The demand side has real potential – but more work is needed to realise the resource

Judith Ward argues that there is much more that has to be done to allow us to access potential demand side measures – especially in the domestic sector.  But, as  results from Sustainability First suggest, the gains will be considerable  and can be extended to individuals

 

The launch of Smart Energy GB in July, to support and promote the roll-out of smart meters, is a timely reminder of the role which the government and others foresee for the energy customer in helping to solve the energy ‘trilemma’ of affordability, security of supply and climate change.
But is this more than a vain hope, and what else needs to be done to realise the vision?
We are proud that over the last four years, Sustainability First, via its GB Electricity Demand project, has put in the “hard yards” to assess the potential for the GB electricity demand-side and identify key issues.
Sustainability First is a small charitable environment think-tank set up fifteen years ago to promote practical new thinking on sustainability.  Since 2011, it has led a major and unique project on GB Electricity Demand.
The project is supported via a multi-sponsor group, including organisations from all parts of the electricity sector1, Consumer Futures and Ofgem.  Work is coordinated through a Smart Demand Forum whose participants include our project partners, the Department of Energy and Climate Change (Decc) and some key consumer bodies: the Energy Intensive Users Group, Citizens Advice, Which? and National Energy Action.
Our project has developed a substantive knowledge base, is an authoritative and open resource, and provides visibility and thought-leadership for GB electricity demand-side issues. To date, we have published eleven in-depth project papers after full review by the Smart Demand Forum2 .

Early headlines
Our forthcoming paper asks what still needs to be done for household consumers to participate, at scale, in the demand-side markets. Later this summer there will also be a final summary paper. Here are some early headlines.
Electricity demand reduction remains absolutely central to offset the expected increase in electricity system costs and so to reducing the impact on customer bills. By 2020, the government expects that around one-half of their total estimated household electricity bill-savings will come from implementing EU measures to regulate the efficiency of electrical products. There are therefore major risks for the customer if we fail to drive forward these measures, or if consumers fail to buy these more efficient products.  Reducing electricity demand overall should also help to reduce the high costs of peak demand.

Potential for load-shifting
Modelling for the GB Electricity Demand Project by Brattle has indicated a technical potential today for load-shifting across all sectors of the economy of up to 18GW out of a total of 54GW on a January weekday winter evening and up to 10GW of 35GW on an August weekend evening.  The potential is therefore substantial in both the domestic and industrial & commercial (I&C) sectors, and is also currently being successfully demonstrated in several Low Carbon Network Fund (LCNF) projects. But can it be exploited in practice?
To date, active GB demand-side response (DSR) comes mainly from I&C customer load (mainly aggregated distributed generation) to support National Grid manage national minute-by-minute balancing of electricity supply and demand and to manage the cost of delivering power at peak times.
Of course, on the household side we have long-standing simple time-of-use tariffs such as Economy 7. But, for the future, if the commercial conditions are right, DSR could be used far more extensively by electricity suppliers to avoid the need to use expensive power generation at peak times,  and also to  avoid penalties when the level of demand from their customers differs from their contracted positions.  Distribution network operators can also use DSR to save money by avoiding the need to reinforce the network where it is close to capacity, and, to keep down costs for those customers who require new connections to the network.
But DSR will only be useful if the benefits exceed the costs.  The costs of providing demand-side services will include the cost of communications, upgrading appliances to ‘smart’, retrofitting control devices and sensors, changes to tariff structures and billing systems and some network changes.  The benefits to the different industry actors are currently being investigated in LCNF projects and in smart grid industry work streams. Moreover, the technical or commercial requirements of different industry players may at times coincide and sometimes conflict, leaving issues still to be resolved.
For households, it will be difficult to engage with DSR unless the actions they take can be measured – and also until households can be properly incentivised to take these actions.  Smart meters should provide the means to achieve this. However, this will need to be done with care.  The Retail Market Review was triggered because of the view that retail tariffs were too complex.  Incentives for DSR are bound to increase complexity.  And we need to take care to protect those consumers, such as the fuel poor or unavoidably high peak-users, who may be less able to change their behaviour and may therefore face price increases without the ability to react.
The smart meter roll-out is only the start.  Our recent paper with Frontier Economics, on how electricity demand-side innovation could serve the electricity customer in the longer term, looked at questions for innovators and for the supply chain, and at practical measures for household-level automation and for storage to flourish.
Since we first shone an early light onto the topic of the GB electricity demand-side, interest has grown massively among market actors, consumers and the wider supply chain. Many more people are now actively engaged. But, before customers can gain the full benefit of DSR, grappling with the commercial and regulatory detail is still necessary. The Department of Energy and Climate Change and Ofgem are embarking down this road. As for Sustainability First, we are delighted to have stimulated interest and informed  practical next steps on how active customers could play a genuine part in ensuring electricity system efficiency and low-carbon delivery – and  so help ‘realise the resource’.
The launch of Smart Energy GB in July, to support and promote the roll-out of smart meters, is a timely reminder of the role which the government and others foresee for the energy customer in helping to solve the energy ‘trilemma’ of affordability, security of supply and climate change.
But is this more than a vain hope, and what else needs to be done to realise the vision?
We are proud that over the last four years, Sustainability First, via its GB Electricity Demand project, has put in the “hard yards” to assess the potential for the GB electricity demand-side and identify key issues.
Sustainability First is a small charitable environment think-tank set up fifteen years ago to promote practical new thinking on sustainability.  Since 2011, it has led a major and unique project on GB Electricity Demand.
The project is supported via a multi-sponsor group, including organisations from all parts of the electricity sector1, Consumer Futures and Ofgem.  Work is coordinated through a Smart Demand Forum whose participants include our project partners, the Department of Energy and Climate Change (Decc) and some key consumer bodies: the Energy Intensive Users Group, Citizens Advice, Which? and National Energy Action.
Our project has developed a substantive knowledge base, is an authoritative and open resource, and provides visibility and thought-leadership for GB electricity demand-side issues. To date, we have published eleven in-depth project papers after full review by the Smart Demand Forum2 .

Early headlines
Our forthcoming paper asks what still needs to be done for household consumers to participate, at scale, in the demand-side markets. Later this summer there will also be a final summary paper. Here are some early headlines.
Electricity demand reduction remains absolutely central to offset the expected increase in electricity system costs and so to reducing the impact on customer bills. By 2020, the government expects that around one-half of their total estimated household electricity bill-savings will come from implementing EU measures to regulate the efficiency of electrical products. There are therefore major risks for the customer if we fail to drive forward these measures, or if consumers fail to buy these more efficient products.  Reducing electricity demand overall should also help to reduce the high costs of peak demand.

Potential for load-shifting
Modelling for the GB Electricity Demand Project by Brattle has indicated a technical potential today for load-shifting across all sectors of the economy of up to 18GW out of a total of 54GW on a January weekday winter evening and up to 10GW of 35GW on an August weekend evening.  The potential is therefore substantial in both the domestic and industrial & commercial (I&C) sectors, and is also currently being successfully demonstrated in several Low Carbon Network Fund (LCNF) projects. But can it be exploited in practice?
To date, active GB demand-side response (DSR) comes mainly from I&C customer load (mainly aggregated distributed generation) to support National Grid manage national minute-by-minute balancing of electricity supply and demand and to manage the cost of delivering power at peak times.
Of course, on the household side we have long-standing simple time-of-use tariffs such as Economy 7. But, for the future, if the commercial conditions are right, DSR could be used far more extensively by electricity suppliers to avoid the need to use expensive power generation at peak times,  and also to  avoid penalties when the level of demand from their customers differs from their contracted positions.  Distribution network operators can also use DSR to save money by avoiding the need to reinforce the network where it is close to capacity, and, to keep down costs for those customers who require new connections to the network.
But DSR will only be useful if the benefits exceed the costs.  The costs of providing demand-side services will include the cost of communications, upgrading appliances to ‘smart’, retrofitting control devices and sensors, changes to tariff structures and billing systems and some network changes.  The benefits to the different industry actors are currently being investigated in LCNF projects and in smart grid industry work streams. Moreover, the technical or commercial requirements of different industry players may at times coincide and sometimes conflict, leaving issues still to be resolved.
For households, it will be difficult to engage with DSR unless the actions they take can be measured – and also until households can be properly incentivised to take these actions.  Smart meters should provide the means to achieve this. However, this will need to be done with care.  The Retail Market Review was triggered because of the view that retail tariffs were too complex.  Incentives for DSR are bound to increase complexity.  And we need to take care to protect those consumers, such as the fuel poor or unavoidably high peak-users, who may be less able to change their behaviour and may therefore face price increases without the ability to react.
The smart meter roll-out is only the start.  Our recent paper with Frontier Economics, on how electricity demand-side innovation could serve the electricity customer in the longer term, looked at questions for innovators and for the supply chain, and at practical measures for household-level automation and for storage to flourish.
Since we first shone an early light onto the topic of the GB electricity demand-side, interest has grown massively among market actors, consumers and the wider supply chain. Many more people are now actively engaged. But, before customers can gain the full benefit of DSR, grappling with the commercial and regulatory detail is still necessary. The Department of Energy and Climate Change and Ofgem are embarking down this road. As for Sustainability First, we are delighted to have stimulated interest and informed  practical next steps on how active customers could play a genuine part in ensuring electricity system efficiency and low-carbon delivery – and  so help ‘realise the resource’.

 

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