Government will miss its own smart meter deadline as costs ‘escalate’, watchdog warns

National Audit Office says cost of rollout has increased by at least £500m and 39 million meters still need to be replaced

Up to 53m smart meters were due to be installed across Britain by the end of 2020 to meet the government's target (PA)

The government's target of installing smart meters in every home by 2020 will not be met and the cost of the rollout is likely to “escalate” beyond expectations, the spending watchdog has warned.

The National Audit Office (NAO) said the Department for Business, Energy and Industrial Strategy's (BEIS) latest 2016 estimate that the programme will cost £11bn - the equivalent of £374 per dual fuel household.

It added that it “underestimates the true cost of rolling out smart meters”.

The NAO said the cost of the rollout has since increased by at least half a billion pounds - or the equivalent of an extra £17 per household.

Up to 53 million smart meters, which will replace traditional electricity and gas meters in homes and businesses, were due to be installed across Britain by the end of 2020 to meet the Government's target.

They will save households an average of £18 a year between 2013 and 2030, after they have met the costs of the programme.

However, to meet the deadline, installers will need to replace 39 million old meters within the next two years, according to the NAO.

The rollout has struck a number of issues, with the NAO finding that about 70 per cent of first generation SMETS1 meters “go dumb” when people switch to a new supplier.

The NAO said suppliers installed seven million more SMETS1 meters than planned after BEIS underestimated how long it would take to implement the infrastructure and technical standards for their second-generation successors, with the mass rollout adding to the complexity and cost of the programme.

BEIS planned to resolve the problem by connecting SMETS1 meters to updated infrastructure, but this project had been delayed by six months to May 2019 and the NAO said it was not certain if it would work as intended.

The NAO said the significant delay to the start of the second-generation rollout was increasing the risk of escalating costs and technology being rolled out before defects had been addressed, also warning that it could take years before it was known if it entirely worked.

It also found that installation of SMETS2 meters in the North of England and Scotland was lagging behind the rest of Great Britain due to problems integrating them with communications infrastructure.

Just 3,000 meters were in these areas as of the start of November, compared with 106,000 in the rest of Great Britain.

The NAO also criticised energy suppliers for “falling short of their obligation” to provide consumers with advice on how to save energy, which was likely to limit how much money they could save with their smart meters.

However, the NAO concluded: “The facts summarised above, and many more, are not fatal to the viability and value for money of the programme. However, there are serious issues that need to be addressed if smart meters is to progress successfully and deliver value for money.”

NAO head Amyas Morse said: “Costs are rising, and timescales slipping, but smart meters can still succeed over time. BEIS has taken most of the decisions that matter on the programme so far. They now need to take responsibility for getting it back on track and protecting the interests of consumers who will ultimately meet the bills.”

Energy and Clean Growth Minister Claire Perry said: “We've said everyone will be offered a smart meter by the end of 2020 to reap these benefits and we will meet that commitment. This world-leading upgrade to our national infrastructure is the cornerstone of our move to a smarter energy system of the future and will bring benefits to consumers and industry worth up to £40 billion.”

Robert Cheesewright, from Smart Energy GB, the organisation tasked with promoting the benefits of smart meters, said: “Britain's smart meter rollout is a hugely complex and challenging infrastructure upgrade, but we must not lose sight of the bigger picture, which is that we urgently need a modern, connected energy system with smart meters at its heart.

“That's why millions of smart meters have already been installed and they are paving the way for more clean and renewable energy, and the widespread take-up of electric vehicles. The alternative is that we are stuck with estimated, inaccurate bills from an outdated system that can no longer keep up with the way we use gas and electricity in the 21st century.”

Which? managing director of home products and services Alex Neill said: “The rollout has been beset by delays and problems from the outset, and consumers could be left footing an even higher bill and losing out on the estimated benefits. It's now vital for the Government to replan with industry and consumer groups to ensure people get the maximum benefit at the minimum cost.”

Lawrence Slade, chief executive of trade association Energy UK, said: “The NAO report shows the sheer scale of delivering such a complex yet critical national infrastructure programme which involves visiting every home and business in Great Britain. Suppliers are working tirelessly to deliver the programme to ensure as many homes and businesses as possible can benefit from smart meters, while ensuring the rollout is carried out safely, efficiently, cost-effectively and delivers a positive experience for customers.

“The energy industry will continue to work collaboratively with all involved with the programme to find cost-effective solutions that best serve customers' interests and enable the Government's programme to be delivered."

Press Association