The first SMETS2 smart meters finally arrive but doubts over the programme remain

With the deadline for smart meter installation just 30 months away, more than 11 million smart meters had been fitted in domestic properties by the end of March 2018 against a target of over 50 million – in order to meet the deadline, consumer group Which? has estimated that 24 units would need to be installed every minute until the end of December 2020, equivalent to around quarter of a million a week.

All bar a very small number of the smart meters already installed are so-called SMETS1 devices – Claire Perry, the Energy minister recently told Parliament that there are just 450 SMETS2 meters currently in operation of which only 80 are in domestic premises.

SMETS1 vs SMETS2 smart meters

SMETS, or “Smart Metering Equipment Technical Specifications”, is the industry standard that specifies how smart meters work, and in particular how the meter connects to, and communicates with the supplier. SMETS1 meters contain a SIM card that connects to the supplier over the cellular network, however, suppliers have implemented different communications technologies meaning that these meters often lose their smart capabilities when the customer switches supplier.

In order to resolve this problem, the Government granted Smart DCC limited, a subsidiary of Capita plc, a licence to establish and manage the data and communications network to connect smart meters to the business systems of energy suppliers, network operators and other authorised service users of the network.

A new generation of smart meters, known as SMETS2, will communicate over this network, meaning they will be compatible with a much wider range of suppliers.

To avoid having to replace over 11 million SMETS1 meters with SMETS2 devices, the Government is exploring ways of making SMETS1 meters work over the DCC network, ideally via a remote software upgrade. On 17 April, BEIS published a consultation outlining its proposals to introduce an obligation on energy suppliers to take “all reasonable steps” to enrol SMETS1 meters in the DCC within a “specified timeframe”, and as a back-stop suppliers would be required to replace any SMETS1 device that has not been enrolled with a SMETS2 meter by the end of 2020 (see box).

The Government says the DCC is currently procuring and testing a service which would allow for smart services to be retained after switching SMETS1 meters, and after 5 October this year new SMETS1 installations will no longer count towards suppliers’ smart meter deployment obligations.

Energy supplier Utilita Energy has filed for a judicial review into the end date for the installation of SMETS1 meters for pay as you go (“PAYG”) customers. The company, which has 600,000 customers across the UK, has highlighted there are only a few hundred consumers with SMETS2 meters installed, none of whom are PAYG customers.

Utilita would like the Government to push the deadline back to at least 2020, arguing that certain features of SMETS1 meters make them more suitable for PAYG customers, many of whom are vulnerable. The company said its SMETS1 meters have a keypad which allows PAYG customers to serve themselves if the network is down, and claims that SMETS2 is not designed for self-service therefore putting customers at risk of being cut off if the communications connection goes down.

BEIS has indicated that it intends to defend the action.

SMETS2 smart meters have been a long time coming, and the launch of the DCC was subject to numerous delays, only going live in November 2017 almost two years after the original 2015 target date. With so few SMETS2 meters installed so far, it’s too early to say whether the system works as it should – the complexity is enormous and the delays reflect the difficulty of designing and implementing a functioning solution.

It will be interesting to see how the industry responded to the SMETS1 interoperability consultation (which closed in late May), and whether there is a consensus that enabling SMETS1 devices to communicate over the DCC is really viable. Some experts are doubtful – Rik Smith, an energy expert at price comparison website Uswitch, said there are questions over whether a remote upgrade is possible. Despite the Government’s desire to require suppliers to deliver this solution, it may not be technically feasible, or at least, not at an acceptable cost, in which case, 11 million SMETS1 meters would need to be replaced early.

“We feel the smart meter roll out has been ridiculously rushed and totally mismanaged by the Government. The SMETS1 roll out should have been a small pilot. Instead it has turned into a massive roll out of 8.6 million meters and counting costing roughly £1 billion. In the end more than 10 million smart meters that have big interoperability issues look set to be rolled out. Suppliers like SMETS1 meters as they are cheap and make customers less likely to switch away from them. They are in their interest but not the national interest,”
– Mark Todd, co-founder of Energyhelpline (speaking in February 2018)

Will the 2020 deadline be met?

As the Which? analysis demonstrates, the 2020 installation deadline is challenging, although the Government remains committed to the date.

“Everyone has made it quite clear that the deadline will be missed. I am afraid that I have not met anyone, other than the Minister, who thinks that this deadline will be reached,”
– Baroness Featherstone

Publicly, the energy industry is committed to meeting the 2020 target, however privately, some executives have admitted they are concerned – according to one executive at a utility, who preferred to remain anonymous:

“It is extraordinarily challenging to meet the deadline and to do that safely. Given the recent bad press about the programme another challenge we face is customer acceptance. The supplier has to persuade you to have a meter installed but energy companies are not the most trusted these days.”

Meanwhile, there are growing concerns about the impact the deadline is having on the behaviour of suppliers, with consumers complaining about unfair pressure being put on them to accept a smart meter, according to complaints received by Citizens Advice. Issues include households being given so-called “deemed appointments”, where suppliers inform customers they are coming to install smart meters without giving them the opportunity to opt out. Other complaints include communications about smart meters failing to mention the fact they are not compulsory.

As a result, the Chartered Trading Standards Institute (“CTSI”), run by Citizens Advice, has written to Energy UK expressing concerns that suppliers may be breaching the Consumer Protection from Unfair Trading Regulations 2008 and asking it to remind suppliers not to give the impression to households that smart meters are obligatory. The CTSI has the power to launch criminal prosecutions against any suppliers that are in breach of these regulations.

Moneywise has seen reports of such behaviour by energy suppliers, and cites specific examples of customers receiving misleading communications about smart meters from Big 6 suppliers, failing to inform customers that smart meters are not mandatory (and in some cases implying that it is a legal obligation to have one), and placing the onus on consumers to actively opt out whilst failing to provide any information about how this can be done, or even that it is an option.

Data security concerns

In addition to worries about the technical feasibility, concerns are growing around data security and privacy. Intelligence agency GCHQ has warned that UK smart meters could be vulnerable to cyber-attacks, potentially allowing hackers to access personal details and defraud customers by tampering with their bills.

These risks will actually increase with the deployment of SMETS2 meters as making the technology universal will allow hackers to access any meter with the same software once they find a way into the system, whereas under SMETS1, the supplier-specific communications protocols mean the pool of potential targets of any successful hack is much smaller.

If cyber criminals hack into a smart meter, they could potentially inflate meter readings, making bills higher, and then try to intercept payments, to skim off the difference between the real reading and the false reading, although this may not be the most likely line of attack. Smart meters could be used as a “Trojan horse” to access other computers and gadgets around the home if the meters are able to communicate with other devices, giving hackers the ability to steal personal information that could be sold on to other criminals, or infect devices with ransomware. There are also fears of a larger-scale cyber-attack where remote control of smart meters could be used to create a power surge that would damage the wider electricity grid.

Some consider these fears to be overblown, however the experience in other countries indicates that hackers can and do exploit vulnerabilities in energy systems. In Israel, Turkey and Finland computers controlling warm water and heating systems have been disabled leaving homes cold, while a 2016, an attack in the Ukraine left over 80,000 customers without power for several hours.

“They’re generally always turned on, they mostly reside on residential networks which aren’t monitored for either incoming or outgoing attack traffic, and the networks where they’re deployed increasingly offer high-speed connections,”
– Kirill Kasavchenko, principal security technologist, EMEA
– at NETSCOUT Arbor

However, Robert Cheesewright, of Smart Energy GB, the Government-funded agency promoting the smart meter roll-out, sought to reassure consumers:

“Smart meters are one of the safest and most secure pieces of technology in your home. Only energy data is stored on a meter and this is encrypted. Your name, address, bank account or other financial details are not stored on the meter.”

There are also concerns over privacy – smart meters give the energy supplier access to its customers’ usage data – this is unsurprising and the only difference with the pre-smart meters world is the granularity of these data, however this granularity makes the data more valuable. Under GDPR, suppliers need their customers’ permission to use these data for marketing, or to sell on to third parties (although this may not be comforting as anecdotal evidence suggests that many businesses still do not have a good understanding of their obligations under GDPR).

How likely is the smart meters programme to deliver value for money?

Concerns about value for money are growing. In February, Labour MP Steve McCabe suggested that the estimated cost of the programme had increased from £5 to £13 per household in just a year, while the Daily Mail has reported, citing un-named sources among the Big 6, that the cost of the project has increased by £9 billion to £20 billion, wiping out any potential savings.

“Almost all the large suppliers now say the rising costs of the smart meter programme are one of the main reasons for the rise in customer bills,”
– Steve McCabe, MP

The National Audit Office is investigating whether the scheme will save households money, as well as the likelihood of the 2020 deadline being met, and in a recent debate in the House of Lords on the Smart Meters Bill, peers discussed whether the legislation should be delayed pending an updated cost-benefit analysis, although currently the Government plans to press on regardless.

Concerns about value for money are twofold: firstly, whether the expected savings will actually materialise, and secondly, whether the roll-out can be delivered for the budgeted £11 billion.

Last November Which? surveyed 473 smart meter users and found that for at least three quarters, their smart meters exceeded their expectations. However of those who had their smart meter installed between one to two years ago, half said they looked at their in-home display (“IHD”) at least daily at first, but this has since fallen, with only just over a fifth looking at it every day, while a third never use it.

Almost 60% of users said their smart meter and IHD had changed their understanding of energy use and costs to some extent but the other 40% said its hadn’t, either because they knew the information already (43%), don’t use the IHD (27%) or don’t understand the IHD (13%). 42% of those with smart meters said they had a problem with either their smart meter or in-home display. The most common were the smart meter turning “dumb” when they switched supplier, or that they found it difficult to get a reading from the smart meter.

What the survey does not appear to have asked is whether the users believed they had saved money as a result of their smart meters. The Government insists that smart meters reduce energy consumption and lead to savings on energy costs, however, the smart meter itself does no such thing. The assumption is that the information provided by IHDs will nudge consumers into reducing their energy use once they understand their consumption patterns. Given the declining use of IHDs, for sustained reductions in consumption to be achieved, users would need to embed lifestyle changes that reduce consumption relatively soon after receiving their smart meter.

Wireless communications expert, Nick Hunn has serious doubts about the both the costs of the project and the potential savings. In relation to savings, he questions why data from the 11 million smart meters that have already been installed are not being used to demonstrate the impact they are having on energy use:

“There should now be plenty of data from the smart meters which have been installed to confirm whether they do have a lasting effect on energy usage.  If that were calculated, we would have a good idea of whether this programme is justified.  Almost every independent analysis of smart meters here and elsewhere in the world suggests it is not.  But none of that data from the UK is being released.  It’s a pretty simple exercise to perform but no-one is doing it.  Instead Smart Energy GB are promoting interviews using trite interviews from householders saying “how nice it is not to have estimated bills”.  I think we all agree with that, but I‘ve not heard one of them being told that there is a cost associated with that.  With the total program costed at £10.98 billion, that cost is £366 per household.  If the smart meter lasts twenty years, that adds £18 to your bill each year.  But if the meters need replacing after five years, which is looking more likely, then that’s £73 pounds each year.  Until we know whether they really do help you save energy, that’s £73 that will get added to your bill purely to avoid estimated bills.” 

Hunn goes on to suggest that there could only be three explanations for this missing analysis: (i) the analysis has been done, but did not show that smart meters users were saving energy, so the evidence has been buried; (ii) the data have been lost, although as the meter specification allows the meter to store it, this shouldn’t be the case; or (iii) the industry doesn’t know how to do the required data analytics. He concludes that the third possibility is the most likely.

In a guest post for Energy Matters, engineer and economist Alex Henney also calls for an “objective evidence-based review” using the data from the millions of smart meters installed by industry leader British Gas. He also believes the entire project should be halted, and makes a number of recommendations including giving DNOs a greater role in the process, scrapping the DCC and getting rid of in-home displays replacing them with smartphone apps and computer based services along the lines of internet banking.

In terms of whether the project will be delivered on budget, Hunn believes that that the technical challenges around SMETS2, whose complexity is “pushing the limits of the industry to design them” will make them difficult to deliver, and is dubious about whether SMETS1 meters will be able to operate with the SMETS2 software infrastructure, meaning that the 11 million SMETS1 meters would need to be replaced, pushing up the costs of the overall roll-out.

Hunn describes another problem with the GB smart meters programme – technological obsolescence. I have described this previously, but in brief, the GB smart meter specification relies on a GB-specific Zigbee protocol between the meters and smart in-home devices, and the GPRS network. Unfortunately, while communications protocols for Internet of Things (“IoT”) devices are not standardised, none uses the particular protocol used in GB smart meters. In addition, the reliance on GPRS, a second generation mobile telecoms standard, means that parts of the mobile network spectrum must continue to be allocated to an obsolete technology – 4G is now commonly used and the 5G spectrum has recently been auctioned.

Using bespoke or out-of-date technologies significantly increases the risks of the project, and in particular raises the possibility that further adaptations of the GB smart meters specification will be needed. It is also worth noting that at some point, domestic electricity meters will need to be two-way if EV-to-grid or peer-to-peer trading arrangements are to be developed, which places further pressure on the possible useful life even of SMETS2 meters.

In the meantime, suppliers are raising their prices, and citing growing non-commodity costs including the cost of the smart meters programme – according to Centrica the roll-out is “costly to implement” and adds “the equivalent of almost £40 on the bill of each Centrica customer”. The company has also warned that the planned retail price caps could have serious implications for the project, as there may not be enough money to fund the rest of the roll-out.

“Unfortunately, a negative precedent has been set with the recently introduced pre-payment meter price cap. This allows just £1.50 per customer to pay for the smart meter roll-out, substantially underestimating the true cost. It is important to remember that restricting the allowance for the smart meter programme will have a relatively high impact on the number of meters installed, owing to the large fixed costs of the programme,”
– Centrica

Despite ongoing concerns about the programme and negative experiences in other countries (notably Canada and Australia), the Government is determined to press on with its flawed smart meters scheme. It will be interesting to see the results of both the SMETS1 interoperability consultation and the NAO analysis – perhaps if these are negative, there may be a re-think, but it may be wise not to bet on it.