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 Daily Telegraph - Business - - Business -

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.”

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