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Insight
Two-tier system
The transition to a smarter, more flexible energy system is underway, but evidence suggests it is already impacting households differently, creating inequalities.
The UK’s first national Demand Flexibility Service (DFS), in Winter 2022/23, involving some 1.6 million households and businesses, provided earning incentives to those with the ability to flex their energy use, but at the same time others unable to adequately heat their homes, or perhaps forced to visit warm spaces, missed out on DFS payments.
As the trend towards flexibility increases, uptake of solar PV and batteries, heat pumps and electric vehicles will provide economic benefits to many households, potentially eliminating electricity bills for a large chunk of the year. But only relatively affluent groups are currently able to afford the technology, those on lower incomes struggle.
If vulnerable and low income households fail to adopt these innovations over the next 10 to 15 years they may be disproportionately burdened with the rising cost of the gas network as fewer people use it, further increasing inequality.
Cost isn’t the only factor limiting opportunities, there is also a social dimension. Even with sufficient subsidy, some households may lack the time and knowledge to research new technologies, apply for grants and subsidies, or find trusted installers.
Regional disparities further complicate the problem, explains Charlotte Johnson, head of research programmes at the Centre for Sustainable Energy (CSE): “Renewable energy is more available in certain areas and we're going to move to costs that reflect that regional variation …At the edges of network infrastructure, in more rural areas, it's more costly to get power down the lines and people may therefore face higher costs.”
“If you think upfront about the situations customers and communities live in, small changes can often bring people big rewards.”
Simon O’Loughlin, Just Transition lead, SSEN Distribution
These diverging consumer experiences reveal the potential emergence of a two-tiered energy system in the push towards net zero. This has catalysed industry efforts to create a fairer, more inclusive system and DSOs are grappling with the complex challenges of the Just Transition as they scope out major infrastructure overhauls and develop new, smart products and services.
The issue rose up their agenda with the requirement, introduced under the RIIO-ED2 price control, for all network operators to deliver vulnerability strategies that include “targeted support to overcome barriers related to low carbon technologies”.
Networks are at different stages of delivering that support, and there are indications that ED3 will delve deeper into Just Transition targets and begin to incentivize DSOs to specifically support lower income and at-risk households to transition.
SSEN is overseeing an investment of over £12.5bn in net zero by 2026, and its dedicated Just Transition Strategy sets out 20 principles for fairness in the future energy system, four of which focus specifically on consumers. These four commitments are to: co-create with stakeholders; factor-in whole system costs and benefits; make transparent, evidence-based decisions; and advocate for fairness.
Simon O’Loughlin, Just Transition lead at SSEN Distribution, says these principles are pushing the DSO function to think in a more nuanced way about the impacts of its investment planning and its potential to become a more proactive force to good in delivering an inclusive energy transition.
“If you think upfront about the situations customers and communities live in, small changes can often bring people big rewards,” O’Loughlin tells Utility Week. “This can also help projects progress because if [infrastructure] interventions are shown to be customer-, community- and vulnerability-centric, you're more likely to get local authorities on board and be able to demonstrate to stakeholders why it is important.”
SSEN’s Just Transition strategy was largely informed by the Smart and Fair research programme, created by the Centre for Sustainable Energy (CSE), for which SSEN was a primary partner and funder. This explored how to address the needs of users as the energy system shifts, in particular, the processes, support and regulations required to mitigate emerging inequalities.
Preferential treatment
The Smart and Fair research uncovered the key barriers that prevent certain consumers’ from accessing the net zero transition market, it found that market innovation and support typically aimed at households that are financially, digitally and energy literate, who therefore gain access to different green tariffs and products and the ability to optimize their energy use at home.
“The market is being geared up and designed for certain types of consumer.”
Charlotte Johnson, head of research programmes, Centre for Sustainable Energy
CSE profiled five smart energy services - dynamic time of use tariffs (TOU), energy storage as a service, EV smart charging with TOUs, PV with battery storage, and vehicle-to-grid EV leasing - measuring them against the ability of all households in England to take advantage of them.
The study found that roughly half of English households, characterised by high fuel poverty rates, low average income, and the highest proportion of social housing tenants, would be unable or unwilling to participate in any smart energy service.
“The market is being geared up and designed for certain types of consumer and the implications are that people who don't match that profile find themselves shouldering more risk, or having to work harder and pay more to get the same kind of energy service,” says Johnson.
In a bid to ensure companies offering services in the domestic energy flexibility market are more inclusive and fair, SSEN led development of the HOMEFlex code of conduct (see box). The voluntary compliance scheme was successfully taken up by multiple companies taking part in National Grid ESO’s DFS over the winter
Among other things, the scheme requires flexibility service providers to consider the extent to which products and services are suitable for customers and to withdraw those that are not up to scratch. According to Johnson, this is interesting because it forces providers to either adapt products or develop entirely new ones that are more inclusive for customers. “It puts it back on the innovators, saying ‘do more innovation’ essentially,” says Johnson.
Other national initiatives have been set up to encourage inclusivity in smart energy product development. For example, the Department for Energy Security and Net Zero’s £65m Flexibility Innovation Programme features an Inclusive Smart Solutions programme designed to increase accessible technologies in the market.
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