ESO should explore locational price signals for DFS

National Grid Electricity System Operator (ESO) should consider offering customers different incentives to reduce their energy consumption during peak times, depending on where they live.

That is according to George Day, senior advisor: net zero policy at Energy Systems Catapult, who spoke to Utility Week after the ESO revealed 1.6 million households and businesses delivered 3.3GWh of electricity savings via the Demand Flexibility Service (DFS) over the winter months.

With calls for the scheme to be brought back again this winter, Day said he believed that the DFS could be improved by introducing locational price signals to improve uptake of the scheme.

He added: “I think the lesson from the DFS is it shows that there is untapped potential for demand side flexibility to play a role. Potentially the ESO might want to differentiate the incentives by location in future which might allow us to target it more finely in terms of location.

“Ultimately the end point could be adopting a more locational pricing market design. It shows the potential for demand side flexibility to really play a role in managing the system in real time.”

Each region delivered an estimated electricity reduction of more than 273MWh on average, across the length of the service. ESO data reveals that Southern England, East of England and the East Midlands “led the way” in participating in the DFS. At the opposite end of the scale, savings were relatively low in London, North East England and Scotland by comparison (see table below for regional breakdown).

Launched at the end of 2022 in anticipation of tight supply margins, the DFS was used 22 times in total. This includes twice “in anger” in January this year, as well as several test events.

Responding to the results published by the ESO, Day said he thought it was “brilliant that it’s been a success” and said his message to the sector was to “keep experimenting, keep innovating”.

He added: “I think the other thing is that it will encourage the suppliers to start thinking about how they can make this a smoother experience for consumers. Can they automate aspects of it with some of the smart platform technologies that they are rolling out?

“People like Octopus and so on with Kraken…can it be linked with that? We’re just in the foothills I think and there’s plenty more to be unlocked.

Claire Dykta, head of markets at the ESO, said: “Across this winter the Demand Flexibility Service successfully demonstrated the interest of UK consumers and businesses in playing a more active role in balancing our electricity needs. Their work, alongside the providers involved in the Demand Flexibility Service helped to maintain normal service for all GB electricity users.

“We are now working with industry and consumers to establish how this world leading service can grow from strength to strength and support the continued evolution of consumer flexibility in the UK.”

Elsewhere the Octopus Energy-founded research unit, the Centre for Net Zero, found that opt-in rates on cold winter days were similar to mild and warm winter days. Furthermore, greater per-household electricity reduction occurred on the coldest days, on average.

The study also found that 75% of survey participants said they manually switched off appliances, rather than scheduling them to run at different times.

Almost 700,000 customers took part in the Saving Sessions hosted by Octopus Energy to help reduce peak demand as part of the DFS.

The participating customers collectively reduced their electricity demand by 1.86GWh across 13 windows lasting a total of 14.5 hours. Octopus said this represents an average reduction of 128MW per hour. The company paid out a total of £5.3 million.

Through its PeakSave scheme British Gas customers were paid around £1.8 million in total, an average of £28.56 per customer for all events, saving 147 MWh of energy.

Ovo Energy also provided flexibility services over the winter months. It said that its Power Move trial, which was separate to the DFS, saved customers almost £150,000 collectively over the winter period and delivered total carbon savings of 22.3 tonnes.