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Energy Bill

I am grateful to the noble Lord for his amendment, which touches on what I agree are two important areas for any future rollout of smart meters: stranding and the choice of market model for a rollout. The first part of the amendment deals with stranding, which will occur in any smart meters rollout that is taken forward faster than on a new-and-replacement basis. As has been said, it would mean that existing meters would need to be removed before the end of their usual life cycle. There would be costs to both suppliers and meter providers. The wording of the first part of the amendment makes explicit provision for the Secretary of State to amend licence conditions to raise a levy from gas transporters or electricity distributors which can then be paid to other licensees to compensate them for the cost of stranded assets in the event of an accelerated smart-meter rollout. It goes almost without saying that this is a complex issue, which we are closely examining with industry. As we discussed during the previous debate and as the Committee knows, we have not taken final decisions on whether to roll out smart meters to the domestic sector, and if so at what speed that rollout should happen. It is therefore not clear at this stage what the potential value of those stranded assets may be, as they will vary according to the specific details of any rollout and, in particular, the speed of the rollout. Different market actors will be affected differentially. The potential cost impact of stranding is not spread equally across the industry. We need to continue to consider how to address this problem. It is also important to note that how we deal with stranded assets will affect the costs of a smart-metering rollout and it is likely in all scenarios that these additional costs will eventually be borne by the consumer. Until we have decided our overall approach on stranding, it is too early to say whether such a mechanism as the one proposed in the amendment will be necessary or even appropriate. Given the complexity of this issue we have asked Ofgem to conduct a detailed analysis of stranding, which obviously will feed into our broader analysis of a rollout of smart meters. We cannot take a detailed view on the most appropriate way forward until that assessment is complete—it is due in September 2008. We are also examining whether powers under existing legislation—for instance, there may be some overlap with existing powers available to Ofgem under the gas and electricity Acts to raise levies—could provide for the type of mechanism proposed in this amendment if we should decide such a mechanism is necessary. I concede, of course, that the second part of the amendment touches on another key issue; that is, the market framework for any such rollout. We have already discussed that a universal rollout of smart meters to domestic customers would be a major undertaking. It goes without saying that it would require a visit to every household and the replacement of some 47 million electricity and gas meters, a figure which has already been given. Various approaches have been proposed for the practical and logistical delivery of such a project. Proposals have been made by some stakeholders for changes to the existing competitive metering market, which also is an important element of our ongoing work to assess the costs and benefits of a rollout. This work involves looking at the most appropriate market structures and the required mechanisms to ensure that any rollout of smart meters is efficient and cost effective. Industry and the Government are in agreement that decisions on the most appropriate way forward in terms of market structure should not be taken until our analysis of all the issues related to a smart-meter rollout is complete. It is for this reason that the smart metering clauses we have introduced enable us to pursue a range of possible market models. I draw the attention of the Committee to Clause 81(3)(k), which can be described as the modifications subsection. Under that provision, the Secretary of State can make licence modifications to suppliers’ licences requiring them to enter into agreements with meter companies and thereby, we argue, enabling certain kinds of centralised provision of smart meters and related services. Controls would be exerted over the meter companies via these modifications to suppliers’ licences. The purpose behind the wording of the second part of this amendment is broadly similar to that already set out under paragraph (k). This amendment would enable suppliers to work together to purchase meter assets and services from a single source within a specified region. It is not immediately clear therefore that the amendment adds to the existing wording of Clause 81(3)(k). Given the scale and complexity of such a rollout, we are considering and evaluating market options, ranging from competitive delivery by meter operators to options for a more centralised rollout, where the industry might jointly contract for certain services. While we are grateful to the noble Lord for raising what are two undoubtedly important issues, we must resist the amendment, but I assure noble Lords that work on both market model and stranding is central to our ongoing analysis and will play an important role in forming our future decisions on smart metering.