Energy UK response to DESNZ consultation: Non-domestic smart meter rollout post-2025

Executive Summary

Energy UK welcomes the Department for Energy Security and Net Zero’s (DESNZ) consultation on the non-domestic smart meter rollout post-2025 proposed framework (the proposed framework), to drive higher levels of non-domestic smart meter uptake. The smart meter rollout is essential for an energy system which can meet future electricity demand in the most efficient, affordable, lowest-carbon way.

Energy UK particularly welcomes the move away from the ‘hard targets’ framework that has guided the smart meter rollout since 2022, and the recognition that flexibility is needed to deliver new installations in a way that accounts for broader commercial priorities. This includes balancing emerging challenges as the rollout extends, including declining customer demand (with an increasing proportion of customers with traditional meters being smart adverse, or whose premise would require remedial work), and the need to upgrade advanced metering portfolios to 4G.

Suppliers are also increasingly incentivised to encourage customers to have a smart meter installed, due to the migration to market-wide half-hourly settlement (MHHS) that is underway. MHHS is a vital enabler of consumer-led flexibility and requires a smart meter to unlock the full customer benefits. MHHS can also support cost savings for suppliers, as it enables more detailed consumption data and improvements in energy consumption forecasting. It is therefore important that the proposed framework aligns with the Government’s agenda to cut red tape and kickstart growth, and Ofgem’s strategy to drive investment and innovation, to support the delivery of these benefits.¹

It is also positive that DESNZ is consulting separately on the rollout in the non-domestic market, acknowledging the heterogeneity that exists within it. Due to the distinct nature of its customers, the non-domestic market demonstrates different characteristics, needs, and behaviours to the domestic market.

However, while we have previously called for additional policy levers, DESNZ has pursued one lever without looking at the relative impacts of all the options. We have serious concerns about the framework as currently proposed.

Main concern

As currently detailed, the proposed framework would introduce an inconsistent customer experience. This is because:

• TPIs regulations are yet to be embedded, and workarounds for TPIs could be exploited. For example, a TPI could set up a separate independent Meter Operator (MOP) contract outside of suppliers’ sight or control.
• It would likely lead to a ‘race to the bottom’ in the enforcement of the smart-contingent terms, where suppliers may:
  • Choose not to enforce the terms, given the competitive risk if not all suppliers are doing so; or
  • Choose to enforce the terms, and the customer switches away, which may have an impact on customer bills, as the supplier has already hedged that position and will need to recover their potential losses.

Further, these issues may result in no significant improvement in the overall success of the smart meter rollout, while adding substantial administrative burden on industry, and raising costs for customers.

Other practical concerns

• The proposed timescales are not feasible for delivery, as sufficient time would be needed to undertake legal due diligence and ensure the correct processes and systems are in place.
• The proposed framework does not address the various systemic issues that can prevent customers from installing a smart meter. For example, where it is very expensive for customers to have a smart meter installed at their premise due to remedial work costs.
• The proposed code of practice is disproportionally prescriptive, and would be challenging to implement and monitor.
• The proposed governance arrangements would be difficult to implement, and may result in an inconsistent regulatory approach.
• Members also note a lack of engagement with industry on the proposed framework to ensure that they were practical and implementable, ahead of being presented in a consultation at a relatively developed phase.
• It is also important to note that there are now over 10,000 pages of energy industry codes for market participants to navigate (including suppliers), placing a heavy administrative burden on the sector. The demonstration of compliance efforts regarding highly complex regulation makes the cost to serve a retail energy account in the UK double the level in France.2 This makes attracting investment and innovation in the market very difficult, which would enable better outcomes for customers. As such, we suggest that a strong rationale should be required to introduce narrow, prescriptive energy regulation (which not all parties need to abide by), to ensure that it is minimising any additional costs or complexity being added into the system.

For the reasons outlined above, we strongly recommend the following:

1. DESNZ should carry out a thorough further review of these proposals, which are unworkable in their current form. This should include:

• a. Undertaking a proper impact assessment of legitimate counterfactual frameworks.
• b. Ensuring that the framework is introduced once the TPI regulatory regime and Consumer Outcomes work have been embedded.
• c. Engaging with the broader industry sufficiently.

Further, we recommend that implementation is 12 months after the government decision, to allow time to design and draw up new contracts, and introduce the necessary terms and conditions.

2. In the meantime, more direct demand drivers should be assessed, targeting commercial and social landlords. For example, requirements to install smart meters in vacant properties, public sector buildings, and at change of ownership/tenancy.

1 HM Treasury, Radical action plan to cut red tape and kickstart growth, 2025; Ofgem, Markets Regulatory Strategy and Vision to 2030, 2025.