Not having smart metering churn arrangements with Meter Asset Providers could be costing growing challenger Suppliers an additional £12m over 5 years.
Commercial Benefits of Contracted Terms
A combination of factors is having an impact on the composition of an average UK Supplier’s metering portfolio and the rental charges associated with these assets. The increasing number of consumers switching energy provider each year, alongside the UK Smart Meter Rollout progression, is resulting in a growing percentage of the average supply portfolio being smart meters gained from competitors. Therefore, it is increasingly important to ensure that advantageous terms are in place with the Meter Asset Providers (MAPs) that own these assets.
UK Government Energy Switching data informs us that 21% of consumers are now changing energy provider each year, with nearly 11 million supply changes taking place in 2019. This compares to 11% just five years before and shows no signs of slowing down.
The UK Smart Metering rollout continues to gather pace, with over 20 million meters now installed and BEIS predicting that 85% of the UK’s metering portfolio will be smart enabled by the end of 2024. This compares to around 33% today.
These changes are already having a dramatic effect on Suppliers’ metering costs, with smart meter rental charges being much higher than the rates for traditional meters being replaced. This is particularly true where commercial arrangements have not been made with MAPs to cover churn events. In these circumstances, inflated deemed rates are applied by MAPs to mitigate risk and encourage action from Suppliers to ensure signed contract terms are promptly executed.
However, despite these inflated deemed rates, there are still a high proportion of Suppliers that have not entered into smart metering churn arrangements with all Meter Asset Providers. A challenger Supplier with 150k metering points, growing by 30k meter points per year, could pay an additional £12m over 5 years if they do not have any churn arrangements in place.
The numbers are driven by the increasing percentage of churned smart meters in the average portfolio. By combining forecast volumes of SMETS1 and SMETS2 meters with the increasing switching rate, we can see that while churned smart meters make up a relatively low percentage of the UK metering portfolio today, they will soon become an increasingly dominant majority. Commercially this change is already taking place, with the meter rental charges applied to smart meters dictating whether a Supplier’s metering costs are competitive or not – and whether the tariffs they are able to offer customers are competitive or not.
Compliance – Supplier Licence Conditions (Electricity 50.5 and Gas 44.5) state that Suppliers must have signed terms in place with Meter Asset Provider within 6 months of a churn event. These terms must include SEC compliant clauses around material security vulnerability notifications.
Firmware Management – is a major challenge for most suppliers, especially gaining access to the current recommended images or being able to feed requirements into new firmware development. Some MAP churn contracts can help unlock these barriers and provide access to everything you need to keep your portfolio maintained and secure. MAPs may also be able to support with other issues such as accessing device manuals to ensure your customer services systems and teams have access to the right information for all meters.
There are several reasons why Suppliers may not have already signed smart metering churn arrangements. These apply for meter life cycles and are therefore long-term commitments. They’re also complex in nature, covering responsibility in fault scenarios, for firmware management, meter replacements and terms around the introduction of new meter types.
However, whilst Suppliers are right to be cautious, the commercial impact of not having churn arrangements in place with all MAPs will soon increase materially. Suppliers that will be best positioned for success going forwards will be those that enter into churn arrangements. For those that don’t, the additional costs will hurt.
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