Are Smart Meters Good Value?

Are Smart Meters Good Value? - this is a good challenge as the government's own business case is weak. The main benefit is through customers reducing their consumption as they will have better visibility of their usage and cost position. Surveys testing the assumption have varied, many show that customer's consumption reduces initially and then goes back up as the novelty factor of a Smart Meter and In Home Display wears off.

Over time the costs of the Smart Meter roll-out have been going up, and the benefits have varied.

In September 2019 the Department for Business, Energy & Industrial Strategy (BEIS) said that the latest costs were £13.480bn, with benefits of £19.457bn, giving a net benefit of £5.977bn.

In 2016 the Department for Business, Energy & Industrial Strategy (BEIS) said that the latest costs were £11.0bn, with benefits of £16.7bn, giving a net benefit of £5.7bn.

In 2014 the UK Public Accounts Committee (PAC) said that the costs were £10.9bn, with benefits of £17.1bn, giving a net benefit of £6.2bn.

In 2011 the National Audit Office (NAO) said that the costs were £11.3bn, with benefits of £18.6bn, giving a net benefit of £7.3bn.

The Latest View of Costs

The latest view of costs (September 2019) £13,480M breaks down as follows:

Smart Metering Costs 2019
Cost Item Value %
Meters & IHDs £2,201M 16%
Installation £3,208M 24%
Communication hubs £1,420M 11%
Operation of Meters £666M 5%
DCC Related Costs £2,900M 22%
Suppliers' and other participants' system costs £1,001M 9%
Other costs £1,170M 9%
Projected Future Costs £192M 1%

Suppliers will recover this cost from customers over a number of years. The maximum added to bills was £11 in 2018. After that year the benefits gradually increase and by 2034 the average bill is reduced by £36.

The Latest View of Benefits

The latest view of benefits (September 2019) £19,457M breaks down as follows:

Smart Metering Benefits 2019
Benefit Area Value %
Customer Benefits £7,623M 39%
Supplier Benefits £8,071M 41%
Demand Shifting Benefits £1,363M 7%
Network Benefits £374M 2%
Carbon and Air Quality Benefits £2,026M 10%

What are these benefits and how will they be realised?

The most relevant item to customers is the Customer Benefits through energy savings. These savings come from customers reducing their demand because they can see on their IHD the amount of energy that they and their appliances use.

Here is an explanation for each benefit figure:

Benefit Explanation
Customer Benefits

With near real-time information on energy use and costs, customers are expected to make energy savings through enhanced energy efficiency behaviour.

To put it another way, as customers see and understand the cost of running different appliances, they will seek ways to reduce those costs through either reducing the time something is used, taking up time of use tariffs or using more energy efficient appliances.

Supplier Benefits Suppliers can make a range of operational cost savings:
  • They remove the need for site visits to collect meter readings and are expected to reduce suppliers' call centre traffic, with fewer queries about estimated bills.
  • Smart meters are expected to make the customer switching process cheaper and simpler, thanks to accurate billing and more streamlined interaction between involved parties through on demand meter readings at the point of switching.
  • Suppliers should see improved theft detection and debt management.
  • Customers will also be able to avoid proactively the accumulation of debt, through access to and consideration of accurate, near real-time energy information.
Network Benefits Network operators will be able to improve electricity outage management and resolve any network failures more efficiently once a critical mass of smart meters has been rolled out; and they will be able to realise further savings from more targeted and informed investment decisions.
Demand Shifting Benefits By enabling time of use (TOU) tariffs which tend to shift a proportion of electricity generation to cheaper off-peak times, smart meters are also expected to generate savings both in terms of distribution as well as generation capacity investment.
Carbon and Air Quality benefits This reduction in energy use also brings with it a reduction of carbon emissions and an improved air quality.

Trading off the costs and benefits together there is a net benefit of £6bn resulting in lower energy bills for customers. Residential customers should have seen their average dual-fuel bill reduce by £36 in 2034.

Predicted Customer Benefits

The 2019 Benefits Case for domestic customers assumed all customers would achieve some reduction in energy use, split as follows:

  • 33% of customers - Achieve a higher level of energy reduction:
    • 3.0% for electricity (credit and prepayment)
    • 2.2% for gas credit and 0.5% for gas prepayment.
  • 66% of customers - Achieve a lower level of energy reduction:
    • 2.8% for electricity
    • 2.0% for gas for credit customers.

Reviews of Customer Benefits

Early surveys asked customers whether or not they were saving energy with smart meters. The most recent survey from the government reviews actual consumption and shows results even better than the business case above.

June 2023 - The Department for Energy Security & Net Zero (DESNZ) published a review of the consumption of over 1 million customers, finding an average reduction in energy consumption from smart meters of 3.43% for electricity and 2.97% for gas.

December 2019 - 31% use less - In December 2019 a survey of 1,000 households by researchers Consumer Intelligence for the Daily Mail found that only 31% said they were using less power after having a Smart Meter installed, including just 3% who said they were using considerably less. Other findings were that 53% of smart meter owners had not changed their energy usage after having one installed and 16% said they were using more energy!

November 2016 - 44% use less - A survey published in November 2016 by ECTA Training found that 44% of customers say that their energy bills have reduced after having a smart meter installed.

(Page updated: 2023-06-17)

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