Utility Week

UTILITY WEEK | 12Th - 18Th MAY 2017 | 27 Customers Analysis T he relationship between suppliers and the government-mandated rollout of smart meters is shaping up to be as "abusive" as the affair that Iain Wright MP infamously said suppliers are imposing on their loyal customers. It has so much scope for happy outcomes, but is on a worryingly destructive path. Energy retailers want to love the rollout. It will provide a platform for innovative prod- ucts and services, which are sorely needed by firms struggling with thin margins. It also promises an opportunity to transform transactional and negative billing interac- tions with customers into valued exchanges that deliver satisfaction via reduced costs, improved transparency and empowerment. Early insight into the experience of those who already have smart meters is positive. A survey of over 1,000 UK consumers con- ducted by Utility Week and market research partner Harris Interactive shows that 64 per cent of those with meters in place are enjoy- ing better visibility of their energy costs, 36 per cent have achieved savings, and 76 per cent are impressed with the technical and service expertise of the individuals who com- pleted the installation (see overleaf). Furthermore, research carried out by You Gov shows that these positive experiences are improving customer perceptions of their energy suppliers. In line with a doubling of smart meter numbers since January 2016, it found that the proportion of consumers who consider energy suppliers to be "reliable" increased from 26 to 29 per cent, and those rating them as "professional" rose from 17 to 20 per cent. However, cost, installation issues, targets that cannot be met, and tech- nical hold-ups are landing heavy blows to this optimistic outlook. Unrealistic predictions regarding the ease with which installation will proceed are at the core of many of the issues facing the smart meter rollout. Government has sug- gested that just five per cent of properties will require more than one visit in order to complete installation over the course of the rollout. But Utility Week's research shows the current rate is more like 13 per cent. The Big Deal, a collective switching enterprise, has previously warned it believes that between 10 and 15 per cent of properties will require more than one visit, and that this could push up the cost of rollout by as much as £1 billion. The reasons for first-time install failures are many and varied, ranging from the cus- tomer being absent to unexpected problems around the location and condition of meters. A source at the Department for Business, Energy and Industrial Strategy (BEIS) told Utility Week it expects teething problems to settle as the rollout ramps up and suppliers improve the efficiency of their installation operations. But their optimism is countered by commentators who point out that many of the most difficult installations – for multiple occupancy properties and properties with meters that are located a significant distance apart, for instance – are being pushed to the back of the programme. Rob Doepel, a partner at consultancy EY, told Utility Week: "First-time installs are about as good as they are going to get right now." Trouble ahead The reason these kinds of installations are problematic links to another big, and grow- ing, source of concern for suppliers – func- tionality. Despite and major "go-live" event in November last year (12 months behind schedule), the central communications system for smart meters is still lacking in a number of core areas, including interoper- ability of first-generation or SMETS 1 meters and communications with SMETS 2 meters, prepay meters and meters in multiple occu- pancy dwellings. A spokesperson for the Data and Commu- nications Company (DCC) insists: "The DCC went live in November 2016 and is ready to support energy suppliers to install and oper- ate the next-generation SMETS2 smart meters on the national network." The spokesperson adds: "It is a matter for individual suppliers to determine their meter rollout plans." It's a message that conflicts with the experience suppliers have privately shared. Sources are unwilling to be named for fear of damaging their working relationship with the DCC, which is critical to progress, though Eon UK's outgoing chief executive, Tony Cocker, admitted in a recent interview with Utility Week that hold-ups to the release of key DCC functionality are "disappointing". Elsewhere, suppliers have told Utility Week that testing for SMETS 2 meter com- munications with the DCC, using real meters rather than emulators, is ongoing. None is willing to deploy SMETS 2 meters until this testing is complete and any issues resolved. While suppliers wait for phase 1.3 to launch – the next phase of DCC functional- ity – the installation of SMETS 1 meters con- tinues. There are now more than five million SMETS 1 or earlier iteration smart meters on walls in the UK, significantly overrunning what was planned at start of the rollout. Doepel says, "I'm not sure that as an industry we have really understood the impact of the unexpectedly high numbers of SMETS 1 meters in the marketplace. What is the risk and the stranded cost we are car- rying?" An impact analysis to uncover the implications of DCC delays and high SMETS 1 deployment is now required, he argues. A prominent worry is that switching limi- tations for SMETS 1 meters – which cannot reliably transfer smart functionality between suppliers if a consumer decides to move their custom – will deter customers from seek- ing out the best deals. Stuart Cook, head of utility strategy and regulation at PwC, says: "Ofgem has not put enough weight on the impact this will have on competition." Cost burden A possible shrinkage in switching is not the only unintended consequence smart meter- ing may have on competition. Earlier this year, experts at EY warned that the heavy cost burden imposed by the rollout, which has seen suppliers invest billions in IT sys- tems, regulatory compliance and installation contracts, will squeeze supplier resource for innovation via new products such as time-of- use tariffs and connected home services. In February, Doepel told Utility Week that while suppliers are being "hammered on price and competitiveness", and urged to Pick your partner As challenges mount around the UK smart meter rollout, suppliers are wondering whether desperate times call for desperate measures. Jane Gray reports on an emerging openness to collaboration.

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