Demand Flexibility Service given green light

Ofgem has approved the Electricity System Operator’s (ESO’s) plans to reinstate the Demand Flexibility Service (DFS) this winter.

It means that customers will be incentivised to reduce their energy usage during times of constraint from Monday 30 October.

Claire Dykta, head of markets at the ESO, said that “creating more flexibility on our electricity system will be vital for running the clean, green and fair energy system of the future”.

She added: “The ESO is delighted that Ofgem has formally approved the return of our Demand Flexibility Service this winter.

“Households and businesses across Great Britain can now benefit from actively participating in helping balance the network during tight winter periods and be incentivised to do so.”

Last winter, the DFS successfully reduced demand by 3,300MWh across 22 events.

The ESO set out its projections for the scheme’s uptake within its Winter Outlook published in September.

Under a “fairly moderate” scenario, the ESO expects around 1GW of capacity could be shifted through the DFS. In a more optimistic outlook, the ESO thinks up to 2GW could be made available.

The moderate estimate of 1GW is triple the 350MW reduced during peaks times through the DFS last winter, while the ambitious 2GW target is six times as much.

The Winter Outlook states that by deploying the expanded DFS, during peak demand levels, the ESO will maintain “adequate margins” even in a worst-case supply scenario.

It adds that 1GW of capacity will be enough to ensure there is a big enough margin, even if electricity supplies are reduced by 4GW due to “unexpected reduced output from GB generation and/or reduced imports available from Europe”.

As part of the DFS, the ESO is also planning to run 12 incentivised test events that consumers and businesses can participate in.

Electricity suppliers, aggregators and businesses who directly contract with the ESO will receive a guaranteed acceptance price of £3/kWh for the first six of the test events.

However, in a bid to increase competition within the DFS test events, the ESO will remove the guaranteed acceptance price of £3/KWh for the six tests after Christmas if capacity reaches 1.25GW, with the price then being determined by auction.

Octopus said the move will effectively put a “handbrake” on the growth of domestic flexibility by limiting the amount of capacity households can contribute.

An Ofgem spokesperson said: “We have carried out a rigorous assessment of the ESO’s plans and we will be monitoring their delivery of the service to ensure the best consumer outcomes. We’ll also be looking at the lessons the DFS teaches us about flexible energy use.

“Incentivising consumers to change their electricity use will become increasingly important as our energy system and economy become more dependent on intermittent wind and solar power and energy stored in products such as EV batteries.”

Sarah Honan, flexibility policy manager at the ADE, added: “Demand flexibility is not merely an additional support for our energy system in times of stress, it is the only way we can reach net zero in a timely and cost-effective manner.

“The DFS is a major step towards that future, where wind and solar generation are not turned off in favour of carbon-intensive gas power, but instead, demand from households and businesses is used flexibly to meet the peaks and troughs of renewable generation.”