Conclusions and recommendations
1. Consumers will have to pay energy suppliers
for the costs of installing smart meters through their energy
bills, but many of the benefits will pass in the first instance
to the energy suppliers.
The costs of installing smart meters will not be transparent in
consumers' bills. Energy suppliers will benefit significantly
from smart metering, for example, through cost savings on staff
associated with automated meter reading. We are sceptical that
suppliers will pass on these benefits in full to consumers, given
their track record and the failures of suppliers to reduce retail
prices promptly when wholesale energy costs have fallen. The Department
needs to build consumer trust by ensuring suppliers report transparently
the costs and savings of smart metering and the Department should
set out clearly how it will review suppliers' implementation plans
and monitor their performance and the information they give to
ensure that the benefits are shared with consumers. The Department
is relying on competition to drive down prices, but Ofgem have
clearly found that the energy market is not functioning effectively
as a competitive market. The Department must act to ensure open
competition does prevail.
2. The benefits of smart meters can only be
fully realised if there is widespread take-up and consumers use
them to reduce their energy bills, yet the role of suppliers in
helping to achieve this remains undefined.
To benefit from smart meters consumers will need to change their
behaviour in response to the information the meters provide on
consumption and costs, and change tariff and supplier where necessary
to secure the best deal. The Department has some public funding
for helping consumers to understand how to make best use of smart
meters, and we await its consumer energy strategy due to be published
in 2012. The Department should clearly set out what energy suppliers'
responsibilities will be for engaging with consumers to deliver
the benefits; and how they will be held accountable to both the
Department and consumers. The Department should also set out how
it proposes to engage and inform consumers of the potential benefits
to them. Furthermore, smart meters have a limited life and the
Department, working with industry, should make absolutely clear
the potential costs beyond the next decade.
3. The benefits from smart meters may not
reach vulnerable consumers, those on low incomes and those who
use prepayment meters. Already at a significant
disadvantage when energy costs rise, the vulnerable, elderly and
those on low incomes are at risk of not benefiting from smart
metering. Introducing smart meters in this way by expecting consumers
to pay for the installation is of itself regressive. Some consumers
are not knowledgeable about energy suppliers and tariffs, which
are difficult to understand, some do not have a bank account,
so will miss out on savings from using direct debits, and some
choose prepayment meters to allay the fear of disconnection. The
Department should set out how it intends to ensure vulnerable
and low income consumers do not miss out on the benefits from
smart metering. The Department must also ensure protocols are
in place to ensure that vulnerable customers are not automatically
disconnected if they fall behind with payments.
4. Trials so far have been inconclusive about
consumers' willingness to cooperate with the installation process
and to use smart meters to reduce their energy consumption.
There are also uncertainties around the practicalities of the
proposed timetable for procuring a new system, installing the
data communications system, and the rolling-out of smart meters
to every home in Great Britain. The Department told us it expects
to gather more evidence during the two years remaining before
the start of the roll-out in 2014. To make the best use of this
time, the Department should identify the remaining uncertainties
and address these by conducting proper trials to gather the robust
evidence it needs to identify and manage the remaining risks.
5. The data communications service required
to link smart meters to suppliers is a complex IT project that
may cost as much as £3 billion. There
is a risk that the smart metering system may not be able to support
the development of smart grids, designed to better match electricity
supply and demand, without incurring additional expenditure to
modify or upgrade the meters and the data communications system.
We expect the Department to take on board the lessons learned
from other large Government IT programmes and to ensure that the
contracts they place are sufficiently flexible to cater for smart
grids and avoid additional costs falling to consumers.
6. The Department and energy suppliers face
significant challenges to install smart meters in every home in
the country. The Department is confident
that it has adequately accounted for the risks involved in the
smart metering programme, particularly the risk of cost escalation.
We note these assurances, but do not share the Department's optimism.
We expect the Department to proceed on the basis of detailed plans
underpinned by robust evidence. We welcome the Department's confirmation
that it will be reviewing progress and could pull the plug or
subsequently rethink its approach if the programme is not delivering
for consumers. The Department should report to this Committee
in 2013 on: its progress in addressing the issues we have raised;
the reasons for any further changes in the estimated costs and
benefits from proceeding with the roll-out in 2014; and its plans
for monitoring and reporting on actual costs and benefits through
the roll-out.
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