According to National Grid’s 2019 Future Energy Scenarios[1], meeting decarbonisation targets could require deployment in GB of 13GW of flexibility from commercial and industrial consumers by 2050, compared to around 1GW currently available. While there are currently no comparable forecasts for domestic demand-side response (DSR), energy suppliers and technology companies are increasingly looking to develop products and services geared towards enabling household flexibility. Smart technologies including heat pumps, electric vehicles and domestic batteries are creating a network of relatively high-load controllable domestic assets suitable for the provision of DSR. As demand for these products increases, the case for flexibly managing their consumption to avoid costs and generate revenues is becoming clearer.
While there is clearly a growing technical potential for domestic flexibility, most households do not regularly engage with the energy market, or have an understanding of how the wider system works. Annual switching rates are roughly 20%, and domestic customers are unlikely to be actively managing their energy consumption. For the majority of domestic consumers, there are barriers of complexity, effort and cost which will stymie participation in flexibility markets. How to engage with customers to take up flexibility services is a key challenge for the fledgling domestic DSR market.
No such thing as a free battery
Household flexibility is mostly focused around pieces of consumer technology with relatively hefty price tags. Businesses which are confident of future revenues through ongoing management of, for example, a domestic battery can offer it at a discount, provided they can exercise some external control when needed. The offer of a free or discounted asset provides a strong incentive to switch to a supplier and, if continued use of the asset is dependent on an ongoing contract bundling supply with flexibility services and demand management, a strong incentive to remain with the supplier. EDF Energy offers a £2,000 discount on its £5,999 Powervault offer for customers signing up to its 10-year grid services package, with customers leaving before the end of the 10-year contract charged the pro-rated discount as an exit fee[2]. Ovo Energy’s 2019 smart charging and vehicle-to-grid trials included free charger installation, and Solo Energy’s business model is based on free installation of assets through supplier partnerships, which are then used to provide flexibility services. For the customer, this model allows those who may not have otherwise had the resources to do so to benefit from the functionality of new technology.
Part of the ship, part of the crew
While bundling flexibility services with an asset purchase may be the most common route to customers at the moment, some businesses are exploring alternative ways of bringing demand side response to households. One potential strategy to normailse flexible consumption is to embed flexibility in the design of new houses. This model is being explored by energy services company Sero Energy, which is trialling demand side response at two new build sites in Wales in partnership with Tirion Homes, using building integrated PV, domestic batteries, and EV charge points[3]. Through its sister company Sero Homes, the business is also integrating micro-generation and flexibility into the ongoing provision of services to renters at its new-build sites[4], with residents paying flat monthly rates for energy as part of their rental bill. This is a radical approach to providing energy supply and flexibility services, providing tenants with a simple and attractive lifestyle service centred around the home, with fixed monthly fees and reduced hassle from managing multiple bills.
There’s an app for that
Both of the strategies for engaging customers with demand flexibility just described have included some kind of involvement from an energy supplier, whether the supplier is providing the demand management itself or utilising a technology partnership to do so. Some businesses, though, are cutting out the middleman and managing all stages of domestic flexibility, from customer recruitment through to provision of devices, response automation, verification, aggregation and customer compensation without partnering with suppliers. For consumers, these services take the form of an app which either provides an alert to reduce consumption at specified times, or automates reductions in consumption using connected devices. Commercial aggregator Kiwi Energy is trialling this approach[5], as is start-up Equiwatt, whose app-based service is in beta testing until the end of 2020. While this model is only in the trial phase in the UK, Voltalis has successfully demonstrated a direct to customer flexibility proposition in France, with its team of field and telesales staff helping to sign-up significant numbers of households. Voltalis is also running UK trials, and may replicate its model in this country if successful.
While flexibility providers going direct to the customer will not have access to revenues from avoided network charges and Capacity Market costs (as these charges are paid by suppliers), they benefit from more control over returns, selling the aggregated actions onto another aggregator or into a flexibility market administered by a distribution or transmission network operator. For consumers, bypassing the supplier can create a simple and attractive experience through their smart phone, without an associated contract and often at no upfront cost. There are some limitations, however. In its simplest form it is more suited to smaller household appliances than more complex and high consumption loads such as EV chargers and electric heat, and will likely generate smaller returns for the customer, perhaps evidenced by both Equiwatt and Kiwi Power rewarding participants with vouchers rather than cash.
This blog has looked at just a few of the ways suppliers and flexibility businesses are recruiting customers. Our Connected Homes Insight Service explores this developing market in greater detail, and provides key competitor, policy and regulatory updates. To request a free trial, contact Oliver Archer at o.archer@cornwall-insight.com
