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Building on DFS foundations
The energy crisis sparked by the Ukrainian War helped create the circumstances for bringing the DFS to life and showcasing a small part of the potential that demand-side flexibility has to offer. For this reason, 2023 has been a “special year” in the development of energy flexibility says Yujia Du, distributed flexibility strategy manager at the ESO.
The first iteration of the DFS has realised around 200MW of flexibility from domestic consumers – a group that was previously completely untapped in terms of its flexibility potential. But while consumer engagement in the first season of the DFS should “absolutely be celebrated”, says Marzia Zafar, deputy director of digitalisation and innovation at Ofgem, she adds that the volumes of flexibility it delivered are “not even close” to representing a tipping point for the market.
Amount of capacity from domestic customers realised in the first round of the DFS
Zafar – previously policy director at the smart energy platform Kaluza – points out that of the 1.6 million participants in the initial DFS, around 50% were the customers of just one supplier, and represent only a small percentage of its entire customer base, indicating the majority of the market is still unengaged.
“I don’t think we are even close; we have not even got the low hanging fruit yet. The tipping point for me would be a couple of million behind-the-meter devices connected to some kind of flexibility platform, which I don’t think is the case yet.”
“The tipping point for me would be a couple of million behind-the-meter devices connected to some kind of flexibility platform, which I don’t think is the case yet.”
Marzia Zafar, deputy director of digitalisation and innovation, Ofgem
Other informed minds agree with Zafar’s assessment, with some emphasising the need for more sophisticated and higher value services which exploit automation technologies more ambitiously.
Alastair Martin, chief strategy officer and founder at flexibility aggregator Flexitricity, says the DFS is “not a tipping point but is an opener in a sector which has had very little involvement.” He adds: “It is not very sophisticated or potentially very accurate.”
Martin says the lack of automation in the service, coupled with the ESO’s outdated IT systems, means the flexibility procured via the DFS was a day ahead of demand, limiting its ability to be called upon when actually needed. Although the ESO is heading in the right direction for this year’s iteration, there is still a long way to go before small-scale flexibility can be called upon in real time, he says.
Martin also believes the DFS has stimulated the “wrong type” of flexibility. “The very small stuff that DFS activated is not necessarily what we want. The stuff people will do in receipt of a text…we need it to be larger things like EVs.”
While Martin believes automation of larger assets such as electric vehicles (EVs), heat pumps and domestic batteries should be the focus, the service was designed around energy suppliers who wanted the opportunity to engage with their customers on the topic.
Other experts, however, are more optimistic about the legacy that the introduction of DFS will bestow on demand-side flexibility development.
Elizabeth Allkins, head of energy strategy at energy supplier Ovo, believes 2023 has the potential to be remembered as a tipping point in the story of demand side flexibility. But only if industry grasps the nettle and throws itself into the resolution of barriers to progress. She also cautions that delays to key enabling factors for demand-side flexibility growth – most prominently the introduction of MHHS – could put the brakes on the momentum DFS has started.
“[2023 could be a tipping point] - if we don’t let all the energy that has come into this market over the last couple of years just dissipate, which it could do and there’s a risk of it doing.”
“[2023 could be a tipping point] - if we don’t let all the energy that has come into this market over the last couple of years just dissipate, which it could do and there’s a risk of it doing.”
Elizabeth Allkins, head of energy strategy, Ovo
For Allkins, MHHS, which has been delayed until potentially 2027, presents a “hard barrier” to the take-off of flexibility services for distributed assets. “I think the DFS is a good example of where being a bit creative has allowed the ESO to get around that challenge. However, there is a lot of complexity that comes from the approach that they’ve taken and in order for something like that to really scale and be efficient and really run at low cost to consumers we need MHHS.”
Another hard stop is access for smaller assets such as EVs and heat pumps to local flexibility markets run by the new Distribution System Operators, and also the ESO’s balancing mechanism. Allkins says the practicalities of aggregating and bidding make it incredibly difficult to monetise small-scale flexibility in the short-term and means flexibility cannot scale beyond proof-point.
The ESO’s Du agrees that the reformation of its markets is one of the biggest barriers to growth of distributed flexibility and she insists the ESO is working hard to “make sure our markets are appropriately designed and evolved to really accommodate new technology types and both our technical and commercial requirements are fit for purpose.”
And the ESO is not acting alone to pursue these changes. Zafar acknowledges that technical proofs of concept for demand-side flexibility are well-ahead of changes to market codes and structures which recognise the full spectrum of their value to the energy system and consumers. To put this imbalance right, she says Ofgem is in the process of doing an internal inventory of all the codes and regulatory blockers that need to be fixed to allow a level playing field. A plan of action following this assessment is due to be published in early 2024.
Viewpoint
Richard Hampshire, vice president digital utilities, CGI
“Beyond the obvious benefits to the system during the events, DFS delivered two important insights.
“Firstly, relatively modest levels of financial reward motivate people to act and manage their demand. Secondly, the participation of consumer energy resources (CERs), in aggregate, can make a material contribution to meeting electricity system needs.
“It’s also clear from the contributors’ comments that the areas requiring action are understood. These include clarity on the governance arrangements that will enable CERs to compete equitably to provide flexibility services and for customers to realise fair value. Additionally, automation technologies will underpin the greater participation required for the market to pass the ‘tipping point’.
Viewpoint
Richard Hampshire, vice president digital utilities, CGI UK
“Beyond the obvious benefits to the system during the events, DFS delivered two important insights.
“Firstly, relatively modest levels of financial reward motivate people to act and manage their demand. Secondly, the participation of consumer energy resources (CERs), in aggregate, can make a material contribution to meeting electricity system needs.
“It’s also clear from the contributors’ comments that the areas requiring action are understood. These include clarity on the governance arrangements that will enable CERs to compete equitably to provide flexibility services and for customers to realise fair value. Additionally, automation technologies will underpin the greater participation required for the market to pass the ‘tipping point’.
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