beer fridge" was costing to run. "The beer in the James household is now considerably warmer!" he said.

Returning to the economics of smart metering, Luis Gonzalez, sales director at Elster Integrated Solutions, said Eon in Germany had built its business case on offering a multi-utility service covering water as well as electricity and gas plus an appliance service.

Second generation
Gonzalez said while the US led the world with around 100 million "smart" meters in use, 90 per cent of these were merely capable of walk or drive by automatic meter reading (AMR) rather than proper smart meters. Europe had around 30 million mainly electricity smart meters installed, with more advanced second generation technology now being rolled out by Nuon, Essent, Eneco and ErDF. While still mainly electricity meters, these will often have the capability to act as a hub for gas and water meters too. He predicted that water meters would communicate with this hub via radio frequency mesh networks.

Communications standards were still lacking, but Gonzalez pointed out that the internet boom had not been held back by the absence of internationally agreed standards - "the industry managed, and our internet and mobile devices work anywhere in the world". The desire for agreed standards was he said because utilities and meter operators wanted to "mitigate the risks" of rolling out smart meters.

The ERA's Felgate agreed that interoperability of meters was "critical" as a national roll out should not become an inhibitor to customers switching suppliers. "We need a solution for all 26 million households," he said.

Berr's Thornes said government was "trying to avoid closing off innovation" and that "it may well be left to the market to decide the detail".

Energy saving
Alex Pitman, group energy efficiency manager at the Co-op, shared some of the retailer's experiences with smart energy metering, which he said was critical to achieving its target of cutting energy consumption by a quarter between 2006 and 2012. "Doing this without accurate information is like dieting without scales," he said. "We can save up to 20 per cent of our electricity by retrofitting existing stores but smart metering is vital to justify the spend."

When it comes to installing smart meters, Pitman warned that "doing the last 20 per cent takes as long as the first 80 per cent" due to the practical difficulties encountered when gaining access to swap meters. So far the main focus has been on electricity but the Carbon Reduction Commitment will encourage the Co-op to install more gas as well electricity smart meters. One barrier is that most gas meters are not pulse-enabled and the way billing is handled needs simplification. "We what to work with Ofgem to come up with a solution," said Pitman. While the group is looking at water, the spend is around a tenth of that on energy so the incentives are consequently reduced.

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