Smart meters are the future – they are the building blocks to an integrated, cheaper and greener energy system for the whole UK. £12 billion is being invested to replace the analogue meters that haven't progressed much since the late 19th century.
Implementing a smart grid is no mean feat: the roll out of 53 million meters and the resulting smart grid is the biggest change to energy infrastructure in our lifetime. The challenges are significant – delays, budget increases and lack of customer take up1 are all mounting pressure on suppliers’ ability to deliver. This previous Moorhouse thought perspective outlined more detailed challenges the roll out is facing.
So why bother? Simply, it’s a win-win-win. For consumers, smart metering will promote savings. For suppliers, it will reduce overheads and provide key insights into customer behaviour. For society, the new technology will help manage energy demand and promote green energy.
The win for consumers
The main benefit to customers is the ability to see real-time consumption in pounds and pence bringing an end to estimated billing. By registering real-time consumption, smart meters will prevent the ‘bill shock’ some households and companies experience at the end of the month.
Interestingly, research has shown that smart meters drive behavioural changes – as energy awareness increases, consumption decreases. Populus reports 85% of people with smart meters have changed their habits to use less energy2 and Smart Energy GB estimates a smart meter enables a household to save 354kWh a year – enough to power a home for a week3.
Taking one step further, smart meters will enable consumers to save whilst consuming the same amount of energy – but how? Our energy demand varies by time of day and season. However, due to how most of our energy is generated, our power supply is constant. Therefore, energy prices spike when demand is high. Previously, with no way of knowing how much energy one used during the day (or even during the month), consumers were charged at a flat rate. Since smart meters will monitor actual consumption, they can charge different prices at different times. For example, Green Energy UK customers will be charged 5p/KwH from 11pm-6am, much cheaper than the peak demand tariff of 25p/KwH4.
These ‘time-of-use tariffs’ will help level-out demand by encouraging high power activities during times of low demand. For example, appliances such as washing machines, electric vehicles and batteries could be on an automatic timer to charge or run when energy is cheapest (i.e. night time).
The benefit of smart meters to consumers isn’t solely about savings. Further down the line, using machine learning and AI, customers will have access to insight which will enable them to set budgets or receive notifications. For households, imagine receiving warnings alerting you that, yes you did leave the stove on. For businesses, the impact of this insight would be even greater since industrial sites use on average 250,000 kWh5 (significantly more than a typical household consumption of 3,500 kWh). A manufacturer could better understand, benchmark and manage their efficiency against competitors.
The win for suppliers
These new insights will increase consumer engagement, which in turn provides suppliers with an unprecedented opportunity to meaningfully connect with them. Supported by the enormous amounts of data collected by smart meters (48 times a day), this is a chance for suppliers to tailor their offerings to real consumer behaviour which could attract and retain customers.
Unlike most retail sectors, utility companies cannot currently differentiate their offerings through their products – so all emphasis needs to be on service. The wealth of information will enable companies to develop propositions and strategies to attract customers. Customer expectations are rising and companies need to transform and prioritise smooth customer journeys to keep pace.
The national roll out’s business case justified a cost of £11 billion and benefits of £16.7 billion – £8.25 billion of which was for retailers. Undeniably, suppliers will benefit from significant reductions in engineer visits (for meter readings or disconnections) and customer inquiries and services – reducing overheads by up to £3.2 billion6. Additionally, the new insight will be able to manage two issues suppliers struggle with – energy theft and debt accrual. Combined, these benefits should increase the bottom line and hopefully this will be passed onto the consumer through competition or regulation.
The win for society
Smart meters increase energy literacy amongst consumers which could lead to us all consuming less. This cumulation of small reductions will help the UK toward its international climate change and carbon emission targets.
At peak times, the difference between supply and demand is worryingly small. The UK had a margin of only 6.6% capacity in winter 2016/177. In March 2018, the ‘beast from the east’ put the grid under pressure and resulted in the release of a gas deficit warning8. As smart tariff adoption grows, we should be able to reduce pressure on the grid at peak times, reduce wastage and reduce energy imports.
By easing pressure on the grid, we will also be able to reduce our reliance on fossil fuels. Because of the variance our energy demand, we are reliant on fossil fuels as a constant source of supply. Indeed, renewable energy production is variable – i.e. we can only rely on solar power when the sun is shinning. By levelling out demand through smart’s dynamic pricing, we could become more reliant on green energy which will benefit the UK and the planet.
Smart tariffs could further promote green energy by offering cheaper energy for consumption (or local storage for later in batteries) at times when the wind is blowing. This could help us push past the record that 33% of electricity generated was from renewables in Q3 of 20189.
Innovation in this field is fast developing. A combined £365 million from government, Innovate UK, Research Councils will be invested towards smart systems research and development10. This, coupled with developments in data science will enable companies to test out new technology which will benefit suppliers, consumers and the grid.
The Challenge Ahead
Whilst it is a legal obligation for suppliers to ‘take all reasonable steps’ to swap out traditional meters, consumers are under no obligation to accept – and many aren’t. That leaves the programme in a catch 22 position, where to realise the full benefits and potential for smart meters it requires adoption by the majority. However until those benefits become clear the majority are not willing to take the leap.
3. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/767128/smart-meter-progress-report-2018.pdf p18
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