Smart Metering: A Clever Green Solution rapidly becoming a White Elephant ?

It's now over a month into 2018 and with the UK parliament looking into both project progress against targets and further modification of existing smart-metering legislation, the subject is starting to hit the headlines in various publications yet again, so it's time to stand back, take a peek at the current position and ask ourselves whether this is fast becoming another example of government failure to conceive & deliver projects on time & on budget.

So, is the UKs smart-metering project likely to deliver the environmental & consumer benefits as claimed and maintained, or will the concept prove to be more than a little overoptimistic? - Will the project ultimately be considered to be a clever green solution to assist in energy efficiency, or just another in a series of white elephant ideas ?

Smart Meters - Introduction

Smart Meters are domestic electricity and gas meters which have embedded communications technologies which enable both the automatic transmission of digital consumption readings to the energy suppliers and the ability for the supplier to control various power loads in the consumer's home or even completely disconnect a property when deemed necessary.

The main project justification is based on assisting consumers to better understand and manage their own energy consumption and remove the need for regular visits to manually read meters, thereby allowing more accurate billing and the phasing out of estimated energy bills.

Project Background

The European Council and European Parliament, as part of the Third Package of Energy Liberalisation Measures (adopted 13/07/2009) obliged EU Member States to conduct economic assessments on the implementation of smart-metering technologies designed to actively improve consumer understanding of their energy consumption patterns and thereby reduce demand. Member States showing an overall positive economic assessment for electricity smart-metering were to target the provision of smart-meters to 80% of consumers assessed positively 2020, whilst a positive assessment for gas required the preparation of a smart-metering timetable.

Planned Timescales

An initial program for smart-metering has been running for a few years, however, from 2016 onwards energy companies have been progressively ramping up the rate of installation in order to meet the 2020 target. Government and industry reports anticipate that a total of approximately 53 million domestic smart-meters will be required within the scope of the project, with the Government having committed to install in every home in the UK by 2020.

Customer Obligation

The UK Government have committed to install smart-meters in every home in the country by 2020, although there is no legal obligation on consumers to have one. Energy suppliers are simply required to make all reasonable efforts to offer smart-meters to their customer base and where the offer is accepted, to install in those properties by 2020.

Smart Meters - Technical

In basic terms, smart-meters work the same way as existing traditional meters in that they provide a measure of energy consumed over a period of time. When installing smart-meters, customers should be offered an In-House-Display (IHD), a remote screen which provides a near real-time display of the current rate of power consumption and the energy which has been consumed over a period of time.

The smart-meter project justification is based on consumers reacting to information provided by the IHD units and adjusting their own energy consumption profiles in order to save money.

Standards, Compliance & Non-Compliance

Officially, smart meter provision should be to a functional compliance standard described at SMETS2 (Smart MEter Technical Specifications) which superseded the previous smart-metering SMETS1 standard. Some suppliers installed pre-SMETS smart meters (reclassified as 'advanced meters') which do not meet smart meter specifications and need to be replaced in due course, however, the majority of installations to date conform to the SMETS1 standard and therefore do not provide all functions which have been identified as necessary to incorporate into a smart-grid.

Resulting from delays in developing a fully functional standard for SMETS2 compliance and a fully functional DCC without the necessary relaxing of installation targets, energy suppliers installed SMETS1 compliant units and created their own independent data communications solutions. Where this has happened it is unlikely that the meters will provide smart-metering functionality due to incompatibilities between energy supplier communication infrastructures. In these cases the meter will simply act as a traditional 'dumb' meter and need to be read manually.

Benefits to the Consumer

Depending on the location of the meter and availability of the customer, the most relevant advantage afforded by smart-meters to most consumers would be the removal of the inconvenience of meter reading & the end of estimated bills. Of course there'll still be safety-check visits, but they'll be much less frequent. The most relevant and consumer-visible change is the provision of the IHD.

If there's one thing that everyone needs to recognise, it's that the IHD alone will do absolutely nothing and that any anticipated savings will only occur if the customer takes action based on information provided by the technology.

If the IHD is sitting on a work-surface in the kitchen and never looked at or relegated to the back of a drawer full of junk, the level of cost savings which smart-meters have been claimed to provide are impossible - smart meters themselves save nothing, that's down to the customer's ability to understand that they need to do something themselves. Government & industry information describing & promoting smart-meters as energy saving devices is wrong, they simply provide information to enable consumers to consider their level of energy consumption and think about ways to reduce their usage & bills.

In effect, the near real-time display of power consumption allows consumers to see the change in total house demand when electrical devices & appliances are used. Simply taking the (fully charged) IHD around the home and switching lights or appliances on or off, the impact on the pocket can be seen on the screen. Used properly, the IHD enables consumers to recognise any unusually high consumption, for example, unintentionally leaving an electric oven or hob ring on.

The aggregation of changes in consumer behaviour form the major contribution to the smart-meter economic impact analysis and therefore the whole project is justified on behavioural impact, not the technology itself. A significant benefit arising from the project is the encouragement of consumers to demand shift, performing none time-essential tasks, such as washing, outside high or peak demand times, utilising cheaper TOU electricity tariffs as an incentive. Although there may be a considerable shift in demand by offering tariff incentives, people will still cook when they’re hungry and still boil the kettle when they’re thirsty, so even those who have significantly changed their energy usage pattern will continue to contribute to peak evening demand when TOU tariffs would likely be increased, therefore negating any overall cost benefits.

For consumers with access to an existing energy monitor, the information supplied by a smart-meter is unlikely to provide any discernable informational benefit which will lead to additional energy efficiency or savings. Considering that monitors cost as little as ~£15 and have even been given away for free by energy suppliers it's likely that the subset of consumers most likely to use real-time information to reduce consumption have already banked a reasonable proportion of the anticipated smart-meter project efficiency savings.

It is also worth noting that smart-meter IHDs which are supplied to households that have previously had energy monitors which now reside unused at the back of a drawer, will likely enjoy the same fate.

Benefits to the supplier

Through providing the facility to increase consumer awareness of energy use, suppliers will logically assume that their customer base will utilise the information provided by the IHD on a 'real-time' basis, then utilise the smart-meter's half hour metering (HHM) ability to create a range of energy tariffs based on Time of Use (TOU). Energy prices will be varied throughout the week, both on a 24 hour basis and at weekends to reflect demand profiles and encourage consumers to modify their consumption behaviour.

As the smart-meter installed base increases, energy suppliers will move towards offering

tailored energy tariff prices, the most likely result being the reduction of average pricing overnight (similar to current Economy-7 type tariffs) and at weekends, as well as having a range of tariffs during weekday hours, obviously including a considerably higher rate to be applied over the evening peak-time demand hours. It is also likely that exceptionally high 'punitive' rates will be applied at times when the energy grid is load-stressed.

In theory, the ability to 'modify' user energy consumption behaviour effectively allows for the operation of a smarter energy grid. Communications technology and the information it provides can be leveraged to balance electricity generation to match demand on a near 'real-time' basis as close to real-time, increasing both energy generation and plant utilisation efficiency.

Has the justification boat sailed

A large component in the smart-meter project justification is the ability for consumers to immediately see the effect of switching higher powered appliances on & off, small devices such as 'wall-wart' transformers & chargers hardly register against the background 'noise' of the household baseload, therefore smart-meters and their IHDs will have little impact on the use of these.

As smart meter project justifications and estimated benefits are heavily reliant on informative feedback provided by IHDs (In House Displays), billing, energy reports and alerts encouraging consumers to modify their consumption behaviour, any changes in technology efficiencies in the years since the smart-metering cost/benefit analysis was completed have serious impacts on what these behavioural changes can logically achieve, something which is being totally overlooked. Let's consider the impact of just two efficiency improvements based on one technology, LED.

LED Televisions

Within the period since the smart-meter project justification was formulated there has been a considerable uptake of efficient large screen televisions consuming around 50W, replacing previous generation plasma screened units averaging around 300W. The aggregated impact across the country is enormous, effectively for each four million households replacing plasma TVs with LED technology the demand on the UK grid would reduce by 1GW, which in basic terms roughly approximates to an average UK nuclear power station or somewhere between 2% & 4% of UK electricity demand.

LED Lighting

Recent developments in LED lighting technologies and the associated reductions in costs resulting from manufacturing economies of scale have have resulted in increased uptake of this energy efficient lighting technology. The potential energy consumption available from moving to LED technology to provide the majority of domestic lighting is huge, both to individual household domestic billing and to national power provision.

Most LED lights specify their output in terms of lumens or equivalence wattage to incandescent bulbs. In general terms, a 15W LED lightbulb should provide similar lighting levels to a 25W compact fluorescent bulb or an old 100W incandescent bulb. One of the issues with early CFLs was the time to build-up to their full lighting potential, a condition which doesn't apply to LEDs, therefore making the technology a more attractive option for many who never made the move to energy efficient lighting.

Working on a realistic LED replacement ratio of 3 CFLs to 1 incandescent, the average saving would be in the region of 25W/unit ((100+(25x3)-(15x4))/4). Allowing an average of two bulbs on in each home the saving would be around 50W, so somewhere around a 1.3GW aggregated reduction in electricity demand across the UK, again roughly the generation of an average UK nuclear power station, or around 3% to 5% of UK electricity demand.

So why is this important?: Here we have two examples of energy efficiency technologies which have been adopted which, due to their development dates cannot have been considered within the justification of the estimated £12billion cost of the UK smart metering project which is anticipated to reduce UK electricity demand by just 2.8% ( DECC’s Smart metering Impact Assessments (IA), published in January 2014 <Link.pdf>). Simply replacing four million old technology TVs with equivalents based on LED technology has an environmental impact greater than that of introducing smart metering at a fraction of the cost to the consumer, as does replacing just two of the most regularly used lightbulbs in every household. Savings attributed to these energy efficiency technologies cannot be associated with the smart-metering project and, importantly, once made outside the project, the efficiency savings are no longer available for the project to deliver, thus casting doubts over the project's ability to deliver the anticipated £7bn of consumer energy usage reduction.

In addition to the above, in parallel with the development of smart-meters and the project cost/benefit justification, many homeowner have already taken many of the originally anticipated efficiency savings through the use of similar information provided by energy monitors, yet another case of the potential for smart-meter benefits having already been delivered outside the project.

A further consideration is the looming balancing breakthrough which battery storage technologies will provide to the grid. It’s likely that before the Smart-Meter roll-out has even started to make a difference, storage will have already delivered the anticipated benefits, rendering the grid balancing functionality provided by smart-meters effectively redundant. Again, those benefits cannot be accounted for twice.

Project structure issues

A major concern with the smart-meter project is the huge cost of the project and the basis on which the cost is arrived and justified.

Infrastructure upgrades and general network maintenance, which includes the replacement of meters, are a standard component of UK energy bills. Apart from targetting the highest energy users where the benefit of the technology can be maximised, there's a particularly poor argument replacing meters within a short timespan. If project timescales and resource availability are considered, it's obvious that the project creates a repeating resource bottleneck which matches the smart-meter maintenance (batteries etc), calibration or replacement frequency. If the smart-meter mean lifespan is 15 years then abnormal engineering resource will be necessary, creating a demand for sub-contracted or temporary resource in a limited supply market.

Implementing smart-meters by first targetting high demand properties and then addressing the remainder of installations within the standard replacement schedule would have allowed the energy sector to meet the environmental targets without creating a reoccurring resource issue, but also doing so at virtually no additional cost to the consumer …

Gas

With electricity there are various solutions to energy reduction as there are so many sources of consumption which can be addressed, therefore providing technology which helps consumers understand what is using their electricity can help them use it more efficiently. Reducing gas consumption normally resolves to installing a more efficient boiler, increasing levels of insulation and turning the thermostat down a couple of degrees. Once that’s understood, whatever information a smart-meter's IHD can provide effectively becomes meaningless as it only tells you whether you’re being kept warm, or not. This leaves the only cost related advantage of installing smart gas meters as being remote reading by the supplier.

Communications

Similar to 2G, 3G or 4G data communications, for many in more remote areas or areas with historically extremely poor signal strength there’s little/no chance of the smart-meter receiving a reasonable quality data service, so overlaying a mesh M2M smart-meter network over a wide-area communications infrastructure (SMWAN) which doesn’t work does little more than provide an expensive dumb meter which still needs to have the readings submitted and/or a regular meter reader visit.

The Data Communications Company (DCC) in their 2017 business plan (link-pdf) referenced attained SMWAN coverage of 97% to in excess of 99% for installations in various areas, however, no reference to smart-meters actively not being installed in poor reception areas or smart-meters not being accepted/configured onto the DCC network was mentioned, neither was the methodology to support the coverage statistics. Considering the total absence of actual SMETS2 units connected to the DCC at the time, the communications coverage must be theoretical, not observed or tested at sites with actual installations.

Smart-Grid Management

There is much mention of near real-time data provided by smart-meters being aggregated then used to manage the grid & react to usage trends, this even being cited as the project benefit. Logically, this level of real-time analysis is unrealistic as the required level of data granularity would be available at grid node resources such as substations & transformers anyway, therefore leaving the potential grid benefits as being future smart-appliance demand load shedding and proactive fault condition investigation.

Power generation is balanced to reflect grid demand on a continuous basis by targetting a nominal AC frequency of 50Hz. Too much power being generated reduces the load on generators causing the frequency to rise, which triggers signals to generate less - conversely, under-frequency caused by too much demand triggers a signal for plant capacity somewhere to ramp-up.

Smart-grid management will be more concerned with changes from a centralised generation model to one which is heavily influenced by distributed generation and energy storage technologies. The main electricity supply & grid balancing decision-making process will not change significantly due to the introduction of smart-meters.

The complexity factor

There are numerous concerns regarding the introduction of additional tariff complexity which would be necessary for the industry to operate TOU pricing to encourage users to change their energy usage patterns.

To be effective, the required level of tariff complexity will result in the loss of price transparency to consumers looking to compare supplier product offerings. Simple variability in demand due to factors as disparate as weather or even the TV programme schedules creating peak conditions could trigger unforeseen windows of punitive TOU pricing which the industry could manipulate to maintain or improve margins.

The loss of the ability to readily estimate future energy bills based on known annual usage leaves the only ability open to consumers to compare supplier tariffs as being the ability to access their own historical detailed usage pattern in that property and use that to perform a comparison, which isn't really too helpful for consumers with new properties or have only recently been occupied.

The UK government's energy sector regulator, Ofgem, will need to quickly recognise the additional possibilities for market abuse which TOU tariffs provide and proactively develop a stance to protect the consumer base.

Project Issues & Cost Overrun

As at the end of January 2018 somewhere between 8 & 10 million smart-meters had been installed in the UK of which, according to the DCC, only around 250 conforming to the SMETS2 standard had been supplied for testing. Questions raised in Parliament related to the Smart Meters Bill on 5th February 2018 <Hansard v635 c1288> suggested that only 80 of the 250 supplied units had been installed to that date even though SMETS2 units should have been installed in volume from 2014 onwards, with SMETS1 installations simply being used as a limited & temporary roll-out of technology 'proving' units.

With extremely limited supply of SMETS2 units combined with a delayed and yet incomplete DCC test programme, the SMETS1 installation end date has been delayed yet again for little reason other than to maintain the project installation count. It seems that there is also a move to extend the smart-meter project 'end date' from 2020 to 2023 to compensate. The requirement to extend the date by which licensable activities will have ceased from 2018 to 2023 is likely the first official recognition that the project is seriously behind schedule and unlikely to meet the 2020 deadline as specified by the EU, however, with the UK leaving the EU by 2020 any financial penalty pressure related to missing the target date has been lifted.

Of the installed technology base, as yet there is no readily available assessment of the sub-project to raise pre SMETS2 units to a standard where supplier interoperability via the DCC network is possible. Depending on individual unit type capabilities, this could be via 'Over The Air' (OTA) firmware upgrades initiated by bespoke communications interfaces yet to be developed by the DCC, by on-site engineers upgrading the firmware in millions of properties, or millions of non-compliant unit replacements. It is logical to assume that the cost of rectification due to delays in SMETS2 availability will be huge, growing as each new installation occurs and as yet an uncosted sum to be added to the project which will seriously impact on the project justification economics.

Cost Benefit Analysis

The 2016 update of the Smart Meter project cost benefit analysis <link.pdf> effectively balances £10.555bn of costs against £14.349bn of benefits accrued over 15 years on a 'best estimate' basis, leaving an overall project benefit of £3.794bn however, taking the low end of the benefit analysis shows a completely neutral position.

Detail regarding the valuation of benefits (1.4.1.1) suggests that they are based on energy consumption analysis dating from a period ranging from 2006-2012, a period before the introduction of LED TVs & lighting, energy monitors and distributed microgeneration technologies. It is also worthy of note that there is no assessment of the impact of energy storage technology uptake over the 15 year period. Taking this into consideration, it is highly likely that remaining energy efficiency savings which are available due to effective consumer engagement are considerably overestimated at £3.81bn (possibly at least double) and should be the subject of an urgent detailed review.

The estimated project cost of £10.555bn used in the 2016 cost benefit analysis neither reflected costs arising from the DCC project overrun issues or the full costs of duplicated effort associated with the rectification of approaching 9 million non-compliant meters. It is widely suggested that when these costs are included, the project estimate moves to around £15billion.

As previously raised, smart-metering will likely result in a level of tariff complexity which will further reduce competitive price transparency, most likely resulting in a reduction in customer churn. The negative effect of this is not reflected in the benefit analysis, however, industry switching cost reduction benefits have. It is reasonable to assume that the £1.43billion in gross benefits would be at least balanced by consumer lost opportunities.

Conclusion

As at current date, the project seems to be showing consumer energy savings which are likely to have been overstated by somewhere in the region of £2bn, with an additional £1.4bn of overstatement in switching gross benefits, these two elements alone accounting for a potential £3.4bn error in benefits. Against this, the project cost seems to be understated by around £4.5bn, together describing a gross error in the benefit calculation in the region of £8 billion, reversing the 'best estimate' from showing a project benefit of £3.794bn over 15 years to a loss of approximately the same value.

Of course, the methodology in reaching this conclusion is 'rough-and-ready' and the assumptions need to be scrutinised against updated data, however, the logic applied is sound and the fact remains that the whole project justification is based on outdated consumer behaviour studies and consumer energy usage statistics.

As to 'clever green solution' or 'white elephant', the basic points raised above suggest that as opposed to being a well scoped and managed project, there are now plenty of reasons to believe that project strategic responsibilities are unclear, management is almost none-existent, and no-one is actively driving what is effectively an out of control runaway scheme.

Without entering a period of hiatus which is needed to urgently perform a total detailed review, the project drift will continue, resulting in eventual failure. Particular attention needs to be given to the issues involved in delays to SMETS2 availability, the capabilities and performance of the DCC and the impact of rectifying around 9 million meters which aren't fully compliant and, other than to maintain a pretence of project momentum, shouldn't have been installed for nearly 4 years. As it stands, the smart-metering project has little chance of meeting the 2020 deadline and, considering the need to extend scope to 2023, has by definition already failed as a catalyst to encourage energy efficiency.

Other than a decision to cancel, the logical result of any project review would be to re-focus effort back towards the original concept through identifying the highest 20% of households by consumption & targetting to install SMETS2 compliant smart-meters in 80% of these by 2020, doing this within a re-defined version of the existing project with a considerably reduced budget. Once these households have been addressed, the remainder of installations should be managed as standard replacements within the supply industry's normal schedule, using their standard meter replacement resource & funding these in the same manner as traditional meter replacements. Using this approach the project still stands a chance of delivering a considerable proportion of the anticipated benefits within the recognised timespan whilst considerably reducing the costs & disadvantages of rolling out to the majority of properties within the scope of the project.

If the estimated project benefits are considered undeliverable within the agreed timescales & cost overruns already exist, the remainder of the project must be reassessed & rescaled in order to regain a degree of control.