UK Smart Metering Implementation Programme (SMIP)

The European Union’s Energy Efficiency Directive aims to achieve 80% smart meter penetration within the EU by 2020. The UK government has gone one step further and has mandated that all gas and electricity meters installed in UK homes and businesses must be smart by 2020. In response to these needs, the UK’s Department of Energy and Climate Change (DECC) has launched the UK Smart Metering Implementation Programme (SMIP) to award contracts for the provision of a smart metering infrastructure.

The SMIP project promises the following intended benefits for end customers: accurate, near real-time consumption information; more accurate billing (versus estimated bills); the potential for users to save money and reduce emissions using consumption management tools; enhanced competitiveness between suppliers; more highly differentiated tariffs; and advanced services. The UK government estimates that SMIP has the potential to generate significant cost savings for utility companies, primarily by removing the need for consumer site visits, reducing call center volumes, improving debt management, simplifying the process of switching providers, and detecting theft. In addition, the reduction both in unnecessary calls to report faults and in operational costs to repair faults could also lead to savings. The UK government also expects that electricity outage management will be improved, which will reduce the incidence of “brown-outs” and will also prevent resulting revenue losses. On the generation and distribution side, SMIP will help to introduce time-of-use tariffs that will contribute to shifting peak load and flattening demand curves, thereby increasing the efficiency of energy generation. Finally, it is anticipated that the implementation of SMIP will help reduce CO2 emissions and improve air quality, both by reducing total energy demand and by enabling a shift to a more widespread adoption of renewable energy sources.

The SMIP project will involve the rollout of over 53 million smart electricity and gas meters by 2020. The main players in the SMIP project are:

  • A Data and Communications Company (DCC), which is responsible for establishing and managing the smart metering communications infrastructure.
  • A Data Services Provider (DSP), which will manage the large volumes of data flowing through the system and will provide the technical “front door” for users (energy suppliers).
  • Communications Service Providers (CSPs), which will deliver the communications infrastructure between the DSP and consumer households.

Main players in the SMIP project

The CSP element of the project is divided into three regions. Telefónica has been selected for the two largest of the three UK regions (South & Central), which represent approximately 42 million electricity and gas meters in total. Arqiva has been awarded the CSP contract for the North region. Telefónica expects to deliver smart metering communication hubs to approximately 23 million premises, corresponding to an approximate total contract value of £1.5 billion over 15 years.

Telefónica aims to connect the vast majority of smart metering communication hubs in the UK using its cellular network, which is expected to provide 99.25% indoor cellular coverage by 2021. In places where Telefónica will not be able to reach communication hubs via its cellular network, a radio-frequency (RF) mesh solution will be used to extend the coverage.

SMIP represents a complex ecosystem of interacting players in a deregulated market, including multiple smart meter manufacturers, communication hub manufacturers, communications service providers, data service providers, electricity suppliers, and meter operators. The figure below provides an overview of the key players.

Key players in the UK’s SMIP ecosystem

In the following interview, Telefónica helps us to better understand key aspects of this project.

What led Telefónica to place such emphasis on securing this kind of business deal?

Smart metering is a strategic bet for Telefónica, both globally and in the UK, as a key business segment within the M2M/IoT area. Moreover, it is consistent with the company’s strategy of becoming a digital telco. As one of the largest smart metering projects in the world, SMIP is a key digital opportunity for Telefónica. SMIP represents an approximate total contract value for Telefónica of £1.5 billion over 15 years. In addition to the commercial return from delivery, SMIP will offer the following additional benefits:

  • Open the door to a large number of potential follow-on sales of value-added services (such as connected homes and smart cities)
  • Provide one of the biggest and best smart metering references in the world, which will help Telefónica position itself for other smart metering opportunities in Europe and Latin America
  • Further establish Telefónica UK in the public sector

What are the biggest challenges Telefónica has encountered, and how have they been overcome?

As one of the largest smart metering projects in the world, the main challenge will be successful and on-time delivery.

In order to ensure successful delivery, we have put together a team of 300 experts to work on the project directly, who have been selected from the market as well as from internal Telefónica teams. It is important to mention that the entire organization is committed to the delivery of this deal at all levels.

Due to the scale of the project, alignment across the SMIP ecosystem has proved more challenging than expected. We have found that it is critical to work closely with partners across the entire supply chain.

What are the key capabilities needed for this kind of project?

Several important capabilities are required to ensure the successful delivery of SMIP. The first is the ability to build a proven and competitive solution that is both aligned with client requirements and is secure, simple, and scalable, with low risk of delivery failure and minimal disruption at the go-live point. It is also important that the solution is acceptable to consumers – it must be non-obtrusive in order to gain customer acceptance and facilitate an easy rollout.

Another necessary capability is the ability to define a clear long-term strategy that fulfills the project requirements. Also important is the ability to be flexible and adapt to unexpected change. Lastly, the capacity to form strong specialist teams is paramount.

Of course, in order to be a successful participant in the UK’s SMIP ecosystem, your organization must be financially stable with a proven track record of delivery. The credentials of Telefónica’s M2M business in particular (for example, our Smart M2M managed connectivity platform) have been key assets in this regard.

How will Telefónica manage the rollout and operation of this solution?

In terms of physical rollout, the government is requiring energy companies to install 53 million gas and electricity meters at 30 million domestic and smaller non-domestic properties.

Regulations are being set out to ensure that this is done in a way that serves the interests of consumers. These include regulations for data access, security, and technical standards for smart metering equipment, as well as regulations for meeting the needs of vulnerable consumers.

On the basis of its coverage checker, Telefónica will provide support to energy companies by advising them on which type of communication hub they should use in a particular area. This will help companies to achieve greater efficiency in their rollout plans and schedules.

Telefónica will also provide ongoing support during the operation phase, not only through its existing Telefónica UK structure, but also through an expanded supply chain operation for forward and reverse logistics, in conjunction with specialist third-line support.

What key lessons has Telefónica learned from taking on a project of this size?

On the commercial side, the long sales cycle of a complex project like SMIP requires high flexibility and the capacity to adapt to dynamic changes in the project requirements.

The project has required Telefónica to be an active player – not only in our core business area, but across the entire project ecosystem, providing support to all project partners and ensuring alignment.

The SMIP project is particularly complex in terms of adapting to government standards (for data access, security, or technical standards, for example). However, we will seek to apply the key principles learned from this project when taking on future opportunities in other markets.