Smart metering and market development

Colin Sausman

Partner, Retail Markets & Research, Ofgem

Metering, Billing/CRM Europe

October 2012

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Ofgem

• Our role in general:

– Independent regulator of gas and electricity markets in GB

– Protect the interests of current and future consumers

• Our role on smart meters:

– Nurture smarter energy markets from the platform of smart

metering by:

• Advising Government on rollout regulatory design

• Taking on new regulatory functions

• Identifying and progressing consequent reforms

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THE GB ROLLOUT DESIGN

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Key design features of GB rollout 1. Energy retailers are responsible and accountable for rolling out smart

meters to all customers (by 2019)

2. All domestic customers must also get a display device

3. Monopoly central provider of data and communications (DCC)

– Independent from both retailers and its service providers

– Regulated by Ofgem, licence awarded competitively

4. Open, non-proprietary standards for elements of mandated metering system in the home, including in-home display (IHD)

5. Consumers control the use of their data

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GB smart meter rollout – an overview

Other devices

HAN

IHD

Gas

Elec

WAN module

Retailers

Network operators

Other authorised

parties

Data

function WAN

Data

function WAN

Gate

way

Regulatory obligations on

energy suppliers to roll out in-

home equipment by 2019

Data and communications managed by new

regulated monopoly Data & Communications

Company (DCC)

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GB Government Impact Assessment for domestic rollout: Spending £10.9bn...

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... to capture £15.7bn of benefits

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MAKING THE REGULATORY DESIGN WORK FOR CONSUMERS

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What does smart metering enable?

Smart meter rollout

Measure

energy use in very small time blocks

Information A more

active demand

side New types of

tariff for energy use

Contracts for firm changes in energy use

Smart meter rollout

Measure

energy use in very small time blocks in near real-

time

Enables smarter central ‘back office’ functions - Settlement

- Registration - Switching

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Ofgem’s smarter markets strategy

Wholesale settlement

More accurate settlement for all meter points

Change of supplier

Switching which is much faster and reliable

DSR market frameworks

Commercial and regulatory arrangements that work well

across the supply chain

Consumer empowerment

Regulation that helps consumer engage and navigate, and protects

Smarter Markets

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Wholesale settlement

A typical pattern of

cost-reflective wholesale spot prices

Smart metering enables us to create a link between these prices and customer bills in a way that can reward

behaviour

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Reforming change of supplier

Stepping through this process without smart data is slow and prone to error

Source: Elexon

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Market arrangements for DSR

•Complex interactions (value, coordination, information)

•Regulation affects whether this value can be realised

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SOME IMPORTANT HYGIENE FACTORS

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Consumer engagement is critical

Centralised

• Role for central body, but

(a) Scope?

(b) Funding?

(c) Regulation?

• Mandated provision of display device

• Learnings from consumer-funded trials, e.g. Low Carbon Networks Fund (LCNF)

• Evolving regulation

Decentralised

• Installation visit

• New tariffs

• New services/technology

• Advertising

• New entry

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...but starting position is not great

Permanently disengaged

20-30%

Disengaged 20-30%

Passive 20-30%

Reactive 5-10%

Proactive 5-10%

Source: Ofgem Retail Market Review 2011

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Data access regime is also critical because...

Privacy

• Trust acceptance

• Acceptance engagement

• Acceptance also affects costs

• Rules can build (and lose) trust

Competition

• Data from smart meters are commercially valuable

• Rules on access therefore involve value transfers

• Differential access rules are likely to skew competition

• Non-discriminatory access on reasonable terms – seen as essential for transmission and distribution. Maybe data too?

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