Every home in Britain will have a new “smart meter” installed by 2020 under plans unveiled by the Government, which hopes to reduce the country's carbon emissions by more than a third.

In potentially the biggest shake-up of Britain's energy industry since the introduction of North Sea gas in the 1970s, it is hoped that the new meters, which will be installed in all 26 million UK households, will boost energy efficiency by allowing consumers to track exactly how much gas and electricity they are using.

The installation of the meters in 2.6 million homes every year over the next decade will be a huge logistical challenge that will cost an estimated £7 billion to £9 billion — or between £269 and £346 per household.

The Energy Retail Association said yesterday that the cost of the meters would be spread across ten years and would also permit big cost savings for the industry, meaning that the overall impact on consumer bills would be “cost-neutral”.

Ed Miliband, the Energy Secretary, said: “The meters most of us have in our homes were designed for a different age, before climate change. Now we need to get smarter with our energy.”

Smart meters, which will eliminate the need for estimated energy bills and also allow utilities to lay off thousands of meter-reading staff, are designed to encourage consumers to use electricity and gas more frugally.

As well as helping consumers to identify ways to reduce their bills and emissions by turning off electrical equipment and using devices that are less energy intensive, the meters will enable power companies to manage demand better by offering off-peak deals similar to those offered at present by telephone operators.

Consumers will be rewarded for using energy-hungry appliances such as dishwashers during off-peak hours, such as between 1am and 5am. This will allow power companies to even out big fluctuations in current during daily energy demand, allowing for a reduction in the total generating capacity necessary to power the UK.

Ofgem, the industry regulator, welcomed the announcement. Alistair Buchanan, its chief executive, said that smart meters “have great potential to encourage both domestic and business customers to reduce their energy use. They will also improve the accuracy of bills by eliminating the need for estimates.”

The Government also wants the meters to enable homeowners to sell electricity from roof-top wind turbines or solar panels back to the grid, while improving energy demand forecasts and network management. “Smart meters will become a cornerstone of our efficient management of energy resources as a nation and as individuals in the future,” the Government said.

Some experts warned that the new devices raised concerns about information security. Matthew Lockwood, senior research fellow in climate change at the Institute for Public Policy Research, said: “People also need to be confident that their data will remain private, and workable measures need to be in place to ensure that is the case.”

To help to oversee the rollout, the Government has approved the creation of a new agency to manage the meters and relay the information to energy suppliers.

The decision will offer a significant boost for manufacturers of smart metering technology, including General Electric, IBM and Itron, of the United States, and Landis & Gyr, the privately owned Swiss group.

The information from the meters can be displayed on a handheld unit, mobile phone, television or computer. Power suppliers can also view the same information remotely.

The Government has invited public comments on its recommendations until July 24.

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