A small device in every home was supposed to be the key to solving Britain’s energy headaches: encouraging consumers not to waste power, preventing shockingly high bills and making the system greener. Instead, smart meters have become an emblem for the energy industry’s poor reputation as the costs of rolling them out approaches £20bn and the government project lags years behind its original schedule.
Consumers who have the devices still face surprise bills, too, as some faulty meters go into “dumb” mode, where they stop automatically sending regular meter readings to energy suppliers, leaving households to send readings.
“Honestly, it has been a mess from the beginning,” an executive at one major energy supplier says. “So many of the problems that we have encountered were predictable and preventable. But we were told to keep pushing ahead towards these deadlines.”
The mission to fit smart meters was set in 2011, when the government first mandated that all UK homes should have one by 2019. As the rollout progressed, the government watered down its own target, suggesting that all homes should be offered a smart meter by 2020 and around 75% of homes should have one installed.
The weakened target was later pushed back to the end of 2025, but may still be out of reach. About 60% of households now have a smart meter, meaning the rate of installations would need to step up over the next 11 months. There are 24m gas meters and 29m electricity meters installed and the government’s latest data shows that 680,000 smart meters were installed in homes in the third quarter of last year.
Smart meters, like traditional energy meters, measure how much gas and electricity is used and send data to suppliers. Ministers had hoped they would modernise Britain’s outdated energy system: making bills more accurate and providing a visual reminder to consumers to use less electricity. They are now a prerequisite for tariffs which pay households to reduce their usage.
Customers must elect to have a smart meter but the public accounts committee has claimed ministers have not convinced households of the benefits of smart meters, meaning they have “serious reputational obstacles” to overcome. Energy suppliers have been reticent to criticise the government in public, as they face pressure to hit government targets. “We told them from the start that this should be handled differently. But we’re now stuck on a course that has always been an uphill battle and isn’t getting any easier,” says an industry source.
Faulty devices have not helped the industry’s cause. About 4m of the devices which have been installed are malfunctioning, according to government data. The scale of the problem could even be far greater, according to consumer champion Martin Lewis.
The founder of MoneySavingExpert.com (MSE) wrote to Ed Miliband, the energy secretary, to warn that while the government’s narrow definition of what counts as a “faulty meter” might suggest that only 10% of smart meters have gone dumb, the consumer group’s own research has suggested that about 20% of home smart meters are not working properly.
“Repairs are slow, if they happen at all, as resources are focused on installs, leaving consumers frustrated and at risk of mis-billing and further problems,” Lewis said.
Research by Citizens Advice late last year found that people with smart meters are generally more satisfied with their bills than those on non-smart meters, but 49% of those it had helped with an estimated or inaccurate billing issue had a smart meter. One Observer reader wrote of their exasperation at repeated delays in getting one of the devices.
These issues mean costs are climbing too. The latest official estimate for the cost of the rollout, published five years ago, suggests it could rise to £13.5bn in 2011 prices, or almost £20bn in today’s money, most of which will be shouldered by energy billpayers.
The government had hoped the rollout would lead to a net benefit of £6bn over the same period, by reducing costs for suppliers, and helping households to save money on their electricity bills too. But slow progress towards the target, combined with rising costs and malfunctioning meters, is likely to have heavily eroded this figure, according to sources.
One of the key complaints made against the government’s plans was the decision to hand responsibility for the rollout to energy suppliers. In other countries, installing smart meters has been a task carried out by the network operators which run local power grids. But in the UK, suppliers lobbied to convince their customers to opt-in to a smart meter installation, in the belief that this might lock in customer loyalty.
“Can you imagine how much money has been spent in this country trying to ‘sell’ smart meters to households, while other countries have treated it like a necessary infrastructure upgrade?” one source said.
Chris O’Shea, the boss of British Gas owner Centrica, has called for suppliers to undertake a mandatory street-by-street rollout of smart meters to meet the deadline – and has suggested his engineers undertake the work on behalf of other suppliers.
Issues with suppliers remotely switching customers on to pay-as-you-go tariffs through their smart meters have not helped their reputation. Separately, energy firms were temporarily banned from physcally fitting prepayment meters under warrant.
Another common complaint centres on the telecoms infrastructure underpinning smart meters. The earliest smart meters installed in the UK from 2013, known as SMETS-1 meters, used a mobile network to send usage data to the supplier. The plan was then for second-generation meters to use a bespoke secure smart data network called the DCC to communicate.
But delays to the DCC network in the early days of the rollout meant far more SMETS-1 meters were installed than ever intended. Millions of these meters have since gone “dumb” when households switched supplier, or while waiting for upgrades to join the DCC network.
“We knew that the SMETS-1 meters we were fitting would cause problems for our customers down the road but we had to keep fitting more and more while the DCC was delayed to meet the regulator’s interim targets – or face a fine,” recalls one senior executive at an energy supplier. “What should have been a small problem, requiring a small number of meter upgrades, was allowed to snowball into a much bigger headache for everyone. The government knew this but there was no willingness to pause the targets while the problem was fixed.”
Meanwhile, the costs of the DCC have spiralled too. The DCC’s total costs between 2013 and 2026 are forecast to be £5.48bn, according to the latest official data. This is 13% greater than last year’s annual estimate and more than double the initial forecast cost of £1.95bn, according to data from the industry regulator, Ofgem.
The Data Communications Company, which runs DCC and is owned by Capita, said: “We know the number of meters not operating in smart mode remains unacceptably high. We are urgently working with Ofgem to address these issues and expect suppliers to resolve them at a much faster pace.”
A spokesperson for the government said that the latest cost estimates are “not comparable” to early forecasts because the DCC “has significantly greater responsibilities than when it was awarded the licence in 2013”.
A spokesperson for Ofgem said: “The vast majority of smart meters are working correctly but, when they don’t, we expect suppliers to act swiftly and find solutions for their customers. If they fail to do this, we can and will hold them to account.”
