Spanners and Bananas – or how smart meters used a dumb approach

Spanners and Bananas – or how smart meters used a dumb approach

by Eben Wilson
article from Monday 30, July, 2018

IT IS REPORTED that an expert adviser to the Department of Energy and Climate Change thought the civil servants in charge of the smart meter initiative were so technically ignorant that they “couldn’t tell the difference between a spanner and a banana”. 

This delightful aphorism is memorable not only for its incisive sarcasm but because it tells us so much about the context within which state central planning works.  In the “smart meter roll-out”, what F A Hayek called discretion without knowledge has cost consumers unnecessary billions in wasted taxes.  

I have a commercial connection to this; some years ago my data acquisition company contacted several electricity corporates to see if we could secure any contracts for smart meter development.  At every turn we were stone-walled. There were no tenders being put out, indeed there seemed to be a dense wall of silence around the entire programme.  I remember specifically a slightly acid conversation with a middle-ranking programme manager in SSE who, on being offered our system design service responded in an off-hand way that SSE would “hire their own people and do it in-house”.  What economists call “rent-seekers” had claimed their rent from the central planners. 

Well, here we are around a decade later at the end of an £11billion heavily taxpayer-funded plan, with one of its early planners Mike O’Brien, an Energy Minister under Gordon Brown, telling us that he has thrown his smart meter in the bin. 

Discretion without knowledge in central planning becomes particularly costly when multi-layer systems are involved; inevitably the technical elements are operating on shifting ground and seeing rapid innovation.

Our conversations with the energy majors came at a time when the buzz-word in smart systems was “interoperability”.  Essentially what this means is that the layers in systems; hardware voltages, input and output connectors, firmware routines, software and data protocols should retain a transparency as “open systems” so that new versions of each layer could be updated.  

I recollect being puzzled that the smart meter initiative, driven by EU directives on carbon reduction, appeared to have little emphasis on interoperability, driven by other well publicised EU directives to enhance the rate of innovation across Europe.  At the time the Department of Energy and Climate Change was a separate government department from what was then the Department for Business, Innovation and Skills; perhaps a silo mentality prevailed, or more likely a power struggle between civil servants, and so we lost this crucial design approach. 

If we look back from today; where inexpensive smart home systems from Amazon are heavily advertised, where big data artificial intelligence is burgeoning, and where smart devices like robotic lawn-mowers and self-managing media applications are becoming ever more prevalent, the £11billion spent on a wee box, offered “free”, that doesn’t work very well and lives in a world owned by an oligopoly of large corporate owners and gets thrown in the bin when you change supplier, you have to say “we wuz robbed”. 

And just to rub it in … I have just checked … you can buy a basic induction collar to measure 240volt current use for seven pounds.  It’s only got a flying lead and a quarter inch jack on it, but for even an amateur techie attaching that via a data board to a home computer would be a few hours’ work.  Trust me; I have a 23-year-old electronics graduate on my payroll who did exactly this two months ago to create a kettle use detector for elderly people.  Our development costs were less than two hundred pounds, including wages.  

For a political economist, this planning saga is a perfect example of why we have to get politicians and civil servants to understand what we mean when we say they should get out of the way and only set the most general rules to avoid unexpected consequences from trying to plan “desirable” economic outcomes.  The world of manufacturing and technology changes very fast and the technical systems outcomes from these changes are unknowable. This is not an arena for engaging in policy that guesses winners. 

The political nature of the smart meter initiative induced another economic error; the meters were offered for free to householders.  This did two things; it made their value opaque to users unable to compare their benefits with other suppliers’ offerings, and it put a free competitor into an existing emerging market for smart devices.  Our company in fact already had a system product idea which had at its core a smart meter on the domestic energy supply; that was why we were phoning the energy companies, to work with them on that. It would also have been able to deliver precisely the same information that the energy companies wanted about domestic energy usage, encrypted and to an interoperable format. Of course, we would have sold a lot of other service add-ons, and been able to offer suppliers of household gizmos a data qualified channel to sell more good stuff to consumers.  

The cost to the taxpayer of this would have been zero, indeed we – and no doubt many other suppliers competing on price - would have paid a lot of VAT, Income Tax and National Insurance to HM Treasury. Instead, the state has created an old-style BBC; a free to use taxpayer-funded national service that is limited in scope with a declining audience migrating to other methods. It is horribly  difficult to get rid of such institutions once politicians and civil servants have their reputations invested in their success. As Hayek again tells us, a failed plan always leads to central planner altering the plan rather than scrapping it. 

There are important lessons in this fiasco. Spannering in the modern world of systems should be avoided by politicians and civil servants at all costs; their job is to open up wealth-creating opportunities by offering secure and competing trading rights in well-identified property rights.  This is how to enhance the common good and create new wealth.  This institutional approach to governance is a mantra that economic liberals have been trying to impress on politicians for many a year. 

The institutional spanner in this case was to allow access to the mains cable that runs into our domestic electricity meters. That access is presently highly regulated because it is a property of the energy company, and dangerous to interfere with.  But if the energy companies had been mandated to provide a seven pound induction collar and a flying lead on that supply, and the rest left to private competitive markets we would all be wealthier and living in more efficient homes. 

The centralised approach chosen instead by the politicians and civil servants, then taken over by the rent-seeking energy companies, was a banana skin on which they slipped.  

By example, the alternative policy of liberating the monopolistic controls described above has already been used in telephone networks.  Post-privatisation British Telecom was mandated to allow competitors to attach equipment at their cable wall socket.  Today, they also have to allow third parties to attach to the last mile connections from the local exchanges and street cabinets. 

This liberty to do business by removing monopoly access privileges created the telecoms revolution of today. What a pity that the numpties in the Department for Energy and Climate Change a decade or more ago thought that they needed to do their own spannering only to slip wildly out of control using our money on the banana skin of bad economics.  

Many are saying that we are about to enter a revolutionary period of micro-generation and cross- trading in domestic energy use to allow us to run electric cars – it would be a great shame if the very people who have mandated that new policy attempt to impose old smart meter policies that are limited by monopolistic ownership of the right to innovate. 

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