This report is brought to you by Utility Week Intelligence in association with CGI
High stakes for flex markets in 2025
We need clear vision, activation of I&C potential and passive mass-market domestic participation in demand flexibility, and an end to “jam tomorrow” market development to hit our Clean Power 2030 goal. Flex Forum leaders set out priorities for the year ahead.
The gauntlet has been thrown down. In its recent Clean Power 2030 (CP30) feasibility study the National Energy System Operator (NESO) suggested a near six-fold increase in the volume of available demand-side flexibility would be needed over the next five years to achieve the barely possible goal of decarbonising the electricity grid by the end of the decade.
NESO’s statement has been broadly welcomed by flexibility market participants and advocates who had previously bemoaned a lack of policy recognition for the critical long-term role distributed flexibility will play in both achieving and operating a net-zero carbon grid.
But the articulation of a tangible growth target for demand-side flexibility has also thrown into sharp relief the persistent fragmentation of views among market players, regulators and policymakers. At a recent meeting of Utility Week’s Flexibility Forum marking the first full-year of the organisation', diverging opinions about the role demand-side flexibility should play and the relative value of different forms of flexibility and appropriate mechanisms for allocating and remunerating risk were rife. Furthermore, many expressed doubts about the readiness of either traditional suppliers or new flexibility service providers to entice consumers (both domestic and non-domestic) to participate at scale in system balancing exercises.
As we look ahead into 2025, it is therefore clear that concerted action is needed to resolve uncertainties and conflicting opinions. A clear set of principles and parameters for demand-side flexibility and a road map for growth is needed to unlock decisive, positive progress and a “coalition of the willing” – as one Flex Forum member put it – “must be harnessed” to bring “actionable policy” to life.
Here’s what one evening of animated and passionate discussion identified as key actions for the coming year:
Avoid distractions, focus on CP30
After protracted discussion of the prospects for locational pricing, the wider REMA agenda and their influence on both generation investment and flexibility products, our group largely agree that these things are a distraction from more immediate action to grow demand-side flexibility.
While a decision on zonal wholesale market pricing is expected in early 2025, policy experts taking part in this meeting were clear that it will not be implemented for several years. “If this is a reform we go with,” said one authority on the topic, “it would be a reform for 2030 and beyond.”
With this point made, another policy leader observed that “we need markets to work now rather than thinking about ‘jam tomorrow’”. Elaborating, they suggested that too much emphasis on enabling future markets is deferring commercial opportunity and causing innovative players to seek more readily accessible commercial prospects in other geographies, including the USA and Australia.
Others around the table echoed this and rallied behind a common belief that market participants must focus on clarifying and maximising the role of flexibility in delivering CP30.
One flexibility service provider made an impassioned plea for greater attention and resources in policy circles to be focused on quick wins for flexibility markets. They said that REMA and the ongoing locational pricing debate have “stifled” the industry in recent years. “There’s so little attention paid to the markets today … it would be really nice to have more focus on today’s markets rather than something that isn’t going to kick in until after 2030.” Another comment in the same vein asked: “How much money does [DESNZ] intend to waste on CCUS that it could be spending on flexibility?”
Pinpointing a priority for unlocking greater value in today’s markets, one flexibility platform provider brought attention back to the long-running question of “stackability”.
“What is a flexibility market?” They asked. “Today you have local flexibility markets, constraint markets, the wholesale market. But how can you meld all those different markets together so that flexibility can access all of them, so that aggregators and asset owners can access all that opportunity? That is what will make this all catch [take off] much, much quicker.”
Unlock I&C flex potential
In terms of where the most immediately available sources of demand side flexibility sit, industrial and commercial (I&C) consumers were agreed to represent a massive opportunity. However, they remain frustratingly hard to mobilise.
An experienced leader in this space observed: “The biggest consumers are your industrial and commercial world, and quite frankly, the level of apathy in that world is astronomical.”
Explaining why, this expert emphasised: “They are more concerned about security of supply and security price.”
To shift the dial and make an appealing proposition to finance directors at I&C consumers, flexibility service providers need to be able to put a price on the carbon saving achieved via demand reductions. This leader continued, “The key driver is not cost, it’s can they account for their carbon … because that will affect ESG scoring, which then reflects on access to credit as a business.”
This point made a strong impression on the group with several attendees citing it as a key takeaway and a ”lightbulb moment”.
Automate to accumulate
Turning away from I&C consumer to focus on domestic demand-side potential, the clear challenge here is the accumulation of volume and the ability to acquire consent at scale for modulating residential demand – both up and down.
For this to happen, one energy retail representative reiterated calls made at the very first flex forum meeting a year ago, that rules around the use of consumption data for marketing of new products and service be revisited. These currently represent “a real barrier” to wider and more consistent engagement with flexibility this propositions development leader stated.
In related discussion, participants were clear that the scale of responsive assets needed by service providers to offer meaningful system balancing services requires a much more assertive approach to the development of propositions which involve passive consumer participation in automated, managed services. This is especially true, participants agreed, when thinking beyond “first adopter” customer profiles with multiple flexible LCT assets. To access the flexible load of the average, household, smarter, more unobtrusive flexibility approaches need to be considered.
With this point hanging in the air, several Flex Forum members suggested incumbent energy retailers do not generally have either the necessary levels of consumer trust nor the technological and systems capabilities to operate such services. Driving home these points, several participants observed the ongoing struggles of energy retailers with both the smart meter rollout and implementation of Market-wide Half-Hourly Settlement. Legacy billing systems and industry processes are making this transition, at best a technically challenging headache for retailers, and at worst a “shambles” that some suppliers are actively dragging their feet on, our attendees variously suggested. Either way, their travails with these programmes cast a shadow over the prospect of rapid development and uptake of intelligent flexibility propositions.
Concluding remarks
Rich Hampshire, vice president digital utilities at CGI – Utility Week’s strategic partner for its Flexibility Forum – offers reflections on the community’s latest debate.
The latest meeting of the Flexibility Forum built upon the themes identified in previous sessions, but now in the context of NESO’s advice to Government on what it will take to deliver clean power by 2030. That advice is that more than 80% of the near five-fold increase in demand flexibility required to deliver clean power by 2030 will come from the aggregation of the new sources of decarbonised demand – from residential and I&C demand-side response and from smart EV charging.
The Forum members called for a vision of the role that demand-side flexibility should play in delivering the 2030 Mission.
Such a vision must shift the discourse from one where value accrues from avoiding network reinforcement and meeting system needs to one based on the value of flexibility in economically delivering the overall energy transition – a theme discussed at the September Forum. That Forum discussion highlighted the need to value the role of demand flexibility in avoiding unnecessary investment in generation assets and reducing payments to constrain renewable generation by increasing demand when the wholesale price is low. Of course, reducing the amount of generation capacity requiring connection will have a knock-on effect on the investment required in the transmission and distribution infrastructure and on the associated connections lead times. Implicitly, making it a triple whammy of benefits for consumers’ bills.
When addressing how to unlock the potential of demand side flexibility from I&C consumers, the importance of understanding what those customers value came to the fore. Flexibility propositions must deliver benefits from permitting flexible assets to participate in the markets AND continue to deliver those customers’ fundamental needs of security of supply and price.
But with new obligations on businesses to disclose their carbon impacts and ESG scoring have elevated these issues to the board level. Positioning flex as having a positive impact on these considerations was identified as a potential gamechanger in grabbing the attention of CEOs and CFOs.
When it comes to achieving a six-fold growth in residential DSR identified in NESO’s CP30 advice, the question of winning residential consumer’s trust once again was at the heart of discussions. Reframing the challenge, how can consumers make an informed decision about whether to allow their smart devices and appliances to participate in the markets if they’re unaware of the choices available to them? The current regulations covering the use of consumption data to identify consumers that can benefit from flex-based propositions and then proactively communicating with them were highlighted as barriers to consumers understanding the choices open to them.
But then comes the challenge of maintaining their participation – which is where automation and smart approaches were seen to be essential. That said, Forum participants also highlighted the need for energy retailers and service providers to update their systems and acquire the necessary skills to develop and deliver flex-based services. Current industry processes were also a deemed to require change and lessons to be learned from other major industry change programmes if the transition is to go smoothy.
What the session left was an over-riding impression that the challenges were well understood and that NESO’s first ‘Key Message’ in its advice on delivering CP30 is correct: “a key challenge will be making sure all [elements] deliver simultaneously, in full and at maximum pace”!
Also from the UW Flex Forum…
There's no Clean Power 2030 without flex - call it out
There is mounting frustration with blockers to the flex market.
Dos and don’ts for the market facilitator
A guide to industry expectations of the new entity
Consent – the make or break of energy flexibility
What will convince consumers to use their homes for flexibility services?
Energy flexibility: What do we want?
What does success look like for GB flexibility markets?
Demand side flexibility: The state of play
Why are recognised barriers to flexibility taking so long to break down?
About the Flexibility Forum
Utility Week’s Flexibility Forum, created in association with CGI, is a community for all stakeholders in the development of energy flexibility markets and services in GB. Through running regular events which promote discussion and learning on topical issues, and publishing insights into these meetings, it is our ambition that the Flexibility Forum will encourage consensus and understanding about how to tackle market challenges and accelerate realisation of the value energy flexibility should bring to a sustainable, affordable energy system.
We are open to enquiries for new participation in the Flexibility Forum. Please contact Jane Gray at: janegray@fav-house.com, content director Utility Week, if you would like to join future meetings.
This report is brought to you by Utility Week Intelligence in association with CGI