Missed targets short circuit smart meter hopes
Scrutiny is mounting over the finances of central player DCC, as costs of the rollout balloon from the original estimates, writes Ed Clowes
The Government’s drive for a smart meter revolution is in danger with the company running the £13bn digitisation of the energy grid failing to meet its targets as delays continue to mount and budgets spiral. Lockdown has further hindered the process for DCC, a central player in the UK’s plan to link 53m homes and businesses directly to suppliers and networks with a smart meter.
DCC was set up in 2013 by outsourcing giant Capita after it won a licence from the Department for Business, Energy and Industrial Strategy to spearhead the smart meter programme. The licence is periodically reviewed by the energy watchdog Ofgem.
Ministers hope the ambitious smart meter plan will make the energy system far more efficient.
However, allegations of turmoil at DCC – which was tasked with building a central digital platform that linked every home to the grid – reflect the wider frustration experienced by many involved in the nationwide rollout of smart meters, according to interviews with former and current employees of the company, industry executives and newly released documents.
They paint a picture of an environment in which cash is wasted, and too much reliance is placed on external contractors.
In addition, there have been several high-profile departures. Over the past eight weeks, DCC has lost both its chief technology officer and its chief financial officer, while costs have ballooned to 103pc more than its original estimate for the project, according to regulatory documents reviewed by The Daily Telegraph.
DCC has spent £4bn on the project, all of which will be passed on to consumers’ energy bills. Insiders say the final bill for the platform is likely to be significantly higher.
Ofgem noted this huge spike in costs in its most recent appraisal, criticising DCC’s heavy use of external contractors among other issues. The watchdog blocked more than £171m of increased costs forecast by DCC from 2021 onwards, because of a “lack of
‘It’s set up and managed in a way that’s extremely inefficient. But in the end, it doesn’t matter, because it’s a monopoly’ ‘The sheer scale of the programme is enormous. It’s been seen as an energy project, when it’s really more of a telecoms project’
evidence and certainty provided in justifying these costs”. Ofgem said it was concerned that DCC had made no mention of how it was trying to save costs or be more efficient.
Singling out the company’s lack of transparency around how much it pays its senior executives, the regulator said that similarly “to last year, we note that DCC excludes bonus payments from remuneration for permanent staff. In future years, we would expect more justification around bonus payments”.
Much of the company’s expanding costs are attributable to the botched rollout of smart meters that were found to be unusable if a household switched energy supplier.
Appearing at the business select committee last October, DCC’s chairman Richard McCarthy praised its work on integrating these first generation smart meters, known as SMETS1, into the new digital network, allowing them to be functional again. “We’ve proved we can turn dormant meters on,” he said at the time. However, of the nearly 14m “old” meters, just over 700,000 have been turned on and connected to the new system, figures show.
Instead, DCC has focused on installing the latest SMETS2 meters that continue to work even if a household switches supplier.
Some 4.6m next-generation smart meters have been installed but problems have become apparent, with about 10pc failing on an annual basis – an average of 1,700 a day.
“We continue to support our customers in the energy industry as they resume the rollout of smart meters, with the rate of installations recovering strongly as we emerge from lockdown,” a DCC spokesman says.
Internally, some current and former employees have raised concerns about the workplace culture, which DCC has defended, saying the overwhelming majority of employees were very satisfied. “In our staff survey earlier this year, 90pc said they are proud to work here,” the spokesman says.
Joel Stark is chief executive of metering and data provider Stark, which manages 100,000 utility meters and measures 13pc of the UK’s electricity consumption every day.
He argues that the business case for smart meters was on shaky ground even before the virus struck and is now even less attractive. The entrepreneur describes a troubled corporate structure at DCC: “It’s set up and managed in a way that’s extremely inefficient. But in the end, it doesn’t matter, because it’s a monopoly.”
Recently released Ofgem documents paint a picture of disorder and confusion across the industry at large, as fresh problems appear likely to knock the Government’s revised completion date of 2025 even further back.
The report into the smart metering programme highlights how “old” meters that are incompatible with DCC’s latest systems continued to be installed by energy suppliers beyond the cut-off date announced by the Department for Business.
Furthermore, half of the larger suppliers failed to meet annual milestones set out by the Government, with others encountering difficulties in engaging consumers. Even when these companies arrange a time with a customer to install their smart meter, the instances of suppliers calling off an installation at the last moment remain “too high”, Ofgem says.
“The sheer scale of the programme and the challenges is enormous,” says Simon James, who has worked with smart metering companies in various roles. “It’s been seen as an energy project, when it’s really more of a telecommunications project.”
All the regulatory experts in this area work for Ofcom, the telecoms regulator, rather than Ofgem, which is overseeing the rollout, he adds.
James says there are more dark clouds on the horizon for DCC. While installations were increasing rapidly before coronavirus struck, many of these were in the easiest-to-reach properties. “They’ve done very few blocks of flats yet – all the difficult stuff is being left to the end,” he says.
Energy suppliers refer to these installations as the “low hanging fruit”, according to Rowan Hazell, an analyst at energy consultancy Cornwall Insight.
“There are some cases where installing a smart metering system is not possible,” Hazell says. “Maybe it’s a block of flats where all the meters are in one room in the basement, and to get the signal to the higher flats isn’t actually possible.”
To make matters worse, he says lockdown has significantly delayed the rollout of smart meters. Based on government assumptions, the rollout will only reach 48pc completion by June 2021, compared with 61pc on the pre-pandemic forecast.
Despite the difficulties, DCC already has its eye on its next target: electric vehicles and the infrastructure for charging them. Electric vehicles will be the biggest transformation to the energy grid over the next 20 years and DCC is already pitching for a key role in this market, extending its influence in a way that concerns some industry veterans, such as Stark.
“Having a reliable and secure smart charging infrastructure is key to public uptake [of electric cars] and the DCC are ready to make this happen,” the group said in March. “Using the smart metering infrastructure to control smart electric vehicle charge points could be the answer.”