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Encouraging greater household consumer engagement in demand response

In December of last year, Energy Futures Lab published a briefing paper by Dr Richard Carmichael, Dr Rob Gross and Dr Aidan Knowles, Unlocking the potential of residential electricity consumer engagement with Demand Response. This paper represents an excellent contribution to the debate, assessing the evidence base so far and setting out some future possible actions that could help overcome the barriers to engagement in demand response. Clearly, there are some terrific innovations, pilots and household trials taking place in this space.

However, for household demand response to develop at scale, we still need to understand more about what a sustainable household business proposition looks like in practice. The NAO made some tough criticisms of the smart meter roll-out towards the end of 2018. And the next step for an effective household demand-side also requires some further attention from both BEIS and Ofgem.

The Energy Futures Lab paper rightly notes that truly market-wide half-hourly settlement is a basic enabler for successful development of household flexibility. This will ensure an electricity system more reflective of its underlying costs, and therefore one that is potentially more efficient. In turn, suppliers or aggregators can then suitably reward household demand-side innovation and actions.

Ofgem is leading a major programme for settlement reform. However, for detailed reasons that link to the privacy rules for customer half-hourly data, there remains a risk that we may end up with a household market which is only partly half-hourly settled and not market-wide. Sadly, partial market-settlement may stand in the way of the successful development of household flexibility. Unwanted distortions to demand-side development may occur and general questions of fairness may arise. For example, some energy suppliers could escape the actual costs to their business of their own customers consuming high volumes of power in high-priced periods, therefore permitting unintended competitive advantage.

Second, a strong business proposition – to enable household demand response at scale – remains elusive. There are of course some early and interesting customer offers, including from actors such as Ovo and Octopus. However, the demand-side business case has yet to stack up – literally – in a predictable or sustainable way.

Listening to large industrial customers involved in National Grid's Power Responsive programme suggests, for the moment at least, that uncertainties persist: on future network price signals, be these at peak or at particular places; on future revenues from different balancing services; and on demand-side treatment in the capacity and/or wholesale markets. These uncertainties leave many industrial customers still hesitant about demand-side involvement. Similar practical uncertainties around the total potential reward for household demand-side flexibility no doubt also arise.

Third, electric vehicle charging is clearly the 'engagement game-changer' for household demand response, while of course also promising from an environment standpoint. Ofgem has just announced several new network innovation projects to explore EV charging approaches. The trick will be to ensure that these trials and pilots in the end translate into business as usual in order that customers do indeed choose to charge their cars at times which suit the power system as well as when it suits themselves.

Fourth and perhaps most important are the distributional impacts of a more cost-reflective power system. For the past decade, Sustainability First has consistently raised questions around how greater cost-reflection in cross-industry charges will play out for end-customers in their electricity prices and tariffs, especially for those less able to avoid high-priced periods. This includes – although is not limited to – those with additional needs. Such customers should not simply be left to pick-up an ever-larger share of the residual fixed costs of the power system, particularly if the better-off increasingly go behind-the-meter. That is why the outcomes of seemingly arcane Ofgem reforms - on settlement, on approaches in the future to network charges – truly matter. What is more, among the many new 'data-driven' business models we may see, there also needs to be a place for those which are 'values-led' to survive and thrive, be these via socially-minded, green, or local propositions.

Nor should demand-side innovation leave customers in vulnerable situations behind. In Sustainability First's recent Project Inspire we explore how to embed consideration for every customer in approaches to innovation development. Ofgem will this year consult on the consumer impacts of half-hourly settlement, and Sustainability First will certainly respond. It is important that other colleagues who care about the possible distributional impacts of a new demand-side world also input their thoughts.

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