The Committee consisted of the following Members:
Chairs: Mike Gapes, †Mrs Cheryl Gillan
† Carden, Dan (Liverpool, Walton) (Lab)
† Debbonaire, Thangam (Bristol West) (Lab)
† Freer, Mike (Finchley and Golders Green) (Con)
Gibson, Patricia (North Ayrshire and Arran) (SNP)
† Grant, Bill (Ayr, Carrick and Cumnock) (Con)
† Harrington, Richard (Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy)
† Kerr, Stephen (Stirling) (Con)
† Lewis, Clive (Norwich South) (Lab)
† McCabe, Steve (Birmingham, Selly Oak) (Lab)
† Morris, Grahame (Easington) (Lab)
† Pawsey, Mark (Rugby) (Con)
† Quince, Will (Colchester) (Con)
† Ross, Douglas (Moray) (Con)
† Smith, Laura (Crewe and Nantwich) (Lab)
† Tolhurst, Kelly (Rochester and Strood) (Con)
Warman, Matt (Boston and Skegness) (Con)
† Watling, Giles (Clacton) (Con)
† Western, Matt (Warwick and Leamington) (Lab)
† Whitehead, Dr Alan (Southampton, Test) (Lab)
Jyoti Chandola, Clementine Brown Committee Clerks
† attended the Committee
Derek Lickorish MBE, Secure Meters
Richard Wiles, Vice President of Sales for UK and Ireland, Trilliant Networks
Sacha Deshmukh, Chief Executive, Smart Energy GB
Dhara Vyas, Chief Executive, Head of Smart and Sustainable Energy, Citizens Advice
Dr Richard Fitton, Lecturer in Energy Efficiency, Salford University (also a member of the Smart Consumer Alliance)
Dr Sarah Darby, Environmental Change Institute, University of Oxford
Public Bill Committee
Tuesday 21 November 2017
[Mrs Cheryl Gillan in the Chair]
Smart Meters Bill
Welcome to the afternoon evidence session of the Smart Meters Bill. It is a little warm in here; if gentlemen wish to remove their jackets, I have no objection—and that goes for witnesses as well. We are on a pretty strict timetable. I am afraid that this session, for our two witnesses here, will be brought to a close at 2.45 pm or sooner. I ask the witnesses to introduce themselves to the Committee and I will then call for questions from around the room.
Examination of Witnesses
Derek Lickorish and Richard Wiles gave evidence.
Derek Lickorish: I am a director and an adviser to Secure Meters Ltd, and have been for the last 10 years. I have spent my last 47 years in the power industry, joining as a trainee in 1970 and retiring in 2007 as the chief operating officer for EDF Energy.
Richard Wiles: I am the vice-president of sales for the UK and Ireland at Trilliant. I have 12 years’ experience in the smart metering industry. I worked for Landis+Gyr, which is a supplier of smart metering in the UK and in overseas markets as well. I was involved in the SMETS 2 communication project for a previous company and have been with Trilliant since March this year.
Thank you very much, gentlemen. You are very welcome. I believe that the Minister has indicated that he would like to ask the first questions.
Thank you for coming today, gentlemen, and helping us. As you probably know, the evidence you are giving today is the beginning of the Committee stage of the Bill. May I ask you both to comment on the interop—I cannot pronounce it—on how the Data Communications Company system will help the SMETS 1 meters to be operable throughout the whole system? We keep hearing about it and my shadow and I have discussed it at different times, but I would be very interested in your comments.
Derek Lickorish: I think that interoperability for SMETS 1 meters will come about in two ways. But first, what is interoperability? At the moment, SMETS 1 meters have their own mini data communications company. They have their own communications infrastructure, and it is generally all made by the manufacturer who supplies the meters. There are several of those systems out there. The initial interoperability can come about by making SMETS 1 meters interoperable through their communication systems. That is already available technically, but it requires the participation of the big six to make it happen.
You asked specifically about how the DCC deals with enrolment and adoption—those are the terms used. In the case of Secure Meters, it will take the output from its smart meter service operator system and plug it into the DCC. That, on the current timeline, is due to take place next October. That is based on a whole range of assumptions, and I think it is more likely to come about at some time during 2019, subject to all things here on in going very smoothly for the DCC. So there are two options to make interoperability work.
Richard Wiles: Likewise, at Trilliant, with our meters we offer integration into third-party systems that allow interoperability and for the devices to remain smart. We do that through one of our clients. We also offer a cloud-based smart meter systems operator—SMSO—solution ourselves, and we can provide that interoperability for people who take up our service. That enables them to put meters on the wall pretty quickly, using a similar platform to that of our larger suppliers from the big six energy companies.
We also provide that service through an aggregator that can do secure file transfers that allow even quicker adoptability and the ability to get meters on the wall, but we adhere to the same standards as the DCC for enrolment and adoption as to how we would build that development interface to communicate to our existing infrastructure and make sure that the service requests that come through the DCC path meet the criteria of the DCC, similarly to what happens with SMETS 2.
Derek Lickorish: So SMSO interoperability could be achieved now.
Derek Lickorish: We are kidding ourselves if we think that we are about to have a mass roll-out of SMETS 2 meters any time soon. As we heard this morning from the gentleman responsible for DCC, there are 250 SMETS 2 meters connected to DCC, and they are electricity-only; that is 200 more than I thought were connected to DCC. If we were about to have a mass roll-out, we would have at least 200,000 fully interoperable SMETS 2 meters connected to DCC to facilitate end-to-end testing of that system. That is currently not the situation.
The July 2018 date is predicated on the fact that SMETS 2 meters are going to roll out very soon. For that to happen, those meters need to be declared interoperable. Interoperability is essential not only now but in the future. What does that mean for people who do not follow all this stuff at the molecular level? We decided at the outset of the smart meter programme that we would have many world firsts. There are about seven or eight first-in-the-world developments in this programme, one of which is that every meter must be interoperable with other meter manufacturers’ meters so that, should a meter fail, it can be replaced by another meter manufacturer’s meter without the in-home display being replaced. That is a key tenet of the programme.
A process known as smart meter design assurance is supposed to be up and running to prove that SMETS 2 meters are interoperable. That is not up and running, and it has some technical difficulties. Yesterday, a letter arrived to say that one SMETS 2 meter manufacturer has a problem with compatibility of the hub. That is not to say that that will not be solved, but that was only yesterday. Is it just that manufacturer’s SMETS 2 meter or is it all of them? In theory, it should be all of them, because they have all been made to precisely the same specification.
This programme is the first in the world for device-level interoperability, it is the first in the world to separate out the communications system and it is the first in the world to get all the people involved in the SMETS 2 roll-out designing to a 6,000-plus page specification. I hope you can see from that that I do not think we are going to be going very quickly very soon. Having said that, I do not think that the 2020 date should be changed. I believe that the industry should be galvanised into action to solve the problems and then there should be a reflection on what the 2020 date should be. We should not have a date that nobody believes is possible.
Richard Wiles: Trilliant’s view is that there needs to be some coexistence between SMETS 1 and SMETS 2 beyond 14 July next year. Our response to the consultation is that we are concerned that smaller suppliers, which may not have done any SMETS 2 installations to date, may be in a position where they are not first in the supply chain for meters, communications hubs or other parts of the end-to-end system testing. We believe there should be coexistence and that SMETS 1 should run with SMETS 2 until SMETS 2 deployment has been proven at scale and can take over the quantity of SMETS 1 meters that will be deployed.
From our supply chain, we are concerned that if we are forced to turn off our supply manufacturing chain and then we get the go-ahead to recommence production, we will then have to ramp up. For the products that we develop, we have specialist components to ensure that the security is maintained. We need to ensure that other key, core aspects of the supply chain are readily available so that, should the call come to bring SMETS 1 up again at a date beyond 14 July, we can serve and make a credible difference to the actual roll-out and then achieve the 2020 planned deadline.
If, as we have heard, SMETS 1 can be made fully interoperable with software upgrades, what is the purpose of SMETS 2 meters?
Derek Lickorish: What is the purpose of SMETS 2 meters if we can make SMETS 1 interoperable? To be able to answer that question, you would need to have a review and some evidence on which to base that decision. At the moment, it is beyond my sphere of full knowledge on everything to give a clear-cut answer to that question.
Richard Wiles: SMETS 1 and SMETS 2 need to run in coexistence. I believe that some clients are in prepayments mode, and prepayment is available in SMETS 1 now. I am talking about some specific instances where SMETS 2 is required: for aspects such as high-rise buildings or dual band comms hubs, when that comes into effect, when greater interoperability is required. Certainly from our position, we believe that we can deploy a larger volume of SMETS 1 meters and still help the Government meet the 2020 deadline.
As to SMETS 2, there are specific advantages around interoperability that have been touched on. While each individual SMETS 1 provider creates mini DCCs, as Derek mentioned earlier on, that will be avoided with SMETS 2. However, with enrolment and adoption, we are working with DCC at the moment, and that will allow the interoperability of our estate to be absorbed into the wider continued operation of the smart meter system through DCC.
Derek Lickorish: Can I add to my answer to Alan’s question and build on a point Richard made about interoperability? Although SMETS 2 has some advantages on the one hand, it is not at the data level. If you take mobile phones, they can keep on being produced because they are data interoperable with the network. SMETS 2 meters have to be identical not only for the meter installed today but for those in 15 years’ time as well. This backwards compatibility requirement is built into what we have. SMETS 1 meters are data interoperable, which is why we can make SMETS 1 interoperable relatively easily from the mini DCC position.
I know that all these things are grindingly complicated. We are trying to explain them in a way that I hope is straightforward.
Richard Wiles: There have been publicised delays within the go-live period. The go-live date of November last year was when we had a release of DCC that allowed devices to be installed and to be made interoperable. A statement was made this morning that there are 215 meters on the system. It was envisaged that there would be a considerably higher volume than that now.
Have you anything to add on that, Mr Lickorish?
Derek Lickorish: Quickly, yes. Do not forget that the go-live date of November 2016 was a year late anyway. If you look at the original plan, as put together in the business plan by the DCC, the idea was that six months after go-live it would be ready at scale and six months after that the system would be stabilised. It went live last year, in November 2016, and as we all now know, clearly, from the horse’s mouth, it has 215 devices on it now.
Derek Lickorish: When they all go in initially, of course they are not in dumb mode. The percentages vary. I am told that at some stages 20% or more of them are being operated in dumb mode. That occurs for a variety of reasons—for commercial and technical reasons. The way in which the market is evolving is that meter asset providers—MAPs, as they are known—fund these assets that are going on the wall and they will also fund SMETS 2 assets. All the time, there is uncertainty about how long these assets are going to endure and whether the market is going to endure. When are SMETS 2 meters going to be ready?
There is an issue called deemed rentals. What does that mean? It means that if the acquiring supplier does not have the same sort of contract that is with the asset coming in, it gets asked to pay a very high deemed rental, which it will not pay because it renders the customer unprofitable. That means that it faces two choices: putting the meter into dumb mode, or going out and taking out that meter, even if it is the same meter, and putting in one of its own, funded by another meter asset provider.
There is quite a complex set of issues, which only we in this room and others—interested observers—understand to any degree. There is the deemed rental issue and then there is the technical issue, as we have heard. I do not criticise anyone, because everyone is breaking their back to get this programme running. Everyone is working hard, so I do not decry what anyone is doing, but the way it is set up—and it is driven by political milestones—is going to cause perverse behaviour from time to time. I will come back to that.
My final point—I need to shut up—is that we need to get to a situation in which the interim interoperability model can be made to work. It can be made to work because most of the big six have a system called instant energy—a number of them—and we could have some interoperability there, whereby they could take over the asset and resolve this commercial issue. That would deal with consumers’ meters going into dumb mode on change of supplier. It would stop all the stories that the Daily Mail keeps printing about all the problems with SMETS 1 meters. It is not a technical issue, and the SMETS 1 meters are not inferior. Sorry, Mrs Gillan.
Not at all. Mr Wiles, have you anything to add?
Richard Wiles: We have the ability to transmit data into the system that Derek has just referred to, to keep it live. On the point about how many units are kept in dumb mode, or put into dumb mode or non-smart mode, we do not get to see those figures. That is between the energy supply companies; it is not a direct result of the service that we offer, so I cannot give you a definite figure.
However, we can make sure that any unit put in the non-smart mode can be retained live and be reactivated at a later date, and that can be part of the enrolment and adoption figures. Even for smaller suppliers, if they inherit a smart meter system and do not wish to keep it running, or have a separate service until enrolment and adoption goes live, it can be reactivated at a later date.
Derek Lickorish: I heard Mr Bullen talk about interoperability, but it is not interoperable unless you have the interim interoperability, which I discussed. Suppose these three cups in front of me here were Secure Meters’ mini DCC, CGI’s mini DCC and Trilliant’s mini DCC. If I had five million cups, I would line them all up, and each one of these three would be talking to a whole pack of cups. We have been able to get these boxes to talk to this box and this box. That is where the interoperability occurs.
Mr Lickorish, that is a very good example, but I have to tell you that for the Hansard reporters—[Laughter.]
Derek Lickorish: Then you will have access to more cups than I do. For the benefit of Hansard, we are saying that we have mini communication systems—each manufacturer has its own mini communication system—to talk to meters, whereas DCC will talk to the whole estate in one go. In Secure Meters’ case we have invested in it ourselves, for our consumers’ benefit, not just our customers’. It will talk to these other systems, and we have even demonstrated it to BEIS earlier this year, to show that it works.
Derek Lickorish: That is an option you could take, but as currently structured, no one knows quite what will happen to them, as far as July 2018 is concerned, if they keep on doing this. I understand all the reasons and I want us to get the right outcome for the consumers and for the industry, but all the time we have uncertainty built into everything we are doing. For example, when is July 2018 coming to an end? A lot of other people who have not started on this are all waiting for SMETS 2, because it is always just round the corner. How big is the corner?
Richard Wiles: The whole point of enrolment and adoption, which we are working on now, is to make sure that our estate will be able to go into DCC world and provide a similar level of functionality that SMETS offer. We are addressing that right now. It is an active programme that is underway. That will provide true interoperability, not just for the energy supply companies, but for any licensed holder of DCC, energy supply network operators and licensed third parties as well.
Derek Lickorish: You can update them. This is a very detailed discussion and I am happy to talk to you separately about it. This term “unplugged” means that they may not be looking at the IHD. The system is still connected and has not been unplugged. If a secure meter has gone dumb, we can still talk to it, so it is not an issue.
Richard Wiles: For our estates, part of the process is to make sure that when the initial releases come out, there is an upgrade path to ensure that the firmware on the devices is SMETS 1 compliant. We have had extremely high percentages—in the high 90s—over the upgrade paths to make sure that the firmware is compliant with the meters to ensure that they can be enrolled and adopted. We have excellent, proven records to show that we can do OTAs at scale, throughout the entire programme that we have been deploying SMETS 1. I do not believe that there is any issue with the product not meeting the standards.
Derek Lickorish: Similarly, we have had huge numbers of over the air firmware upgrades, which is where I think the rubber will start to hit the road for DCC when it starts doing that. Not only have we done that in this country in the way that Richard spoke about, we have been heavily involved in Australia—over a million meters, using silver springs technology, silver springs embedded in our meters.
Out there, we will have done millions of over the air firmware upgrades. It is not until you start that part of the journey that you really begin to understand the issues. That is why I say that this is the moment when the industry should be galvanised to start solving all these problems, and agree that the 2020 date should not be altered now, but that it is part of the journey to find out what else needs to be done, because there are so many world firsts and they take time to solve.
For the convenience of the Committee, I have four indications of questions that have to be asked before 2.45 pm, so moving on now to Mr Pawsey.
Derek Lickorish: This is not my expertise, but I am under the impression that Ofgem has a responsibility to make sure that DCC can carry out its operations. If, heaven forbid, it does not work, that is probably the worst case scenario, and what happens then?
Derek Lickorish: We have just been talking about over the air firmware upgrades. Remember, this is a world first: we are world first with so many elements of this that have not been tested. If we are unable to do over the air firmware upgrades at scale, that must be a failure.
Derek Lickorish: It could do. I am afraid I feel out of my depth in being able to construct a scenario. Let us face it, we have said that DCC went live a year ago. Today, everyone is astonished to find that only 250 meters are connected to it, but it is working.
Derek Lickorish: I think it is a very prudent situation. There must be an anxiety, otherwise why have they done it?
Richard Wiles: Likewise, I am not able to answer as to the exact reasons, but bringing previous Acts together under one is a sound idea. With regards to how DCC would reach that situation, again, I have no absolute definition as to how that could happen now.
Richard Wiles: There are different manufacturers for SMETS 1 and SMETS 2.
Richard Wiles: There are probably about half a dozen different manufacturers that are providing SMETS 1 solutions, and it depends on the scale that they are deploying at. We are the two companies sitting at the top of the table; collectively we have the largest market share of the SMETS 1 devices going out there. We have supplied multi-millions of devices, smart meters, communication hubs and connected devices that hang off that through our communications hub and mini DCC head-end systems. There are other companies out there that have provided a smaller amount, but I cannot give you a definite figure on the volume of that.
Derek Lickorish: The old Ferraris disc meter had a lifespan on circuit starting at about 18 years. It came in, you put an airline on it, took the dust off it, and then put it out for another 18. We are now talking about a very sophisticated electronic device, and I do not think we know the long-term answer to that, but it ought to start with 15 years.
Derek Lickorish: No, there are two issues. There is the technical issue, and we are saying that you can deal with the technical issue.
That is the point I want to get to.
Derek Lickorish: This was an issue raised some time ago—in fact, probably two, but maybe three, years ago—over deemed rentals. You were getting enormous deemed rentals being charged by some meter asset providers to somebody who was going to use their meter, because they had inherited it on change of supplier. Some of those are not regulated businesses and people smell an opportunity on this sort of thing, in particular when it is in the state that it is—it is all relatively new—but then there are forces that will create anxiety about an asset’s longevity in that space, so the deemed rental will be high. It is rational to be high. That is because the framework that sits all around this is uncertain and, as we all know, markets like certainty. These people—they are financiers—want certainty, and if all the time we keep saying, “Well, SMETS 2 are just around the corner, no more SMETS 1 meters” it all creates a fog and a fuzz that will drive what I believe to be irrational behaviour on some of the deemed rentals. Ofgem is aware of it, BEIS is aware of it and this is another issue that the industry needs to galvanise around, because if we are not careful, if we do not get proper interoperability tested, which is in trouble at the moment, a risk premium will be attached to those contracts.
So the costs go up.
Derek Lickorish: So the costs go up. Bear in mind, and forgive me for saying, that this is a £12 billion programme. DCC alone has seen its costs go from £1.3 billion to £2.1 billion. Forgive me, but every £1 billion will give you 10 210-bed hospitals. These are huge sums of money and we need to make sure that the framework that sits around them is accurate and fit for purpose.
Richard Wiles: We manufacture SMETS 1 and SMETS 2 devices. We are prepared to ramp up our production line to make sure that SMETS 1 can run in parallel to ensure that any potential shortfalls in capacity can be overcome by our increased production. We can continue to keep the momentum and supply chain running in that respect. Regarding installers, by the end of SMETS 1, we are probably looking at around 12 million devices. If the current installation rate continues through to July next year, that equates to around 1.3 million smart meters per month that need to be installed.
Whether we need additional installers is something that Trilliant has not supplied services on, other than installation processes, but organisations are geared up to supply the installation requirement for SMETS 1 and SMETS 2 to meet that deadline.
Richard Wiles: Looking at the existing number that I have been made aware of, that may need to be increased. There may need to be additional practices and we need to ensure that whoever wants a smart meter gets it installed in time by 2020.
Derek Lickorish: It has been worked out for me—it says so here—that the additional resources to meet 2020 need to increase from where they are today by 283%. They need to be ready now to start running to meet 2020. I do not think that is possible because these need to be highly trained people. This is not a straightforward job for an electrician; it is more complicated than that. Before I come to resources, the current productivity rate of the teams working out there is less than half what was originally thought. You have to take that into consideration; it is not factored into my 283% increase.
As for manufacturing, subject to clarity about the SMETS 1 end date, because the supply chain is already winding down for that now, if clarity could be given on that, it would ensure that that manufacturing stream was kept running.
On manufacturing capacity for SMETS 2, once you have resolved the interoperability, once you have SMDA approval, once you have tested all these devices at scale, with DCC, it must be about 12 months. Anything less would have the potential to lock in problems for the future because of the model we have chosen. It is a difficult one to answer, but if we satisfy that, there is no reason why manufacturing capacity will not be available.
Thank you. If we can keep the answers brief, we will be able to get in Mr Carden and Mr Morris.
Derek Lickorish: I think that Ofgem ought to be able to bring the people round the table who can solve these issues. I do not think they are particularly visible at the moment. In the grand scheme of things, there will be those who say “yes”, but we have said that we think that 20% are in dumb mode; it might be less than that at other times. In terms of the 80: 20, it does not get the attention it deserves. If we are not careful, this becomes a bit of a cancer and it will grow bigger—20% of 45 million will be a huge number of meters, for whatever reason. It can be solved.
Richard Wiles: Absolutely, I agree with that. We need to ensure that there is some form of incentive. The incentives need to be financial in some form—because some energy supply companies will be losing clients, as well as those gaining—to make sure they have the interoperability requirements to allow them to stay smart.
Thank you. The last question goes to Mr Morris.
Derek Lickorish: It is no good having a target that nobody believes in. Every programme must have targets. I am not saying, “Change 2020 now.” I think that is a good contingency and I am pleased to see that someone somewhere realises that. I do not think it has a perverse effect on behaviour. You can keep on saying it is 2020, but we need a recognition now that says, “We will look at all the issues and have a unity of purpose about what the targets should be”, because at the end of the day this is not Treasury money; this is customers’ money.
Derek Lickorish: I could give you an answer tomorrow, but I have not thought about it enough, and I do not wish to give a weak, woolly answer because I do not understand the issues at play.
Derek Lickorish: One has to say that it must be possible, so it is right to prepare for that contingency, but I am basing that purely on my own experience of being in the power industry for 47 years. You always have to expect the unexpected. If something seriously goes wrong with this—there is an endemic failure and they are not able to solve it—you must be able to have the power to do something about it. That seems possible.
Richard Wiles: With the complexities and everything, the whole programme is very complex by the nature of the design. To be honest, I have not examined absolute cases of how it could happen, so unfortunately I cannot answer that question.
I think we are coming to the end of this session. I think that was probably the last question, but if you reflect on any of the questions that have been asked today—particularly the last question from Mr Morris—and would like to provide anything to the Committee, you can do so in writing by tomorrow.
Derek Lickorish: By tomorrow?
Yes, I am afraid it has to be as rapidly as that, but we would be very grateful to receive any further and better particulars from either of you. On behalf of the Committee, I thank you for coming here today and giving your evidence so clearly to us. I am sure we all feel better informed for having your evidence.
Derek Lickorish: Thank you for the opportunity.
Examination of Witnesses
Dhara Vyas and Sacha Deshmukh gave evidence.
Can you start by introducing yourselves for the Committee, please? Ms Vyas?
Dhara Vyas: I am Dhara Vyas and I am the head of smart and sustainable energy at Citizens Advice.
Sacha Deshmukh: I am Sacha Deshmukh and I am the chief executive at Smart Energy GB.
I think you have seen how the sessions are conducted here. Questions come randomly from the members of the Committee as they catch my eye, and may I ask you to speak as clearly as you can for the Hansard Reporters?
I think we will start with the Minister.
I will continue from the evidence that I know you heard before, because you were sitting—quite rightly—behind those witnesses. How important do you feel it is that the energy suppliers make a swift and smooth transition to using SMETS 2 meters? I ask that because we have heard from people who have been suppliers of SMETS 1 meters and from others who have taken a broader view, so I would be very interested to hear your view, please.
Dhara Vyas: From the Citizens Advice point of view, we are quite keen to see that transition happen as soon and as rapidly as possible. As I am sure you are aware, SMETS 1 meters do not really provide the same sort of functionality as SMETS 2 meters, and a big part of that is the continuing benefits of SMETS 2 meters. You have heard about the interoperability and the ability to switch, but there is also the kind of loss of functionality in terms of the dynamic currency conversion-enabled services, or DCC-enabled services, that they have access to, and things like “last gasp, first breath”, whereby a network could see if somebody is off supply and act really quickly. SMETS 1 meters do not have that sort of capability built in. So things that really serve to protect consumers are built in to SMETS 2 in a way that they are not with SMETS 1.
Also, there is confusion as the roll-out progresses at a pace and as suppliers and SEGB are working to promote the roll-out and encourage consumers to take up the offer of a smart meter. With different meters going on the wall, consumers are already confused and will ask questions, such as, “My neighbour can do this, and they switched, and they kept their meter. How come I can’t?” So the increased confusion around having more SMETS 1 meters on the wall will cause a problem.
Sacha Deshmukh: I agree that the SMETS 2 roll-out is very important. The only extra contextual point that I would add is that people should remember just what a step forward SMETS 1 meters are from previous meters. So the feedback from consumers who have SMETS 1 meters—several million of them now—is overwhelmingly positive.
I remember a story that was told to me recently. A consumer who had previously been on a prepayment dumb meter had slipped and fallen—she was an elderly lady—and broken her hip, while going out to charge up her key late at night on a petrol forecourt that was wet, in the rain, in a month a little bit like this in weather like this. So a SMETS 1 meter and the capability it offers is a huge step forward for consumers, but I agree that SMETS 2 meters are also incredibly important, for the reasons that Dhara just outlined.
Minister, anything further?
Sacha Deshmukh: The final analysis to which you are referring was conducted by energy suppliers over the summer. I believe that over 90% of the market share of energy suppliers contributed the data to that exercise. One part of the data that they submitted gives you the number of installations at the bottom of the funnel along with their predictions, or their desired number of installs, for next year. I know they have to discuss those plans with the regulator Ofgem, so I cannot take a view as to whether the regulator thinks that those plans are adequate, or on any of those dialogues. As far as I am aware, the data that went into that analysis is the most up-to-date data.
Sacha Deshmukh: Our organisation’s responsibility lies in consumer demand for the product, so it deals with the top of the funnel, as it were. Consumer demand for the product is very strong. In respect of the consumer demand within that funnel, the top is measured by the number of consumers stating that they want to have smart meters within the next six months, so it is a hard measure of demand. There is demand there. I am not able to comment in much detail on the conditions that might improve the lower parts of the funnel. I apologise if it was not as clear as it could have been in the written evidence, but the figure in the evidence to which you refer related to the six-month period before November, rather than the whole of that year. Those are the latest predictions from energy suppliers, which may be different from the ones to which you referred in the most recent cost-benefit analysis of 2016.
Sacha Deshmukh: The factors taken into account in that particular analysis, when energy suppliers submitted their data, included their predictions. Some of the issues that I heard the Committee discussing with the witnesses today included their predictions of meter asset availability, and of their ability to actually deliver the installs in question to the expected quality standards. They may have changed their predictions of the number of installs that they would be expecting to deliver from a year ago.
Ms Vyas, did you want to add anything to that line of questioning?
Dhara Vyas: No.
Dhara Vyas: Our research echoes Smart Energy GB’s work, and shows that consumers are really positive about their meters on the whole. That applies to both prepay and credit consumers. Prepay customers stand to gain so much from this. I think it will change the prepay market, the dynamic of the prepay market and assumptions about people who do or do not prepay for their electricity and gas. I agree with you that, yes, prepay customers stand to gain a lot. A lot of customers might choose to have prepay as well because of the flexibility of it.
Early experiences research that we have conducted has shown that all customers like the visibility of their energy use. In the long term, they are quite excited about the ability to have new tariffs linking smart products and services in their homes. It generally does tell a positive story.
Obviously, you will not be surprised to hear that we and Citizens Advice also gain quite a few not-so-positive stories. Early experiences research has found that people do complain about things such as loss of services when they switch. Billing issues are quite a big problem, and that is for credit customers with shock bills or back-billing. There is a lot of anger about “Why am I still getting back-bills?”, or “Why is my bill inaccurate when I was sold this by being told that it was the end of estimates—that I would not get an estimated bill but an accurate, up-to-date bill?”.
There are issues that need to be ironed out as the technology hopefully embeds. I think suppliers have been working quite hard on agreeing back-billing principles and how to work with customers. A big part of that is communication: make sure you send a meter reading before your smart meter is installed, so you do not get a big shock bill when your new meter goes in. So, there are other areas where credit customers have both positive and negative experiences.
Dhara Vyas: It is the SMETS 1 issue: a SMETS 1 meter is not always interoperable with another supplier’s system. That is where SMETS 2 provides a solution. That echoes back to my earlier point that we should focus on moving more SMETS 2 out there.
One last thing I will say is that all consumers, whether on prepay or credit, stand to gain a lot from the energy savings and energy-efficiency advice that will be provided on installation of the smart meter. I think that is quite key. Regardless of meter mode, the experience of having a supplier in your home fitting a smart meter, talking you through the in-home display, talking you through energy-efficiency advice, which is tailored to you and your home, is a once-in-a-lifetime experience. It is really important that suppliers get that right.
Sacha Deshmukh: I would just add that I think the research Mr Carden refers to is the most recent research by Populus. You are absolutely right that prepayment customers reported 89% recommendation—so, very high. The pattern of the very high recommendation continues to all low-income customers, or customers with a vulnerability in the household, so low-income credit customers are also strongly recommending the product.
Even among households that are not low-income, the levels of recommendation are significantly higher than in other areas of technology. It would be fair if you were then to say that the experience of buying energy through an analogue technology has been particularly poor—and it has. Clearly, those levels of satisfaction are also linked to the fact that this was the last area of pretty much any of our daily lives where people had been reliant on such old-fashioned technology, even in the credit mode.
Dhara Vyas: A big part of it is to do with data privacy. The creation of the DCC means that your supplier has access to your information, but via the DCC. Consumers retain control of their information and allow their supplier to access their information on a daily, half-hourly or monthly—as a minimum—basis.
Dhara Vyas: If suppliers are not able to keep on—I think the DCC is funded by suppliers?
Sacha Deshmukh: I am not an expert in special administration regimes either, but my understanding is that however unlikely this is, this form of regime structure is relatively common in large infrastructure suppliers in the country, whether in the water sector, the rail sector or, in this case, the energy sector with this new infrastructure provider. But I am afraid that beyond that, I am not an expert in special administration regimes.
We aim to finish this session at 3.15 pm, and I have two colleagues who want to speak, Mr McCabe and Mr Kerr. I call Mr McCabe.
Sacha Deshmukh: As ever, there is a health warning on an answer—there is no direct comparator between the supply and demand in different sectors—but there is actually a very healthy level of demand for the current level of supply. At the moment, I think it is fair to say that consumer enthusiasm is very strong, but supply has not yet been able to meet that enthusiasm on the timescale on which those consumers would ideally have liked that product.
That is today’s funnel—or, rather, this year’s funnel, as the analysis by the energy suppliers has shown. Looking at next year, you see it at more like 5.5 to one. That is a more normal ratio for a new product, but clearly the goals of this roll-out, and for this country in terms of the benefits brought by it, need us to go much farther than products that are just happy to sell in market, but only reach a small number of consumers who want it. The ambitions clearly have to be comprehensive as well.
Sacha Deshmukh: The best research that I am aware of in this area is being conducted by Populus, although there is other research as well. As I said, the context is that the vast majority of smart meter consumers are very content and feel significantly better served than they were in the analogue market, but there is no doubt that for those consumers who are less satisfied, it is linked to a customer service issue. Dhara has talked about some of those issues with the legacy of dumb meters: maybe not getting accurate bills for years, and then getting them.
There has been lots of debate, and indeed some regulation has been put in place, about consumer protections in those situations. Citizens Advice also work carefully on that. Indeed, we funded training for Citizens Advice advisers, because they are a very important port of call for people who find themselves in such situations. No doubt some other areas in which there has not been satisfaction have been linked to those customer service issues.
Dhara Vyas: I just want to expand on the customer service breakdowns of what consumers experience with smart meters. We have been collecting consumer data on smart meters from customers who contact our consumer service since 2011. Since then, we have done monthly analysis of what people are contacting us about. Contacts with us have risen in proportion with the number of meters on walls, as you would expect. It is a bit of a canary in the coalmine, with them pointing out and drawing attention to issues with the Department for Business, Energy and Industrial Strategy and Ofgem—so with the Government and Ofgem—and directly with the suppliers.
We hold bilaterals and try to address issues before they become more widespread, and we talk about systemic issues with the entire industry and industry body. They mostly break down into seven categories, including billing and tariff, as you would expect, and as I have touched on. We get quite a few information and sales calls as well, with people asking, “Are they compulsory? Do I have to have one?” We have seen a spike in those recently, with deemed appointments that Ofgem has recently allowed suppliers to—
Dhara Vyas: Yes, and some letters from suppliers have been parsimonious with the truth, saying things like, “Your meter is at the end of its life. We are going to come and install a smart meter.” There is a lack of clarity about the fact that it is not mandatory. You do have a choice. When I was looking through the stats, I saw that in one case last month, someone felt very strongly that they were being blackmailed into having one, and they did not want one. They felt like they were being bullied. That has recently become an issue, and I know that trading standards are concerned about that. The communication needs to be more refined.
Other contacts include those relating to faulty metering equipment, and people who cannot top up make up a big proportion of those. There are people who are unable to switch, who have switching-related issues or who just have an issue related to installation. For example, an engineer coming in has meant that their boiler has been condemned because the engineer could not relight it, so there are things to do with appliances in people’s homes.
The issues are wide-ranging, but they have a huge impact on people’s lives and how they use energy in their home—as long as they can continue to use it. It is important to be aware of those things in order to address them and not let them proliferate.
Three colleagues now wish to ask questions—Mr Kerr, Mr Lewis and Mr Morris—and we are aiming to finish at 3.15 pm.
Sacha Deshmukh: You raise a good point. I am very enthusiastic about the smart British future. Consumer experience in terms of public engagement, particularly with nationally led projects, always teaches you to be very balanced and clear about the benefits available now, what they are building towards, when they will be available and the reality of that. It is about wanting to ensure that people can continue to trust the promise. Not least, all our communications through different channels are regulated by the Advertising Standards Authority, the Committee of Advertising Practice, the broadcast codes and so on. We need to be accurate in the promise to consumers today and give accurate expectations, but I very much take on board what you say.
For a number of our areas of activity, talking about why this matters for the bigger picture will be increasingly important. A consumer spoke to me recently in a focus group. Apropos of nothing, without any information, they essentially summed up an entire sustainable, reliable energy vision that really was a 60 to 100-page BEIS document. They got it and summed it up instantly, so you are right that the consumer appetite is strong. We just need to balance that with the accuracy of the promise to the consumer in the immediate term as well.
Dhara Vyas: I agree with Sacha. The only thing I would add is that I think we have to remember that not all consumers will either want, or be able to, engage. Customers and consumers need varying levels of support to engage with the benefit of not just smart meters but, as you say, the whole wider agenda. Smart meters may be the first internet-enabled thing in the home and it is really important that all consumers are supported to interact with it as much as they want to, or might not want to. There are always going to be some consumers who don’t want to and they should not be penalised for that.
Sacha Deshmukh: Our organisation exists to support the roll-out, so our lifespan will be that of the roll-out.
Sacha Deshmukh: During the lifespan of the roll-out, clearly supporter behaviour changes; that is an important part of our responsibilities. I am very excited that our organisation’s targets for next year have been set so that we will really be pushing in this area; there are enough consumers who now have the product for us to really help their behaviour, and it makes sense to do so. Looking forward—though you might say that I am speaking against my own interests and my own organisation—it is always important not to replicate bodies when other bodies exist that already serve consumers in different ways. It was absolutely right, given the scale and intensity of the roll-out, for there to be a body to engage around the roll-out. However, there are other organisations, such as the Energy Saving Trust, Citizens Advice and others. Liverpool John Moores University is looking into what could be done to support people with dementia using this technology. The Energy Saving Trust is looking into how the data could be used. I think that a plethora of organisations could best support consumers, alongside greater automation in the future. It may be counter to my interests not to argue intensively that it must be us; but I think that as this roll-out reaches its conclusions and you have the whole country taking that step forward, people should be looking at which organisations are most relevant to people’s lives. They should support the use of this service and create new services for consumers provided by the organisations that they recognise, rather than necessarily having a different body for all time to come.
Dhara Vyas: I agree with Sacha. The SMETS 2 meter is not the key thing here; it is about what it enables and what access to information via the DCC enables. Whether it is healthcare, peer-to-peer selling or generating of energy, there will be a market around it. We are beginning to think through the regulatory impacts of that and the consumer journey as well. How messy will it be to unpick who to go to for what support and help? Will that fall under the auspices of Ofgem, or a different consumer protection body? It is a really exciting future. Potentially it could be messy—if something were to go wrong for a consumer, how would we unpick those problems? The governance and regulation of these future disruptive technologies also needs to be thought through quite carefully.
I am afraid that is all the time we have; there are literally 8 seconds left of this session. Thank you again for giving up your valuable time to the Committee and for coming here as witnesses this afternoon. While our next witnesses are taking their places, I apologise to Mr Morris. I have you first on my list for this session, if you wish to catch my eye.
Examination of Witnesses
Dr Fitton and Dr Darby gave evidence.
Dr Sarah Darby: Good afternoon. I work at the Environmental Change Institute at the University of Oxford, where at the moment I am the acting leader of the energy programme. Our work has, over the past 25 years, centred on energy demand and efficiency and, as time has gone on, it has broadened out into distributed energy generally. All demand is distributed, and increasingly a lot of supply is distributed, so we are getting more and more interested in smart grids. I should also perhaps say that I was lead on the synthesis report that was done for the Department of Energy and Climate Change on the early roll-out of smart metering.
Dr Richard Fitton: Good afternoon. I am from the University of Salford. I am a building physicist and I work in and run the Energy House test facility, which measures energy efficiency products in the home. I also lead a task group for the International Energy Agency on the use of smart meter data for determining the energy efficiency of properties.
I will start with the Minister.
Dr Sarah Darby: I am not sure we can yet say that there is a prototype smart grid. The beginnings of smart energy tend to be different in every country and smart metering in this country is different from smart metering anywhere else. In fact, more attention has been paid to the consumer engagement side of smart metering in this country than anywhere else. This is the only country where a fairly intensive effort is put into customer engagement at the time of roll-out of the smart meter, when everyone is offered an in-home display, and all the installers are trained in communication skills to explain what is going on, what can be done with the display, what the smart meter is about and how customers can use it as a tool, if they wish to. This country is a bit special in that way, and we are seeing, on average, modest positive effects.
In the US, where smart metering is widespread, the emphasis has been very much on using it to try to control peak demand, and as an instrument to introduce time-of-use pricing and whack up the prices at peak times to keep peak demand down. They have special problems there, particularly in the hotter states, with air-conditioning in the summertime and very high peak loads, which is an expensive problem for them to manage. The earliest roll-out of smart meters was mostly, in my understanding, to overcome serious problems with fraud.
Dr Richard Fitton: I agree with Sarah, the UK is very strong on smart meters. If you speak to anyone in Europe, a lot of them are envious of the technical standards of the smart meters that are being rolled out. As we have heard from all the sessions, it is a very complicated issue and it is not getting any less complicated, certainly for the consumer.
Our research group’s angle is everything from the consumer side of the meter. We are looking at how to diagnose problems with buildings using the data and systems that are available. We are also developing appliances that will work with smart meters. A big piece of the puzzle that is missing from some of the discussions is the fact that the consumer should be able to engage with the smart meters. As it stands now, they cannot engage with the smart meters. We can log on to the energy supplier’s portal and get a half-hourly reading. But a magic black box called the consumer access device is the gateway to the occupiers having access to their real-time data. This is not a box on the wall that tells them how much energy is costing. It is a consumer access device that streams real-time data to things such as smart appliances and smart heating systems for homes.
That is the whole aim, as far as I can see, of the smart and flexible grid that we constantly talk about. To attach one of these devices is exceptionally difficult and I have never had one successfully connected personally, nor have colleagues or associates. So a big piece of the puzzle is missing in using this data for something that is really smart, rather than just for billing. Billing is clearly important, but the use of the best-value data for the consumer appears to be the missing part of the puzzle. I think that would also push some buttons to help develop the interest in smart meters and get them into people’s homes.
Dr Richard Fitton: I think it is the same with any technology. The greater the penetration geographically across different types of people and property and heating systems, and the greater the spread the better. It is a very difficult question to answer. My thought has always been, when is the roll-out complete; when do we say it is complete? Is it at 90%, or 80%? It may be that 10% of people—I have just made that figure up—will not let you through the door. When is it complete; when do we rubber stamp it?
Dr Sarah Darby: Yes, I think there will always be a section of the population who do not stand to gain very much from having a smart meter; the demand is perhaps very low and there would not seem to them to be a great deal of point. Their impact on the system would also be very small, so I would say yes, we are probably talking in the region of 80%. You would have garnered pretty much all the benefit by then.
Dr Sarah Darby: I guess that would depend on what you wanted to use it for.
Dr Richard Fitton: I could not give an educated answer to that. I simply do not know the penetration level that would be needed, but I would say 80%.
Dr Sarah Darby: Who would account for a lot more than 80% of the actual consumption or the actual amount of electricity being fed in?
Obviously, the cheapest and greenest energy is the energy that we do not use, so that is fantastic on the demand side, which we do not focus on enough in this country. You are saying that that is not really working. I wonder whether this legislation is the place where this will happen. Is there anything in this legislation that you feel is sufficient to give you encouragement that that will happen in the future, or are there holes in it that mean that those data and that potential will never be realised?
Dr Richard Fitton: There is nothing in the Bill that would cover that element. There is guidance around the periphery of the Bill and the licensing Acts and things like that, but there is nothing specific.
Dr Richard Fitton: The consumer needs a route to access their real time data from the home area network. That needs a procedure to be put in place because that is the keystone.
Dr Sarah Darby: I wonder whether we are a little at cross-purposes here, because I am thinking of the in-home display as the way that the customer accesses that information. But I think you are talking about stuff talking to stuff.
Dr Richard Fitton: I am talking about stuff talking to stuff. The home area network—I will not do the thing with the cups—is provided in the smart meter itself that things can attach to. The consumer access device talks to that via a Zigbee principle and says, “Here is your data.” You can stream it, save it, and pass it on to other appliances.
Dr Richard Fitton: Technology developers I am working with now are trying to make that work. That is how savings can be brought about. It helps things like grid smoothing and demand-load shift.
Dr Sarah Darby: I would add that it is important to consider stuff talking to people through the display. When people ask for a smart meter, or when they are getting one, the bit they are really interested in—almost always—is the display. The single most powerful reason people have for wanting or appreciating a smart meter is that they get visibility of their energy use.
The knock-on effect from that is also very important in terms of the future energy outlook. For example, no amount of smart technology will insulate your walls for you. There are still a lot of unsmart things that need to be done to our building stock in this country, for example, that the smart revolution will not actually do.
On the other hand, if smart technology can be used to communicate to people to get them thinking more about what can be done, and if it can be combined with advice and guidance so that they have clearer ideas about what options are open to them—if there is support for the metering in that way—a lot can be done to take us forward. I want to emphasise that aspect of it as well, in terms of communication.
Dr Richard Fitton: We are carrying out that type of work with the International Energy Agency—taking in this data and processing it in such a way that building physics can be incorporated with the algorithm so that we can then say, “These buildings are likely to need some type of intervention to make them cheaper, more fuel efficient and more comfortable for the occupant.”
One of your main concerns about rolling out quickly is that customers will feel pressured into adopting smart meters; yet I have constituents who want smart meters but cannot get them. For example, a village hall, the Houldsworth Institute in Dallas, has had people out to try to get one installed, but there is no mobile phone reception—it is in a blackspot. How do you think your evidence relates to people who want to see the roll-out far quicker, but are hampered because the technologies do not allow it or we do not have enough installations happening in the more remote and rural areas compared with the more urban areas?
Dr Sarah Darby: That would be an argument for paying special attention to such areas and thinking how that could be addressed. It does seem to me that the strength of the programme so far is that it is voluntary, and that the early learning is being done by people who are already well-disposed to it and will perhaps put up with any kind of teething glitches that go on. They will adapt and then, if they are satisfied, will pass the word on to others so that others will want a smart meter too.
If we speed up, the amount of attention paid to the installation process will almost inevitably drop off. There will be pressure on installers just to go into a building, put the kit in and get out, and not to spend time doing the things that customers have said they appreciate about the roll-out so far: having someone who will explain stuff to them and show them how to use the equipment, and having that level of support to the installation. If we lose that through speeding up the whole process, the programme will suffer greatly in the long run.
Dr Sarah Darby: Yes, they might get turned off.
Dr Sarah Darby: You would have to ask BEIS about that.
Dr Richard Fitton: I remember seeing in the trade press that some consideration is being made of recycling existing meters, but I do not know. Again, it is an excellent sustainability—
Dr Richard Fitton: Or indeed to some of the smart meters being installed today. I have swapped suppliers and they have taken away new smart meters, four or five months after. I do not know; sorry.
Dr Richard Fitton: I believe, as the Minister has mentioned, that SMETS 1 are to be upgraded to SMETS 2 starting at some point next year. There is no particular technological challenge in connecting consumer access devices to SMETS 1 meters, but you can sympathise with some people who might be waiting for the full SMETS 2 systems to be installed. That seems commercially obvious to me.
Dr Sarah Darby: There is evidence that people are making alterations in their everyday behaviour and that over time, from how the figures are going, they are thinking more about investing in energy efficiency. I say that because the evidence is that the energy-saving effect, compared with people who do not have smart meters, rises gently over time. You would think that people might be very keen at first to go around switching off all the lights and so on, but would then get a bit bored with it, and the effect would fall off, but that does not seem to happen. If you look at the large numbers of people we have data for over a long period of time—a few years—you see a gradual learning effect.
It is quite a small effect in aggregate. After the first year of roll-out, I think it was 1.5% or 2% for gas and electricity. The last I heard, which was May 2016, British Gas was talking 3% to 4% after a few years, on the basis of several hundred thousand customers. So there is a gradual learning effect. That is, of course, an average, and it will vary a lot between people. For some people, you may get quite a substantial effect; for some people, none at all.
Dr Sarah Darby: If you really want to see how heat is leaking from your home, you want thermography. When people are shown thermal imaging of their homes, it can have quite a dramatic effect, because you can absolutely see where it is leaking out. That is the most powerful way of doing it. A smart meter can just tell you, “This is what you are using now; this is what you used last week.” You remember, “Oh, yes. Last week we had the whole football team round having hot showers,” or something like that. You can link cause and effect to some extent. This is what you used, compared with several months ago. You can see seasonal effects and so on. You can work things out.
Ideally, you need to be able to put all that together with other sources of information. Another thing we find is that when people get their feedback from different sources, that has more effect than if they are getting it from just one. Ideally, you would see the smart meter information as part of a rich mix that people get gradually more familiar with and that they talk about with other people; they can find out what to do with that information and try to find ways of using it.
Dr Sarah Darby: I have not heard of any serious push-back on this. I have heard one or two accounts anecdotally that people are feeling under a bit of pressure from their supplier that they really ought to be getting a smart meter now. One woman said to me she was holding out for as long as she could. She was not particularly against a smart meter but she was curious to see how long the supplier was going to keep pushing her.
Dr Sarah Darby: The picture is rather mixed. This is, after all, mostly in the hands of the energy retailers and they have different ways of going about it.
Time is against us, so Mr Grant’s will have to be the last question.
Dr Sarah Darby: Potentially, this is part of a very big transformation of our energy system. If we are relying heavily on renewable supply, particularly for electricity, we have to be able to match demand with supply in real time very effectively. The smart meters are part of making that possible. That means effectively that they are part of the transition to a renewables-based energy system with very carefully managed demand and supply together. The environmental benefits of that would be very considerable.
Dr Sarah Darby: Yes, I would think so.
Dr Richard Fitton: I would add one point. The smart meter is a tool as well and from that tool we can hang things. With it comes this whole idea of being able to attach more efficient things for your home, such as appliances and heating systems. Once it gets in the house, people can then start to do smart things with it. You have got to consider those savings as well as the generic smart meter savings.
Mr Western: 20 seconds.
Dr Sarah Darby: The specification is already there to allow for prosumption, for people who are generating—
Order. I am afraid I have no choice. That brings us to the end of the time allotted for the Committee to ask questions. I am sorry to cut you off in your prime. Perhaps, as the question has been brought in, you will see each other after the Committee. I thank you both for being our witnesses this afternoon and, on behalf of the Committee, for giving us the benefit of your wisdom. Line-by-line consideration of the Bill will begin at 11.30 am on Thursday in Committee Room 12.
The Chair adjourned the Committee without Question put (Standing Order No. 88).
Adjourned till Thursday 23 November at half-past Eleven o’clock.
Written evidence reported to the House
SMB 01 Anonymous
SMB 02 Mr J R Harwood
SMB 03 Smart Energy GB
SMB 04 Energy Networks Association
SMB 05 Energy UK