The end of estimated energy bills

Woman cooking

Estimated bills and meter readings could soon be a thing of the past, with the government unveiling plans to install smart meters in every home by 2020.

Such technology will provide households with an accurate record of how much energy they use and, crucially, how much it will cost them. It will also mean energy suppliers will have to scrap estimated bills and start charging households for their actual energy consumption.

It is believed the move to install smart meters in some 26 million homes and several million businesses by 2020 will cost the government around £7 billion. This equates to around £15 per household per year between 2010 and 2020.

However, smart meters should provide cost savings to both energy suppliers and households – in fact, it is estimated that the average bill could by cut by £20 a year through the use of this digital technology.

Tom Lyon, energy expert at, says: "We may all have to pay a little more to cover the installation costs of smart meters, but this expense will be quickly wiped out by future savings."

The UK will be the first country in the world to have an overhaul of this size for both electricity and gas meters. Ed Miliband, energy and climate change secretary, says: “The meters most of us have in our homes were designed for a different age, before climate change. Smart meters will empower all consumers to monitor their own energy use and make reductions in energy consumption and carbon emissions as a result.”

The government will hold a three-month consultation over how best to undertake a project of this size. It has yet to release a timetable for the project.

Garry Felgate, chief executive of the Energy Retail Association, which champions the use of smart meters, says it is vital the government works quickly with industry to get the project off the ground as soon as possible,

“This is a huge undertaking which will make a massive difference to the way everyone understands and manages their energy,” he adds. “Quite simply keeping your existing meters is like sending a telegram instead of installing wireless broadband.”

How smart meters work

Smart meters provide an accurate ‘real-time’ log of your gas and electricity usage. So, at any given time you can find out the amount of energy you are using, and, crucially, how much it will cost you.

This type of technology can also isolate the appliances in your home that use the most energy; for example, a traffic light system indicates how your energy usage increases when certain electronic equipment is turned on.

The hope is that households will be able to use this digital information to reduce the amount of gas and electricity they use and make their homes more energy efficient. Smart meters will also mean the end of estimated bills and meter readings – so you pay for what you use rather than your energy supplier’s estimation.

Back in March, consumer group Which? claimed energy companies were taking unnecessarily high direct debit payments from their customers, with 25% of those surveyed more than £100 in credit and 8% more than £200 in credit. The regulator, Ofgem, dismissed the claims but criticised firms for not communicating efficiently with customers about bill changes.

Smart meters should see the end of people being in-credit – or even owing their energy supplier money – because bills will be based on the actual energy used rather than an annual estimate of consumption. Research from suggests that around 11 million people have ended up in debt to their supplier because their energy usage was "underestimated". On average, these customers ended up owing £142, with 20% owing up to £200.

Smart meter technology is digital, so energy companies will be able to update information to your meter – such as your tariff – without having to send an engineer round. And because smart meters record the energy you use, it’s also easy to see how your consumption changes over time.

Your energy company will also have access to this information, and could use it to offer you discounts for off-peak usage or a tailored tariff that suits your circumstances.

Down the line, smart meters could eventually become the central hub of your energy consumption, able to control electrical appliances such as washing machines at the cheapest times of the day – even if you are not at home.

Providers will also be able to offer households personalised tips on how they can reduce their energy consumption.