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Households blocked from the benefits of residential flexibility, says new report

OVO.

Households would be stopped from saving over £200 each under current market rules, owing to the lack of a route to market for residential flexibility in accessing grid balancing revenue streams, according to a new study.

The research, published today by OVO Energy and Imperial College London, has examined a range of energy system scenarios based on National Grid’s Future Energy Scenarios but adding flexibility from residential demand.

Under the most ambitious ‘Future Survival’ scenario, by 2040 there would be 25 million electric vehicles on the road, 21 million homes with electric heating and 93% of electricity coming from renewable energy sources.

This would result in in a total carbon emissions reduction of 65% and a grid carbon intensity of 50g/kWh, well below the 100g required by 2030 under the UK’s climate change targets.

By increasing residential flexibility through intelligent and bi-directional charging of EVs, smart electric heating and domestic energy storage, the “Blueprint for a Post-Carbon Society” study concludes that household energy flexibility could cut the cost of decarbonisation by £6.9 billion per year.

These savings are accrued from reducing the investment requirement in network infrastructure and allowing for greater uptake of cheaper renewable energy like wind and solar.

Under the least ambitious ‘Burning Platform’ scenario, only £1 billion is saved across the adoption of far fewer flexible resources, as fewer costs are displaced by wider uptake of these technologies. The study therefore concludes that savings of approximately £206 per household are possible whilst the energy system undergoes radical decarbonisation.

Despite costs of £48 billion in the ‘Future Survival’ case - £15 billion above ‘Burning Platform’ – the study argues that this transition leads to road and gas heating fuel cost savings of £23.7 billion. In addition, carbon cost savings of £5.6bn for both road fuel and gas would be achieved, resulting in the household saving identified in the most ambitious scenario.

Toby Ferenczi, OVO’s director of strategy, said: “Electrification and the intelligent use of residential energy technologies are absolutely critical to bringing down emissions and powering the future sustainably.

“This research shows that households up and down the country can each play a role in creating a balanced, flexible, and almost completely renewable energy system while at the same time saving over £200 a year.”

However, the report also found that the growth of residential flexibility faces its biggest challenge in the lack of a route to the grid services market.

It says the current market structure revenues for flexibility services comes from National Grid, which performs short-term balancing; arbitrage in the wholesale energy markets; and the emerging flexibility requirements of the UK’s distribution system operators (DSOs).

While all of these are currently under review across various initiatives, aggregators that could take advantage of residential flexibility are precluded from accessing National Grid ESO ancillary services under current rules.

While the DSO market is rapidly growing and likely to target residential flexible capacity as it grows, it remains in its earliest stages, while OVO and Imperial say wholesale energy market structures could be improved to enable participation of residential flexibility.

Goran Strbac, EKERC researcher at Imperial College London said: “This analysis demonstrates that cost effective decarbonisation can be achieved not only through the deployment of low-cost renewable energy such as wind and solar but also by improving system flexibility through the use of behind-the-meter technology.

“Achieving this would require changes in regulations and market rules that the UK should act on.”

The UK has already begun to make some moves towards wider access to the energy system’s balancing markets, with the recent approval of P344 by regulator Ofgem set to provide route for aggregated portfolios of flexibility to take part.

OVO has previously called on both Ofgem and the government to ensure network companies pursue a strategy of ‘flexibility first’ whereby they seek to procure flexible capacity over carrying out traditional infrastructure investment.

While the likes of Northern Powergrid, UK Power Networks and Western Power Distribution have all begun procuring flexibility, with Northern Powergrid following a line similar to OVO’s request, Ferenczi has continued to make the case.

“OVO continues to call for the Government, regulators and the industry to work together and adapt to this new energy system where demand flexibility makes energy cheaper for everyone,” he said.

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