This report is brought to you by Utility Week Intelligence in association with CGI

Unleashing consumer-led flexibility will take more than setting market rules

Development of flexibility markets is accelerating as the Clean Power 2030 deadline looms. But will actions to establish all the administrative architecture for flexibility be enough to unlock its full value? Members of Utility Week’s Flexibility Forum debated the point at a recent meeting,

Rapid development of consumer-led flexibility is set to play a definitive role in achieving the GB Clean Power 2030 target. By the end of the decade, the National Energy System Operator said in its Clean Power Action Plan, around 12GW of demand side flexibility needs to be actively engaged in system balancing via a variety of mechanisms.

It’s a tall order, as Utility Week recently explored in a report: What will it take to deliver 12GW of flexibility by 2030?

At a recent meeting of Utility Week’s Flexibility Forum, hosted in association with CGI, the steps required to achieve a supercharging of today’s nascent consumer-led flexibility markets – and see it assume a prominent role in the operation of a zero carbon, cost effective and resilient electricity system – were further explored by industry leaders from across the flexibility value chain.

What came through clearly, is that achieving this goal will take more than procedural action to put in place market rules and structures.

Leaders from our diverse community of flexibility market stakeholders unanimously welcomed steps that have been and are being taken to clarify the rules of engagement in this exciting new energy arena – including progress on Flexibility Market Asset Registration (FMAR) from Elexon, the market facilitator, and on development of a new Consumer Consent Solution, spearheaded by the Retail Energy Code Company.

However, there was also a feeling that these initiatives do not cover all bases – for example the scope of FMAR will not necessarily address future registration of all smart appliances installed in customers’ homes. And Flex Forum members were also clear that there “can’t be an assumption that if we build it, they will come”. Underlying structural, governance and cultural challenges that could hamper development of consumer-led flexibility also need to be grasped, they said. One senior representative from a Flexibility Service Provider (FSP) commented: “Lots of Ofgem’s focus is on things that are not necessarily game changers for these markets”.

Key considerations which participants felt are not currently being addressed with sufficient urgency to enable consumer-led flexibility to play a significant role in meeting the CP30 challenge include:

Governance and accountability

While there are many institutions working on different aspects of flexibility market development, our members were left feeling unclear about where accountability for achieving overall consumer-led flexibility ambitions actually sits – or if accountability is shared, how this will be managed.

This dissatisfaction with allocation of ownership for consumer-led flexibility ambitions was recently echoed in messaging from ADE:Demand, which called for clarity of leadership and accountability around flexibility market development instead of “diffusing leadership across bodies with competing agendas”.

There was some optimism that a forthcoming Consumer-led Flexibility Roadmap will map the institutional framework for delivery of consumer-led flexibility goals and emphasising where boundaries of responsibility lie.

Those close to development of the Roadmap also set great stock in plans to establish an “enduring governance framework” around it to measure progress on flex market development.

However, since early signals suggest this governance framework will hang off annual ministerial meetings to check “if action needs to be ratcheted up”, some Flex Forum participants were also forthright in suggesting it will not have suitable ability to course-correct – given 2030 is now just over four years away.

Creating a level playing field for flex

While the Market Facilitator, under Elexon’s leadership, has been allocated responsibility for reducing friction points and improving liquidity in flexibility markets, Flex Forum members were left unconvinced that it can tackle wider systemic challenges undermining the ability of consumer-led flexibility services to compete with more traditional sources of system flexibility – e.g supply-side technologies.

Reiterating points made in previous Flex Forum meetings, our members were very clear that demand-side flexibility is a long way from being treated on an equal footing here. Several questioned why there seems to be institutional resistance to the idea of consumer-led flex performing the same balancing role that CGGT’s have done for decades – and being able to bid competitively to perform that role. “The outcome is the same from a system perspective,” observed one participant. Another commented: “There is a risk – and this isn’t a criticism of Elexon, because you can only manage what’s in your control – that [the Market Facilitator] could do its job excellently, but the price signals will still not be aligned. We would like to see more focus on this. Lots of this does not sit in Exelon’s scope as the Market Facilitator…someone needs to own that piece.”

Pace of proposition development

Notwithstanding challenges around alignment of price signals to help the value of consumer-led flexibility flow more freely, there was some impatience expressed by certain market stakeholders about what they felt to be unnecessarily sluggish development of propositions to engage consumers in flexibility – particularly more “implicit” forms of flexibility which do not rely on ownership of smart assets like EV charger, solar panels and heat pumps. “You’d expect by now to see retailers offering more here,” commented one policy expert. Meanwhile a senior energy network representative privately suggested that suppliers are finding it too much effort to overcome IT system challenges inherent in moving away from traditional proposition formulas.

Suppliers and FSPs however, were keen to express their commitment and enthusiasm for developing tariffs which enable consumer engagement in flexibility. But said they are being held back by a lack of pace and focus in key areas. In relation to implicit flexibility, they pointed to a variety of energy saving-type propositions which encourage consumers to reduce demand at peak times. But they were adamant that relatively low uptake of these needs to be remedied through stronger price signals from the wholesale market.

When it comes to mass-market engagement in explicit flexibility meanwhile, there were a variety of factors which players said are hampering their ambitions.

Modernisation of settlement and metering standards were among the most prominent frustrations. Market-wide Half-Hourly Settlement, due to complete in 2027, is commonly seen as a crucial enabler here, with a key code modification – P483 – also considered a game changer in the interim. However, advances in settlement are not being matched by sensible updates to metering standards, and this is stopping service providers accessing the value of flexible assets.

Said one FSP leader: “P483 is absolutely essential if we are to have any kind of scale [engagement] before market-wide half-hourly settlement…but it does rely on the availability of compliant meters.” Another leader from a major energy supplier observed that metering specifications for flexible assets currently vary considerably across different network operators and markets. Meanwhile, ownership of different types of metering standards is also split across multiple bodies. “Alignment would be prudent,” they observed.

Finally, even if settlement and metering challenges can be resolved swiftly, suppliers and FSPs are concerned that poor understanding of, and confidence in, flexibility propositions among many consumers will be hard to overcome. While the importance of ensuring transparency and simplicity around the consumer experience of flexibility has long been talked about, many felt it has not yet been tackled successfully.

Steps to set up a Consumer Consent Solution to allow access to consumption data for suppliers and FSPs will not significantly assuage consumer anxieties about the potential risks they may be exposed to through participating in flexibility markets, was agreed.

DESNZ has promised that building consumer trust and confidence in flexibility markets will form a core thread throughout the forthcoming flexibility roadmap. This was welcomed by our Flex Forum members, though there was muted confidence that any suggested steps will be bold or quick enough to achieve the scale of consumer enthusiasm for participation in flexibility services needed to deliver the 12GW 2030 goal.

Concluding remarks

Rich Hampshire, VP digital utilities at CGI

Over the past year, the Flexibility Forum has helped establish a broad consensus about what it will take to unleash the potential of consumer-led flexibility. Previous Flexibility Forums highlighted the enormity of the task. The Forum’s report, “What will stop us reaching 12GW of flexibility by 2030?” established the case for action: More than two-thirds of the growth in demand flexibility required to deliver the Clean Power Mission will come from residential DSR and smart charging, that’s an 8-fold increase on current levels! To achieve this, the Forum called for simultaneous, system-wide delivery.

The latest meeting of the Forum moved the conversation forward: from knowing what needs to happen, to identifying where to prioritise and coordinate all the initiatives currently in-flight and to build momentum and accelerate progress towards CP30.

1. Governance: From Ambition to Accountability

Whilst earlier Forum sessions called for coordination; this one demanded clarity of responsibility. Progress is undoubtedly being made, but Forum participants expressed concern that without clarity on roles and responsibilities, the opportunity to accelerate delivery through effective coordination will be missed. Those bodies that have accountability must also be granted the authority needed to deliver.

2. Levelling the Playing Field: Laying the Foundation for Meaningful Consumer Choices

Progress is being made on FMAR, Marketwide Half-Hourly Settlement, the DSI and the Consumer Consent Solution, but market rules and legacy IT designed for a ‘power station-to-plug’ world create inertia and provide structural advantage for traditional supply-side market actors. Forum participants want to see bolder interventions to enable consumer-led flexibility to compete on equal terms with other sources of system flexibility.

Ensuring that the true value of consumer-led flexibility is attributed fairly will attract new players and enable innovative energy services to be developed, providing customers with meaningful choices about how they meet their energy needs.

Accelerating CP30 will require visibility across the electricity system and informed decisions to be taken at pace. That requires access to the right data at the right time and the ability to analyse it in near real-time. That means the digital enablers of the energy transition need to be considered as an integral part of the system, not an afterthought.

This will underpin trust – for consumers to share their data and allow their dispatchable demand to participate in the markets for flexibility – which provides the foundation for consumers to be offered those meaningful choices and receive a great experience.

The evolution in thinking is clear. We’ve moved from identifying barriers to demanding breakthroughs. This is a system on the cusp – full of ambition but constrained by a lack of clarity on responsibilities. With that clarity, 12GW and more of consumer-led flexibility can become a system reality.

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.