11 Jun 2012

Smart Meters Mean Simpler Tariffs

Mark England, CEO of Sentec, discusses how smart meters will play an important role in reducing customer churn for utilities and providing a better deal for consumers.

The issue of energy bills never seems to be far from the public eye these days.

The prognosis seems to be a gloomy one, with the continued increase in wholesale gas and oil prices leading to a steady rise in the household bills. There is, however, light at the end of the tunnel for more proactive homeowners.

In addition to schemes such as the Government’s Feed-In-Tariffs, designed to encourage home solar installations, the use of smart meters will prove vital in helping consumers keep their energy bills manageable.

The potential impact of smart meters cannot be overstated. Recent research by the independent energy think tank, VassaETT, has shown that the information provided by smart meters could help consumers cut household electricity bills by an impressive 8.5 per cent, going a long way towards mitigating the rising cost of energy.

In addition to the energy efficiency smart meters engender, the devices have another powerful application, one that has not been discussed in any sort of depth to date. In October 2011, the energy regulator Ofgem announced that it is looking at the introduction of a simple unit price for energy and fixing a standard charge. Additionally, the regulator has mooted the idea of making standardised price information available to consumers, allowing them to compare various energy tariffs more effectively. These pressures are making major energy providers such as E.ON and British Gas look again at how they structure their tariffs and aim for a simpler approach. Smart meters will play a vital role in bringing this about by acting as a gateway for collecting and assessing energy use, providing consumers with the information they need to make an informed decision about their energy tariffs.

Metering for change

Smart meters are capable of collecting a wide array of data on a user’s energy habits, but such data is only useful if it can be presented to the consumer as actionable intelligence. Providing the meter alone is not enough, utility companies should also invest in supplying customers with basic analytics tools; for example, a simple web portal from which data can be viewed and analysed. Such a set up would involve the smart meter transmitting data to the web portal for use by the consumer, allowing them to modify their behaviour according to the information they receive.

For example, it could be possible to ‘timeshift’ certain activities, such as running the dish-washer or washing machine, to take advantage of a lower-priced time band. Similarly, if a customer usually had a high base load during the night, the portal could alert them to this so they can check all of their appliances have been correctly switched off. In the future, tariffs may need to become more restrictive to ensure that we do not squander our energy resources. This could mean for example that consumers will be billed more for units of energy that surpass a specified ‘ration’ (much as some mobile phone tariffs work today for data downloads); in such a scenario timeshifting will make an important contribution towards keeping energy usage down.

Taking this one step further, presenting energy usage data to the customer in a format that allows them to easily compare their tariff with other options, via a third-party price comparison site for example, will demonstrate a transparency that will be crucial in restoring consumer trust. By empowering the customer to switch to more favourable tariffs according to their energy use, suppliers will help reduce churn. They could even make tailored suggestions to help customers cut their energy bills via this type of portal.

It’s the details that matter

To be able to deliver a service of this type, energy suppliers will need to be able to access a much richer set of data than is currently available, one that will drill into historical usage patterns at a granular level. Today, energy suppliers only have access to a relatively crude record of historical energy consumption, this will need to be vastly improved and provided on an hourly, or half-hourly basis. For consumers to benefit from tariff comparisons, they must be given access to sufficiently detailed data to apply all tariffs to data sets to find out which one costs the least. The rich functionality that this requires has already been included in the smart meter technical specification issued by the DECC. There is, however, a major consideration around the functionality of the wider system and how energy companies and consumers will be able to access that usage data. Presently, the smart meter specification provides for an in-home display (IHD). While the IHD will provide information on energy usage, it does not currently allow for analysis against tariffs from the various energy companies.

The ability to store data and present it back to the consumer in a relevant and engaging format should be a major consideration for the development of the IT infrastructure associated with smart meter rollout. In theory, it ought to be possible to offer real-time access to usage information as soon as smart meters are rolled out, so developing a portal as well as the associated infrastructure is something utilities must be thinking about now. This portal could give much more information than a simple IHD, including highlighting the best tariffs and most cost effective time to run loads.

Planning for the future

The challenges facing energy companies are clear. Consumers are going to become increasingly concerned about tariffs and energy costs and in order to effectively meet these concerns, energy companies need to do more than simply provide an IHD (which could, in all likelihood, find itself at the bottom of a kitchen drawer once the novelty has worn off). The onus is on the energy industry to consider the full functionality of the system, and what it will provide from the perspective of the consumer. Careful thought needs to be given to the exact impact smart meter rollouts will have on the overall IT and data management systems of the utility, and to provide a system that allows consumers to access the best deals.

Ultimately, it will be the consumer that bears the cost of smart meter rollouts, and energy companies must do their upmost to guarantee they are receiving the best possible value for money, and seeing the benefits from day one. Smart meters need to be upgradeable, future-proof and suitable for future requirements enabling smarter functionality for the foreseeable future. Utilities need assurance that they will not have to revisit this rollout for a long time.

Furthermore, the consumer needs to be empowered to use the information available from smart meters simply and effectively, helping them to both reduce their energy consumption and make the most of favourable tariffs to keep their bills down. Energy companies today should be looking at what elements they will need to put in place to ensure that their metering system is fit for this purpose. As energy prices continue to rise, such transparency will help maintain customer relationships and reduce churn, allowing utilities to make the most of the difficult market conditions.

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