As an increasing proportion of the UK’s overall energy supplies are generated from intermittent renewable sources, in line with the Government’s decarbonisation agenda, we are also entering a period where the decade-long trend of declining household energy consumption is likely to reverse due to the increasing adoption of EV‘s and continuing growth in the use of technology and the IoT devices which comprise the “connected home”.
This environment will necessarily require significant increases in our national clean energy generation capacity and we believe that this will, in turn, demand an increasing emphasis on the need for transmission and supply networks which are better able to accurately balance and distribute supply and demand in real time.
Widespread roll out of smart meter technologies will be vital in assisting with this type of dynamic balancing. However, this has taken longer than expected to implement, with the Government’s already delayed roll-out schedule for smart meters further hampered by the national lockdowns over the last two years.
Coupled with the localised storage potential offered by home battery technologies and the significant storage reservoir that is latent within the UK’s growing national fleet of EVs, smart meters can deliver significantly more than the accurate pricing and differentiated usage tariffs which were their initial selling points.
With the two-way connectivity offered by smart grid concepts, they have the potential to act as nodes within localised storage and distribution networks, enabling users to draw energy during off-peak hours (storing it in home and EV batteries), with the stored energy then being available for use during periods of peak demand and surplus energy being available for supply to other local meter points on an “export tariff” basis.
As part of a smart grid which leverages technologies to channel and store energy dynamically across a national network in response to peaks and troughs in supply and demand, it is clear that smart meters in both domestic and commercial/industrial settings have a vital role to play in smoothing out the supply inconsistencies which will be inherent in a system which is likely to have some reliance on intermittent renewables.
While the roll out of smart meters in the UK continues to lag, with the current installed base at around 50% of the UK’s meter points, we expect that the transition back towards more normal times may see the government looking to place a new emphasis on accelerating this programme.
In the meantime, we believe that smart meters as an asset class with utility-like features, linked to the transition to net zero, will continue to be highly attractive to investors, both in the listed space and private markets. The takeover of Calisen at a valuation of £1.4bn last year, at just a little over a year following its IPO, is a good example of how attractive these assets can be to PE investors seeking long-term yields.