IT firms line up for deal to run UK 'smart' meters

Communications companies are poised to enter the energy sector under government proposals for the £6bn roll out of "smart" electricity meters to all households by 2020.

Under the scheme expected to be put to the energy industry for consultation in January, IT groups will be invited to bid for a national contract to run the networking and data-processing associated with energy meters that monitor electricity use in real time and provide an always-on, two-way link between the household and the supplier.

Although the details are yet to be worked through, and the tendering process is unlikely to start until the second half of next year, BT, Vodafone and Logica are all said to be in the frame for the deal, which is likely to be worth hundreds of millions of pounds. Smart meters have considerable potential. Consumers are able to see and track their energy consumption. There are also considerable benefits for energy providers, not least from no longer having to send out armies of staff to read meters.

But the biggest prize is the environmental impact and a smart-metering infrastructure is necessary if the UK is to meet the Government's target for 15 per cent of all energy to be from renewable sources by 2020. Only smart meters can track energy produced as well as energy consumed, so they are vital to plans for expanded use of microgeneration – where rooftop solar panels, for example, not only provide power to the building but feed the excess into the grid. They are also the key to the futuristic concept of "smart grids", where supply and demand across the whole national infrastructure are balanced automatically. Jason Brogan, at the Energy Retail Association, said: "Smart meters are not an answer in themselves but they are a facilitating infrastructure."

Despite the acknowledged benefits, trying to square the installation of expensive, immoveable equipment with a liberal market where customers can chop and change their supplier has proved difficult. The Government finally mandated the roll out, which is to run from 2011 to 2020, in October. But the next step is to find a model where the economics work and competition is preserved. "There is a positive business case for UK plc, but for an individual supplier the cost-benefit analysis is less clear," Mr Brogan said.

The proposal that a third-party communications provider should take on the networking and data services portion of the scheme – while electricity retailers are responsible for installation and maintenance, as they are now – is the favourite of a range of options. The Government also considered a regional franchise model, where individual suppliers have responsibility for specific areas. It was also possible that no changes would be made to the current set up.