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Unlocking the power of demand flexibility: what we learned from last winter and what’s new for this year

An energy monitor on a kitchen work top
30 October 2023

CSE’s latest insights into the Demand Flexibility Service can guide both households and policymakers in optimising this innovative offering.

The National Grid Energy System Operator (ESO) has confirmed the Demand Flexibility Service (DFS) will run again this year, set to go live on 30 October 2023.

At the Centre for Sustainable Energy (CSE), we investigated consumer engagement with DFS and uncovered insights that can guide both households and policymakers in optimising this innovative service.

We’re interested in this because one of the main principles of CSE’s Smart and Fair programme is that no one should be left behind in the transition to our future energy system. We know there are a range of factors affecting a person’s ability to participate in and benefit from the low carbon transition and move to a smart energy system.

We look at people’s “capabilities”. This includes financial, social, building type and location, digital confidence and access to technology, energy-using appliances and routines. Using these insights into people’s capabilities, we make recommendations to policy makers and energy companies to ensure the energy system is fairer.

High take-up, diverse participation

Last winter, the DFS garnered an impressive take-up with approximately 1.6 million households and SMEs opting in. This could be interpreted as a real vote of confidence in energy demand management. People signed up, and of the 23,717 we surveyed for our evaluation, 83% would do so again.

So who participated in the demand flexibility service? In our survey, 30% were households with a long-term illness, 18% were renters (social & private), 14% self-reported that they were struggling financially, 2% on a pre-payment meter (PPM). 

However, we also found some significant underrepresentations in our survey. For example, our sample was overwhelmingly white (96% of survey respondents selected this response, compared to 83% of the GB population). London was significantly underrepresented with only 5.0% of respondents located in the region, compared to 13.5% of GB population. 

Low barriers to participation

One of the key takeaways from last year is that DFS made participation incredibly accessible. There were minimal technical barriers; all that was required was a functional smart meter for electricity supply.

Moreover, it was non-punitive, meaning there was no risk of losing money by opting in. Even participants who engaged minimally, opting into three or fewer “events” (a DFS event is the period in which people were asked to reduce energy use), received low rewards. This reflects a low effort, low reward approach.

And, despite the low rewards, most of last year’s participants expressed a willingness to participate again. This enthusiasm for demand shifting and acceptance of low rewards raises questions about the potential benefits of this approach, both for households and the low carbon transition.

So, how do we (CSE, government, energy companies) interpret this enthusiasm? Are there benefits to taking this low effort, low reward approach to demand shifting for the country? For households – maybe.

Maybe it’s about benefits beyond financial ones. A sense that you’re contributing to the national effort, learning about your energy, taking some family time, and reducing emissions. These are all things that people mentioned in our evaluation as benefits.

And maybe it’s about getting ready for when household electricity use increases. This will happen as we switch away from gas heating and petrol cars. When we use more electricity for our domestic energy needs, we’ll need to be flexible with our use of it.

What about benefits for industry and the low carbon transition? Also maybe. There’s certainly a benefit to more people knowing about demand flexibility and how individual household consumption links to energy security issues and supports the low carbon transition. 

Potentially risky behaviour

But despite all the benefits, we also discovered that some DFS participants engaged in potentially risky behaviour. Such as turning off their electricity supply and sitting in the cold and dark. This potentially puts their health in jeopardy. Imagine your grandparents doing this last year. They may have done it in the 1970s blackouts – but they aren’t as young as they were. They could risk trips, falls and other potential health risks from being too cold. 

This raises concerns about the design of flexibility services and the requirement to address a range of needs. How the mechanism is designed is vital. And alongside this, we must be clear on what we as a society want to achieve from it. 

What’s new with the DFS this time round?

Recruiting participants to the Demand Flexibility Service

One challenge with DFS is making people aware of it. Last year, our opinion poll found 38% of the nationally representative sample had heard of one or more DFS schemes, mostly via their providers. But many people remained unaware of the service, either because their suppliers did not offer it or because they opted out of marketing information. From our poll, 65% of those who had not heard of the DFS would like to know more. And 44% thought they would find it easy to shift their demand from the early evening.

Is the DFS a national effort that everyone should know about? Or should it be considered a commercial product for selected customers only? Energy companies have raised this issue too. Can they inform customers that have opted out of receiving marketing information or would this be in contravention of their supply license? There is no clear answer, although ESO provides advice suggesting all customers could be notified.

Last winter the service was used twice in moments of actual system need (not technical tests, but to balance the electricity grid during a critical period). And certainly, households listed ‘contributing to a collective effort’ among their motivations in our evaluation. But the DFS is a commercial product offered by providers. So, should it only be offered to customers who have opted into marketing information? And importantly, who gets to make that call? 

Baselining methodology changes

This time around, the baselining methodology for the DFS has changed, eliminating the ‘in-day adjustment’ (IDA). While this may sound technical, it has significant implications. Indeed, the IDA achieved a certain notoriety in some circles with online accounts of how people had ‘gamed the system’ by ‘inflating their baseline’. 

The baseline is how much electricity a household would have used if they hadn’t been trying to reduce their usage. To make this calculation, the provider averages how much electricity a household has been using across a number of days in a previous period. If during the DFS event period your smart meter records that you’ve used less than predicted, you get a credit.

Last winter this calculation included the IDA and the calculation took into account not only average use but also what was happening on the day of the DFS event. This was done by checking electricity use in the four hours just before the event window, against expected average use and adjusted. So, if that day was particularly cold, and a high-use day for your household, then any demand reduction made takes that into account.  

Some people found if they shifted their electricity use into that window, for example, they were thinking of charging their EV on ‘event day’ and if they did this in the slot just before, then their resulting fall in energy use was more impressive and they got more credits.

That additional adjustment won’t happen anymore. Moving your demand into the slot before the window or after it won’t alter the credit you gain.

Is this really important? Yes, for these reasons:

The emergence of social norms around flexing  

Online chat suggested some people were really going for the win. Massively inflating their electricity use before the window and earning big rewards. (Or at least saying they had on online forums. ESO did not see a system-level impact and it wasn’t a big enough issue to register as a ‘new peak’ on the energy system).

Online forums were offering advice around this. But from these chats, there appears to be a social norm emerging. People began querying whether inflating demand was the right thing to be doing ethically.

Now is the time to engage with these debates and contribute to the emerging discussion about what’s the ‘right’ way to flex. Social norms are strong, recycling has become a ‘normal thing to do’ for a majority of people. Can demand shifting also become ‘normal’? Just as appliance regulations are starting to require ‘smart enabled’ functions, so our social attitudes need to be flex aware.

Rewarding low energy users

Another issue that emerges from the IDA is that some low energy users found this was the only way to earn rewards. In our research, one person explained ‘If it hadn’t been for knowing the in-day adjustment period I wouldn’t have actually gained that much because I’m a very low user’.

If you earn a bigger incentive by shifting your cooking or laundry before the DFS event window, than after, then it seems the right thing to do in terms of the DFS service. So, without the IDA some households may find they don’t earn as much incentive this year, as they did last year.

This is because the DFS is mainly for households that use a lot of electricity. If you don’t use a lot of electricity, then you’re not going to earn big rewards by shifting the little amount you do use. And if you’re already watching every penny and turning off everything you can, you’re unlikely to have any flexibility at all.

This is understandable. Those with high electricity use put more pressure on the system. Therefore when they drop their demand, it makes more of an impact.

If we think about the fairness of our energy system, we must ask how we should reward low electricity users? And we need to question whether, alongside incentive mechanisms like the DFS, we should also consider punitive mechanisms for those that can afford to pay more.

We need a wider discussion and clear policy solutions for demand flexibility

Understanding what the DFS is and why it’s a national issue can’t be left to online forums for enthusiasts. We should question why we are incentivising wealthy households to flex their energy use, while others are seeking out public warm spaces to meet their basic energy needs.

We need to discuss what we want to see from the DFS and other flexibility services. Is this about mass opt-in, encouraging everyone to take part and do their bit in a period of crisis where the national interest lies in reducing gas imports?

Is it okay to reward households who use a lot of electricity and who can easily reduce demand? What role should punitive pricing play? Maybe these aren’t questions for now – we’re still in pilot and innovation territory. It’s incredible that the GB electricity market was able to do this and all actors need to be celebrated for pulling it off last year and getting ready to do it again this year.

But down the road, we need to start talking about whether it’s okay for some households to consume as much electricity as they want to and can afford to when this creates system impacts felt by us all.

We need to start thinking about effective and beneficial engagement with flexibility services. Is a low effort, low reward approach, okay? Does it contain risks and missed opportunities? Or does it build the basis for the flexible low carbon energy system we need? And how should those low electricity users be rewarded for the minimal amount of pressure they place on the system?

We need demand flexibility to deliver the low carbon transition. And we need to start thinking about the range of flexibility services that are going to ensure a fair and flexible energy system. Meanwhile, the benefits, cost and impact of making this happen must be shared across society fairly. Otherwise, people will just not buy into the transformation that is needed.

CSE’s advice for people considering opting in to the 2023-24 DFS

Firstly, get an idea of the effort vs reward ratio.

Do you know how much electricity your different appliances use?  We’ve got a handy guide here.

What’s the impact on your household routines if you turn them off?

The DFS works well for people who have things like heat pumps which are on all the time providing heat, but if they’re off for a couple of hours, the home stays warm. If you have a home battery and can run your home off that for a couple of hours, that is also an ideal situation.

If your washing machine is the main thing that uses electricity at home, but you only use it a few times a week, you’re unlikely to see much financial reward from keeping it off during an event window.  

But people in our evaluation spoke about a range of benefits they got from participating. Such as enjoying the sense of the challenge, family time and learning more about energy. If this is what you’re going for then turning off lights and banning the TV for a couple of hours will contribute to reducing our national demand for electricity at that time, and you may earn some rewards.

What we’d like to protect against is households taking extreme steps – turning off their electricity supply at the mains for example, and being in the cold and dark, when they have health and mobility issues. People need to think carefully about what’s right for them and their household situation.

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