MPs: Smart-meter scheme could cost consumers dear

The government's plan to have smart meters installed across the UK could leave consumers out of pocket while energy companies reap the savings, MPs have warned.

The rollout of smart meters around the UK could leave consumers out of pocket, a committee of MPs has warned. Image credit: British Gas

Low-income families in particular could find themselves worse off, the Public Accounts Committee (PAC) said on Tuesday as it issued a report into the preparations for the mass rollout. Energy firms such as British Gas are already deploying the devices, while the government-co-ordinated drive aims to see a connected grid of 53 million smart meters replace traditional meters by 2019, at a cost of around £11.7bn.

Smart meters collect and feed real-time data on energy consumption to suppliers, while attached monitors tell people about their usage patterns and costs. This way, they help utility providers manage their product while making it easier for people to control how much they use and spend. However, the parliamentary committee said it was more likely to benefit suppliers than users, echoing the findings of an earlier National Audit Office report.

"Consumers will benefit from smart meters only if they understand the opportunity to reduce their energy bills and change their behaviour," committee chair Margaret Hodge said in a statement. "So far the evidence on whether they will do so has been inconclusive. Otherwise, the only people who will benefit are the energy suppliers."

Hodge noted that the cost of installing and operating smart meters will be passed on to consumers in their energy bills. "No transparent mechanism presently exists for ensuring savings to the supplier are passed on," she said. "The track record of energy companies to date does not inspire confidence that this will happen."

The committee showed particular concern for vulnerable customers and people on low incomes. It said the effect of having such people pay for their smart meters is "regressive", or represents a higher proportion of their income or costs.

"There is a risk that they may end up paying more through their bills where the costs of installing the meters outweigh the savings they are able to make," Hodge said.

Consumer costs

In response, a spokesman for the Department for Energy and Climate Change (DECC) insisted consumer savings would outweigh costs by £22 on each annual bill, on average. He also told ZDNet UK that vulnerable people are more likely to be caught out by estimated billing than by a system that regularly tells them how much they are actually spending on energy.

Consumers will benefit from smart meters only if they understand the opportunity to reduce their energy bills and change their behaviour.

– Margaret Hodge MP

DECC took over the smart-grid preparations from regulator Ofgem in 2010. In its report, the parliamentary committee called on the department to clearly set out what energy suppliers must do to make sure their customers benefit from smart meters, including setting up safeguards for poorer and more vulnerable people. In addition, DECC must say how utility companies will be "held accountable" for their approach, the committee said.

The PAC findings come two days after consumer affairs group Which? called for the government to halt the rollout and review its "hands-off, supplier-led" approach.

"This report confirms our view that the smart-meter rollout should be stopped and reviewed before...

...the costs escalate," Which? executive director Richard Lloyd said in a statement. "While smart meters themselves can be beneficial, it's unacceptable for the energy companies to be in charge of deciding costs for this rollout."

Energy minister Charles Hendry responded to the committee's report by saying smart meters will unlock huge benefits for the UK, arguing "the last thing we need is more dither and delay".

"The benefits of smarts meters are £18.7bn from an £11.7bn investment — that's a £7bn net benefit to the nation, and we want to realise it sooner rather than later," Hendry said in a statement on Tuesday.

Complex IT project

There are uncertainties about the practicalities and costs of rolling out the smart-grid programme, as well as about its benefits, the committee said. For example, it is not clear whether consumers will be willing to co-operate with the installation of the meters, and "significant practical difficulties" may arise in procuring and installing the data communications service for the smart grid in time for the planned meter rollout in 2014, it noted.

"The department needs to address remaining uncertainties by conducting proper trials to identify and manage the risks associated with an IT project involving such a substantial amount of money which is financed by individuals as consumers," the committee said.

Noting that data communications network alone will cost around £3bn, it suggested the department consider the lessons learned from other large government IT projects to make sure that the system can support smart grids and that extra costs are not passed on to consumers.

However, Hendry criticised the previous Labour government for being too "hands-off", saying the department had brought the project in-house so that "ministerial oversight and safeguards for consumers [could be] built in".

The smart-meter programme has yet to go to tender, and companies such as BT and Detica have been forming consortia in the hopes of grabbing contracts such as that for the communications network.

Network security

The security of the network is a major concern, given how it will extend into most homes. Many cybersecurity experts have highlighted the risks inherent in such a scheme, and the PAC report said the government has not yet provided sufficient assurances about these.

There are issues around cybersecurity which need to be addressed.

– PAC

"There are issues around cybersecurity which need to be addressed if confidence in this new technology is to be gained by the population who are expected to have smart meters in their home and pay for them," the committee said.

DECC's spokesman responded by saying the department will consult on data security and privacy issues, along with other aspects of the rollout, in the "next few weeks".

"When we're tendering for the communications provider, they'll have to demonstrate that they're offering a secure system," he said.