Demand Flexibility Service: Everything You Need to Know

Summary

• The Demand Flexibility Service pays people and businesses to use less energy when the electricity grid is at its most strained
• It was introduced last winter, and will return from November
• It’s typically used on winter evenings (around 5pm to 7pm) on particularly cold days
• It’s not used frequently, but it pays well, with a guaranteed price of £3/kWh for test events
• It’s particularly well-suited to controllable home energy devices, like EV charging, batteries, and electric heating

What is the Demand Flexibility Service?

The Demand Flexibility Service is a “peak shaving” product that pays people and businesses to use less energy when the electricity grid is at its most strained. It’s typically used on the coldest winter evenings; although it’s not used frequently, it pays well with a guaranteed price of £3/kWh for test events.

The UK electricity system is designed to ensure that there’s always enough power to meet demand. That demand changes constantly, from hour-to-hour (daily demand peaks in the evening) and month-to-month (yearly demand peaks in the winter).

Last year’s peak demand of 58 GW was about 75% higher than average demand - that means we need infrastructure and generation capacity that may be used very rarely, if at all. This excess capacity (typically from fossil fuels) gets paid to sit mostly idle, which ultimately gets added to our bills. But it has historically been the only option to avoid blackouts on the coldest winter days.

Instead of turning to expensive excess generation capacity during winter peaks, the Demand Flexibility Service pays people and businesses to reduce their electricity usage, lowering peak demand. This new service, administered by National Grid ESO, the UK System Operator, builds resilience, lowers fossil fuel dependence, and rewards people for saving energy.

The DFS was launched as a trial last winter, and will be returning this November.

How the Demand Flexibility Service works

This year’s DFS will start in November, with guaranteed events through March (non-guaranteed events may continue indefinitely). The ESO is planning on running 12 test events; the first 6 events (by end 2023) will have a guaranteed price of £3/kWh.

There are expected to be additional ‘live’ events. The ESO will publish a forecasted number of live events this autumn. For context, last year there were 22 DFS events, with 1.6m total participants reducing demand by a cumulative 3.3 GWh.

Live events will have no guaranteed minimum price; price will be determined by supply & demand. Bids will include a volume and price, and winners will be payed the price they’ve bid.

Each week, the ESO will issue notice for any anticipated events. When an event is needed, the ESO will issue a tender, either for the same day or the following day. Bids are due an hour after each tender.

Participation requirements

Participation is broadly open to any electricity consumer with a smart meter able to reduce consumption during peak periods. Key participation requirements:

• Eligibility: both consumers and commercial & industrial user
• Registration: via a Registered DFS Provider (supplier or non-supplier)
• Metering: smart meter with half-hourly reads
• Asset metering (e.g., electricity measurement coming from an EV charger or battery): accepted, but must be accompanied by a boundary (smart) meter that is half-hourly settled, and the provider must submit both asset and boundary meter data to the ESO
• Stacking: stacking (providing another balancing service) not allowed during DFS event period
• Baselining: volume reduction measured against a baseline of average energy consumption during a given 30 minute period across the previous 10 comparable non-event days (P376)
• Min bid: 1 MW
• Aggregation: aggregation allowed across all of GB

What’s different from last year

This winter’s Demand Flexibility Service has a number of differences from last year. Here are a few of the main changes:

Here’s the ESO’s full list of changes. Not that this year’s requirements are still pending Ofgem approval.

Which assets are best suited to participate

Assets that aren’t already participating in other balancing services and can consistently reduce demand during peak periods are best suited for the Demand Flexibility Service.

This includes remotely-controllable residential assets like EV chargers, batteries, and electric heaters, and flexible C&I assets that may be too small to participate in standard balancing services.

Batteries are particularly well-suited, as they’re able to export on demand. Assets that are limited to demand reduction or load shifting, such as EV charging and electric heating, will need to commonly be in use during peak periods (typically the evening peak, from 5-7pm) to deliver a reduction compared to their baseline.

How much it pays

Last winter, DFS paid an average of £3.2/kWh (a guaranteed price of £3/kWh for test events, and 2 live events that went for an average of £4.5.kWh).

The average event lasted for 1 hour (two back-to-back settlement periods). That means that 1 kW of turn-down capacity could earn £3.2 per event day, and £45 over the course of the winter.

The flex capacity for an asset is determined by its characteristics (e.g., its rated power) and its usage behaviour (e.g., how frequently it’s used and at what times). As most events were in the evening peak, an asset that’s rarely or never in use then would have limited flex capacity, because its baseline would be zero, while an asset running at full capacity during the evening peak would have more upside.

This year, the first 6 test events will have a guaranteed price of £3/kWh; pricing for all other events (test and otherwise) is not pre-determined.

Indicative revenue for controllable residential assets, by behaviour

How to learn more and get started

You can find all the nitty gritty details from the ESO here.

Axle is a software platform that connects assets like EVs and batteries to flexibility markets, including the DFS. We can help you with the soup-to-nuts of participating, from customer consent through baselining, aggregation, bidding, and delivery.

If you’re keen to learn more, feel free to drop us a note.