Demanding change: Is DFS a game-changer or gimmick?

The demand flexibility service has caught even its architects by surprise in the willingness of consumers to shift their electricity usage out of peak time. But will the novelty of participation survive beyond the winter? Utility Week speaks to the designers and users of the service about incentives, automation and why flexibility is “absolutely not about going to candles".

At 5pm on 15 November 2022, the National Grid Electricity System Operator (ESO) saw a dramatic drop in demand.

Sudden spikes or troughs in the real-time data flowing into this hub of Great Britain’s energy system would ordinarily be seen as a worrying sign. But instead of jitters there was jubilation. This was no anomaly, it was the collective action of hundreds of thousands of consumers and businesses responding to a simultaneous request to lower their energy consumption for the greater good of the grid.

In other words, this was a glimpse of the future.

For Claire Dykta, head of markets at the ESO, it was an emotional moment. “That was a really great feeling and to see all the hard work of the team and of all the partners was a wonderful moment. But it was also a really important step in proving that demand flexibility works.”

What Dykta was witnessing was the first use of the ESO’s demand flexibility service (DFS). This scheme to encourage consumers and businesses to lower their consumption or switch electricity use outside of peak hours was a long time in conception but had been wrestled into reality in record time. Ofgem had approved the DFS just two weeks’ earlier.

She reflects: “This was one of, if not the, quickest projects we’ve ever developed, and we did that hand in hand with industry. There was a real puling together of everyone to get it done quickly.”

The scheme was based on the lessons from a joint trial between Octopus Energy and the ESO over summer 2022 but saw the scope of the project scaled up dramatically. The first test, which caught much of the industry somewhat on the hop, involved four participants – Octopus and Eon Next as well as Drax’s business retail arm and aggregator Flexitricity. For the next ‘event’ a week later there were 13 providers and by the middle of December, 26 organisations were signed up, representing one million customers.

Over the course of the first five tests, almost 800 megawatt hours (MWh) of consumption was avoided – exceeding most people’s expectations of the immediate impact of DFS and generating a rare moment of universally positive press coverage for the energy sector.

Participants interviewed for this article were unanimous in celebrating the achievements of the DFS in its first few months. However, they also raised a number of questions about its future and whether the way consumers have engaged to date is sustainable. Key to the debate was how demand flexibility can ultimately become an unremarkable element of the wider energy eco-system. There was a consensus that this trial has come about at a perfect moment to engage customers  on their role in the energy system of the future – one that cannot be missed.

The beauty of going back to basics

The DFS is a commitment of 12 ‘demonstration events’ throughout winter 2022/23 – each one lasting two hours between the evening peak of 4pm to 7pm. Open to half-hourly metered assets in unit sizes of 1MW to 100MW they are rewarded for shifting or reducing their demand out of these crunch times for the grid.

Family-run lighting manufacturer, Powerlite Fitzgerald, was one of the companies taking part, via aggregator Perse, with the factory closing an hour earlier during test days. According to company director Pollyanna Robinson there was no loss of productivity as staff were incentivised by the early finish and managed to complete their work with an hour to spare. The company earnt £50 per test and saved c£5 off its energy bill.

Robinson says the experience has shown her how energy efficiency can help to drive down costs without any real detriment but says there is also an element of social responsibility, adding: “ Homes deserve to be able to keep the lights and heating on this winter. If we can help that to happen, then that can only be a good thing.”

Sammie Davies, an Octopus Energy customer from Ayrshire in Scotland, has taken part in all six of the tests so far. Both Sammie and her partner work from home so are in a perfect position to shift their usage throughout the day.

Why did she want to get involved with what Octopus refers to as Saving Sessions?

“It was a combination of saving money but also of being more environmentally friendly. If I’m being completely honest I’d never really given much thought to when I was using energy.”

Describing how she took part in the two-hour trials, Davies says: “We really went for it. Everything went off and we sat in the dark. That was actually part of the attraction – the beauty of switching everything off. I really enjoyed going back to basics.”

Davies’ experience appears to be a fairly common one from the anecdotal evidence suppliers gave to Utility Week.

Octopus has encouraged 500,000 of its c3.5 million customers (not counting the 1.5 million being transferred from Bulb) to take part in the DFS, receiving ‘OctoPoints’ in return which can be turned into credit. The company says it has returned about £1.5 million to these customers over six tests and is fond of quoting the comparison that it has avoided the equivalent demand to all households in Leicester switching off for an hour.

Kieron Stopforth, origination manager at Octopus, says there is a clear sense that customers want to be part of a wider movement and that the success of the Saving Sessions is down to something more fundamental than financial incentives.

“Energy has definitely received a lot of attention this year, with prices where they are and it being on the news everyday. But what we are seeing is customers engaging a lot more with energy use more generally. They are increasingly responding to messaging about climate and turning down during times where coal or gas use might be high in the system.

“They are also responding to the community or collective benefits of the Savings Sessions. They feel they’re part of something bigger, both in the climate impact but also in the fact they’re part of this mass of energy shifting.

Jean Fiddes, director of commercial at Eon Next, has also seen “a lot of positive sentiment” from the 500,000 customers invited to take part, adding: “People are learning more about their energy consumption and seem to be enjoying taking part in the events. This is absolutely part of the future of our relationships with customers and the relationships they have with their energy use.”

Dykta echoes these sentiments and says the positive public reaction exceeded anything the ESO had expected. “It’s really caught people’s imaginations and they have engaged with why we’re doing this. The other thing we’ve observed is that for the tests we have run we have generally seen an over-supply of megawatts so the people taking part have really committed to it.”

Candles are not the answer

Alistair Martin, founder and chief strategy officer at Flexitricity, also welcomes the positive engagement from consumers but he has a concern about the “novelty factor” wearing off.

“Domestic participation in energy flexibility is absolutely not about going to candles. That’s the wrong message. What it should be about, and this is probably my biggest beef with the way DFS was rolled out, is identifying the things in your home that are genuinely flexible and where allowing them to flex is no skin off your nose. They are heat pumps and electric vehicle (EV) chargers, with EV chargers being in the front there.

“To make it work, it should be done automatically. You set the parameters – the level of interruption you’re willing to accept – and that is that is the maximum interruption that you get. And then it’s the job of the aggregator or the charge point operator or the supplier to adjust that demand directly. They can tell you they’re doing it they can give you the opportunity to update and they have to respect your parameters. But they should do it without you walking around the house turning everything off or lighting candles.”

Responding to this Dykta says: “The novelty factor is great in terms of generating interest. All of those households that participated will have saved their money on very specific things they have done.

“What’s really important is that we explain that to people – that when you saved money in that time period the reason was that you shifted an energy intensive appliance over night.

“If you jump forward to the future and a fully formed flexibility market it will absolutely be about automation. As an end consumer you want to know that your laundry is going to be washed or your car is going to be charged – if something controls that for you and does it at a time that’s beneficial then great. But for now if you can create the incentives it seems people are willing to do that themselves – to programme the washing machine or delay the start of the dishwasher. I think we will see more willingness to do that than we might have thought possible.”

Finding the right incentives

All interviewees agreed that a sense of collective responsibility for tackling climate change was a powerful incentive in itself. In France, grid operator RTE has partnered with TV channels to develop the ‘Ecowatt’ app, which gives information on the level of stress on the electricity system overlayed onto weather reports. Reports suggest this has prompted widespread engagement in demand reduction, despite the lack of any financial reward.

Despite this, much of the conversation around the future of the DFS has centred on getting the right incentives for customers.

This was the main sticking point in the development of the service last autumn. The ESO originally set its “guaranteed acceptance price” in line with the average unit rate for electricity under Ofgem’s price cap, which was then expected to be 52p/kWh from October.

However, following the announcement of the Energy Price Guarantee and lobbying by suppliers, the rate was increased to £3/kWh.

Eon’s Fiddes says: “This is a new and somewhat disruptive exercise for customers which is why we pushed hard to get a level of funding for customers to inspire them to take part. Some of the criticism or lack of participation we are seeing is that people just don’t think the rewards are worth the disruption. We have to find a way of inspiring people to take part and make this something customers actively want to achieve.”

This is backed up by the experiences of Davies in Ayrshire who says that while the tests have made her think about her energy usage, she is pragmatic about whether she would continue to proactively shift demand out of peak time without any incentive.

“That doesn’t necessarily need to be money – it could be some sort of reward scheme – but to do it regularly going forward I think there would need to be some kind of incentive.”

Flexitricity founder Martin says that for businesses there is a clear need for some sort of income to be guaranteed if firms are expected to make fundamental changes to the way they work and that some sort of availability fee may be needed to take demand reduction mainstream.

DFS needs to be more than just a winter sale

The ESO is committed to providing 12 tests before the end of March but has so far avoided having to use the  service “in anger” because of a genuine shortfall in supply at peak time. However, Dykta says a close call in late November allowed the team test processes and procedures.

She says that work has already begun to assess the lessons from the winter and look at what the next iteration of DFS will look like – with nothing off the table. She points to the design of the tests allowing suppliers to find “different flavours of incentives” for different customers.

For Alex Schoch, head of flexibility, Octopus, what is needed is a “step change in how we manage our power systems”.

He says: “There seems to be a recognition (in ESO) that the world is moving far too fast for the traditional approach to innovation programmes and that you need to iterate in the real world. You need to iterate with market participants, with I&C market participants with utility-scale power plants, batteries but also consumers.

“It would be a tragedy to not invest in the learnings and the consumer awareness, the mainstream media awareness that this winter and the DFS concept has raised. We need to capitalise on this and send a very clear message that we will continue to put price signals out there, whether they are market services or other forms of price signals to allow the market to iterate.”

He is also adamant that while this service was designed to solve pressures over winter, flexibility has wider applications.

“This shouldn’t just be a winter service, this should just as much be a summer service where we’re helping customers  soak up excess wind and solar energy instead of having those assets curtailed and the costs falling on consumers with no benefit to them.”

DFS is of course only one element of the wider flexibility landscape, which includes the tenders by distribution network operators, the Triad avoidance scheme and individual initiatives from suppliers. One stipulation of this winter’s scheme is that assets participating in ancillary or DNO flexibility services or that are already dispatchable on the Balancing Mechanism cannot take part.

So, where does DFS ultimately sit in this mix or will it evolve into something entirely separate?

Octopus’ Schoch says: “Consumer flexibility should not be an item of last resort on a go-forward basis. We’re very supportive of that’s how the DFS was introduced this winter given the precarious outlook but this needs to be moved into business-as-usual.”

For this he sees the need for widespread deployment of smart tariffs, increased automation of key appliances and highly publicized campaigns such as DFS.

He adds: “They all have their different place so DFS in its current form can reshape and rebalance on a day-ahead basis, whereas the Balancing Mechanism is the real-time system balancing where that form of consumer engagement might not be ready today but it’s definitely going to evolve there.”

Dykta says the workshops and working groups that will spring up over the next few months will delve into all the issues raised in this article with a view to a long-term approach to encouraging demand flexibility.

However, for Octopus there is a palpable impatience to seize what could be seen as a golden opportunity when energy usage is front and centre of public debate.

As Schoch puts it: “When I was a kid, I was always told turn off the lights when you leave a room. I think most of us were. Imagine if the next generation grow up being encouraged to save electricity between 4pm and 6pm.

“We already see the current teenagers glueing themselves to paintings out of the sheer frustration of not seeing any tangible progress. I think Savings Sessions is the perfect example of how across society people want to be engaged. We can turn off a city the size of Leicester because people are engaged.”