Smart Prepayment and Fuel Poverty

Author:

Nicky Hodges

Simon Roberts

Karen Smith

Toby Bridgeman

Nick Banks

Organisation:

Centre for Sustainable Energy (CSE)

Date: 2016
Location:

Rationale

Prepayment meters (PPMs) have traditionally been installed in low-income households and those that have previously incurred arrears or defaulted on their energy bills. However, PPM users have often faced higher charges for energy, as well as a reduced ability to switch supplier and access incentivised payment methods such as direct debit. In 2016, the Competitions and Markets Authority imposed a settlement on energy companies to introduce a fairer approach.

In the drive to reduce energy use, increase energy efficiency and tackle fuel poverty across the UK, large-scale programmes to install smart technology in domestic properties have been undertaken. As well as the roll-out of standard smart meters, smart PPMs are now being introduced, but their impact on consumer behaviour and capacity to address fuel poverty are largely unknown. This evidence gap poses questions for policy and practice, in particular, the extent to which such measures are effectively reaching those consumers at the margins of the energy market.

Key research Question

The study aimed to understand what impact smart PPMs were having on prepayment customers and whether any positive outcomes could be detected with regard to fuel poverty. It also investigated whether it was possible to develop a predictive model of energy use among users of smart PPMs.

Summary of activity

The research involved a set of expert interviews with energy supplier representatives. In addition, baseline information was collected from 30 households with smart PPMs, all of whom received their energy from the same supplier. Half of the households subsequently received an energy advice visit, with follow-up research used to identify any change in behaviours between them and the control group. Several case studies of individual households were completed. Comparative research was undertaken with a small number of households who used different suppliers. Quantitative data were generated by modelling the impact of the uptake of smart PPMs under different conditions, utilising real household data.

Methodologies

Expert and stakeholder interviews

Monitoring

Primary data

Findings

The implementation of smart prepayment is variable, with some suppliers lagging behind others. Modelling suggested that between 95,000 and 181,000 households could be moved out of fuel poverty by changing from conventional to smart PPMs, and many more could reduce their levels of fuel poverty – although mandatory price caps would initially contribute most to this.

The interviews suggested that a third of householders with smart PPMs were saving money on electricity as a result of switching to cheaper tariffs and enhanced awareness of their energy use driving behaviour change. Reported benefits included reduced anxiety. Households were not fully realising the benefits of smart PPMs. Many interviewees stated that they did not receive energy efficiency information when the smart PPM was installed. In-home displays (IHDs) linked to the meters were underutilised, with balance checking the main activity. However, the provision of information led to increased engagement with other available functions, such as recent patterns of use.

Recommendations

IHDs should be provided to all households receiving smart meters.
Suppliers should develop a ‘pre-installation to post-installation’ customer engagement strategy that focuses on how consumers can maximise the benefits of smart PPM technology.
It is essential that suppliers and installers follow the code of practice and provide suitable advice, guidance and demonstrations to maximise the potential benefits of smart meters to prepayment consumers. Energy UK should coordinate the supplier side, and Smart Energy GB should develop appropriate promotional materials (such as videos and e-messages). Progress should be monitored by Ofgem and the Department for Business, Energy and Industrial Strategy.

Other themes