Smart meters – An emerging market
Author : Andrew Hartley, AMA research
As part of the transition to a low carbon economy the government announced in December 2009 its intention to roll out the programme to replace the existing approximately 47million gas and electricity meters in Great Britain with smart meters by 2020.
Since that announcement, we have had an Election and a change of government, but in July 2010 the new Secretary State for DECC, Chris Huhne, confirmed in the Annual Energy Statement the new Coalition Government’s commitment to the installation of smart meters in homes throughout Britain.
Smart meters on their own will not address the problems of low standards of energy efficiency in residential properties. However, they are an integral part of the drive to improve consumer knowledge and monitoring of energy consumption, and help drive demand for a wide range of energy-efficiency measures – including loft and cavity wall insulation, energy-efficient lighting, and the installation of renewable technologies in the home.
Other benefits of smart meters include ease of switching suppliers, remote and accurate meter reading, lower energy usage, lower maintenance and servicing requirements. In addition, it is anticipated they will encourage the switch to microgeneration – solar thermal and PV, ground and air source heat pumps, biomass boilers etc –as incentives and subsidies ‘kick in’ over the next few years.
The government has proposed a number of scenarios for the roll out of smart meters up to 2020 and the graph below provides an indicative scenario of the market size and timescales.
These figures are guidelines only but provide an idea of the scale of the installation programme required to meet a deadline of 2020 for implementation. The roll out of the majority of smart meters is intended to take place over the period 2012 to 2020 and within the peak 4 year period 2014 - 2017 around 33m electricity and gas meters are planned to be replaced in 18m households. This programme could prove even more intensive if the Government decides to bring forward completion to 2018.
Whatever the deadline, the scale of implementation represents a massive step change from current installation levels – offering both a major challenge and opportunity to meter suppliers and installers across the sector.
Current volumes are estimated by AMA at around 250,000 units which would mean around a 10-fold increase in the next 2 years alone just to achieve the 2012 starting point illustrated in the chart. Undoubtedly, volumes are rising with leading utilities such as British Gas expanding their installation programmes, but further expansion of the installation network will be significant to achieve the target rates.
After 2012, the installation programme will need to rise rapidly to around 8 million per annum – equivalent to up to 200,000 per week compared to current volumes of around 5000-6000 at present.
According to initial estimates, the capital and installation costs of 47m smart meters to be installed during the period 2012-20 is likely to be between £4bn-£5bn, which excludes associated costs such as IT, communications, legal and contractual costs.
Installation costs are estimated to account for around 25-30%, equivalent to around £1.3 billion, though the structure of the roll-out programme in terms of determining method and priorities is yet to be decided as there are a number of views as to the order and timescales.
Currently, there are about 3.8m pre payment electricity meters and 2.1m pre payment gas meters which incur higher maintenance and service costs and it may be that priority will be given to the fuel poor, vulnerable groups and pre payment households which until recently incurred higher charges for pre payment meters. New housing is also likely to be a priority considering the relative ease and convenience of installation and the contribution of smart meters to achieving code ratings.
Other options include installation on a street by street basis as perhaps the most cost efficient method, though there will be a requirement for a high degree of co-operation and co-ordination by both electric and gas suppliers.
Given the infancy of the market, it is not surprising that the installation network is rapidly changing at all levels of the supply chain as manufacturers, distributors and installers evolve and develop links to strengthen market position.
Companies are either operating independently, though the roll-out programme in Gt. Britain is also driving the creation of consortia to provide the required infrastructure and network coverage, as typified by developments at British Gas.
In the medium term, smart meters are a key requirement to bring about the efficient and reliable delivery of electricity and are necessary for the gradual development of a smart grid to enable real time information and communication between suppliers and consumers. At present, the grid cannot effectively manage electricity demand because of the lack of real time data. However, the interaction and management of electricity supply from renewable technologies - which are often intermittent - together with smart metering will be an important component in the development of smart grids.The Government’s commitment to energy-efficiency and the achievement of renewables targets has survived relatively unscathed from the recent Comprehensive Spending Review. Funding support remains in place and undoubtedly the roll-out of the smart meter programme is regarded as an integral part of the long term commitment to reduce energy consumption and help stimulate the switch to microgeneration – particularly in the existing housing stock which even by 2050 will still account for over 75% of all dwellings.
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