Smart move
Ofgem’s boss explains how meters can help the average household
The roll-out of smart meters across Britain is one of the most significant technological upgrades in energy in people’s homes for decades.
Smart meters help people control their energy use and save money and they provide real-time readings to replace estimated energy bills, reducing the risk of billing errors. Over 11m smart meters have already been installed in households by energy suppliers. But the lasting prize to consumers – and to the country – goes much further.
Smart meters provide the foundations for an energy revolution as Britain moves to a smarter, cleaner and lower-cost system.
Ofgem, as the energy regulator, is working with the Government and industry to ensure all consumers reap the benefits today and in years to come. Britain is generating increasing amounts of electricity from wind and solar power. As well as being clean, renewables are increasingly cheap.
But because renewables are intermittent, they won’t always create electricity at peak times such as winter evenings when solar doesn’t generate and the wind may not blow.
In the past, energy companies would have built lots of expensive back-up power stations and reinforced the grid to keep the lights on, with consumers footing the bill.
Smart meters save on some of these costs by helping to smooth the peaks and troughs of electricity demand on the system. According to research from Imperial College, having a more flexible energy system, supported by smart meters, could save Britain between £17bn and £40bn by 2050. That means lower energy bills for all homes and businesses.
Smart meters can help shift electricity demand to times when supplies are higher and prices are lower through “time-of-use” tariffs. Rather than charge the same flat rate for each unit of gas and electricity regardless of when it’s used, these tariffs offer lower prices for energy used during off-peak periods and higher prices at peak times.
This is the same principle as Economy 7 electricity meter tariffs, which charge a lower fixed night-time rate, typically after 10pm. But in the future, prices will depend on how windy or sunny it is, or whether there is a lot of demand on the system.
This is because unlike existing “old-fashioned” meters, smart meters can communicate in near-real time with the energy system to help balance supply and demand. If consumers choose to take one of these time-of-use tariffs, their smart meters can then “talk” to smart devices in the home and automatically find the cheapest time to charge or to switch on, saving customers money and time.
Take the driver of an electric vehicle who gets home from work in the evening and plugs in their electric car. If they have a smart meter and have signed up to a suitable time-of-use tariff, it will be able to automatically find a time to charge overnight when prices are lower and ensure the battery is full to drive to work in the morning. According to research by Cambridge Economic Policy Associates, consumers who opt for time-of-use tariffs save money on their energy bills on average. This is on top of the wider savings to all of us from not having to build expensive back-up power stations and grid infrastructure.
Ofgem, whose sole purpose is to protect the interests of energy consumers, is working with the Government to help deliver the smart meter roll-out. It’s our job to make sure that energy suppliers meet their obligations in offering and installing them. Energy suppliers are ensuring that every customer who wants a smart meter can have one installed by the end of 2020, helping them to make the most of this new technology, while ensuring that they treat them fairly in the process. We stand ready to take enforcement action against any who fail to do so.
In May, Ofgem wrote to all suppliers about the smart meter roll-out and reminded them that their customer communications to offer installations must be transparent and accurate.
Households who do not want a smart meter are not obliged to get one – they are not compulsory. Many households are making the smart choice and having them installed so that they do not miss out on the benefits of the smart energy era.
People will also always be able to choose the tariff they want. Households can switch to a time-ofuse tariff if it makes sense for them to do so and save money. Or they can remain on a traditional flat tariff where the cost of energy stays the same throughout the day.
Smart meters have a pivotal role to play in Britain’s energy revolution in the coming years. They will help to reduce energy bills, making them more accurate, and will also help unlock the benefits of new digital energy devices and apps like smart chargers.
In the more immediate term, the Government has introduced new legislation for Ofgem to implement a temporary price cap by the end of the year. This would protect over 11m households on poor-value deals while smart meters and other industry reforms are rolled out.
Ofgem will continue to work with the Government and industry to make sure that the energy system of today – and the future – works in the interests of all consumers.
Dermot Nolan is chief executive of Ofgem