Ofgem risks capacity unless DFS approved now

Energy suppliers have called on Ofgem to approve plans for the demand flexibility service (DFS) ahead of its deadline or risk limiting available capacity.

Ofgem has until the end of October to approve the Electricity System Operator’s (ESO) plans for this year’s DFS, with the ESO able to call on the service to balance the system from the start of November.

As energy suppliers cannot recruit customers until they have received the full terms and conditions from Ofgem, trade body Energy UK has warned that making the decision in late October risks limiting the volumes of capacity that will be available for the ESO to call upon in early November if the service is needed.

Energy UK’s senior policy manager Naomi Baker said the domestic market will be particularly affected as consumers are less familiar with providing flexibility than the industrial and commercial market, and the process is likely to take up a lot of call centre staff time.

“This is a particular issue for domestic customers as it’s much harder to explain the service, the process takes much longer than for I&C customers. We are hoping Ofgem approves the scheme a bit earlier by mid-October and it just means the industry has a bit more time to organise itself,” she said.

“If the ESO did need to call the service for real in early November there would be limited volumes available in the market.”

The majority of demand reduction seen through last year’s scheme was produced by domestic customers, with the ESO looking to increase I&C participation this year.

However, the ESO has dismissed these concerns, with Jake Rigg, ESO director of corporate affairs pointing to radio adverts already being run by domestic suppliers.

“It’s really exciting to see them pre-empting that regulatory approval and getting customers ready now. So, it shouldn’t really impact [take-up] as customers are already being told it’s coming.”

A total of 1.6 million households and businesses participated in last year’s scheme, which ran from November 2022 to March 2023, delivering in total 3,300MWh of electricity reduction.

Baker described last year’s scheme as “clunky” due to it being delivered in a rush ahead of winter capacity concerns. However, she acknowledged that the ESO has made several changes to this year’s scheme which should make onboarding customers easier for suppliers even if Ofgem doesn’t approve the scheme ahead of the deadline.

These include automating the process for removing duplicate Meter Point Administration Numbers (MPAN), which occur when a customer signs up for the service through two suppliers, which led to a “huge amount of administration” for suppliers last year and limited uptake.

Last week the ESO finally revealed it plans to introduce a 1.25GW cap on available capacity before removing the guaranteed acceptance price from test events in favour of auctions.

This will apply to the final six tests due to be held from January.

Find out more about industry views of the next DFS in Flex, our new monthly round-up of energy flexibility analysis, available to Utility Week members from next week.