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NAO warns of need to manage risks to smart metering rollout but stresses positive economic case

The business case for rolling out new 'smart metering' for energy consumption and billing in the UK "remains positive", but the government must manage the "significant risks" that could yet derail the project, the National Audit Office (NAO) has said.

The smart metering project is expected to cost £10.9 billion to deliver but economic benefits of the programme are anticipated to reach £17.1 billion, the public spending watchdog said.

"[The Department of Energy and Climate Change's (DECC's)] economic case is based on the assumption that the [smart metering implementation] programme will achieve near universal roll-out," the NAO said in a new update on the preparations for smart metering (44-page / 615KB PDF). "It has allowed about £1.5 billion for higher than expected costs. The department is relying both on the suppliers’ own commercial incentives to bear down on costs, and on competition between suppliers to ensure efficient roll-out and to keep costs under control."

The NAO praised the "strong leadership" that DECC has shown during the smart metering implementation programme and said that it had made "good progress" in collaborating with energy regulator Ofgem ahead of the mass rollout of smart meters across UK properties.

However, whilst "much of the necessary regulatory, technical and commercial framework needed to pave the way for passing responsibility to industry" has already been established, there remains some "significant risks" to the success of the programme, it said.

"[DECC] told us that all major suppliers have used the foundation stage to test and trial smart metering equipment, but four of the big six suppliers have not yet installed a significant number of meters," the NAO said. "Significant risks remain including potential consumer resistance to smart meters, the need for industry to resolve outstanding technical issues, the readiness of suppliers, network operators and the supply chain for large-scale installation and the robustness of the data security and privacy arrangements."

The NAO said that DECC believes the chances of these risks materialising is low, however it said that if they do their "potential impact in some cases is high". DECC must "retain its ownership" of the "key risks" to the smart metering scheme and "ensure that roles and accountabilities are clear". It has encouraged DECC to "make appropriate use of its powers to manage risks, costs and benefits"

Smart metering enables a two-way flow of information, including consumption information, from electricity and gas meters to a central communications hub. The UK government expects this will bring a number of benefits – for example, it will bring an end to estimated billing and the need for meters to be read manually. It is also anticipated that the rollout of smart meters will enable a more sophisticated approach to the management of supply and demand than is possible with conventional meters.

The government hopes that by giving consumers near real-time information on energy use that shows them how much they are paying for energy at particular time they will reduce users’ consumption of energy at peak times. The ultimate goal is for a smart grid energy infrastructure to be implemented that will deliver supply more efficiently to meet demand.

Mass rollout of smart metering is scheduled to begin at the end of 2015 and be completed by the end of 2020.

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