C-Questor Carbon Markets and Climate Change News Letter

The Times
May 18, 2009
Government's smart-meter estimate falls short by £6bn, expert claims
Robin Pagnamenta, Energy and Environment Editor
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The Government has underestimated the cost of a nationwide rollout of smart meters by as much as £6.4 billion, according to Ernst & Young.
Last week ministers gave a green light to install 47 million new gas and electricity meters, which can monitor energy use in real time, in every household in Britain. They said that the project could be completed at a cost of between £7 billion to £9 billion, or an average of £269 to £346 per household.
Ernst & Young, the audit firm, has rejected that estimate, arguing that the true cost would be at least 49 per cent higher, at about £13.4 billion, or £515 per household. Consumers are expected to shoulder the bulk of the extra cost in the form of higher bills, although the industry claims there will be offsetting savings. Tony Ward, power and utilities partner in Ernst & Young, said that the Government’s figures appeared to underestimate the scale of the additional technology and infrastructure required to support the smart meters, which it is hoped will help to cut carbon emissions by promoting energy efficiency.
“Very big and complex projects of this sort always cost more than anticipated,” Mr Ward said. He cited problems of gaining access to all 26 million UK properties to install the meters and big upfront costs for purchasing equipment and software, as well as hidden costs, such as providing finance for the project. “We very rarely see one that comes in at the original estimate,” he said.
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Mr Ward said that there were big questions about how the rollout would take place and the technology to be used. He added that the Government’s figures appeared to rely “on an assumption of absolute efficiency”.
A spokesman for the Department of Energy and Climate Change said: “We are confident in our cost estimates. They were arrived at after work with industry experts and external economists and clearly show the benefits of smart meters more than outweigh the costs.”
The Energy Retail Association, an industry lobby group, said that consumers would pay for the rollout through their energy bills, but claimed that the overall impact would be “cost neutral” because the smart meters would be introduced over a period of up to a decade and would allow for significant cost savings by the industry.
The phasing out of traditional meters is set to trigger thousands of job losses for meter readers, engineers, call centre staff and middle managers.
The new meters will enable power companies to introduce off-peak deals similar to those offered by telephone operators. Consumers could be rewarded for using energy-hungry appliances at off-peak times, such as between 1am and 5am, allowing for a reduction in the total number of power stations needed to power the UK. Inaccurate billing should end because suppliers would receive precise data.
Ian Parrett, of Inenco, the energy consultancy, said that the new meters would force prices up. He said: “Energy companies will face two new costs that they will inevitably have to pass on to consumers, either directly or indirectly. There is the additional cost of installing these meters across the whole of the UK. Then there is the additional resourcing and personnel required to deal with the large increase in customer inquiries.”
To help to oversee the project, which could start next year, the Government has approved the creation of a body to manage the meters and the relaying of information to energy suppliers.
The project will be highly lucrative for the manufacturers of smart meters, such as General Electric, IBM and Itron, of the United States, and Landis+Gyr, a privately owned Swiss group.