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OVO response to the Energy & Climate Change Select Committee Inquiry: Progress on smart meter roll out

By OVO Energy Thursday 04 December 2014


  1. OVO Energy (‘OVO’) entered the UK energy retail market in 2009 with the intention of offering a fairer, simpler and more competitively priced service to customers. OVO is now one of the UK’s fastest growing independent suppliers, with more than 400,000 customers and 600 staff. Whilst continuing to champion the core values on which the business was founded, OVO is focusing increasingly on improving customer experience and engagement through technology and innovation. Our goal is to reach one million customers by 2017 and to be the most trusted energy company in the UK. In addition to being a domestic energy supplier, OVO is also a Meter Asset Provider (MAP), meaning we own and lease metering equipment to suppliers and consumers.
  2. OVO is fully committed to the smart meter roll-out. We see smart meters as a transformative technology for the energy industry which will help overcome many of the problems of competitiveness, trust and customer disengagement the industry has experienced in recent years. Because we believe smart meters are a key part of moving toward a consumer-driven energy system which better serves our customers, OVO would be rolling out smart meters even without a Government mandated programme. In particular, we are focusing initially on prioritising smart pre-payment meters, which we think offer a better technology for vulnerable customers and those struggling to pay their energy bills.
  3. However, we have serious concerns about the current design of the smart meter programme. We think these risk adding unnecessary costs and hassle administrative burden to what is already an extremely ambitious infrastructure programme with significant issues around consumer trust and engagement.

Key Points

  1. DCC. We think there should be an urgent review of the role of the Data Communication Company (DCC). We are not convinced it is necessary, and its structure and rules could reduce competition and potentially innovation. This is therefore likely to push up costs for consumers.
  2. SMETS. OVO is extremely cautious about the SMETS2 standards and wary of its introduction before it has been proven as a technology. SMETS2-compliant meters do not yet exist and are likely to be more expensive than the current SMETS1 standard. We think the same functionality that SMETS2 is trying to create could be achieved at a lower cost by simply mandating data-level interoperability rather than meter-level interoperability. We remain unconvinced of the DCC/SMETS2 model.
  3. Ripping out meters. OVO has found that some suppliers when taking over an OVO-installed, SMETS1 compliant meter are ripping out the meter and replacing it with a new one. This is inefficient and in the context of the large roll-out, likely to add significant costs. Moreover, customers are likely to be unimpressed by the replacement of what they thought was a new meter, and the increased hassle for customers could add further disruption to the already difficult switching process. Rules should be designed to make sure this does not happen. Potential options are discussed below.
  4. In-Home Displays. Some customers have access to more technology than others (for example computers and smart phones), and provision must clearly be made for all customers to benefit from a smart meter whether or not they have other technology with which it might be linked. However we think customers should be offered a choice between an In-Home Display (IHD) and a Consumer Access Device (CAD), rather than being directed towards an IHD, as the current rules mandate. The preference for an IHD seems retrograde considering how quickly the technology is changing, and the extra potential for new online and smart meter functions that CADs could deliver. Our experience so far has shown that more than 30% of IHDs that we have installed are not being used at all.
  5. Using IHDs over CADs already adds around 15% to costs. We estimate this differential could grow to as much as 66% as scale is achieved. If this was replicated across the entire domestic sector, it would add significant costs to the roll-out. Such an approach is short-sighted and does not reflect the potential for innovation in the future, nor the reality of changing consumer behaviour as a result of technology already widely in use, such as smart phones. There is evidence that CAD-style devices can deliver the same energy savings as IHDs (and in any case, the evidence for energy saving from IHDs is weak).
  6. Installers. We are already concerned about the difficulty of finding enough installers to deliver our ambition on installing smart meters. Obtaining contracts for a large number of installations (currently a very limited market) is extremely competitive and is likely to become even more so as the roll-out progresses. It is estimated there is a shortage of around 11-12,000 meter installers to meet the national roll-out. If this is not addressed, this is likely to add significant costs for consumers. We believe government should support training of new installers, reflecting that it is government’s accelerated timetable that is creating the installer crunch and therefore the upward pressure on costs. This pressure, it should be noted, is felt particularly acutely by smaller, independent suppliers which are less able to place extremely large installer contracts or self-fund training as several the larger utilities are currently doing.
  7. Smart Energy GB. We are concerned about the cost of Smart Energy GB, and remain to be convinced that suppliers (especially independent suppliers) are not in a better place to deliver some of the communications activity around smart meters. Like all the costs associated with this roll-out, the sums legally mandated to be allocated to SmartEnergyGB eventually fall on customers and special care must be taken to ensure this money is spent in the most effective way possible.

Detailed points

Data Communications Company. Is it even needed?

  1. During the Foundation Stage, suppliers have created their own solutions for communications. These are open to competitive pressures (i.e. several companies offer these services and it is up to suppliers to choose from them in a competitive process). As a result, they offer cheaper ways of meeting the same requirements of the DCC. Initial costings from the DCC indicate they are more expensive than our current contracts with our meter and communications provider, Secure.
  2. DCC rules risk adding unnecessary costs. One example is the potential requirement that no-WAN installations are prohibited. This means an installer cannot leave the property where he has installed a meter, until a clear WAN signal has been established. Currently, we perform installations where there is no WAN, or a weak WAN signal and the WAN signal appears or is strengthened a few hours later. The data and configuration is then sent to the meter over the following hours. The supplier would monitor this and if the signal still does not appear, OVO would revisit the property at a later time to establish why. It is worth pointing out that it is not yet clear if this requirement will be necessary, highlighting some of the confusion around DCC rules.
  3. The potential requirement that a WAN signal is established first time often means that installers can take 3-4 hours at a house, rather than our current 90 minutes. The implication for the overall cost of the programme is obvious if installers can only do two installs a day rather than five. It is not clear that the customer gets any benefit from having an installer waiting around, and problems can be sorted out soon after with good processes to check signal levels in the hours after the install. This is already in the interests of suppliers.
  4. The DCC was originally meant to be more than simply a communications pipe. It was meant to have greater responsibility over security and data encryption. However, these responsibilities have been moved to suppliers. As a result, the key rationale for the institution has been reduced. As discussed above, what remains of its responsibilities (as a communications hub) could be achieved more cheaply elsewhere.


  1. We are not convinced that SMETS 2 should be the standard for the roll-out, and think Government should remain cautious about pushing the standard. A meter meeting the SMETS2 standard does not yet exist. It would be premature to be pushing the standard at a rapid pace if it was mandated as part of the roll-out. Such a standard adds unnecessary cost and uncertainty.
  2. We believe the issue of interoperability could be achieved by simply mandating data-level interoperability. Such data-level interoperability would be a better alternative than current plans for meter-level interoperability and would likely save costs overall. Our current communications arrangement (for the communications and the meter ‘head-end’) with third parties allow this to happen already. If a new supplier takes over the meter, they could either take over the existing Smart Metering System Operator (SMSO) or transfer the meter to another SMSO. If they were not happy with the SMSO or the meter then they could replace the meter. This offers greater levels of competition, a push to reduce costs and a drive to offer enhanced functionality. This is not the case with the proposed DCC system, where suppliers will be forced to take its monopoly services at the price it offers.

Ripping out meters

  1. An emerging area of concern for us is suppliers taking over OVO customers who have had a smart meter installed but then replacing the meter. While it is quite low volumes at the moment, we see this is as potentially a growing problem for the industry. This seems inefficient and adds overall cost to the roll out unnecessarily.
  2. As a Meter Asset Provider (MAP) we are concerned about this, but this is an issue for all suppliers as a higher risk of removal of the meter when a customer changes supplier is likely to be reflected in higher rental rates, and therefore higher costs for the roll-out overall.
  3. Designing a regulatory solution to this problem is not straightforward. The first step is making sure suppliers have to report the number of meters they have ripped out and replaced, with DECC monitoring whether this is reasonable. The next step would be to mandate that only a limited % of a suppliers’ installations can be smart to smart replacement. This would allow meters to be replaced in exceptional circumstances, but not for it to become the norm. Another option is to mandate that meter to meter replacements do not count towards volume targets.

Installer capacity

  1. One of key constraints for OVO’s ability to rapidly roll out smart meters is the difficulty of finding qualified installers to put in the new meters. An installer crunch is already happening and has been the major factor in us revising down our target for installing meters this year by 40%.
  2. There is a caution about bringing new installers into the market as retention will be a big issue (a shortage of supply will lead to increasingly competitive rates for installers). The cost of training a new installer from scratch can take years to recover. Even upskilling a single fuel installer is expensive – some installation partners are increasing their rates to recover the investment faster, therefore increasing the overall cost of the programme. This situation will only become more acute over the coming years as the roll-out ramps up. If the shortage of installers is not tackled, then it will likely be a key driver of costs over the next five years.
  3. While OVO is normally cautious about asking for government support for a commercial activity, we think the mandated roll-out has created an artificial supplier crunch which would not have existed at a normal pace of meter replacement to the same extent. We are doing work at the moment to try and quantify the extra costs of dealing with this problem and how a government-supported programme to train installers could work.


  1. Suppliers have to offer in-home displays to customers as part of the smart meter package. We are not convinced this is always the best solution for consumers.
  2. The research backing up the case for mandated IHDs is weak. We feel DECC has stuck with this requirement because it is not convinced that without the IHD, the case for smart meters stacks up.
  3. OVO’s preferred alternative is to offer a choice to customers of IHDs or CADs. CADs are likely to become increasingly popular as they offer greater functionality, which will increase over the coming years as new apps and supporting technologies develop. IHDs, in contrast, are a static technology. We have found more than 30% of the IHDs we have installed are still not being used. This is a huge deadweight cost to the smart meter programme.
  4. We estimate that a preference for IHDs over CADs already add around 15% to costs. We estimate this differential could grow to as much as 66% as scale is achieved (CADs are much more likely to reduce in costs compared to IHDs). If this was replicated across the entire domestic sector, it would add significant extra costs. Such an approach is short-sighted and does not reflect the potential for innovation in the future.
  5. The IHD solution will also lead to additional costs when making sure multi-dwelling units benefit from smart meters. Currently, it is likely to be difficult to get a strong enough signal to get the Home Area Network (HAN) from where the meters are located to people’s homes in blocks of flats and other MDUs. Extending the HAN signal adds costs, while CADs could offer a much cheaper alternative.
  6. We think there is strong evidence that a CAD-solution can deliver the same amount of energy savings as an IHD, and this is likely to increase as technologies become more mature and new innovations appear.
  7. Non-IHD alternatives have been shown to produce comparable and in some instances superior reductions in usage. Studies cited by DECC’s own impact assessment show suggested savings of 5-6% without an IHD . Trials using an online display to provide feedback producing an average reduction in household power usage of 18% and there is growing body of evidence in this area as the technologies develop and innovations appear. There is potential that future reductions through the use of rapidly developing and potentially cheaper alternatives could be even higher than those demonstrated by IHDs in trials so far, while it is less likely that the relatively static technology like IHD will deliver further improvements.
  8. IHDs will continue to work for some consumers, but are unlikely to be the best long-term solution for the wider community when smart phones and smart devices are more common.


  1. We are concerned about the size of the budget being proposed by Smart Energy GB. We are yet to be convinced that Smart Energy GB are best-placed to deliver some of the communications activity. Our experience finds that there is not a constraint on people accepting smart meters at the moment. Indeed, the opposite is the case and a key risk for the industry is not being able to keep up with demand for new smart meters. This, of course, may change as the smart programme develops, but we are cautious about some of the messaging so far. We will be exploring this issue in greater detail in the coming months.

Response to terms of reference

What progress has been made on smart meter roll-out since our last report on this subject?

  1. OVO has increased the pace of our roll-out since the last report of the committee. This reflects a growing focus in our business on smart meters. We have developed innovative solutions for Pre-Payment Meter customers (we call them Pay As You Go), along with our partner Secure. We are installing SMETS1 compliant meters. We have developed communications and technical solutions that address many of the reasons for the creation of SMETS2 and the DCC.

What are the remaining challenges (technical, communication or other) associated with launching the mass roll-out of smart meters in 2015, and completing it by 2020?

  1. The main challenges, as we have identified above, are to do with the DCC, standards and the supply crunch on installers. We also think some of the decisions around the DCC and IHDs are adding unnecessary costs.

How can these challenges be overcome?

  1. We would advocate:
    • An urgent review of the necessity and role of the DCC;
    • A review of whether CADs can be offered as an alternative to IHDs rather than in addition to;
    • The government providing support to train new installers as a matter of urgency; Action to prevent suppliers ripping out SMETS1 compliant meters.

To realise the full potential benefits of smart meters, is it necessary to introduce time of use pricing for electricity?

  1. There is considerable benefit from time of use pricing and smart meters should be in a place to develop that market and offer innovative ways of customers being more active energy consumers. While there are issues around the meter design, we would stress that the key barrier in this area is related to overly-restrictive rules around Ofgem Retail Market Review. This should be an area of innovation in the future, and it is not clear that the restrictions on four tariffs are a good way of allowing this.
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