Smart Meters Act 2018

Policy background

2. Smart meters, rolled out as part of the Smart Metering Implementation Programme (the 'Programme'), are the next generation of gas and electricity meters. They provide consumers with near-real time information on their energy consumption to help them control and manage their energy use and in turn save money and reduce emissions.
3. The Government is facilitating the smart metering rollout by developing a regulatory framework comprising licence conditions (in supply licences, network operator licences, and smart meter communication licences) and a new industry code called the Smart Energy Code (the SEC). Together, these establish the rights and obligations for all aspects of smart metering design, development, installation and operation, as well as monitoring and reporting.
4. Central to the operation of smart metering is the activity of communicating to and from smart metering systems. The GB-wide smart meter communication service is provided by a national smart meter communication and data service provider called the 'Data and Communications Company', or 'DCC'. The DCC is a licensed entity (Smart DCC Ltd) regulated by the Gas and Electricity Markets Authority ('the Authority') and holds smart meter communication licences (the 'DCC Licence') awarded under the Electricity Act 1989 and the Gas Act 1986 (the 'Electricity and Gas Acts').
5. Smart meters can record the amount of electricity consumed within every half-hour period and provide this data to energy suppliers remotely, which presents an opportunity to improve the accuracy and timeliness of the electricity settlement process (see paragraph 12). In particular, smart meters will enable half-hourly settlement by improving the process by which the volume of electricity purchased by a supplier for a particular half-hour period is compared to the volume of electricity consumed by the supplier’s customers for the same period using information about customers’ actual consumption of electricity on a half-hourly basis.

Extension of powers

6. The Energy Act 2008 and the Electricity and Gas Acts provide the Secretary of State with a number of powers in relation to smart metering including powers to:

• make activities relating to smart metering licensable;
• modify licence conditions and industry codes; and
• veto any proposal by the Authority to consent to the transfer of the DCC Licence.

7. The Government has used the first of these powers to make the provision of the smart meter communication service licensable, and the second to develop the regulatory framework. The regulatory framework continues to develop to facilitate the realisation of a full DCC service to cover all premises and smart meter types. The third power has not yet been used but is provided in order to maintain regulatory stability and Government oversight of smart metering.
8. These powers are currently due to expire on 1 November 2018. This Act provides for these powers to continue to be available to the Secretary of State until 1 November 2023 so he or she has the ability to intervene where required to drive the timely completion of the rollout of smart meters by the end of 2020, to protect consumers and to ensure benefits enabled by the rollout are being fully realised.

Special administration regime

9. Through the DCC, energy companies (alongside networks and other third parties) can collect energy usage data remotely to deliver the benefits of smart metering, including bringing an end to estimated consumer bills and facilitating faster switching between energy suppliers.
10. The DCC's continued operation is fundamental to providing uninterrupted services, protecting consumers and securing benefits for both consumers and industry. Whilst the DCC is subject to the provisions of the Insolvency Act 1986, there are currently no special statutory provisions to deal with the threatened or actual insolvency of the DCC. This is in contrast with the position for water, railways, the transportation or supply of gas and the transmission, distribution and supply of electricity.
11. The Government considers that the risk of the DCC’s insolvency is very low. However, the Government is concerned that the impact for consumers would be high, potentially resulting in a loss of energy billing services, including prepayment services which would particularly affect vulnerable consumers. This Act introduces a special administration regime (‘SAR’) for the smart meter communication licensee, which is currently the DCC. The objective of the SAR is to ensure the continuity of the smart meter communication service.

Half-hourly settlement

12. In Great Britain electricity is traded in a wholesale market, with generators and suppliers entering into contracts with each other for every half-hour of every day. Electricity suppliers are required to buy enough energy to meet their consumers’ needs in each half-hour period, and ‘settlement’ is the process for determining, after the event, whether what they bought matched what their customers consumed. Any shortfall or excess is charged or refunded to the supplier accordingly.
13. However the majority of domestic and smaller non-domestic consumers currently do not have meters capable of recording their consumption by half-hour period – the total amount of energy consumed is recorded, but the timing of when it is consumed is not recorded. For these consumers their half-hourly consumption is based on an estimate according to a profile of the average consumer.
14. Smart meters can record the amount of energy consumed or exported within every half-hour period and provide this data to energy suppliers remotely. The roll-out of smart meters to domestic and smaller non-domestic consumers therefore presents an opportunity to improve the accuracy and timeliness of the electricity settlement process, as they enable information about customers’ actual consumption of electricity on a half-hourly basis to be used in settlement. As the actual cost of generating and transporting electricity varies throughout the day (for example, at times of peak demand the average cost of electricity generation tends to be higher than at off-peak periods), half-hourly settlement is expected to provide commercial incentives on energy suppliers to encourage their customers to change when they consume energy (e.g. through time of use tariffs). This can help reduce the costs of the future energy system and so the costs for consumers. It will also make the energy system more resilient as we move towards an increasingly low carbon generation mix, and assist distribution networks in managing the additional load resulting from the take-up of electric vehicles and potentially the electrification of heat. Half-hourly settlement is a central aspect of the Government’s Smart Systems & Flexibility Plan that was published in July 2017 (https://www.gov.uk/government/publications/upgrading-our-energy-system-smart-systems-and-flexibility-plan).
15. Ofgem launched a Significant Code Review on market-wide half-hourly settlement in July 2017 (https://www.ofgem.gov.uk/system/files/docs/2017/07/electricity_settlement_reform_significant_code_review_launch_statement.pdf. They have committed to take a decision on if, when and how to implement market-wide half-hourly settlement by the second half of 2019. The powers in the Act allow Ofgem to deliver market-wide half-hourly settlement more swiftly and smoothly, without them having to rely on industry code processes to the same extent. This will help ensure that the benefits to consumers of new tariffs, products and services enabled by smart metering and half-hourly settlement will become available sooner.