Rollout of Non-Residential Smart Meters in the UK

The report discusses the economics of introducing smart metering technology to the non-residential sector in the UK, including the total market at the macro level and the cost/benefit analysis at an individual customer site level. The objective is to give suppliers and market participants an understanding of the scale of the challenge and to enable them to invest in the technology with confidence.

Features and benefits

• Facilitate business planning through a clear understanding of the size and timing of the smart metering challenge in the non-residential sector.
• Define your medium- to long-term investment requirements by taking into account the size and composition of your customer base.
• Understand, at a customer site level, the drivers of the costs and benefits of installing a smart meter for different customer profiles.
• Understand the pricing options for different customer categories, enabling efficient sharing of the economic benefits of smart meters.
• Identify the critical success factors for a successful and efficient rollout of smart meters across your customer base.

Highlights

There are almost 4 million non-residential electricity and gas customers in the UK who are covered by the government mandate to install a smart or advanced meter over the next few years. It is suppliers’ responsibility to drive customer take-up, although they will need to rely on "carrots" rather than "sticks" in doing so.

Up to 95% of eligible non-residential sites are expected to have a smart meter installed by 2020. This represents an investment commitment of more than £500m, to be contested by equipment vendors and meter installation and IT services contractors. Some 80% of those funds are likely to be spent in the four years between 2014 and 2017.

With the new smart metering technology, most non-residential customers will be able to realize substantial cost benefits through a reduction in their energy spend. More benefits will be available for electricity customers by shifting some consumption to off-peak times of day, provided that suppliers offer tariffs incentivizing them to do so.

Your key questions answered

• How many smart meter installations should I plan for, and how much are they going to cost, given my projected customer base?
• How should I time the rollout across my customer base: wait until there is more certainty in later years, get an early start or build up an even pace?
• Which of my customer sites should I target first, based on the cost/benefit balance?
• Which levers can I engage to minimize the deployment costs and maximize the ongoing benefits?
• Which pricing mechanisms should I offer customers with a smart meter, to maximize the benefits to them and me? Can I recoup the investment?

Table Of contents

About the author
Disclaimer

EXECUTIVE SUMMARY
Opportunity sizing
Rollout economics
Levers of a successful rollout

Opportunity sizing
Summary
Introduction
Size of addressable customer base
Mandatory targets
Current installed base
Installed base forecast
Achievable penetration rates
Technology choice
Ramp-up timings
Market value
Rollout cost structure
Unit cost estimates
Vendor opportunity

Rollout economics
Summary
Introduction
Customer benefits
Sources of customer benefit
Illustrative customer scenarios
Supplier benefits
Sources of supplier benefit
Illustrative supplier scenarios
Benefit sharing
Tariff innovations for electricity customers
Tariff rises for gas customers
Investment scenarios
Base case scenarios
Price sensitivities

Levers of a successful rollout
Summary
Introduction
Critical success factors
Taxonomy of critical success factors
Outcome sensitivities of critical success factors
Recommendations
Recommendations for suppliers
Recommendations for other market participants

List Of Tables

Table: Electricity customer type definitions (conceptual), 2012
Table: Switchover targets by customer type (conceptual), 2012–19f
Table: Number of SME electricity and gas sites in the UK (million units), 2012e
Table: Number of smart/advanced meter installations (million units), 2020f
Table: Deployment phasing strategies (percentage of total per annum), 2012–19f
Table: Cumulative smart/advanced meter installations (million units), 2012–20f
Table: Estimated unit costs of on-site equipment (£), 2012–20f
Table: Projected installation costs per site (£), 2012–20f
Table: Annual supplier capex (£m), 2012–20f
Table: Customer benefit scenario, SME 3–4 electricity user (£ per annum), 2014f–20f
Table: Customer benefit scenario, SME 3–4 gas user (£ per annum), 2014f–20f
Table: Supplier benefit scenario, SME 3–4 electricity user (£ per annum), 2014f–20f
Table: Supplier benefit scenario, SME 3–4 gas user (£ per annum), 2014f–20f
Table: Scenarios of benefit allocation, typical electricity site (£ per annum), 2014f–20f
Table: Scenarios of benefit allocation, typical gas site (£ per annum), 2014f–20f
Table: Base case investment scenarios (£ per site), 2014f–20f
Table: NPV and break-even of converting a typical electricity site (£), 2014f–20f
Table: NPV and break-even of converting a typical gas site (£), 2014f–20f
Table: NPV of total benefit per site vs supplier's market share (£), 2014f–20f
Table: NPV of total benefit per site vs to take-up rate (£), 2014f–20f
Table: NPV of total benefit per site vs first-time installation rate (£), 2014f–20f
Table: NPV of total benefit per site vs reduction in consumption (£), 2014f–20f
Table: NPV of total benefit per site vs peak/off-peak substitution (£), 2014f–20f
Table: NPV of total benefit per site vs WACC (£), 2014f–20f

List Of Figures

Figure: Number of SME electricity and gas sites in the UK (million units), 2012e
Figure: Number of smart/advanced meter installations (million units), 2020f
Figure: Deployment phasing strategies (percentage of total per annum), 2012–19f
Figure: Cumulative smart/advanced meter installations (million units), 2012–20f
Figure: Smart metering cost structure (conceptual), 2012–20f
Figure: Non-residential on-premises hardware configuration (schematic), 2012–20f
Figure: Estimated unit costs of on-site equipment (£), 2012–20f
Figure: Projected installation costs per site (£), 2012–20f
Figure: Annual supplier capex (£m), 2012–20f
Figure: Customer benefit scenario, SME 3–4 electricity user (£ per annum), 2014–20f
Figure: Customer benefit scenario, SME 3–4 gas user (£ per annum), 2014–20f
Figure: Supplier benefit scenario, SME 3–4 electricity user (£ per annum), 2014–20f
Figure: Supplier benefit scenario, SME 3–4 gas user (£ per annum), 2014–20f
Figure: Scenarios of benefit allocation, typical electricity site (£ per annum), 2014–20f
Figure: Scenarios of benefit allocation, typical gas site (£ per annum), 2014f–20f
Figure: Base case investment scenarios (£ per site), 2014f–0f
Figure: NPV and break-even of converting a typical electricity site (£), 2014f–20f
Figure: NPV and break-even of converting a typical gas site (£), 2014f–20f
Figure: NPV of total benefit per site vs supplier's market share (£), 2014f–20f
Figure: NPV of total benefit per site vs take-up rate (£), 2014f–20f
Figure: NPV of total benefit per site vs first-time installation rate (£), 2014f–20f
Figure: NPV of total benefit per site vs reduction in consumption (£), 2014f–20f
Figure: NPV of total benefit per site vs peak/off-peak substitution (£), 2014f–20f
Figure: NPV of total benefit per site vs WACC (£), 2014f–20f