Time for some smart thinking

Smart meters are being heralded as the way to reduce energy consumption, increase flexibility and empower the consumer. Time will tell whether or not these objectives are achieved and the £12bn1 programme cost is justified, but one thing is certain – the smart meter rollout will create exciting growth opportunities. We are actively looking to back those management teams that have been thinking ahead and have positioned their businesses to take advantage of this transformational rollout.

Smart meters are the next generation of gas and electricity meters, using mobile and wireless networks to provide real time consumption data. This is expected to provide a number of benefits to the consumer including lower energy usage through increased awareness, accurate billing and ease of switching. It will also help suppliers to improve the standard of service that they offer, introduce more flexible tariffs and personalise communications through better understanding of each customer’s energy usage.

Logistical challenge
Energy suppliers face the daunting task of having to replace 53 million electricity and gas meters in 30 million homes and small businesses by 20202. This will require careful management and planning with only 2 million smart meters installed to date3.

The rollout will create a significant growth opportunity for meter installers and trainers with the number of trained engineers insufficient to install meters at the rate required if the 2020 deadline is to be achieved. It is also anticipated that post installation maintenance will be required to support the relatively advanced technology contained within a smart meter.

Software development

A fundamental element of the smart meter rollout is the establishment of a data network to connect smart meters to the business systems of energy suppliers, network operators and service companies. After a number of delays, this secure network, the DCC, is due to go live in August 2016.

Whilst the DCC will provide a central repository for consumption data, there is an opportunity for software businesses to develop CRM and billing software capable of extracting, interpreting and managing this data for energy companies. Other notable software opportunities include the creation of data privacy controls, smartphone interfaces and the integration of SMETS 1 meters into the DCC.

Internet of things
The ability of everyday objects to connect over a network, allowing them to send and receive data, is often referred to as the Internet of Things (“IoT”). Smart meters will represent a key component in the creation of a domestic IoT network as they utilise the Zigbee protocol to create a home area network. This is an exciting area for new product development with one of ECI’s current portfolio companies, Harvard Technology, already using the Zigbee network to create a wireless indoor lighting solution. Separately, ECI has significant insight into and experience of the Internet of Things following our four year investment in Wireless Logic, Europe's leading M2M ("machine-to-machine") and IoT Managed Services Provider.

The power of data

Energy consumption data can be communicated from a smart meter to the DCC every 30 minutes. Subject to consumer consent, this creates opportunities for price comparison websites or energy management companies to shop around for the best energy deals and switch suppliers on the consumers’ behalf. Advice could also be given on how to improve energy efficiency.

Consumer choice

Ofgem has actively been seeking to encourage increased competition in the UK energy market. Whilst the “Big 6” energy suppliers still dominate, there are now 31 suppliers in total with many more expected as smart meters reduce the barriers to market entry and software packages become available providing the back office systems required to enter the energy market. In the near future consumers may be purchasing energy from their local authority, supermarket or broadband provider.

More accurate, up-to-date data will also enable households and businesses to switch supplier far more quickly with Ofgem aiming for supplier switching within 24 hours.

Whilst there are a number of commentators who express concern about the introduction of smart meters and skepticism of the assumed benefits, the rollout does appear to have unstoppable momentum. The question appears to be not if, but when, the rollout will be completed and whether or not the anticipated benefits will be demonstrably achieved.

We believe that the smart meter rollout will present attractive investment opportunities with UK businesses being at the forefront of this rapidly evolving market. As such we continue to seek to back strong management teams who have positioned their businesses to capitalise upon the exciting opportunities likely to arise.

1 Department of Energy and Climate Change
2 Ofgem
3 www.gov.uk  

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Please contact Mark Keeley, Head of Industrials for further information.