Energy companies will have to supply all UK households with smart meters over the next decade, the government has today confirmed.
Signaling the end of estimated bills and meter readings, smart meters will provide households with an accurate record of how much energy they use and, crucially, how much it will cost them.
Energy suppliers will no longer be able to 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 as much as £9 billion.
Under plans published by energy and climate change minister, Lord Hunt, suppliers will be responsible for installing meters. However a question mark remains over whether consumers will have to pick up part of the bill.
While fierce competition among suppliers could mean new customers are offered free smart meters, firms could recoup the cost through higher energy bills or upfront fees.
By the end of 2020, all homes will be supplied with a standalone display device with meters that will show energy usage and carbon emissions in real time
The meters will also make it easier for customers to switch supplier, with a central coordination system established between smart meters and utility companies.
“Smart meters will put the power in people’s hands, enabling us all to control how much energy we use, cut emissions and cut bills,” says Hunt.
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 you only pay for the energy you use, rather than your energy supplier’s estimation.
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 uSwitch.com 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.
Will they really save households money?
The government says smart meters will save households money, mainly because they will highlight how we use energy. The typical household could save £28 a year, although the government says in cases where smart meters change behaviour, consumers could slash their annual bill by £100.
However, not everyone is convinced consumers will use the information supplied by smart meters to cut back on their energy usage.
“Customers will only save money if they reduce their energy consumption or opt for a cheaper energy tariff,” says Gareth Kloet, head of utilities at confused.com.
Research from uSwitch.com, meanwhile, suggests that 57% of people are not aware of what smart meters are.
“If households are to get maximum value the specification of smart meters has to be right and designed to put easy-to-understand information at people’s finger tips, including historical usage data so they can manage their energy more easily, compare prices and find an energy plan or supplier that suits their needs,” says Ann Robinson, director of consumer policy at uSwitch.com.
“This is a huge opportunity for the industry to get consumers engaged in managing household energy, but there will only be one opportunity to get it right.”
The cost of installing smart meters - if passed onto consumers through fees or higher bills - would offset these savings.
Scott Byrom, utilities manager at price comparison site, moneysupermarket.com, questions whether the cost of the scheme will be put at the feet of the households, who have already suffered for many years from high bills.
However, he adds that, ultimately, smart meters are a positive step as they will make bill payers more aware of their usage levels, and put an end to estimated bills and meter readings.
“Customers won't ever have to overpay or find themselves in debt with their energy supplier once smart meters come into force,” Byrom points out. “Not only this, but they will enable consumers to keep a close eye on their energy consumption, allowing them to curb unnecessary usage and make some much needed savings.”
Kloet agrees: “If mounted in a prominent place they could be the modern equivalent of your Dad shouting ‘turn the lights off’. And, once consumers know how much gas and electricity they use, they can be more confident and efficient about searching for a better tariff.”
Smart meters should also encourage people to take steps to make their homes more energy efficient, perhaps through double-glazing and environmentally friendly appliances.