Following a range of EU and UK-specific mandates, smart meters are set to be installed in most UK homes by 2019. These meters provide two-way communication between electricity (or gas) meters, and utility companies via an Advanced Metering Infrastructure (AMI) network, enabling the companies to measure how much electricity consumers are using remotely and send signals back to the meter. Mass roll-out is expected to occur from 2H14, although a number of utility companies have demonstrated smaller-scale deployments already. According to a recent study from IMS Research, a leading independent supplier of market research and consultancy to the global electronics industry, in the next five years, over £2.4 billion will be spent in the UK on smart home energy management devices – ranging from smart meters themselves, to in-home devices that can ‘talk’ to them.
Smart meters will have an effect on customers, both short and long term. Initially, the consumer will see an end of ‘estimated’ billing, which is often contentious and frustrating. Unusually, the UK has outlined a regulatory framework which also includes the provision of ‘in-home displays’ or ‘IHDs’ when smart meters are installed. An IHD is a display which lets consumers know how much electricity they are using; and can help them manage and, ideally reduce, electricity consumption. This mandate is certainly good news for IHD suppliers: a study published earlier this month from leading market intelligence firm IMS Research projects IHD revenues in the UK of £400 million in the next five years alone.
Smart meters also support the creation of new, variable electricity tariffs, such as ‘dynamic pricing’ programs. ‘Dynamic pricing’ involves market-led tariffs, charging the highest unit prices when demand is highest. This can help to smooth out demand, and avoid utilizing the most costly (and often least environmentally-friendly) power plants which are used to satisfy demand peaks. Longer term, there is the potential for widespread load-shedding or demand-response programs. Here, the utility company sends a signal to the smart meter (via the AMI network) to request that electricity consumption (often of a particular device) is reduced or temporarily halted. This can be automated, through the deployment of devices such as ‘smart thermostats’ to adjust radiator settings; and through ‘smart load control switches’, which are used with electric storage water heaters. For example, at times of peak electricity demand, a utility company may send a request that central heating is adjusted, and a thermostat automatically (with advanced customer agreement) adjusts itself slightly. By enrolling many customers in such a program, even minor adjustments become significant. Load shedding programs (including those which do not require a smart meter) have been employed in several countries, with consumers offered a variety of incentives to participate. These include rebates, electricity price discounts, or, as seen in the case of a specific Canadian utility company, an iPod Touch as a reward.
‘Smart appliances’ are considered by many to be the key to residential demand-response programs in the UK. For example, a ‘smart fridge’ would act as normal, except that non-critical functions – such as the defrost cycle – would be run at non-peak times or when prices were below a pre-set rate. Alternatively, a smart clothes dryer may be able to intelligently react to a demand-response signal or a high electricity unit price (under a dynamic pricing program); and adjust its operation to continue the spin cycle, but reduce the electricity used by a heating element.
Lisa Arrowsmith, Senior Analyst with IMS Research, explains: “It is not only the Government and utility companies that are looking at ‘smart’ energy management solutions. A range of other companies, from relatively small start-ups to major telecommunications companies, are expected to become more active in improving UK households’ green credentials – for a nice fee. For example, they can offer consumers a way to manage their electricity consumption online, letting them remotely control devices such as thermostats and even individual plug sockets”. Arrowsmith continues, “A study published by IMS Research earlier this month projects the market for smart home energy management devices in the UK – not including the smart meters themselves – to hit over £500 million in 2016 alone”.
Smart meters and other smart in-home devices can offer a range of benefits. However, there are stumbling blocks. There are concerns associated with the technical infrastructure required, with a number of parties awaiting further specific technical specifications. Additionally, there is ongoing debate on some of the premises behind smart metering. For example, plans outlined by UK electricity retailers for restructuring electricity tariffs to take advantage of smart meters have come under fire from the regulator OFGEM for being too complex; with UK distribution network operators returning fire that making tariffs simpler will make them less effective. Consumer groups have also expressed a number of concerns, in particular about privacy and data security, as well as potential health problems resulting from radiation. Additionally, the effectiveness of the in-home displays have been questioned, with many in the industry using the phrase ‘mean time to kitchen drawer’ to express their fear that, while such displays may be engaging in the short term, consumer interest will soon wane.
“Despite a number of potential teething problems,” Arrowsmith concludes ”the benefits of smart meter deployments will be felt by a range of parties. For consumers, at the very least, the practice of ‘estimated billing’ will cease; and, longer-term, variable pricing tariffs are likely to be able to engage consumers, even if IHDs do not. For utility companies, benefits are expected to include avoided costly visits to read meters, fewer enquiries, and lower customer overheads. For device suppliers and service providers alike, these developments present a major opportunity to develop many new revenue streams, from providing devices with the ability to communicate with smart meters, to offering home energy management and control platforms”.