Annum Rafique looks at how the National Grid's new initiative can help with our current energy crisis. This blog was originally published on the Birmingham Business School blog, you can view the original article here.
What is the “demand flexibility service”?
In October 2022, the National Grid warned Britain that the country might face blackouts during the winter and, if the current energy crisis continues, then there might not be enough power for the whole country. To prevent this, they introduced a scheme dubbed the ‘Demand Flexibility Service’, where households with smart meters would get money back on their bills if their energy usage was reduced during peak times. The scheme aims to help balance the grid and reduce UK’s dependence on gas as an energy source. Under this scheme, the households would make changes to their energy usage and use their high-energy electric appliances, such as dishwashers and washing machines, and charge their electric vehicles at off-peak times. The scheme will run on 12 dates between November 2022 and March 2023 to ensure that all households can save money.
Early in 2022, Octopus Energy conducted a trial of the scheme, and successfully proved the concept of demand flexibility. Since the beginning of the scheme, Octopus Energy has already paid £1 million back to its customers, rewarding approximately £4 per kilowatt hour (kWh) of energy saved during peak times. About one million households are signed up for the scheme, which was operational on 23rd Jan 2023 between 5pm and 6pm and on 24th Jan 2022 between 4:30pm and 6 pm. During these hours, customers with smart meters could get back £3 per kWh saved from the National Grid if they reduced their energy usage by a minimum of 30 per cent. Further savings could be made if the households reduce their energy usage by more than 30% during the period specified. Twenty-six suppliers, including big names such as British Gas, E.On Next and EDF, have also signed up customers for the payback scheme, using demand flexibility to reduce demand at peak times. Some of these companies have gone above the average £3 per kWh offered to customers who reduce energy usage, with British Gas stating that their participating customers could earn up to £6 per kWh of energy saved.
There has been some criticism of this scheme as a way of penalising households without smart meters since only homes with smart meters are eligible to sign up for the scheme. This could be seen as exclusionary to those who have not yet upgraded their meters. However, this is quite possibly the point of the scheme. All gas and electricity suppliers in the UK are obligated to roll out smart metres to all their customers by 2025, so this scheme might incentivise the accelerated deployment of smart meters. Furthermore, the evidence suggests that households with smart meters and In-Home Displays can have 3% savings on electricity and 2.2% on gas credit, so swapping to a smart meter to take advantage of the scheme could provide users with compounded benefits.
The Demand Flexibility Service has overall shown positive results for all its stakeholders, including savings to households in the form of reduced energy bills, reduced energy usage during peak times and balanced demand and supply of energy in the power grid. Although savings for individual households may not be significant, their combined value shows promise for the future. Such schemes will aid in placing energy flexibly in the hands of the customer, allowing customers to determine the best time to use energy-intensive appliances, such as when the tariffs are lower. System flexibility is the future of the energy system and will play a vital role in the UK’s ambitions in transitioning to net zero.
The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI / WMREDI or the University of Birmingham.