What’s the difference between Sir Philip Green and the GB Smart Metering Program?
By Paul Homewood
Nick Hunn, who has been closely following the government’s smart meter programme, offers his view on the latest assessment of the costs involved.
He writes on his blog, Creative Connectivity:
BEIS (the Department for Business, Energy and Industrial Strategy) have just released their long overdue assessment of the cost of the country’s smart metering program. Hidden among the figures is the amount of money that they have spent. So far, they have squandered £450 million on the project, despite the fact that not a single compliant smart meter has been installed in any house. By a strange coincidence, that’s exactly the same amount as the shortfall in BHS’ pension fund which occurred when Philip Green flogged off BHS.
The £450 million hole in the BHS pension fund had MPs baying for Philip Green’s blood, threatening to remove his knighthood and demonising him in the press. The £450 million expenditure by BEIS on civil servants and consultants, with nothing to show for it, has elicited virtually no reaction from Parliament, yet it will end up costing the taxpayer far more.
Let me reiterate this, as it is truly shocking. Over the last six years, DECC, BEIS and Smart Energy GB have spent £450 million on consultations, developing specifications, fighting Freedom of Information requests and spinning PR stories, yet we have not had a single smart meter installed which conforms to their specifications. Isn’t it time that Parliament stops fuming about super yachts and calls BEIS to account? Not least, because the latest report from BEIS shows they can’t even manage simple arithmetic.
As we have come to expect from BEIS and their predecessors at DECC, the latest Impact Assessment is yet another work of fiction. Slipped out on the day that Donald Trump was elected in order to ensure minimum press coverage, it showed that merging DECC into BEIS has done nothing to bring any sense of reality to the program.
The Smart Metering saga has been running since 2007, when it was signed off by Charles Hendry and I’ve been documenting its sorry progress in a number of articles. Essentially, it aims to install 53 million new gas and electricity meters in British homes by 2020. Half of these were expected to be installed by 2017, when there would be a project review.
In principle, smart meters are a good thing. They provide information to the grid about real-time usage. As our mix of energy generation changes and we see much more local and microgeneration that’s a big benefit. The information on energy use can also be relayed to consumers to help them become more energy efficient – something that will be important as we move towards smart homes, although that won’t be common for the next decade. One they’ve done that, a useful by-product of smart meters is that they send your energy usage directly to the supplier, removing the cost of meter reading and making it more likely that your bill will be correct. (The recent fiasco, where it was discovered that 100,000 consumers were mischarged because the energy suppliers confused metric and imperial readings, shows that having an accurate number won’t necessarily protect you from being mischarged.) The problem with the GB program is that the people designing the smart meters have forgotten most of these priorities. Instead, they’ve been designed mainly to help energy suppliers develop complicated tariffs and remotely disconnect users who haven’t paid their bills. Asking energy suppliers to design smart meters is a bad idea, exemplified by a statement I heard from an executive at a Californian utility, who told an industry conference that “the best thing about smart meters is they give us more evidence to blame the customer”.
Nobody involved in this program likes to say it, but in early documents, DECC make clear that the cost of smart meters would result in an increase in electricity and gas prices, estimating an average increase of £8 – £9 in a consumer’s annual energy bill. That increase meant that there was no rationale for deploying smart meters. To justify their deployment, DECC decided to calculate potential energy savings which would compensate for the rise in energy costs. To achieve this, they made the decision to provide every home with an In Home Display, which would inform customers of their real-time usage, arguing that if we knew the actual costs we would consume less energy. As there was virtually no evidence to draw on, (as no other country in the world had taken this approach), this was largely fictitious. But the great thing about fiction is that you can make it up, which is what DECC did. Miraculously, their calculations predicted an overall customer saving of £14 per year, giving the green light for the project to go ahead. A previous study for DECC by an external consultancy, and a similar review more recently in Germany, suggest the opposite, but DECC has resisted all Freedom of Information requests to determine how they reached their figures. Instead they’ve poured £192 million into Smart Energy GB – a quango whose sole purpose is to spin this savings mantra to the public, implying that smart meters are the best thing since your last energy bill.
Along the way, the specification for these meters has become more complex, to the point where they are now the most expensive and complex ones in the world. An initial aim to put the UK at the forefront of smart metering, with expertise that could be sold to the rest of the world has disappeared, as the project has morphed to the point where we are now seen as an also-ran, weighed down with impractical requirements and ballooning costs. And consumers have still not seen a single compliant meter.
Let me stress that point. Although Smart Energy GB puts out the message that over 4 million smart meters have been deployed, not a single one of those meters meets the SMETS2 requirements developed by DECC. This was confirmed in a meeting in July, when a DECC representative categorically stated, in response to an industry question, that the SMETS2 specification was still not complete and that not a single compliant meter had been installed. What has been deployed so far will either need to be replaced or upgraded, assuming the latter is possible.
Nick’s full analysis is here, but he goes on to show that the government’s estimated cost of £10.98bn has been underestimated by at least £1.6bn, because they have forgotten to include the cost of smart gas meters and have over-estimated the savings from reduced safety checks by £380 million because they have failed to notice they’ve moved a decimal place.
They have also have over-estimated the potential consumer savings and linked carbon savings by £4.9 billion because they have taken maximum figures from a range and used them as median figures in their calculations.
In some ways, Nick is overgenerous.
Part of the claimed £16.7bn worth of savings arises from energy companies no longer having to send meter readers out. This may have been valid a decade ago when the scheme was being dreamed up. But technology has now moved on apace, and there is no reason why the vast majority cannot simply email meter readings back to energy suppliers. I certainly do, and it makes for much streamlined administration at the company’s end.
The mooted savings also include £1.29bn for “carbon savings”, resulting from lower energy use. But as we all know, there is no such thing as a cost of carbon.
Nick also touches on plans for reduced safety checks on meters, which have been fed into the calculations in order to make the savings appear greater. (Raising the question – why don’t we do it anyway?)
There’s another fudged cost which should be examined, which is the downgrading of safety checks. Everyone involved with the smart metering program likes to point out how much will be saved by making meter readers redundant. However, this ignores the fact that part of their job is checking meter safety. That involves making sure the meter’s not been tampered with, and also that it is in physically good condition. It has always been a legal requirement to check a meter every two years. With the advent of smart meters and the imminent demise of the meter reading work force, the utilities have been desperate to remove this requirement. They’ve been lobbying OFGEM – the industry regulator, to relax safety checks to once every five years, and OFGEM have acquiesced.
It’s probably OK to relax the inspection rate for electricity meters, but I’m less sure about gas meters, especially as all of the smart gas meters are new designs. The Impact Assessment talks about categorising them as high and low risk meters, but admits that they have no idea how to work out which are high risk. I’m looking forward to hearing how Sacha Deshmukh and his bevy of cartoon characters at Smart Energy GB are going to persuade consumers of the benefit of less frequent safety checks, as that change means the likelihood of their house exploding has just doubled. In case it helps Sacha save a few millions, here’s my suggestion:
That may not be good news for consumers, but it’s good for the Impact Assessment, as it saves a further £690 million. Except it doesn’t. Once more, BEIS’s slide rule is on the blink. On page 23 of their technical annex, they state the cost of reading a high risk meter is £8.80, but by the time they’ve got to Table 1-3 on the following page they’ve lost a decimal point and reduced it to £0.88. Which means their estimated saving from getting rid of most of their meter readers is high by £380 million
Nick reckons that, just based on the errors he has identified and the issue with comms hubs, that he elaborates, the true cost will amount to at least £14.67bn:
If we add up those three costs – the need for replacement comms hubs and the two arithmetical errors, we get an additional cost of £3.69 million, taking the programme cost to £14.67 billion. These are just the obvious mistakes. I suspect there’s a few billion more if you dig deeper.
This equates to about £560 per household. As I have often pointed out, how many people would be prepared to shell out this sort of money, just to find out that it is not cheap putting the heating on?
All of this highlights the fact that there is no benefit to consumers in continuing the program. It is time it is stopped. To put the savings into perspective, BEIS claims that smart metering could save the average home £11 a year on their energy bill. Compare that with the value of food the average household throws away each year, which is around £470. Compared to this, the savings from energy conservation are just noise. The problem is that those involved in smart metering are so blinkered that they’ve lost all perspective. They miss the fact that there are far more important things in everyone else’s lives. All they see is the hope that by promoting conservation we can reduce energy consumption enough to stave off the power cuts that are likely to come because we haven’t invested enough in new generation. But smart meters are not a magic wand. What we need is a proper, long term energy policy.
Even the energy suppliers are losing their enthusiasm for the project. British Gas has taken the plunge and installed almost 4 million smart meters. These don’t meet the SMETS2 specification, and will probably need to be replaced, but it means that British Gas now has a critical mass of customers with smart meters, allowing them to use them as a marketing tool for customer acquisition, offering them the carrot of free electricity on a Saturday or Sunday. Their competitors now see massive up-front costs as they need to install tens of millions of meters by 2020. It’s rather ironic that the only effect of the smart metering program so far (other than wasting £450 million) has been to increase the power of our largest utility, potentially setting it up to become a monopoly supplier. So much for the aims of increasing customer choice.
Before concluding I would like to revisit the issue of security. I first raised this back in 2012, highlighting the risk of connected products and the ability to hack Internet of Things devices. The design of smart meters in Britain means that if they are hacked, power could be turned off for large chunks of the country, causing massive damage to the grid. When I questioned the sense of this design in meetings at DECC I got the reply from utilities of “why would anyone ever do that”. In general, those of us who have been trying to improve the security of connected devices have the impression that we’re treated as scare mongers.
Last month someone released the Mirai malware, which infected hundreds of thousands of routers and cameras, launching a denial of service attack which took down many major websites. It was the first indication that this could and will continue to happen. Recent experiments have shown that Mirai can infect an internet connected device within 98 seconds of it being turned on. This latest Impact Assessment talks about “streamlining security requirements” to make it more cost effective for small energy suppliers. There is still nothing to provide confidence that anyone is taking the threat to national infrastructure seriously.
Going back to the lack of Parliamentary concern about the £450 million spent so far with not a single meter being installed, it indicates just how much successive Governments are in thrall to the energy suppliers. Despite occasional posturing, Ministers have proven to be incapable of influencing energy prices, with the suppliers simply carrying on business as usual. Smart metering is probably seen as one of the few things that Government can impose on them, hence it’s achieved the status of sacred cow, where lack of progress is covered up by falsified figures, giving MPs the impression that it is one small victory they can claim. But it’s a completely hollow one which will probably end up costing consumers upwards of £20 billion by the time the final bills come in.
At the end of the day, Parliament would do well to remember the words of Ayn Rand – “We can evade reality, but we cannot evade the consequences of evading reality”. We’ve already wasted £450 million. Let’s not waste a further £14 billion or more. It really is time to stop pouring money and effort into a smart metering deployment that is already obsolete and will deliver no benefit to energy suppliers, the grid or customers.