A flexible energy system – the end of the beginning?

I was talking to someone recently and they asked me whether, with the publication of the “Upgrading our energy system: Smart systems and flexibility plan” and the “Clean Growth Strategy”, there was still a need for discussions about flexibility – the direction of travel is, after all, set.

It was a good question!  Reflecting on it, it seems apt to quote a line from Churchill’s 1942 speech following victory in the second battle of El Alamein, “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

I would go so far as to question whether there will be an end – the real challenge is, perhaps, to define a framework that facilitates continual evolution and encourages innovations to be brought forwards to the ultimate benefit of consumers.

In the year since we published our 2017 research, conducted on our behalf by Utility Week, into the sector’s leaders’ views on Demand Side Flexibility in UK Utilities, there’s been some significant progress.

In June 2017, the Committee on Climate Change published its 2017 Report to Parliament with a Roadmap for Flexibility Services to 2030.

A month later, BEIS published its much anticipated response to the Call for Evidence on a Smart, Flexible Energy System - Upgrading our energy system: a smart systems and flexibility plan.

The fact that the ‘Plan’ is referenced in both the Clean Growth Strategy of October 2017 and the Industrial Strategy of November 2017 demonstrates its significance.  Not only that, but it’s being backed by £265m of public funds to incentivise innovations aimed at reducing the cost of electricity storage, accelerating innovative demand response technologies and developing new ways of balancing the grid.  That may go some way to providing the sector with the confidence that our 2017 research identified as being needed.

Why is this ‘Plan’ so important?  Well, there’s a big prize – it’s projected that it will save GB consumers between £17bn and £40bn to 2050.  Okay, it’s a broad range, but even at the lower end, it’s pretty material! 

So how has this progress influenced the views of the sector’s leaders in our 2018 research – Embracing Flexibility – Transforming the Power System by 2030?

The 2018 research is perhaps the most challenging so far.  When we set out this programme with Utility Week in 2015, it was about producing some quantitative data to inform the debate about what has come to be referred to as the ‘smart, flexible energy system’ – oh, and of course, identify the perceived barriers to achieving that goal.

But back in 2015, this thinking was nascent.  Our first piece of research was commissioned before the National Infrastructure Commission published its ‘Smart Power’ report and just after the Committee on Climate Change’s 5th Carbon Budget identified the need to improve flexibility in the power sector.

Whilst previous years’ research provided insights and helped to put some quantitative data behind what people were talking about, the results weren’t surprising. However, this year’s research has begun to show some contradictions; views have started to diverge from previous years and identify greater differences between the perspectives of different parts of the sector.

The most significant barriers to demand side flexibility remain the lack of a commercial or market framework (identified by 7.1 / 10), closely followed by the inability to stack value (at 6.9 / 10) – which I would argue would be solved through an effective market framework! 

But perhaps the most telling statistic is that the number of respondents reporting NOT seeing barriers to their demand side flexibility projects has almost halved from 18% in 2017 to 9.4% in this year’s research.  This is undoubtedly reflective of the growing experience in the market. 

Customer side barriers (identified by 46.9%) are seen as a significant barrier to demand side flexibility projects, only just behind the economic barriers (50%).  These customer side barriers are predominated by lack and low levels of customer awareness (identified by 86.7%), which is obviously slowing down the adoption of flexible, low carbon technologies and the realisation of the benefits. 

Just 28.6% of respondents identified participating in the capacity market as a regulatory barrier to demand side flexibility.  Taken in isolation, the regulator may be patting itself on the back given all the lobbying for demand side flexibility to be treated equally within the capacity market.  However, this needs to be considered in the context of the Capacity Market being regarded as lowest overall driver of flexibility (scoring just 6 out of 10).  This may be indicative of demand side flexibility value being seen as a day ahead or an intra-day measure rather than over medium term or investment timescales.

So what does this tell us about the areas of focus to accelerate our transition a smart, flexible energy system?

• Raise consumers’ awareness of the opportunities for them in selecting low carbon and connected home tech when choosing their next home or refurbishing their existing one.
• Identify the technical challenges that are emerging for the projects and address them, including getting the Electric Vehicles (EV) charging infrastructure in place in time to support EVs becoming mainstream.
• Deliver a market framework that enables value to be stacked and a market infrastructure that underpins that framework, enabling the cash to flow.

From this year’s research, it remains clear that there is a tipping point around 2023 when there is a step change in the level of opportunities from flexibility.

So, whilst the Smart Systems and Flexibility Plan has provided clarity on the direction, that is clearly just the ‘end of the beginning.’ Over the next 5 or so years we need to establish the market frameworks that will enable the value of demand side flexibility to be accessed to the benefit of consumers.

If we are to get the market framework and enabling capabilities into place by 2023, then time is short.

Oh, and if you’ve read this far, then you’re obviously interested in this area.  So why not come along to the Energy UK Breakfast Briefing on ‘Realising the consumer value of flexibility’ on 6^th September and participate in the dialogue?