Peter Aldous writes for BusinessGreen.
As the days grow shorter and the temperature creeps lower and lower, we are all too painfully aware of the unique challenges facing us this winter, which as you may remember, was promised to be the first ‘normal’ winter since the start of the pandemic. Unfortunately, global events beyond anyone’s control have intervened, sending households across the country into crisis. Rather than continuing to ruminate on the sequence of events that took us here, we must now focus on how we can help homes and businesses weather the cold period, whilst also keeping some money in their pockets.
One potential helper this winter is National Grid’s Demand Flexibility Service, which was approved by Ofgem at the beginning of November. Offering individuals and businesses the chance to earn money by simply reducing non-essential energy use for a couple of hours a day, the scheme puts power, and money, back in the hands of the people. Households with smart meters can sign up with their electricity supplier or with a third-party provider, who will offer them the opportunity to opt in to an ‘event’ the day before it takes place. Events are likely to take place during the hours when there is the highest demand for electricity, generally on weekdays between 4pm and 8pm. Customers do not need to take part in every event or even for all the hours of a scheduled event. They will be paid for the percentage decrease in electricity consumption below their typical usage and won’t be penalised if they don’t manage to make any reduction at all. Essentially, it is the equivalent of paying commuters to avoid travelling during rush hour but only if they’re happy to shift their schedule around. The scheme has already seen success, with Octopus Energy’s very first event seeing more than 200,000 households reduce their combined energy consumption by an amount equivalent to an entire gas-fired power station. With some providers offering households around £100 over the course of winter, it seems reasonable to ask – why is electricity demand reduction suddenly so valuable?
The Association for Decentralised Energy (ADE), a trade body that represents the flexibility industry, notes that the simple answer is that it has always been valuable, but highlights that the parties who are able to be paid to get involved in demand side reduction are changing, and will continue to change long after the current crisis is over.
Usually, when there is too much or too little demand for electricity, National Grid pays large gas plants to burn more or less fuel accordingly, keeping the supply/demand scale in balance and supplementing the energy generators’ profits as a result. However, as the price of gas rises, so too does the cost of this balancing act, costs that are eventually borne by the public. Of course, we all now know that gas can’t last forever.
But this begs the question, what then will happen in ten, twenty or thirty years, when we have largely abandoned gas as we abandoned coal before it? By then we will be using cleaner, cheaper, renewable energy sources, but how do we maintain the supply/demand balance when we can’t pay the wind to blow or ask the sun to shine? This is where the kind of demand flexibility National Grid is trialling this winter will prove an incredibly valuable tool in the UK’s shed. Tools like the Demand Flexibility Service mean homes and businesses will be indispensable participants in the electricity system rather than passive bystanders, and best of all, they’ll be able to get paid for it.
This is what so many commentators have gotten wrong over the past two decades, brought into stark light by the realities of this winter – cost-effective energy, security of supply and the transition to green energy are not a deck of competing trump cards, or some kind of zero-sum game. The truth is that they are entirely complimentary and we cannot achieve any one of them without the others.