‘Demand Flexibility Service’: Energy firms to pay UK customers for avoiding use during peak times

Households will be encouraged to use appliances like washing machines and tumble driers at off-peak times

The ESO has this week published its winter outlook reports for the electricity and gas sector. These annual reports forecast likely scenarios for energy supply and demand each winter and outline plans to maintain energy security. This year’s report has been highly anticipated, with the ESO conceding that 2022 has been a time of “unprecedented turmoil and volatility in energy markets in Europe and beyond”.

The headline conclusion of the electricity winter outlook is that there will be adequate margins to ensure energy security this winter, provided that certain interventions are made. The Government has already secured contracts with coal plant operators to extend generation this winter, while still keeping the autumn 2024 deadline for all coal-fired generation to come offline. The other major intervention is the launch of a new ‘Demand Flexibility Service’, which will see energy users incentivised to use less energy at peak demand times “when margins are tight”.

The Demand Flexibility Service was first floated by energy companies earlier this year and National Grid ESO conducted a consultation in the summer. A key discussion point was ensuring that payments were significant enough for energy users to take action.

It seems that the first energy supplier to offer Demand Flexibility Service benefits to its customers will be OVO Energy. The firm has announced plans to trial a new reward scheme which will pay customers for avoiding the use of devices such as washing machines, dishwashers and tumble driers between 4pm and 7pm.

Called ‘Power Move’, the scheme will reward customers who use less than 12.5% of the energy their household consumes in a day during these hours. Most homes use around 19% of their daily energy in this period by OVO’s calculations.

Households meeting this requirement will receive a £20 payment for each month they are able to achieve this. The trial will run for five months from 1 November, meaning that the potential payment for each home is £100. Existing OVO customers will be contacted about how to participate this month.

OVO’s chief executive Raman Bhatia said: “The UK energy sector is at a crucial point, and we need a resilient grid to get us through this winter. This trial provides essential consumer data which can be shared with the Government and the National Grid to prevent power shortages, and will give customers a deeper insight into their energy consumption habits, with great potential savings.”

Kaluza, OVO’s software-as-a-service platform, called the broader Demand Flexibility Service ‘a great step towards incorporating more small-scale flexibility into the energy system and enabling households to benefit from smarter ways of using their energy”.

However, the firm’s market development and policy lead Valts Grintals added: “Longer-term thinking is needed to create the right market conditions for scale in line with rapidly-growing technologies like electric cars and heat pumps. By leveraging electric cars alone over the next four years, we could double the volume of flexible capacity available at winter peak times, but the work to establish the right market design and incentives needs to start now.”

In the longer term, the Government and National Grid are considering whether energy efficiency projects can compete in the UK’s Capacity Market, subject to “significant changes” to market rules. Also under consideration is a flexibility-focused obligation for electricity suppliers, mandating the provision of low-carbon electricity and the provision of methods to help reduce demand during peak times. Such an obligation, the ‘Clean Peak Standard’, is already used in Massachusetts.

Plans are not currently in the works to leverage vehicle-to-grid (V2G) technologies at scale to unlock flexibility across the UK.