Octopus calls for extended DFS to end coal use

Octopus Energy has called on National Grid Electricity System Operator (ESO) to use customer flexibility as a permanent solution to end the reliance on back-up coal generators.

It comes after Uniper was instructed to fire up two back-up coal-fired power units this week to cope with additional electricity demand during the ongoing heatwave.

Octopus head of flexibility Alex Schoch said it was “crazy” that coal was still being used to generate power in the UK following the success of last winter’s Demand Flexibility Service (DFS).

Around 1.6 million households and businesses took part in the DFS over the winter, saving 3.3GWh of electricity.

However, National Grid ESO paid up to £395 million for keeping coal power plants on standby. Octopus claims if consumer flexibility had been deployed at full scale, it would have cost a quarter of that (roughly £100 million) “for the same benefit to the grid, and with considerably lower emissions”.

In a white paper calling for the DFS to be reformed and extended, Octopus claims that making the service available to all 17.3 million UK homes with smart meters would be enough to entirely replace coal as a back-up source of power.

In particular, the white paper calls for:

• ESO, with Ofgem’s backing, must confirm as soon as possible that DFS will be renewed and work with industry to deliver at gigawatt scale this year, ensuring that coal contingency is permanently retired
• ESO must make key changes to DFS design to maximise participation this winter, including closer to real-time procurement and allowing for demand turn up
• ESO must give clarity on the future path to demand flexibility being used in grid operations permanently.

The retailer’s white paper adds: “Demand flexibility can replace the need for coal. To reach Net Zero, Great Britain must retire its final coal power station and end coal contingency contracts.”

It continues: “Consumer flexibility is a lower cost alternative to coal contingency and capacity market […] By ensuring all smart meter households in GB are invited to participate in DFS this winter, ESO can access the volumes required to replace coal with consumer flexibility.”

Octopus estimates that the potential of domestic flexibility today is 2.1GW, if the service was extended to all existing smart meter customers.

The white paper adds that “extrapolating response and participation to the 17.3 million households with a smart meter in GB today would mean upwards of 2.1GW of flexibility, a similar scale to the 2.42GW of capacity in ESO’s coal contingency contracts.”

Octopus also calls on the ESO to “utilise DFS more frequently” when it returns this winter.

It adds: “Consumer flexibility is a reliable resource. ESO must leverage the full potential of demand flexibility this coming winter by calling the Service more frequently, during times of actual grid stress.

“Customers have shown they can provide significant value to the grid over multiple months and events, particularly when the system is under strain.”

Octopus’ consumer flexibility scheme saw over 700,000 Octopus customers with smart meters take part over the course of last winter. Together, they shifted around 1.9GWh of electricity out of peak times.

National Grid ESO is developing a second iteration of DFS for this winter.

The ESO’s executive director Fintan Slye revealed at Utility Week Live in May that he sees this winter’s DFS as a “stepping stone” to a full commercial product, possibly for winter 2024/25.

A consultation on potential reforms to the DFS is expected to be launched this month.