Government are consulting on proposals for a new smart meter policy framework post-2020 

United Kingdom

Overview

Recent press reports suggest that the smart meter rollout deadline has been “extended” or “delayed” until 2024. However, this is somewhat a simplification of GB government’s consultation. The current framework (as detailed below) will remain in place until the end of 2020 and suppliers are still obliged to take “all reasonable steps” to meet the targets specified in the framework. Following the expiry of this framework, government are proposing to introduce a new, and stricter, licence obligation on suppliers to meet specified annual volumes of smart meter installations in order to achieve the installation of smart meters in all homes and small businesses across Great Britain as soon as possible.

Background

In 2012, the GB government imposed a licence obligation on energy suppliers to take “all reasonable steps” to install smart meters in all homes and small businesses in Great Britain by the end of 2019. In 2013, this obligation was extended to the end of 2020. Smart meters have been touted as central to government’s ambitions to upgrade our national energy infrastructure, transition to a low-carbon economy and provide consumers with more control over energy consumption.

The government-led Smart Metering Implementation Programme aims to install 53 million gas and electricity meters at domestic and non-domestic properties by 2020. However, the National Audit Office’s (“NAO”) November 2018 report on the rollout of smart meters stated that the number of smart meters installed by 2020 will fall materially short of these ambitions, with energy suppliers reporting that they will only be able to install smart meters in around 70%-75% of homes and small businesses by 2020. This is attributed to limited consumer interest and delays to the implementation of the later generation “SMETS2” smart meters. In light of the government’s 2020 deadline, NAO claimed that this would put significant pressure on the programme for delivery and risks cost escalation and technology defects – all of which would undermine the value for money for consumers.

As of June 2019, 15 million smart and advanced meters were operating in homes and businesses across Great Britain, with c.30 million more meters forecast to have been installed by the end of 2020.

In consideration of the above and pressure from stakeholders to review its position, on 16 September 2019, the government published a consultation on the introduction of a new regulatory framework that builds on the position up until the end of 2020. Following the end of the 2020 “all reasonable steps” framework, this proposed new framework will impose a licence obligation for energy suppliers in order to “complete the smart meter rollout as soon as practicable” or in any case, by the end of the monitoring framework period at 31 December 2024.

More specifically, the key proposals in the consultation are as follows:

  • A new licence obligation for gas and electricity suppliers to achieve specified annual volumes of smart meter installation;
  • Future policy measures required to complement any framework beyond 2020; and
  • Changes to the Smart Energy Code to modify the way the Data Communications Company (“DCC”) charges for its services.

Key proposals in the consultation

The new licence obligation for energy suppliers

Government acknowledge that the current policy framework is insufficient to deliver a market-wide rollout by the time required. Therefore, the proposal is to introduce a new licence obligation from 1 January 2021 (to replace the existing framework) to support energy suppliers in delivering a market-wide rollout as soon as practicable.

The new licence obligation would apply to all electricity and gas suppliers, regardless of size or entry date to the market and would operate via a monitoring framework set through regulation of energy suppliers. This would oblige energy suppliers to achieve pre-set annual meter installation milestones on a straight-line upward trajectory to market-wide smart meter coverage, with the framework period running for 4 years (from 1 January 2021 to 31 December 2024).

Policy measures to complement the framework beyond 2020

Government’s expectation is that energy suppliers must continue to improve their consumer engagement and fulfilment strategies to help increase consumer acceptance of smart meters. The four key principles underpinning the new policy framework beyond 2020 are:

“i. To encourage consumers to benefit from the rollout of smart meters, including how to use the data from their smart meters;

ii. To deliver a market-wide rollout of smart meters as soon as possible, that ensures value for money, and maintains installation quality so that consumers can derive maximum benefit and have a good experience;

iii. To normalise smart meters so they are the default meter used in Great Britain; and

iv. To give certainty to the whole sector to invest and plan, ahead of and beyond 2020.”

In its consultation, government seeks views on a) the type of consumer engagement activities necessary to incentivise smart meter uptake and maximise effective energy management, and b) potential future policy measures to incentivise consumer acceptance of smart meters.

Changes to the Smart Energy Code

The DCC (who manage the data and communications network for smart meters) recovers its allowed revenues through certain charges on its users. In the period to end-2020, domestic energy suppliers are charged on a market-share basis with charging on the basis of numbers of meters enrolled in the DCC post 2020. However, non-domestic energy suppliers are charged on an enrolled meter basis both pre and post 2020.

Government is of the view that the distinction between domestic and non-domestic energy suppliers is no longer appropriate as this approach could incentivise increased deployment of advanced meters for the non-microbusiness segment of the non-domestic sector and/or delayed deployment of smart meters in the non-domestic sector in general. Therefore, government proposes that section K of the Smart Energy Code (SEC) is amended to provide for charging arrangements to move to an enrolled meter basis for both domestic and non-domestic energy suppliers in the period after 2020.

Government is not minded to introduce differential pricing at this stage, but will keep this position under review, depending on energy suppliers’ progress towards meeting the proposed post 2020 rollout objectives.

Next steps

Stakeholders and other interested parties are invited to provide their views on the proposed approach, and more specifically, the questions set out in the consultation. The consultation closes at 10am on Monday 11 November 2019.