THE RISE OF THE FLEXERS

The ability of consumers to adjust their electricity demand in response to price signals and system operator requirements has a fundamental role to play in the energy transition. Financial incentives and a regulatory framework that values demand-side flexibility assets are essential to limiting investments in the grid and backup generation

When the UK’s National Grid Electricity System Operator (National Grid ESO) rolled out its new Demand Flexibility Service in the winter of 2022, over one million British households signed up with their electricity suppliers to change the time they used appliances like dishwashers and tumble dryers and to recharge their electric vehicles (EVs) to o -peak periods.

The new service allows the UK electricity system operator to access additional exibility resources when national demand for electricity peaks during the winter. Participating consumers, sometimes referred to as “ exers” in the British press, are informed the day ahead and receive nancial incentives like rebates or energy credits to encourage them to use electricity o -peak. This in turn reduces the need for the system operator to resort to traditional exibility assets like gas peakers to prevent the risk of blackouts.

Demand-side exibility can be used to shave the peaks o electricity demand, while also helping to shift load to times when the power supply is overabundant and prices on wholesale markets are cheap. This typically coincides with moments when renewable energy supply is high, so it may also come with the bene t of lower curtailment of wind and solar plants resulting in fewer greenhouse gas emissions.

Flexing demand will become increasingly important with the growing electri cation of the heating and transport sectors, notes Alex Schoch of Octopus Energy, a UK-based utility. “We are moving from a world in which net energy load is decreasing because of energy e ciency into one in which it is increasing. Most of this transformation is happening in the consumer space,” he says.

Cost Savings

Heat pumps in houses and electric vehicle charging will add to electricity loads but can also be used exibly. Homes can be pre-heated in o -peak hours, provided they are well-insulated, and EV charging can be programmed for times when electricity prices are low and power is green.

Behind-the-meter rooftop solar and battery storage can also contribute to system exibility, as can energy communities generating, storing and consuming power locally.

Between €11.1 billion and €29.1 billion could be saved each year between 2023 and 2030 in distribution grid investments in the European Union with full exploitation of demand-side exibility, according to a 2022 study carried out by DNV, an independent assurance and risk management provider, and Smart

Energy Europe (smartEn), an association promoting digital, decentralised and decarbonised energy solutions.

On top of that, the report estimates €71 billion in annual direct savings to consumers, €2.7 billion in annual cost savings from avoided peak generation capacity, a decline in renewable curtailment of some 15 terawatt hours (TWh) and 37.5 million tonnes less in annual greenhouse gas emissions.

No Sense Of Urgency

For the potential of exibility on the demand side to be maximised, however, the regulatory framework and market design are key.

Sabine Erlinghagen of Siemens Smart Infrastructure notes that the need for exibility is becoming more pressing as the growth of distributed energy resources (DER) accelerates, “But there is not yet enough sense of urgency from a regulatory or a market design perspective,” she says.

The energy transition will go faster and, “[Be] much more economically viable if you take advantage of exibility both to avoid overinvesting to put copper in the ground as well as to lower the bu er you need to operate the grid,” she adds. Combined with software (page 42), exibility allows the system operator to run the grid closer to its physical limits, Erlinghagen explains.

There are already “a lot of good enabling frameworks at a European level” for demand exibility, starting with the 2019 EU Electricity Directive, but implementation in national legislation is lagging, states Michael Villa of smartEn.

Villa notes that there are still few electricity suppliers that o er dynamic price contracts to their customers while system operators “are not using the exibility of market operators but are thinking in terms of investments to bolster the grid,” he says.

“The biggest challenge is to ip the entire energy system on its head,” says Octopus Energy’s Schoch. “The market rules and regulations are still very much oriented to central power generation and consumers being passive bill takers.”

Shape, shift, shed or shimmy demand

There are a number of ways to move demand load away from peak times to help the system run more effectively

Price Cues

While power prices on the wholesale market rise and fall during the day, many end users do not have tari s that are tied to these uctuations, giving them little incentive to use electricity when the cost of providing it is lower.

Travis Kavulla of NRG Energy, an integrated power company in the United States, highlighted in a recent paper the missing incentives in regulatory policy for active demand-side involvement in the electricity sector, not only for consumers but also for their suppliers.

Kavulla notes that the rate-making process in the US has generally eliminated the nancial advantage to utilities of reducing the power consumption of consumers when it is most expensive to serve them, given that these utilities simply recover the cost of service in electricity bills.

Visible Incentive

At the same time, competitive retailers may also see their ability and incentive to activate demand limited, Kavulla adds. While these retailers are exposed to marginal price signals for energy, this is not always the case for transmission, distribution and generation costs.

“The lack of retailer exposure to providing a retail customer with electricity service will diminish the retailer’s incentive and ability to activate demand— even if the incentives for energy supply itself are well aligned,” he says.

When it comes to consumers, Kavulla points out that time-varying rates have not worked when people have been required to opt-in, as take-up has been scant. “[Customers] should either take service under a time-varying rate as a default option or should be supplied by a provider that does have the nancial incentive and ability to activate the customer’s demand in relation to the dynamic wholesale market on the customer’s behalf. Someone, somewhere, must face clear incentives to actively manage demand in order for it to happen,” he argues.

The state of California has been a leader in moving towards time-varying rates. A new load management standard from the California Energy Commission (CEC) in e ect starting April 1st, 2023, requires the state’s largest power utilities to develop retail electricity rates that change at least hourly. The util-