Getting ready to roll in Britain – smart procurement strategies


By John Peters

In May, the UK’s Department for Energy and Climate Change (DECC) announced that the roll out of smart meters in 30 million UK homes will now be delayed for more than a year, with the first stage starting in autumn 2015.

The original deadline of a 2014 for the start of the roll out was regarded by many as ambitious. There were concerns with the challenging timescales and that there were uncertainties in several areas including the technical specifications and the regulatory framework, which included issues around consumer engagement and protection.

The delay is good news for the industry as suppliers have more time to get things right and solve the complex technical and business issues involved in the programme. Whilst many key programme milestones have been met, there are still other elements not yet in place.

The move to smart meters in the UK is being billed as the single biggest revolution in energy use since the natural gas conversion the 1970s. The rollout is a prime opportunity for suppliers to win new customers and build trust. However, there is a lot to get right and much at stake.

The onus is firmly on suppliers to move seamlessly from the current foundation stage to the rollout and delivery phase in 2015. Some companies have chosen to get ahead of the pack by rolling out smart meters in the foundation stage. However, the majority are still gearing up their supply chains and system capabilities for large scale rollout and they have a great deal to consider and plan.

For them, the road ahead will not be without risks. The UK energy market is highly complex and unlike many countries around the world, it is supplier-led and subject to competition. There are many providers involved in all aspects of the market including meter agents and meter and communications equipment vendors. Even with a year’s grace, suppliers will soon need to ramp up and train their field force, finance new assets and ensure their technology is compatible with approved specifications.

Now is a good time for suppliers to be considering their rollout strategies need to ensure they work with the right strategic vendors, comply with standards specified by government, engage credible partners with robust technologies and ensure their business can scale up for rollout – both in financial and logistical terms. They also have to meet new licence conditions that stimulate progress towards delivery whilst protecting consumer interests, and set about delivering ‘change of supply’ market operations in the new smart world.

Currently consumer awareness and engagement with smart meters is low and suppliers will have their work cut out getting customers on side for this mammoth endeavour. A survey from the Department of Energy and Climate Change last year revealed that whilst almost half of people in the UK had heard of smart meters, three quarters knew little or nothing about them. The industry needs to get the implementation process right or suppliers risk a potential customer backlash that has the potential to derail the process.

One of the key challenges for suppliers is the fact the market is new, with many providers, competing technologies and solutions that are untested and haven’t been delivered before on this scale or in the particular configuration that is required.

This is further complicated by the fact that in the UK the smart metering system is constituted of several components: the electricity meter, gas meter, in-home display, and a communications module, all of which need to be interoperable and which may be the responsibility of different providers.

The metering market has been predominantly a commodity procurement process, with companies selecting assets that are fit for purpose with a long life in order to maximise return on investment. Smart metering has turned that model on its head.

Smart meter technology is evolving continuously so suppliers have to decide which technology suppliers to work with now and ensure the technology complies with government standards.

They will have a choice of technology partners to work with. There are plenty of new technology suppliers emerging alongside companies that have a track record in the legacy world of metering. Due diligence and testing will be of paramount importance in both cases as the smart metering technology is new. If suppliers work with smaller, start-up companies they may wish to consider producing innovative commercial agreements that drive down prices, secure production and provide themselves with adequate protection from any risks.

Ultimately, suppliers should look to partner with companies that can deliver genuine value – whether that is in the short term complying with a requirement for simple meter reads or in the longer term, providing the infrastructure for future services, including smart grid benefits.

Unlike many other countries where smart meters have been rolled out, the UK government is centralizing its approach, adding a layer of complexity for suppliers by mandating the communications, data and central coordination body they need to interact with. Most countries have had far less structure imposed upon them, so it is arguably more complex for suppliers in the UK. This centralization enables the key industry processes to operate from a single body and will facilitate change of supply and commercial interoperability.

In a few months’ time, the government will be awarding a licence to a data and communications company (DCC). The DCC will manage the data service provider and communications services provider. These provide the core services that allow meter data to get from the home to the bill. Suppliers will need to ensure their smart metering systems work seamlessly with these providers.

The government’s central programme has put considerable focus on the DECC Smart Meter Equipment Technical Specifications (SMETS). SMETS set out the requirements and functions of each element of the smart metering system which suppliers’ vendors will need to comply with. SMETS cover all components of the smart metering system and give all involved a stable baseline against which to procure their smart metering system.

The publication of SMETS is happening in two stages with the first published version SMETS 1 for meters deployed during the foundation stage. This specification is firm and can be used for procurement today. However, the second version, SMETS 2, is not yet ratified. This will be a much more detailed version for use in the full rollout. It will include a richer companion specification that sets out how solution providers must deliver their products to help meet the technical interoperability challenge – where different vendors’ equipment must work with each other’s.

Another factor to consider is the financing of the smart metering equipment. Most energy suppliers will seek to keep the costs of smart meters off their balance sheets and rent the assets from an asset financier, often referred to as a meter asset provider (MAP). In the procurement stage, suppliers have just as much at stake getting the right commercial financing as they do in getting the best price for the meter itself.

The communications service providers (CSPs), who are responsible for the core communication network for smart meters, will be procuring the communications hub – the device that links the smart metering system to the wide area network so that data can be sent to and from the DCC. Suppliers will need to procure all other components of the smart metering system including the smart meters and in home displays and make sure they work with whatever communications hub the CSP provides.

Each supplier has a different appetite for risk which is determining when they are choosing to roll out. Some have continued with their early smart meter rollouts while others prefer to wait for the vendor landscape to become clearer. With the selection of the DCC, data communications and communications services providers, and the approval of the second version of SMETS expected soon, these barriers are set to be removed. This will clear the way for supplier procurement to clarify exactly what they need for their supply chain.


Another key consideration is ensuring a field force is in place, with people who are fully competent and trained in implementation of each element of the smart metering system and ready to go in time for rollout. Fitters of legacy meters have typically specialized in either electricity or gas, but for the smart meter rollout, meter fitters will probably need to be dual fuel trained (both gas and electricity) in addition to understanding the multifaceted communications of the smart metering system. They will also need skills to engage with customers to explain how the in-home display works and what the data means.

All field staff must comply with a government mandated code that sets out the rules suppliers must follow when they install smart meters, and how they treat customers to ensure the best possible service levels during their transition to smart meters.

Through an Ofgem licence condition, all suppliers will need to adhere to the guidelines ensuring that the customer experience throughout the smart metering installation process is favourable. The code will apply to both domestic and industrial installations and will be monitored and regulated by Ofgem. Suppliers will therefore need to ensure that all meter installers are trained in time for rollout and that they comply with the rigorous standards laid out in the code.

Suppliers thus need to ramp up their meter installation capability to meet the rollout schedule. They will also need to manage the impact of recruiting a large number of people into their business, considering that all suppliers will be doing the same, avoiding a resource vacuum in the process. All these challenges will be particularly hard for smaller suppliers and could even prove a barrier to them getting up and running in time for 2015, especially procuring field assets ahead of time such as the high volumes of vans and other ancillary equipment needed to fit meters. In the current economic climate, securing finance is tough and this aspect will also prove particularly challenging.

The delivery risks of the programme are also high. New technologies need integrating with new systems and need to be operated by new recruits who require training. Getting the volumes right will be a worry for suppliers large and small and financing the operation will be hard for smaller suppliers. The smearing of costs across a larger customer base will make the transition easier for the larger suppliers, but delivering change can sometimes be easier in a smaller organisation. Not all aspects can and will be done at once. Different retailers will take different approaches – some will go early and others who might be more risk adverse will go later – there are pros and cons of each approach.

Equally, every procurement strategy will be different. Every company has its own business drivers, its individual attitudes to risk, different technologies in place and existing relationships with suppliers. There is not one procurement strategy that will work for everyone. Our advice would be for suppliers to carefully consider all elements of the procurement cycle and select suppliers based on their credibility, innovation, future proofing, price and logistical fit.

We are currently working with several suppliers on their procurement strategies and one piece of advice we would offer is that it takes longer than anticipated. A successful procurement cycle will take around 12 months from start to finish including time for testing solutions, which is of paramount importance.

Whilst the industry now has a year longer to address these procurement challenges and educate consumers about smart meters, there is still a great deal for suppliers to plan and get right. Now is the time for them to assess their supply chains and ensure they make the right procurement decisions that will ensure their smart metering roll out in 2015 is a success. 


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