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20 | 25TH SEPTEMBER - 1ST OCTOBER 2015 | UTILITY WEEK Finance & Investment Market view T he UK was the first country in Europe to divest state-owned energy com- panies, and to move from state own- ership to a market-driven model. The UK also remains one of the few nations to have structurally separated energy retail from distribution, from transmission and from generation. These features of the UK market have led to a few unique quirks, including a rise in foreign investors entering the market, and this in turn has created a new challenge for UK operators on how they explain these nuances to foreign partners. When looking at the core industry pro- cesses that state-owned utility companies have historically undertaken, a number have been spun off into organisations created to specifically run a particular system or part of the process. For example, meter registration, balancing and settlement, managing indus- try data flow, or building the infrastructure, will underpin the smart meter rollout. These new organisations have taken dif- ferent forms. Some, such as Elexon and National Grid Metering, are subsidiaries of others formed to perform a particular service to industry. Then there are those such as Elec- tralink that are collectively owned by distribu- tion companies, and those formed as a result of competitive tender, such as the Data Com- munications Company. All this creates a level of complexity not previously encountered. When looking at smart metering in partic- ular, the UK Smart Metering Implementation Programme also has some unique features. The UK is one of only five European states to include gas meters as well as electricity meters in its national rollout. This not only almost doubles the number of meters that will need to be replaced, but means that a number of scenarios around installation, change of supplier, and billing implications have needed to be designed, particularly where customers have a different energy supplier for gas and electricity. The UK rollout is also the only one of the 16 European rollouts that is not led by the distribution companies. This, in addition to long being a cause for debate, means the interdependencies and hand-offs between energy suppliers and distributors are unique, and the benefits of having a national estate of smart meters are dispersed between multiple organisations. We in the UK are also one of a small minority (with Poland, Estonia and Denmark) that is deploying or mandating a central data management system. The centralised communication, data management, infrastructure and systems that underpin the UK rollout will require unprecedented collaboration between sup- pliers. Each supplier will take an inde- pendent and very different approach to the programme and there will also be variations across the whole supply chain, and the net- work of organisations that have particular market functions to perform. The features of the UK market approach are reflective of our particular market struc- ture and energy mix. The level of collabora- tion needed to adopt and ensure compliance with centrally (or internationally) defined standards is a resource burden, which all participants have to shoulder. Performance measures designed into the Smart Energy Code and programme govern- ance mean that communications providers, device manufacturers, and a host of others, are jointly invested in and mutually depend- ent on one another for their success through incentives. The associated cost could be viewed as overly restrictive by companies – particularly those from different home markets and more used to steering their own ship independently – unless they are carefully explained. Other countries have followed different paths and speeds to liberalisation. Spain started the journey to market liberalisation in earnest in 1996, and introduced customer choice in energy supply in 2003, although 95 per cent of the market is still controlled by three suppliers (Endesa, Iberdrola and Gas Natural Fenosa). In terms of its electric- ity smart meter rollout, Spain has been faster and more aggressive than European targets, with 70 per cent of customers forecast to have smart meters by the end of 2016 and the rollout set to be complete by 2018. France is substantially less liberal. For- mer state monopoly EDF floated on the Parisian stock exchange in 2004, although remains 85 per cent government-owned. Much like the UK, France is forecast to start its scale smart rollout in 2016, with comple- tion by 2020. This will build on the early suc- cess of the Linky consortium, which installed a central system and hundreds of thousands of smart meters to prove the benefit of smart meters for all participants. Germany's domestic electricity market was fully liberalised in 1998. Today it fea- tures four vertically integrated suppliers – Amprion (formerly RWE), TransnetBW, TenneT TSO (formerly Eon), and 50Hertz Transmission (formerly Vattenfall Europe). There is also a thriving regional and munici- pal supplier market with thousands of small distribution and retail energy companies. The initial cost-benefit analysis for the national German smart metering case was negative, leading to a stop-start approach. Alien concepts The UK smart meter programme has a number of peculiarities that may appear alien to foreign owners of UK utilities. Amy Marshall highlights the key areas that will need careful explanation. Key points The UK is one of only five European states to include gas meters as well as electricity meters in its national rollout. The UK rollout is the only one of the 16 European rollouts that is not led by the distribution companies. The UK is one of a small minority that is deploying or mandating a central data management system. The UK smart meter programme has a number of unique features that from the perspective of a French, German or Spanish parent company could be difficult to fathom. Industry leaders should view any communication of strategy and investment through the lens of a foreign investor unfamiliar with the landscape.