So, what’s the big deal with smart meters? For most people it can be easy to think of them as the in-home display - just a little box that sits in your home and tells you your energy consumption at any given point.
And that’s true – it is part of what a smart meter is, and that visibility for consumers is important for a whole variety of things, including reducing energy bills. But more than that, smart meters are an enabler.
“Smart meters are crucial to energy security,” Octopus Energy’s director of external affairs Clem Cowton told Current± following the publication of the government’s British Energy Security Strategy off the back of the increased focus on energy security following high global gas prices and geopolitical tensions relating to the Russian invasion of Ukraine.
But why are smart meters so important to energy security? Well, it’s because renewables are important to energy security, as they reduce reliance on volatile global gas. As Cowton said: “That's the first layer of it; if you can be as self-sufficient as possible on renewable resource, you are more energy secure as a nation.
“We then move on to how do we use renewable resource in a way that is secure and efficient? That means using it in a smart way.”
This largely surrounds the shifting of demand to meet generation – either increasing demand when there’s a lot of wind generation, for example, or reducing demand at times of lower generation. Smart meters then play into this by supporting the uptake of time of use tariffs and battery storage business models, according to Rowan Hazell, senior analyst at Cornwall Insight.
These then both help consumers shift their energy usage, particularly helping consumers move their usage from periods of peak demand.
“Reducing the peak means lowered exposure to high generation costs and should lower investment requirements,” Hazell said.
Indeed, smart energy use and things like demand side response will reduce the need to overbuild renewable generation and reduce the vast quantities of energy storage that may otherwise be needed – although there will still be a very present, large need for energy storage of a variety of technologies and durations in any decarbonised system.
“It's not possible to do that without smart meters. Time of use tariffs are absolutely fundamental to an efficient use of the system, which is then fundamental to energy security,” Cowton said.
Enabling a digitalised energy system
It’s not just innovation in energy supply tariffs that are enabled by smart meters, however. The rollout of smart meters is enabling digitalization and data availability on a much wider scale - which Tom Woolley, SMETS2 specialist (strategy, new products and services) at SMS, said is becoming a massive new market.
“We have never, as a country, had access to this much energy data on this level of granularity,” he said.
As such, companies are starting to emerge off the back of that which without the rise in smart meters simply couldn’t have existed.
“We are starting to see companies emerge now that are taking data and adding value to it,” he said. Indeed, there are many apps now that take consumer’s data, innovate on it and give it back with added benefits, Woolley said, which is something that is possible for energy suppliers themselves to do but certainly not an obligation.
“Previously, it's only ever been the energy suppliers that could innovate because they're the only ones that have got access to this data.”
The creation of new businesses focused on helping consumers through energy data in turn creates competition in the market – something Cowton also said is important.
Indeed, while Cowton pointed to Octopus’ own time of use tariffs such as Octopus Go and Octopus Agile, she said that these were launched more to prove it can be done as opposed to it giving the energy supplier any commercial advantage today, with the right price signals not currently in place.
“The challenge now is that we need to be able to make those commercially viable so that you create a market environment where companies are competing to offer the best time of use tariffs, in order that they can win a greater market share of those customers.”
She said that Octopus is in effect subsidising its time of use tariffs, because the energy supplier doesn’t receive the price signals from the system.
“What we need is for Ofgem to change the way it regulates pricing,” she said, explaining that currently any price signal that’s there for time of use, generally speaking on the wholesale market, is masked by a series of flat rates that are layered on top, largely through network charges.
What needs to happen, Cowton said, is for those to be reshaped so that customers are charged for their use of energy based on the time they are using it and the benefit to the system of using it in a batter way.
If energy suppliers are able to get genuinely really cheap energy when there’s low demand, and are able to then pass those on to their customers and encourage them to up their demand when there’s significant levels of wind, for example, then there will be a “really massive incentive” for suppliers to innovate tariffs and technology to allow their customers to take advantage of that cheap energy.
“Then we will have customers bashing down our door asking for a smart meter.”
This is not always the case now, however, with it still being somewhat of a challenge to convince consumers to go forward with an installation.
“Trying to persuade people to put a smart meter in, when there's no real benefit to them to doing so, has been really hard work and very expensive for suppliers over the years,” Cowton explained, referencing the fact that time of use tariffs have not been widely available historically due to the lack of price signals.
“All of that expense ends up back on customer bills, so it's been very expensive to consumers and taxpayers, because it's required quite a lot of government effort.”
This of course then plays back into the current energy crisis, with soaring bills for many consumers.
Is the answer more regulation?
Woolley said an area where there could be more work from the government is more incentives for consumers to have a smart meter installed, while he suggested mandating smart meter installs for small business could be one possible avenue for regulation.
Meanwhile, Hazell suggested that one area that would benefit from some more clarity from the government is the role of smart meters in the automation of electric vehicle charging.
While there have been some government-funded trials on this, he said there is little detail on how this could form part of a wider energy strategy.
The British Energy Security Strategy was itself mostly devoid of any smart meter policy, although it did include a singular commitment to ensure all new homes are designed so that smart meters can be fitted from the outset in advance of the Future Homes and Buildings Standards by 2024.
Currently, Woolley said there isn’t anything preventing smart meters being installed in new builds, but the challenge lies in the fact that the consumer hasn’t moved in yet, meaning the energy efficiency advice that has to be delivered for it to count as a successful installation can’t be handed over at the same time as the meter is installed.
“There needs to be some work done there with between energy suppliers and developers on how to gain efficiencies.”
And while the British Energy Security Strategy was hardly rife with smart meter policy, Hazell pointed to the existing work underway to maximise the benefits of smart meters beyond making consumers more aware of their energy consumption, in particular the market-wide Half Hourly Settlement programme.
“Given the timescales for implementing these changes it probably isn’t going to be a major priority yet to be thinking about going further.
“The focus for now will be on installing as many meters as possible over the next few years, with the rollout having only just crossed the 50% mark,” he said.
Indeed, a new smart meter installation framework was introduced at the start of 2022 which has placed binding targets on suppliers to drive rollout completion by the end of 2025.
So as this rollout accelerates towards that end goal, and the number of smart meters in homes and businesses swells, it is likely that more of the innovative companies and energy tariffs mentioned will too spring up. And perhaps in the next few years, GB will start really reaping the benefits of chasing a digitalised, decarbonised energy system, and the security that enables.