By Cameron O’Reilly, Chief Executive of the Energy Retailers Association of Australia (ERAA)
Electricity meters are not usually a topic to feature prominently in mainstream political debate. Yet in the last Victorian State Election they became a hot issue and were said to have contributed to the narrow defeat of the then Brumby Labor Government.
Whether that was true or not, the fact that something as obscure as smart meters could have been so controversial underlined a failure of policy and communication.
The hardware of metering should have remained outside the home, literally and figuratively. A smart meter should be seen as nothing other than a platform to offer enhanced services and information for the benefit of consumers. It’s those services and benefits, not the meters themselves, that should be the topic of conversation.
For utilities, smart meters are a logical step in bringing the electricity industry into the 21st century. The immediacy and accuracy of information they provide is what should be expected in the digital age, and the phasing out of practices such as manual meter reading and all the associated problems of access and estimated bills, is long overdue.
So where did it all go wrong in Victoria?
First was the message of compulsion through a mandated, distributor led rollout. When people are told that something has to change in their home, they want to know why. We generally don’t like being told what to do by our Governments. That said, Australia has one of the best records of achieving behavioural change through public information campaigns.
The digital switch-over in Australian broadcasting, which saw the phasing out of analogue televisions and the installation of set-top boxes, went smoothly because consumers understood there was a benefit to them from the process.
Importantly, there was also no up-front cost to the consumer by introducing digital television, despite the fact that some households did have to replace ageing television sets out of their own pocket.
During the smart meter rollout in Victoria, households did not see, nor understand, the benefits of the rollout, but were asked to pay for the meters through network charges before they became operational.
The itemising of smart meter costs on one retailer’s bills, and the resulting report in a tabloid newspaper, added even more fuel to the fire of consumer resistance. Misinformation about the safety of the meters was then able to permeate a debate that had grabbed the media’s attention. Once you’ve reached that stage, the media constantly look for new angles to attack the bogeyman of smart meters.
The second major mistake was the argument used to sell the benefits of smart meters, promoting time-of-use pricing and its potential to reduce peak demand. The obvious point of reply was that time of use would benefit some users but not all.
For some groups, time of use was perceived to be punitive. Therefore, the smart meters became seen as an up-front cost that could enable ongoing pricing detrimental to the interests of some categories of consumers. Consumer advocates became convinced it was their constituencies that would become the victims of smart meters, and a new social dimension of winners and losers complicated the debate.
The current State Government of Victoria has handled this argument quite well by ensuring a regime of voluntary adoption of renamed flexible pricing. It has had to do this from a defensive position and in an environment where the public perception of smart meters has been irrevocably damaged.
That is a shame, because there are clear benefits to the consumers when smart meters go live. I’ve already alluded to the phasing out of estimated bills, to which one would add the benefit of more flexible and regular billing cycles, rapid connection and disconnection for new and moving customers, information portals and in-home displays to track energy use and the ability to manage two-way energy flows in the increasing number of homes with distributed generation.
In the environment of one of the most competitive retail markets in the world, the smart meter platform is sure to see retailers offering Victorian consumers a broader array of products to adjust behaviour and manage bills. In a market with an annualised switching rate of 25 per cent, retailers will have a strong incentive to try and innovate and build a stronger, more interactive relationship with the customer as part of their retention strategies.
Not surprisingly, all the other State Governments are wary of smart meters as a result of the Victorian experience. The Standing Council on Energy and Resources (SCER), has clearly decided that a mandated rollout by distributors will not be the chosen path in the future. What will be the basis of an alternative market led approach is a question challenging policy-makers as we speak.
We are all wise in hindsight, but if Australians had simply looked across the Tasman, they might have seen a highly competitive retail market in which smart meters were being rolled out to consumers in a seamless fashion. More than half of New Zealand householders now have smart meters, but few would know it as they’ve been implemented by retailers as part of bundled offers to customers. To New Zealand consumers, it’s the retail offers that matter, not the hardware which enables them.
New Zealand started with the advantage, unlike Australia, of metering contestability. But their industry also recognised that uptake would not occur if it was perceived to be a new cost to consumers. As with Australia, metering charges have always existed, yet Victoria made consumers conscious of them.
In New Zealand, it was the retailers themselves that had to establish the business case for the meters and then sell them as part of a bundled product to consumers. Once they established that case in their own minds, and in some cases built their own business capacity, the rollout gathered significant momentum – putting lie to the notion that a market-led rollout will be painfully slow. Indeed having built this capacity in New Zealand, some of the metering players are eyeing a market led rollout in Australia with a sense of opportunity.
In considering a market-led rollout in Australia, the old adage that you wouldn’t start from here is probably apt. Victoria has made the customer sales task more challenging and we still have to pass a number of regulatory changes to enable the necessary contestability in metering and the related service provision. The unbundling of metering charges from network charges is a top priority in this regard, as well as adopting light-handed regulation in a metering market heavily influenced by technological change.
As New Zealand has shown, none of these industry related changes need to matter or be visible to the consumer. What is important is that the consumers can see benefits through bundled, competitively priced offers that attract them to taking up a smart meter from their retailer. Once this happens all retailers are likely to feel pressure to follow suit. Those that don’t run the risk of being left behind.
Many issues will be brought forward to argue against this consumer driven approach to smart meters and the Energy Retailers Association of Australia (ERAA) has anticipated these in a series of papers that appear on its website www.eraa.com.au. Issues such as privacy, ownership of the data, third party providers and meter churn are all capable of being addressed. There is no doubt that the market that evolves will be more complicated and potentially slower to develop than a mandated one. The difference will come in the consumer acceptance.
When all is said and done, consumer acceptance and support is critical to the success of any smart meter rollout. Technology that is embraced and supported is more likely to see behavioural change. That behavioural change is critical to the business case for smart meters and it is the consumer-facing end of the energy value chain, the retailers, who should be entrusted with it. In doing so, we should be working hand in hand with Governments whose information is, we have to admit, more trusted by the public.
What we do know from a range of market surveys is that consumers want more information and control. When it comes to retail contestability, market research has also shown that there is a strong attraction to the idea of choice. Smart meters can enhance that choice.
The electricity industry will have to get in to its head that while it has to create its own business case for smart meters, that business case will have to be predicated on consumers being prepared to buy the product. Victoria has ensured there is no more telling consumers what is good for them, there is only the path of persuasion. It’s a whole new ball game, but New Zealand has shown it can be done.