Sacha Deshmukh is Deputy Chair of Citizens Advice England & Wales, a Director of Consumer Futures and Chief Executive of the Smart Meter Central Delivery Body
Ofgem’s State of the Market assessment and referral of the energy industry to the Competition and Markets Authority means that there is the potential for real reform in the way people buy their energy. But as Ofgem itself states, weak customer pressure is at play here along with the supply-side weaknesses that politicians of all hues are trying to address.
It’s no wonder that people can’t behave as normal consumers in the way they buy energy, as they do in every other part of their lives. The way we currently buy energy should be left behind in the those grey metal boxes of the 1950s – a relic from the last century sitting under the stairs, which tells customers nothing and means suppliers are forced to send out estimated bills which are often incorrect.
Every year, I check whether I’m getting the best deal on my car insurance by going onto a price comparison website and finding out within seconds how much I could save. Because I have a “dumb” gas and electricity meter, I can’t do that with energy because I have no idea how much energy I use – I am kept in the dark. So it’s no surprise that one third of the people who switch suppliers or tariffs end up on a worse deal.
And it’s even worse for people on low incomes. Many of these – around 1,000 households per day – switch to pre-pay meters, in the full knowledge that they are more expensive, because their household budgets can’t cope with “bill shock”.
The smart meter roll-out campaign will accelerate next year, when the Data Communications Company – the national data communications system that will link meters to suppliers in an interoperable way – is switched on. Between then and 2020 around 50 million smart meters will be installed in nearly 30 million homes.
We know from our work with consumers around the country that trust in the energy industry is low, and that there is a big appetite for change in the way energy is sold. Smart meters will enable people to turn their frustration into action, to see for the first time exactly what they are spending and to use that information to get the best deal.
It has cross-party support, having been initiated by Ed Miliband when he was Energy and Climate Change Secretary in 2008 and now taken up enthusiastically by the current government. But it mustn’t be derailed, or its potential minimised by those who think smart meters are just a cosmetic device which lets you see when you’ve switched the kettle on.
Smart meters do indeed enable households to monitor their energy use and make savings wherever they can, such as switching the TV off rather than leaving it on stand-by. DECC estimates that bills could go down by around 2-2.8 per cent as a result of this behaviour change. But this is just one part of a bigger picture in terms of how they will empower consumers to switch to the right supplier and the right tariff.
Today’s smart meters are just the beginning of this technology transformation that will continue to improve from when the system goes live in Autumn 2015. All the evidence shows that people see the practical application of smart metering so their enthusiasm for the project will grow.
Energy suppliers are quick to talk about the investment they’re making in smart meters – but less forthcoming about the savings. Government has indeed mandated energy suppliers to pay for the roll-out, but this investment will soon be outweighed by reduced costs as physical meter readings, and the administrative mopping up of inaccurate bills, become a thing of the past.
DECC’s Impact Assessment shows that the investment in smart meter roll-out will break even by 2019, after which point every household will enjoy an estimated net saving of £26 per year. That saving will then rise year after year and, according to DECC, will reach £42 by 2030. And these savings are conservative estimates, which don’t even take into account the potential of switching to better tariffs or switching suppliers. We are determined that these savings should be passed back to consumers.
The Big Deal, which Henry de Zoete wrote about on this site yesterday, is a great initiative to mobilise consumers and promote switching. New developments such as this can be transformative when customers – who currently feel the wool is pulled over their eye – are truly in control of what they’re spending and where they should take their money. But real reform of this market is not possible without the true transparency for consumers that only smart meters can deliver.