The UK may need to replace 20 million smart meters

The fact that 20 million smart meters may need to be replaced may sound bizarre, especially given the fact that so far only around eight million have been installed as part of the GB Smart Metering deployment, but unfortunately it looks as if it could be true.  It’s yet another indication of the scale of mismanagement within this programme, which reminds you of a line from Steve Aylett’s “Bigot Hall” – “Ignorance run like a well-drilled army”.  Ministers and civil servants are trying to deny the fact, but the project is starting to unravel.  Unless it is cancelled, the only thing it will produce is an inexorable rise in consumer bills as energy companies install wave after wave of obsolete meters.

BEIS (the Department for Business, Energy and Industrial Strategy), which gobbled up DECC last year, has been trying to assume a brave face, using their PR mouthpiece – Smart Energy GB, to put out the message that everything is going well in the world of smart metering.  However, there has been a growing number of questions being asked.  The national press is regularly reporting cases of dangerous installations which have caused fires, smart meters which don’t work and cases where consumers are receiving bills which are vastly more inaccurate than from their old dumb meters.  The trade press has highlighted other issues – notably concerns about a lack of experienced installers and the more important questions about whether the current smart meters will need to be replaced.

The need to replace the meters currently being installed is a question that the industry has been keen to sweep under the carpet.  Cracks started to appear in that approach at the end of April, when the DCC – the company run by Capita and which will receive data from the smart meters finally admitted to the BBC’s Money Box programme that none of the six million smart meters that had then been installed were likely to work with its software.  If that is true, it means they will need to be replaced.  It’s the first time that anyone involved in the project had been prepared to break rank and admit the truth.  Within the industry, it’s been a well-known fact that the meters currently being installed are obsolete and likely to need to be replaced, but like the story of the Emperor’s new clothes, no-one has dared to point out that the whole programme is built on a succession of fictions, lest it all comes toppling down.  What no-one is yet admitting, is that these numbers may just be the tip of the iceberg.  The final count could well be over 20 million.

Let’s start with some history.  When the British smart metering programme was put in place, the decision was made to let the individual energy supply companies buy and install meters, rather than giving the job to the grid.  It was a simplistic decision, evidently made with little understanding of the monumental consequences.  It meant that the meters needed to be designed to be interoperable, so that if a customer switched from one energy supplier to another, the meter would carry on being smart.  Making products which interoperate like this is really difficult, as anyone who has struggled setting up Wi-Fi or Bluetooth will know, particularly in the early days of those standards.  It’s not an insoluble problem, but it takes around ten years of development to get it right.  Which is nine years more than BEIS’ think it needs.

Everywhere else in the world, smart meters were installed by whoever owns the distribution network.  That’s a much better model, as the meters don’t need to be interoperable – the single grid owner just needs to pass the data to the right energy supplier when you switch.  You don’t need to design interoperable meters, you just need to write some fairly standard forwarding software on the central server.  But that was a fine detail that was lost on DECC.  When they realised the problem that their hasty decision had produced, they invented the DCC – the Digital Communications Company, which would act as piggy-in-the-middle, receiving readings from each smart meter and passing them on to your current energy supplier.  Capita won the contract to build the DCC and are being paid around £200 million to do it.  With the subsidiary contracts that they are responsible for that will rise to around £1 billion.  Which is £1 billion that gets added to our energy bills.

Making the energy suppliers responsible for the meters was one mistake, but there was another one to come, which was in the specification of the meters.  An interesting by-product of asking the energy supply companies to be responsible for the meters was that they all wanted to add some of their own features to the meter specification.  So instead of accepting the approach of making it as simple as possible by following the engineering principle of “perfection is finally attained not when there is no longer anything to add, but when there is no longer anything to take away”, they all added their own favourite features.  It was a process akin to schoolboys competing to see who could pee highest up the wall.  I’ve documented the effect of that in my previous articles.  The result is that our meters are the most complex in the world, they cost four or five times what they should (which is all added to our energy bills) and the programme is running late.  Very, very late.

The delays are in large part due to the complexity of the meters.  The first version of the meter specification is called SMETS1 (Smart Metering Equipment Technical Specification).  SMETS1 compliant meters are the ones currently being installed.  However, they connect directly to your current energy supplier.  If you switch to another supplier they revert to being dumb, as they can’t send your energy readings to your new supplier.  That’s what we need the DCC for, and SMETS1 meters can’t talk to the DCC.  (An interesting point is that nobody’s sure whether you still end up paying an annual mobile connection charge for the meter in this case, even though it’s not doing anything.  But you probably do, because nobody thought about that, so it’s something else which will be also added to everyone’s bills.) 

As an aside, Smart Energy GB – the marketing quango set up to persuade us that we all need a smart meter, keeps on claiming that smart meters “should make switching supplier easier, as you’ll have the information you need to make an informed decision”.  They’re a bit more reticent about the fact that your meter may go dumb and you’ll need to start sending readings in again after you switch.  So, if you see one of their adverts talking about the ease of switching, please follow my lead and make a complaint to the Advertising Standards Authority.  Taxpayer funded bodies should be a lot more honest than this.

To be truly smart, meters need to meet the more recent SMETS2 standard.  The SMETS1 standard received a major update after GCHQ reviewed it and expressed major concerns about its security.  Once SMETS2 meters become available, they should connect to the DCC and allow us to switch suppliers without losing their smarts.  The only problem is there’s no real sign of SMETS2 meters, mainly because BEIS and the suppliers still haven’t finished writing the specification, and it will probably take at least a year to test the new meters after they do.  So we won’t see them being installed in any quantity until summer 2018.

However, the Government won’t relax the deadline which demands that our energy supply companies needs to install smart gas and electricity meters in every house before the end of 2020 and they plan to penalise them if they fail to meet that target.  According to the Financial Times, failure could lead to a fine of up to 10% of each company’s global turnover.  As a result, they’re installing the old SMETS1 meters as fast as they can, because they count towards the total of 53 million meters, despite the fact that they’re obsolete.  The reason for the urgency is that they’ve only installed around 8 million qualifying meters so far, which means they have 45 million left and only three and a half years to do it.  They can’t afford to wait.  BEIS has told them that any SMETS1 meters they install before July 2018 will count towards their rollout obligations.  That date may get moved back, as it come with a proviso that it’s subject to “on-going testing of the SMETS2 system by energy suppliers”, and so far, every deadline that the Government has set has slipped.

If we assume a fairly even installation rate between now and the end of 2020, it means that the next twelve months will see another 10 million SMETS1 meter installations to add to the current 8 million which have already been installed.  That’s 18 million meters which will need to be replaced, assuming nothing slips.  But there’s a sting in the tail.  According to Energy UK, the level of dissatisfaction with energy suppliers is go great, that 2016 was a record year for switching.  Almost five million customers switched supplier.  If a customer liked their smart meter, and it stops working when they switch, then they will want a replacement, which in the next twelve months will mean they’ll get another SMETS1 meter.  That adds another potential two million meters to the mix, bringing us up to a total of 20 million SMETS1 meters which will need to be replaced.  It equates to an additional cost of around £3 billion, which will get added to our energy bills and wipe out any projected savings, even if you believe DECC and BEIS’s figures, which no-one outside the programme does anyway.

It would be interesting to know how many customers with a smart meter who have switched and found their meter has gone dumb have asked for a replacement smart meter?  That would be a good indication of how much consumers really like them.  Smart Energy GB claims that 8 out of 10 customers with a smart meter would recommend it to friends.  Which implies that 80% would want a replacement.  If that number is less, it casts doubt on all of Smart Energy GB’s claims.  My guess is it’s probably below 5%.  Somebody should know that number.  If it were made public it would provide some real evidence about consumer attitudes to smart metering.  But BEIS is doing its best to stifle all information about the reality of the programme.

It is, of course possible that the people running the DCC may manage to find a way to connect all of the SMETS1 meters, but the people running it are Capita.  They are meant to be doing this, but seem to have found it too complicated.  Their history on Government IT projects like this is not good.  They’ve already asked for more money just to do the minimum of what was in their contract, yet still delivered the DCC a year late.  Pigs might fly.  The DCC probably won’t.

Energy suppliers are also expressing more serious concerns about the whole programme.  At a recent conference, the CEO of EDF called for the Government to take stock of the problems, calling on the industry to “be honest with ourselves on all the issues: security, safety, quality, costs and timeline”.

At the end of the day, it will be consumers who pay for this debacle through higher energy bills.  Government ministers seem largely unconcerned, probably because the programme has been set up to be even more devious than John Major’s PFI schemes.  Not only is the cost taken off the Treasury’s books, the energy supply companies have been given carte blanche to add it to our energy bills.  If it goes wrong, ministers can place all of the blame on energy supply companies, who they’ve already set up as the fall guys.  (I was recently told by a banker that he and his colleagues really like energy suppliers, as they’ve made the banking industry look good in comparison.)

The bigger question is: Why, if we need to replace 20 million or more meters, don’t we stop and do it properly?  Installing 20 million obsolete meters, at a cost of over £3 billion is stupid.  All of the evidence from other countries who have gone down the smart meter route is that smart meters don’t last very long, so it is ridiculous to start off with horrendously expensive meters which will get thrown away after a few years.  Italy is quietly embarking on a national smart meter replacement scheme less than ten years after their original deployment, based on lessons learnt.  We should talk to them.  Their replacement meters coast around €50.  Other European countries are deploying smart meters which cost $30 – a fraction of the cost of ours, because they’re taking advantage of new technology.   This week’s announcement of new rules from OFGEM, which will make it easier for consumers to interact with the grid, will need different smart meters to the SMETS2 ones, so we should be planning for those. 

The Government still cites the European mandate, (which isn’t a mandate, but a recommendation) as the reason for the rush to complete this by 2020.  The irony is that in 2020, at the point when we may leave the EU, we will have become the only country which implemented that mandate, unnecessarily adding something between £15 billion and £20 billion to domestic energy bills.

This is money which does not need to be spent, and which will bring no benefit.  Teresa May is not the only person without a magic money tree.  Thirty million households haven’t got one either and don’t need artificially inflated energy bills.  Nor will they thank her for those higher bills.  As the new OFGEM rules point out, there are far more important challenges for the industry.  It is time for Ministers to look at the dire state of this project, listen to the industry, realise that it is not money well spent and make some responsible decisions.

If you’re thinking about having a smart meter installed, my advice is to wait.  Unless you enjoy staying at home while your electricity and gas are turned off, don’t do anything until SMETS2 meters have been out and proven for a couple of years, which will be around 2020.   Even then, it’s probably safer to wait for SMETS3, which I hope will be part of a sensibly designed smart metering programme.


Read my previous articles on smart metering.