Smart meters: are they the answer to big bills?

With energy bills at a record high, millions of Britons may be worrying about how they are going to pay to heat and power their homes this winter. Cutting back on energy use is one way to limit the financial damage of wintertime, but so few of us know where to start. This is where the new generation of "smart meters" can come in.

A smart meter is a small wireless transmitter that receives signals from your gas and electricity meter about your energy use. This information is then forwarded to a portable display that can be prominently placed in the home, which can be read by the customer. The idea is that if you can clearly and easily see how much energy you are using and how much it is costing then it should prompt a change of behaviour. In other words, customers will become more energy-conscious and this in turn will see them take steps to reduce their power bills. "Smart meters will help people understand energy better. Standard meters were hidden away in a cupboard not telling you much, but smart meters can show you how much you are saving by turning down the thermostat in an instant. In addition, smart meters make deals more transparent – if you can see your pattern of energy use, you can see what tariff suits your needs," said Marian Spain, director of strategy at the Energy Saving Trust.

A trial of smart metering is being conducted by EDF, E.ON, Scottish and Southern Energy and ScottishPower, with 23,000 homes involved, said Ofgem, the energy market regulator. The trial lasts until August 2010 and a nationwide roll out is then on the cards, as the Government has said that it would like to see smart meters in all homes by 2020. "This is an ambitious target as it will be a big job to get these meters in 27 million homes," said Scott Byrom, a spokesman for the price-comparison website Moneysupermarket.com. "One major point in its favour is that it's actually cheaper for the providers long-term as they can read these smart meters remotely, which means they won't have to pay someone to go to their customers' homes."

However, one energy provider, First Utility, has struck out on its own and started installing the meters in homes and businesses of all new customers. And in these recession-haunted, financially stretched times the idea of being able to take more control over energy bills obviously appeals. First Utility says that it has installed 5,000 smart meters since September, and the pace of installation is quickening as winter approaches.

A one-off £49 installation fee is charged, but savings soon start to be made.

The Energy Saving Trust reckons that the gadget can help knock 5 per cent off the average household energy bill. That equates to an annual savings of between £50 and £70. The theory is that those who use a smart meter would be more inclined to make energy saving decisions such as insulating their lofts, turning down their thermostats and switching appliances off rather than leaving them on standby. The meters can also help reduce inaccurate billing – a big bugbear among consumers. This is because, since the meters can be read remotely by providers, bill accuracy is assured.

"By providing an actual meter reading directly to their suppliers, consumers can be sure to be billed for the energy they use and not face large bills or be prevented from changing supplier. Smart metering will help to avoid estimates," Mr Byrom said.

But there are other more substantial ways to save money on your energy bill, he adds. "If you switch supplier or move to an online tariff, you can still save over £200 a year. But if you don't want to change, look at how you pay. By paying by monthly direct debit, you build up credit over the summer, so it balances out over the winter and will help you to budget."

Power to the people: Our attitude to energy has changed. We no longer leave the lights on'

Alan and Valerie Thame, 77 and 70 respectively, had a smart meter installed in their new-build, four-bedroom home in Basingstoke last year.

They started using smart metering as soon as they moved in, in August 2007. They paid a one-off installation fee to First Utility but the meter has already paid for itself, as it has prompted them to reduce their gas and electricity usage.

Previously, with their old meter, they would have to wait for someone to come around to take their reading but now the couple can go online and find out for themselves. Alan says: "With the old system, you didn't know what you were using. You just paid the bill. Now we know how much gas and electricity we are using on a continual basis."

The couple say they are making a saving of around £10-£15 per month, but add that saving money wasn't the only motivating factor behind the change.

"We are very interested in the environment and the amount of carbon being used," says Alan.

Since they started using the smart meter, Valerie says their attitude to energy has changed. "It made me think. Previously, I would turn on all the lights. Now, if there is no one in the room, I do turn them off."