Government’s smart meter rollout to cost £1.5bn more than expected

The UK’s smart meter rollout could cost £1.5 billion more than expected, a National Audit Office (NAO) report has revealed.

The smart metering implementation programme, led by the Department for Energy and Climate Change (DECC), aims to rollout over 50 million smart electricity and gas meters to all domestic properties and smart or advanced meters to smaller non-domestic sites in the UK by the end of 2020.

“The department’s economic case has allowed £1.5 billion for higher than expected costs,” the NAO report stated.

“[The £1.5 billion] relates to costs for installation, metering equipment, IT costs and the additional costs that may be incurred when rollout installation rates peak at their highest levels.”

The programme is now expected to cost £10.9 billion between 2013 and 2030, bringing economic benefits of £17.1 billion.

Benefits decline

Nonetheless, the DECC expects the programme to deliver additional, as yet unquantified, benefits from “increased competition through easier switching between suppliers and from the opportunities offered by developing smart grids”.

In addition to the increase in costs, the NAO found that the benefits of the programme have fallen by £2.1 billion due to the one-year delay to the mass rollout.

The government announced the delay, which means that mass rollout of smart meters will not be completed until 2020, in December. The deadline extension was to accommodate the great amount of time needed for the energy industry to design, build and test their smart metering programmes.

“Since 2011, the total benefits from the programme have reduced from £8.3 billion to £6.2 billion, primarily as a result of the one-year delay to the completion of mass rollout,” the NAO report said.

Despite these issues, the NAO said that it is still believed that there will be £1.60 of benefit for every £1 spent to 2030 on the programme. Consequently, the NAO said that the economic case for the programme “remains positive”.

Significant risks

However, it said that “significant risks” are still present, such as potential consumer resistance to smart meters, the need for industry to resolve outstanding technical issues, data security issues and the readiness of suppliers, network operators and the supply chain for large-scale installation. Low take-up of smart metering by consumers caused by these issues could have a major impact on the programme, as the economic case is based on the assumption that the rollout will be almost universal.

The risk of low consumer adoption appears to be real. Research commissioned by the Smart Meter Central Delivery Body (SMCDB), carried out by Populus, surveyed 10,000 adults across Great Britain and found that just 44 percent were interested in having a smart meter installed in their homes.

“The department is relying both on the suppliers’ own commercial incentives to bear down on costs, and on competition between suppliers to ensure efficient roll-out and to keep costs under control,” the NAO said.

MPs were also concerned that not all of the energy suppliers have not invested enough in trialling the technology.

“Although the foundation stage of the programme has allowed suppliers to test and trial smart metering equipment, only two of the big six suppliers have installed a significant number of meters,” the NAO report said.

Other technological issues

The report highlighted that suppliers are still developing a home area network radio system, which would allow consumers to connect devices like in-home displays to their smart meters, for a large proportion - 30 percent - of premises. These include many high rise flats and buildings with thick walls.

Since the existing frequency of smart meters, 2.4 GHz, does not work in these types of premises, suppliers are developing a network that operates at a frequency of 868 MHZ. This new network is expected to work in 25 percent of premises and will be available “within a year” of the start of the 2015 mass rollout.

The DECC is consulting on the technological approach needed for the remaining five percent of premises.

Copyright © 2014 IDG Communications, Inc.

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