Last winter amid record high energy prices, National Grid ESO, the electricity transmission system operator, introduced the Demand Flexibility Service (DFS), where households were paid to reduce energy use in times of high demand.
ESO was worried that the war in Ukraine might mean there was not enough electricity at all times to supply the market, so the ability to reduce demand would be helpful.
This was an early trial of something ESO, the energy regulator Ofgem, and the Government would like to see more of – demand-side flexibility, which they see as a core part of the energy market as we move towards net zero.
Consumers will charge their electric cars and domestic batteries at times when electricity demand is low and prices are cheap, and return some of that electricity to the grid (for a fee) at times of high demand when prices are high.
Ofgem is now consulting on how these flexible tariffs could interact with the price cap, and how vulnerable consumers can be protected.
For these services to work, a smart meter is required – last year fewer than half of households could participate in the DFS either because they didn’t have a smart meter that worked in smart mode, or because their supplier was not part of the scheme.
According to government data, at the end of 2023, 61pc of homes had a smart meter, but for 3.9 million households the smart meter only works in “dumb” mode.
Smart meters rely on 2G and 3G networks which are going to be switched off by 2033, leading to concerns that the “dumb meter” problem may persist, despite current efforts to resolve it.
The other major headache for the regulator is how to protect vulnerable consumers. Last year, high energy prices were constantly in the news.
Accounts of people sitting in the cold and the dark in order to save mere pennies under the DFS were heartbreaking, the savings being low because these households had already cut consumption to the bone.
More affluent consumers had worked out how to beat the system by ramping electricity use during the calibration period used to assess the baseline consumption against which demand reduction was measured and got paid much more.
The reality is that demand-side flexibility is great when you have “flexible energy assets” in particular electric cars – items typically owned by the affluent.
But millions of households cannot afford such luxuries, making it harder for them to benefit from these schemes.
ESO and the regulator suggest that people can delay cooking meals, doing laundry or having baths, ignoring the reality that demand reduction is generally required at dinner time, and for households with small children, there is little flexibility over the timing of those tasks.
There is a risk that the poorest households will be forced into a kind of nocturnal living, feeling pressure to compromise on sleep in order to save money by running appliances at night. Life will be even harder for people with high energy needs to support necessities such as running medical equipment at home.
Ofgem is aware of these dangers, but many in the industry are not. At a recent conference, a speaker waxed lyrical about people creating a “social media buzz” about sitting in the dark to save money under the DFS, and was nonplussed when told that their motivation was not to be “down with the kids” but to save money.
They were choosing between heating and eating, not trying to be “cool”.
The regulator is wondering if it should have a special carve-out for people with medical needs, and has in the past mused about a mandatory non-flexible tariff to cover a base level of consumption.
But what we really need is for the people designing these schemes to see beyond their own privilege and understand that not everyone has an electric car or a fancy washing machine they can control from an app.
And perhaps, before starting to create clever new ways of separating their customers from their money, they might try to get the basics right by providing accurate and timely billing and ending the practice of hiking up direct debits for no good reason, ensuring the energy system works for everyone and not just the wealthy few.
