Pressing demand

Demand-side response will ease the strain on the energy system, but only if the market models work for consumers, suppliers and network operators, says Amy Cooke

In the coming years and as demand increases, ageing electricity infrastructure will become old infrastructure, and it will be more and more difficult to meet peak demand. The options are simple: increase generation and network capacity; use less energy more efficiently; or manage demand. Enter demand-side response (see box).

In the UK, both suppliers and network operators can and do implement demand-side response programmes, but it is a relatively low-profile phenomenon with few large-scale implementations. Overseas, demand management programmes are more common. In Canada, Toronto Hydro’s peaksaverPLUS programme offers customers discounts in return for the ability to turn down their air conditioners at peak periods. When first turned on in 2008, Hydro shed 33.8MW across 52,000 customers.

Demand-side response is set to become important in the UK. Some network operators are investigating it under Low Carbon Network Fund projects and there is policy support from the Department of Energy and Climate Change. As the smart meter rollout gathers pace, we expect to see more initiatives in this area.

It is hard to predict what impact this will have on networks. Without some mechanism for ensuring coherent management of the market, demand-side activities will merely add further complexity.

As complexity increases, so too does the risk of (unintentional) conflict between schemes that are being managed independently by suppliers and networks. Managing this risk requires an effective market model that balances incentives, control and regulation.

A number of models to stimulate and govern demand-side response could be considered, largely varying around how much centralised co-ordination is considered necessary for efficient market function. At the two extremes, demand-side response could be:

· Market led. In this approach, bilateral or multi-party agreements are determined by suppliers and networks independently. In theory, customers could sign up for demand-side management services from multiple providers – for example, a customer could accept a financial incentive in return for control of their home heating from one supplier, and a “super discounted” tariff for responding to specific requests to reduce consumption at times of strain from another. Providers may not have any visibility of the customer’s agreements with other parties. This potential for multiple parallel demand-side actions could make the size and value to the energy system of a shift in usage harder to predict and a nightmare to measure and verify.

· Co-ordinated by a centralised body. A governing body could oversee and control use of demand management to offer a central view of the state of the network (or parts of the network) and the impact on the network of multiple, concurrent demand-side response activities. Suppliers and networks would request permission to implement demand management and the central body would prioritise and authorise its use. A central body could also facilitate information sharing between suppliers and networks.

Mechanisms to support either of these models, or any option in between, need to be considered. They could include: change to regulatory instruments; new types of commercial agreements between participants; or methods for sharing information about demand-side take-up to avoid competing interests.

Beyond answering the fundamental question of the right level and mechanisms to support demand-side response, we need to understand the role of each of the participants, map beneficiaries, identify barriers and enablers and quantify the risk inherent in each option. Without this analysis we may find ourselves the unwitting “beneficiaries” of unexpected consequences such as those that led to the controversy surrounding the early introduction of feed-in-tariffs in 2011 and 2012.

We also need to pay close attention to the people who are creating the demand. The knowledge gap is a key issue: consumers will need to know what demand-side schemes are, why they are important, and how to participate in them. The challenge could be even greater than for smart meters, because some options have the potential to be more intrusive. Communication will be critical – consumer engagement is already recognised as a central piece of the smart metering puzzle and its role will be just as important in ensuring the success of demand-side management.

Getting the model wrong will be costly for all parties – the backlash against suppliers in Australia, where time-of-use tariffs led to “bill shock” for consumers – serves as a warning to government and industry in the UK. We need to take a considered approach to demand-side management, paying as much attention to the consumer demand-side of the equation as we have been to the management side.

Amy Cooke, director, business development, Engage Consulting

Demand-side response: how it might work

Demand-side response is an umbrella term for techniques that help to reduce the strain on the power system. It can reduce the peak capacity needed and hence allow investment in network infrastructure to be deferred. It can also help optimise overall efficiency by moving demand to times that coincide with generation availability, avoiding wasting generated energy or the need to find ways to store excess capacity which can be costly.

Demand-side response activities fall into a number of categories:

· Price signals and time-of-use tariffs that encourage behaviour change. Changes to pricing could be communicated through smart meters, in response to a text message, or via more traditional means such as by signing up to an off peak tariff. In France, for example, EDF communicates high price periods to those on its tempo tariff on its website a day ahead of the price change.

· Permitting remote management of power hungry devices through a one-off action or permission given by the user. These typically require some kind of hardware or remote sensing and control. For example, commercial customers could allow energy companies to remotely control the temperature in their offices, providing that the temperature does not fall below a defined level.

· Permitting dynamic remote control of devices. This scenario is similar to one-off action described above, but involves more active and dynamic management of the device by the remote manager. Consumer examples of dynamic remote control could include giving suppliers permission to turn fridges and freezers off for short periods to reduce demand during peak periods.

This article first appeared in Utility Week’s print edition of 21st June 2013.

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