Worldwide estimated smart meter rollouts by 2020. (Click to enlarge.)

Today the U.K. government’s Public Account Committee released a report on that nation’s preparations for the rollout of smart meters.

Here are this report’s six conclusions and recommendations, and our analysis of each…

1. Consumers will have to pay (through their energy bills) for the cost of installing smart meters. However, in the first instance many smart meter benefits will pass on to energy suppliers.

While this point is true, in the long rung the majority of smart meter benefits will flow to consumers. Smart meters will force the electricity and gas sectors to move towards a smarter and more transparent model. Consumers will get bills based on actual rather than estimated consumption, and be able to switch retailers in a day or two — rather than the six weeks it currently takes.

More importantly, prior to smart meters, consumer energy data mostly was “garbage in, garbage out.” With smart meters, consumers can get actual data. This will help them better understand their energy consumption.

Also, smart meters vastly increase transparency — which is crucial in a competitive retail market. With clear tariffs, they will be able to compare suppliers and options to decide which deal suits them best. Since most U.K. energy bills currently are estimated, projected savings from switching retailers are estimates on top of estimates.

The U.K. market definitely needs more transparency. For example, late last year Chris King (Chief Regulatory Officer at Siemens AG’s eMeter unit) and I could not find clear and specific consumer information about U.K. electricity prices. There were plenty of estimates of annual bill amounts — based on estimates on top of estimates. But no website gave the details. We knew from experience that energy bills include these components:

• Monthly charges.
• Initial prices per kWh.
• Prices for usage above a threshold.

However these details were not available online — including on sites run by U.K. energy retailers, the government and nonprofit organizations.

Would you choose a gas station based on estimated annual bills? How would they know how — or how much — you drive? Electricity pricing requires the same knowledge of your own usage habits.

Ofgem is working on requirements for retailers to provide clear bills to consumers. This would make it easier to for consumers to compare prices — if those prices are easily available.

Furthermore, smart meters can help consumers save money with off-peak discounts — an aspect of pricing that also should be made clear to consumers.

2. Smart meter benefits can only be fully realized if adopted widely, and if consumers use them to reduce their energy bills. However, the role of suppliers in helping to achieve this remains undefined.

We agree that when more consumers have smart meters, those meters will yield more consumer benefits and gain more extensive capabilities to reduce energy bills. But to get to that point, suppliers must be sure that if one of their smart meter customers switches to another supplier, they will be reimbursed for the cost to install that meter. The U.K. government must make this perfectly clear.

Other stakeholders (not just suppliers and consumers) will also benefit from smart grid applications. For instance, electricity distributors will benefit from outage alerts sent by smart meters, and third-party service providers will help consumers manage their energy through consumer-authorized access to energy consumption data.

3. Consumers who are low-income, on prepayment service, or otherwise vulnerable may not reap benefits from smart meters.

Actually, in the PowerCentDC U.S. smart meter pilot program run by eMeter, 91% of all customers saved money — and no low income consumer paid a higher bill.

Of the three tariffs offered in that program, low-income consumers were only on the Peak Time Rebate, where they earned rebates for voluntarily lowering peak time usage — or nothing, if they chose to use energy as they normally would. The resulting 13% reduction in peak demand yielded cost savings in wholesale purchases by the utility, which was the source of the rebates paid to participants. Based on the success of this approach, utilities plan to offer similar programs to all smart meter customers in California, Maryland, and Delaware.

Utilities should consider segmenting their smart meter services, since different types of customers will be interested in different kinds of benefits.

One example is prepaid service. Once a smart meter is in place, this option no longer requires an expensive equipment upgrade. That makes it easier to offer prepayment to the 30-40% of customers interested in this option. Prepayment plus smart meters offer several consumer benefits:

• Flexibility.
• Alarms for excessive usage or proximity to the credit limit.
• Paying for energy as you use it.
• Eliminating surprises at the end of the month (a huge benefit during severe weather).
• Cost control.
• No need for customers with poor credit to post a large deposit with the utility.

4. Trials so far have been inconclusive about consumers’ willingness to cooperate with the installation process and to use smart meters to reduce their energy consumption.

In the U.S., over 27 million smart meters have been installed. This experience yields a simple best practice: notify customers prior to installation and, if the customer has a strong objection to the installation, have a specially-trained ombudsman speak to the customer and explain the benefits of smart meters. In most cases, customers are happy to have the meters installed after such conversations.

Also, the U.S. experience has been that less than 1% of customers initially object to smart meter installation.

For consumers who are completely unwilling to accept a smart meter, some U.S. utilities are allowing them to opt out and pay the added operational costs to manually read and maintain a non-smart meter. For instance, in California this costs $90 up front and $15 per month. Costs would probably differ in the U.K. But in any case, the actual experience with opt-outs is about 0.2% of consumers.

Also, it is essential that consumers realize benefits soon after the the smart meter is installed. They’ll also need up-front education, and be should able to immediately access their data via an in-home display, web portal or mobile app.

Consumer engagement programs (such as PowerCentsDC, which gave consumers detailed energy consumption data and tips) also have proved to accelerate consumer behavioral changes. This program, which involved domestic Potomac Electric Power Co. customers in the Washington DC area, combined smart meters and thermostats with time-based pricing and eMeter’s Energy Engage online platform. Over the course of this program, 91% of participants saved an average of $44 per year — and over 90% said they would recommend PowerCentsDC to friends and family

5. The data communications service required to link smart meters to suppliers is a complex IT project that may cost as much as £3 billion.

…And yet, this project is expected to yield net benefits of over £4 billion.

In any case, the communications cost has been included in the U.K. government’s cost-benefit analysis. Furthermore, that analysis assumes consumers would cut electricity and gas consumptions by only 2% — even though a recent study of over 100 programs found average actual consumption savings from energy information feedback to be 8.7%.

The U.K. Department of Energy and Climate Change (DECC) should — in fact, must — consider the big picture when deciding on the design and specifications of the smart grid data communication system. This solution must be flexible and support the government’s total vision for smart meters and the smart grid vision.

6. The DECC and U.K. energy suppliers face significant challenges to install smart meters in every home in the country.

Others have faced these challenges successfully, with over 180 million smart meters installed worldwide — including completed rollouts to Italy, Finland and Sweden. In the U.K., energy suppliers are responsible for installing smart meters. To overcome the challenges described in this week’s PAC report, energy suppliers have many examples of best practices to guide their solutions.

In addition, DECC could enhance consumer acceptance by mounting a national campaign to explain how consumers benefit from smart meters. In particular:

• Information to save energy. Smart meters can give consumers useful, specific information about how they use energy, which empowers them to manage it better. In a 20ll poll conducted in the U.K. by E.ON, 53% of respondents said they would save power if they could understand their usage better.
• Price options to save money. Time-based electricity pricing options such as off-peak discounts and peak time rebates can help consumers save money. However, this kind of pricing should always be voluntary.
• Automation to make it easy and convenient to save. Consumers should have access to a vibrant market of automated thermostats, appliances, and office equipment. These devices enable “set and forget” automatic energy conservation via time-shifting demand and reducing consumption.

Used together, these three tools help consumers save energy, cut peak demand, save money, reduce emissions, improve reliability, make better use of wind and solar resources and promote electric vehicle adoption.

DECC’s plans for 2012 are also designed to address these challenges and provide solutions:

• Publish end-to-end smart grid technical requirements, including specifications for the smart meter equipment.
• Gain experience from several testing and trial efforts.
• Launch the license application, and further solidify communications and data services procurement contracts, for the Data Communications Company (DCC) — a new entity that will centrally manage data communication to and from residential electricity and gas smart meters.
• Develop the regulatory framework, including new legislation to address installation, code of practice, and rollout.
• Pursue a consumer engagement strategy — on which so much of smart grid success depends

Bottom line: Yes, the U.K. faces major challenges to deploying smart meters — but successful solutions have been proven around the world. By incorporating those best practices and lessons into its own plans, the U.K. could have one of the world’s best smart meter rollouts. It also might end up providing some of the most substantial consumer benefits yet seen.