It’s that time of year when the days get dark and cold, and the energy media turns its interest to the possibility of power cuts in the coming winter. Which also means it’s the time for DECC to slip out their Annual Report on the Roll-out of Smart Meters, in the hope that no one will notice it.
As expected, everything’s slipped, but this time, for the first time, we get an example of how DECC fudges the benefits figures they claim justify the smart metering programme. I sometimes wonder whether I’m the only person who reads these reports beyond the rose-tinted executive summary, as if you dig beneath the spin, they tell a clear and repeated story of a project that is going badly wrong. So for anyone who didn’t make it past page 6, here’s the truth about what’s happening with the GB smart metering deployment.
Let’s start with looking at how DECC fudge the numbers. In my review of last year’s report I highlighted how DECC has refused to divulge how they calculated the consumer benefits of smart metering, spending large chunks of taxpayers’ money on expensive lawyers to argue against Freedom of Information requests. If everything had gone to plan, we’d have around eleven and a half million meters installed by now, instead of which we’ve barely a tenth of that. But even with around a million meters out there, you would have expected that there would be a fair amount of evidence about how much they affect customer behaviour and how much customers have saved. After all, those saving are the bedrock of DECC’s financial justification of the whole program.
This year, for the first time, the report includes a case study, showing how some of E.On’s customers could save up to £104 a year after they had smart meters fitted. I’m being very careful with my words here – the saving was AFTER smart meters were fitted, not, as DECC imply, BECAUSE of the smart meters. And although this is cited as a case study, the figures are estimates of what this group COULD save, not real figures. Let me explain.
In the UK, one effect of the deregulation of energy supply has been a growth in the number of households with prepay meters. As soon as suppliers see a customer falling behind with their payments they’re given a meter which they have to top up in advance of using their energy. Since deregulation, prepayment meters have become very popular with suppliers – they’re now installed in almost 6 million homes, which is around a fifth of British households. Prepayment customers are not treated equally by suppliers. Not only do they need to pay for their energy in advance, they’re penalised by having to pay more than users on contracts. It’s the principle of the poor pay more – posh boys get discounts. The graph below from the Energy Community shows just how much more that extra cost can be.
In DECC’s case study, the prepay customers with new smart prepay meters were given the opportunity to move from the punitive E.On prepay rate they had been on to any of E.On’s cheaper rate. If they did, then E.On estimated that they could save up to £104 a year. They would achieve this saving only because E.ON had previously been overcharging them by up to 37% for being energy poor – effectively treating them as second class citizens. This has nothing whatsoever to do with the smart meter. The users could have made exactly the same savings if E.On had let them choose a cheaper tariff with their existing dumb meters. Yet this is the only example of consumer savings DECC could find to include in its smart metering report, presenting it as if the smart meters were responsible for the saving, and as if it were real, rather than estimated. It does make you wonder how they calculated their original figures justifying smart metering, but as they’re still blocking Freedom of Information requests we can only guess. I’m guessing it’s the same sort of fudge we see here.
On the subject of consumer behaviour change, DECC does reference some initial feedback from an Early Learning Project, which predominantly looks at user reactions to In Home Devices (IHDs). It emphasises “the importance of real-time traffic light feedback”: red, green and amber lights on the IHDs which indicate how much power is being used, pointing out this is the “most used” aspect of the display. Guess what DECC refused to include in their IHD specifications? Traffic light indicators. It’s nice to see the right hand still doesn’t know the left hand exists.
Incidentally, a number of the big energy suppliers tried to wriggle out of their requirement to supply IHDs earlier this year, probably to try and reduce costs. To their credit, DECC has resisted this, generating another consultation to look at options. That’s probably not just concern for consumers; if their only method of promoting behaviour change were to disappear, DECC’s whole financial fudge of justification would go up in smoke.
From the fiction of made-up savings, let’s move to fact and see how the deployment is going. This is the fourth year that DECC has issued this report and each year they show the projections for how they will get smart meters into every house by 2020. Here are those graphs from the past four reports:
In the first report in December 2012, the assumption was that all of the meters would be installed by the start of 2020. In the following year, that slipped to the end of 2020. It’s not unusual for projections like these to slip – it’s a standard trick for analysts to move the baseline by 12 months when they do their annual update and realise nothing has happened. The problem here is that the end date of December 2020 is immovable, as the total number of meters which need to be installed.
To see whether DECC are playing the same trick, I’ve overlaid the four projections, so that they’re all starting at the same point. That way we can see how many meters are planned to be installed in each year of deployment:
Here you can see that they have done that “shift the baseline” trick. The first few years of installation numbers are almost identical. But because the endpoint of 2020 gets closer and closer, they’re having to cram more and more installations into the middle years. In Year 4 (2018 in the current report), they’re assuming 14 million meters will be installed, over double what they thought in the first two reports. To install that many meters in one year is pushing the bounds of credibility.
There’s another concern. In year 3 (2017), the projections assume almost 9 million installations. That feels unrealistic given the changing specification for the GB smart meters. During the course of this programme, there have been three different types of smart meter deployed. We started off with “advanced” meters, which were designed by individual suppliers. More recently, meters have needed to comply with the first release of DECC’s “Smart Metering Equipment Technical Specifications” or SMETS1. Because of concerns about the security of SMETS1 meters, the standard has been updated to SMETS2. DECC has set a deadline of August 2017, after which SMETS1 meters may no longer be installed – all subsequent installations must be SMETS2 compliant.
Obviously suppliers would prefer to install SMETS2 meters today, but they’re still not available in any significant quantities. DECC are sufficiently worried about their availability that they are only insisting that the nine major suppliers install 1,500 SMETS2 meters each by February 2017, i.e. a total of 13,500. (There are caveats which means it could be fewer.) Given that a SMETS1 meter can’t be installed after August 2017, energy suppliers are not going to want to have any in stock, because they will be obsolete stranded assets. So after the end of 2016 they’re likely to wait for SMETS2 meters to become available. The derisory requirement to fit only 1,500 SMETS2 meters each by February 2017 suggests that nobody expects them to be in plentiful supply. Putting those facts together, the likely installations for 2017 are probably a few million at best, and potentially no more than a few tens of thousands. Certainly not the nine million of DECC’s projections. (Since I wrote this, DECC have stated that they do not a expect to see a significant increase in the rate of smart meter installs until late 2017, a fact hidden in their response to the IHD Policy Framework Consultation.)
In a new move, presumably to try and end this annual display of made-up numbers, DECC are insisting that the energy suppliers submit their “first formal and binding forecasts to OFGEM in early 2016”. That will make very interesting reading, as will the severity of the penalty clauses if they miss these numbers. I wonder who will blink first? Probably OFGEM or DECC, as this is described as the “first” binding forecast, implying that there will be second, third and fourth binding forecasts in subsequent years. My dictionary of archaic words gives an interesting definition of “bind”, which is a collective noun for a lot of eels. It’s the sort of slippery definition that could be applied to most of DECC’s pronouncements.
It is deeply worrying that nobody at DECC seems to think that moving the goalposts every year is a problem, whilst at the same time maintaining that the final score is already fixed. It’s like looking at a set of rabbits in the road watching the headlights of an oncoming juggernaut, but who are happily chanting in unison “the road’s clear, the road’s clear”. They need to consider reality.
There is a good reason for the recurrent delays. It’s because nobody outside DECC actually wants these particular smart meters.
The Utilities don’t want them. When the UK programme started they were seen as a way of introducing complex tariffs and acquiring customers through switching. OFGEM has ruled against those tariffs and utilities are moving away from promoting switching. Most the current UK switching is driven by utility paybacks to switching companies, making it an expensive form of customer acquisition. That leaves smart meters as a very over-priced way of automating billing.
The most telling piece of utility thinking I’ve heard, explaining their attitude to smart metering, came from the CEO of a Californian utility who told me that “the best thing about smart meters is that they give us more evidence to blame the customer”. That’s not something that I suspect most customers would want to pay for and certainly not a reason for deployment.
Meter Companies don’t want them. They thought they did, as they believed they would make higher margins and cut the replacement cycle from 30 years to 15 years. But they were mugged by silicon companies who wanted to sell them more chips and told them that they’d be easy to design. In practice this extra complexity has pushed the meter companies way outside their technical comfort zone. They’ve found that smart meters have been vastly more expensive to develop than they’d anticipated, wiping out those higher margins. It’s telling that GE, one of the world’s largest energy companies, sold off their smart metering division just a few weeks before DECC issued this report.
Silicon Companies don’t want them. They initially pushed the ZigBee standard, hoping that smart metering would result in it taking off. It didn’t, and companies involved in supplying the chips have moved to a new mesh standard called Thread. It’s a lot better than ZigBee, but it’s not compatible. That means that the cost of ZigBee chips is likely to rise and in the future there will be little expertise to support them. A week after DECC released this report, Silicon Labs – a US chip manufacturer, acquired Telegesis – the last remaining mainstream UK company that makes ZigBee modules. Their engineers look likely to move to working on Thread. In other words, SMETS2 meters are based on an obsolete technology which will have minimal ongoing support.
Network Operators don’t want them. The current deployment uses GPRS supplied by Telefonica / O2 for two of the three areas. GPRS uses the original 2G mobile technology, which every other operator is desperate to shut down, so that they can reuse the spectrum for 4G. The reason for that is that the same amount of spectrum used for 4G supports around forty times as many users as it does for 2G. Now that O2 is being acquired by Three, their accountants are probably desperate to find a way of getting out of this contract. Regardless of whether they do or not, when the contract comes to an end, the communications hub on every smart meter will need to be replaced with a new, more expensive one that supports 4G, or a new M2M wide area standard. Replacing these comms hubs prior to the 2G network being turned off at the end of the contract would wipe out most of Telefonica’s profits from the CSP contract, but it will be necessary. Otherwise the smart meters will stop working. That’s another little detail that DECC forgot in their costings.
Users don’t want them. There is little evidence that users want them, particularly if they’re told that the costs of the smart meters will go on their bills, which is probably why that inconvenient truth is generally glossed over. UK consumers are stopping switching. Whilst it’s good to get people to understand their usage, domestic electricity use has been falling regularly for the last ten years as appliances become more efficient. Very few will change their energy usage because of climate change concerns. That’s just DECC believing its own PR.
The only people still in favour seem to be DECC and the Government. Everyone else is desperately stalling in the hope it will go away. The only good piece of news that Amber Rudd can take away from this is that the industry hasn’t really installed any compliant meters yet, so she still has time to cancel the entire project before it does any more damage. The irony is that the most likely sector to be damaged is the Conservative party when voters see the effect this has on their energy bills around the time of the next election. So Amber, if you’re listening, give the bunny suit back to Jeremy and his friends who started the whole debacle (the ears don’t suit you) and get out of the way of the headlights.
And if you don’t cancel it, let me save you and DECC a little bit of money. Looking forward to your eighth annual report in 2019, I’ve prepared the projected number of smart meters graph for you in advance.
As a special buy one, get one free offer, if you do cancel the program all you need to do is change the heading to “Number of meters to be cancelled” and then get one of your friends in DECC to change the 2020 to whichever year you make your decision. They may be challenged on energy policy, but changing dates on graphs is one of the things they’re really good at.