Balanced approach: National Grid’s demand-side revolution

National Grid’s chief executive Steve Holliday may call it an evolution. But in reality, the transmission system operator’s latest strategy to secure the UK’s grid supply is nothing short of revolutionary; a radical overhaul of the company’s approach and an inversion of everything we have traditionally come to expect of the firm.

The operator has spent the past 25 years, and billions of pounds, managing the UK’s power generating units – ramping up and cutting back on output to meet the ebb and flow of the UK’s demand. But in less than 15 years’ time this approach will play a minority role. National Grid is poised to shift its focus 180 degrees to make the most of the UK’s supply by managing its demand.

The idea is that by the end of the next decade, demand-side response (DSR) will be “the single biggest source of balancing – for us and for the market as a whole”, says Holliday.

The market is already familiar with National Grid’s modest DSR offerings – contracts taken up by major energy users to reduce demand at peak load times – but for an industry set in its ways the greatest hurdle will not be in solving how DSR can be implemented at scale, but why we should want it to be.

National Grid needs to overhaul consumer minds before it can overhaul the system itself. And even for the operator, the step is a big one.

“Three years ago I would not have said that demand-side response would play as big a role as we expect it to now,” National Grid’s head of commercial operations, ­Duncan Burt, tells Utility Week exclusively.

Under the new plans, National Grid will be relying on demand-side measures for “well over 50 per cent of the time” by 2030, Burt adds.

National Grid has long procured limited demand-side services and encouraged demand-side management, but the increased deployment of intermittent renewable energy, advances in demand-side technology and a greater need for business to reduce energy costs means that an active demand-side market is “critical”, Burt says.

“The fact is, tomorrow’s electricity landscape will be very different from what we grew up with,” Holliday adds. “The need for low-carbon generation sources makes it vital that we find new tools to help electricity systems function well and at an affordable cost. And DSR can be a large part of the answer.”

The first phase, Burt explains, will take place over the next five to ten years and will focus on the UK’s industrial and commercial (I&C) space. Although I&C customers are already more engaged with their energy use and familiar with National Grid’s modest moves towards DSR, communicating the scale of National Grid’s ambitions requires education and communication.

For some companies, the idea – in very simplistic terms – that they could be more profitable by being less productive is an uncomfortable sell in boardrooms. In others, a perceived risk to their own security of supply arises. Even those companies eager to sign up to schemes with National Grid need clarity on how the current offerings might grow and work together with new plans to create a cohesive approach to demand management.

National Grid’s latest market engagement campaign is seeking to address these concerns.

Burt says the aim of its newly launched Power Responsive campaign is to “normalise” the idea of DSR at scale, and work with the market to build the framework which will allow it to flourish.

Speaking to Utility Week on the sidelines of the Power Responsive launch event, National Grid’s director of market operations, Cordi O’Hara, said the industry is at “an inflection point” which will require the market to turn on its head.

“For the most part, generation has followed demand, but now demand is going to follow generation – and we need to ask how demand can be more intelligent,” O’Hara said.

It’s early days and exactly what this new reality will look like remains to be seen. But that’s the point; National Grid is aiming to engage the industry in order to “co-create” the framework needed to develop a demand-side market by removing “real and perceived barriers” and providing education on how to take advantage of measures already in place, O’Hara said.

The direction of travel is clear. Holliday says: “It’s about delivering real-time signals to energy users, and giving them the means and the motivation to act on those signals. In effect, it’s about saying to customers, ‘Do you really want to use this much electricity, at this cost, right now?’

“Simply by delivering those signals, and providing alternatives, we turn an arcane industry problem into a customer opportunity. We enable customers to take greater control of their energy bills, and provide tools to make it easy.”

Communicating the benefits will be key.

“It gives customers – from domestic right through to industrial users – more insight and therefore more control. Everyone can benefit and everyone has a role. DSR also helps to reduce costs across the energy ­supply chain. It improves security of supply. And, by enabling everyone to make better use of alternative energy sources, it ­contributes to carbon reduction,” Holliday explains.

Beyond the next five to ten years, household consumers will be able to reap these benefits too. Shifting DSR from an I&C concern across all energy consumers is vital, says Association for Decentralised Energy (ADE) director Tim Rotheray.

“Demand-side response will begin in the industrial, commercial and business areas and that’s where it should start. Firstly, because in these areas you are dealing with larger energy loads. And also you’re dealing with customers who are more engaged with their energy use. But this is a development that should absolutely move to household consumers too because – as with the business users – these are consumers who are paying for the energy system so they should absolutely have the opportunity to participate and reap the same benefits,” Rotheray says.

But again, education and communication is fundamental.

“The most important thing is to be clear about the information. What we’re talking about is a change of behaviour so that the consumer is in control of their own energy use,” he says, dismissing tabloid scare ­stories of government-controlled fridges.

“It’s a market offering. This could be as simple as enabling your smart phone to engage with market price signals while you determine what you need to do now and what could wait until later. Do you need to charge your devices now or can you wait until the middle of the night when prices are lower? Or maybe when the sun is shining and there’s plenty of solar power in the system?”

“It’s not about having your energy use controlled by the government or any central body, it’s about the consumer choosing their energy future by managing their own demand.”

The industry reaction:

THE SUPPLIER: RWE Npower head of business solutions technical services, Tony Slade
National Grid needs to do more to drive the commercial incentive for business to engage with demand-side response. By negotiating a new supply deal, a customer could drive down its costs from £100/MWh and save maybe £2/MWh. But if it invests in energy efficiency and cuts that MWh of demand entirely, it’s saving £100. A huge amount of decentralised generation is still untapped – Citibank alone has about 10MW of UPS capacity and 7MW of backup capacity. Multiply that by every bank and every data centre and you can get some idea of the capacity currently untapped. The potential is huge.”

THE AGGREGATOR: Pearlstone chief executive Azad Camyab
We go to our clients and install the necessary tech and management systems at zero cost and then we access, aggregate and sell the flexible load into the market at the best price at different times of the day, week and year – and share the benefits with our clients. You’ve got a virtual power plant of [demand] avoidance; so what do you do with that? As of this year we can sell that to the National Grid and monetise through the wholesale trading market. And it has a very low marginal cost so it’s very competitive compared to diesel and gas generating assets.”

THE USER: Warwick ­University ­utilities projects engineer Andrew Leeson
Warwick University has 8.6MW of generation capacity on its campus and has been investing in combined heat and power since 2001 when the first unit was installed. Since then the university has invested more than £14 million in an energy centre to provide the campus with power and hot water through a district heating network. For us, demand-side response is a commercial opportunity. We’re in a position to sell our excess power because at peak our demand is 9MW. What we’d like to see now is more clarity on how the different DSR schemes can work together.”