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Voluntary nature of demand side code of conduct debated as introduction nears

Image: Flexitricity.

Image: Flexitricity.

The upcoming publication of the Association for Decentralised Energy’s (ADE) Demand Side Response Code of Conduct has sparked discussion over whether the voluntary nature of participation will be enough to ensure good working practices.

The code, expected before the end of the month, has been developed alongside a number of existing aggregators following concerns raised by Ofgem in 2016 that the industry has thus far been allowed to develop without regulation.

While there have been no signs of evidence that significant inappropriate behaviour has surfaced, ADE’s head of business development John Bryant explained this week that the code is intended to ensure this remains the case.

“There were concerns that with the potential growth of the market and new entrants that there could be potential for customer detriment going forward,” he said at National Grid’s latest Power Responsive Flexibility Forum.

“The ADE proposed that we would establish a code and the aggregators in existence are keen to protect their name, the industry and don't want to see any new entrants come in and lowering the standards."

He added that this would serve to give customers assurance that the members of the code are following ethical business standards while offering commonality across business practices and transparency over what is expected of them.

The code will cover sales and marketing methods, technical due diligence covering site visits and installations of any associated technologies, proposals and pre-contractual information, contracts themselves and the complaints process.

Naming and shaming

Aggregators will be expected to sign up to the voluntary code for a fee, with any infringements on its rules to be broadcast by ADE under a ‘name and shame’ approach.

“The first stage is a warning, the second level has suspensions...we see a strength that we have as an association in broadcasting that and we're fully cognisant that it has to have credibility,” Bryant said.

“This isn't just a smokescreen, it has to have integrity and the ability to penalise the members if they break the rules and naming and shaming is a very powerful blow. If you broadcast that someone has been thrown out of the scheme or suspended because they didn't abide by the rules, that's a powerful weapon and no one has pushed back on that."

While questions were raised at National Grid’s forum over whether or not this provided enough “teeth” to the scheme, Flexitricity’s chief strategy officer Alastair Martin said the voluntary nature of the code was the right approach.

“If you're no longer a member of the code because your behaviour has not been good enough, I think that will have a substantial commercial impact on an aggregator. Ultimately, you cannot be in this business without a solid customer base with which to work and you'll lose it if you lose that position. You won't be able to recruit new business,” he told Current±.

However, Limejump’s head of trading and operations Rob Sherwood said that while the company “fully agrees” with the implementation of the code, a volunteer scheme “is not good enough” to ensure that market participants are sufficiently concerned with the consequences of their business practices.

“Full licencing should be the best solution, however the current method of licensing parties is not sufficient as we have supplier domestic, supplier non-[domestic], generator, interconnector, transmission etc,” he said.

“It would be simpler to have a system user licence (i.e. gen, demand, aggregator) and system operator licence (DNO and TNO). [I’m] not sure how feasible that is but it would start to simplify the industry and would bring parties that generate/consume/operate assets over a certain size under one licence.

“A volunteer scheme is just another layer on top of a complicated industry which needs a full shake up.”

When you regulate too soon, you regulate incorrectly”

Martin disputed this, claiming that any official regulation from Ofgem or another body would likely result in issues for the sector further down the line.

“The problem that Ofgem would have is when you regulate too soon, you regulate incorrectly. A lot of the barriers to DSR have resulted from rules in the industry that were based on a situation 17 years ago when everything was about top down large power station delivery and that model is not relevant to the market now, which means a lot of those rules actually get in the way of good value for consumers and consumer protection,” he explained.

“If Ofgem or another regulator from the outside were to put in a non-voluntary scheme, they would be better doing that once they know how this really works. If the voluntary scheme isn't good for the long term that will be obvious but the right way to do it will be obvious too.

“If it was done just at this time of the market finding its feet and becoming a serious part of the energy industry, it would have mistakes that could get in the way of good business.”

The same view was taken of the omission of domestic DSR from the code, which Bryant explained had been left out as it would require different approaches than those relevant to the industrial and commercial (I&C) sector.

"It was made quite clear by the aggregators that the domestic market hadn't yet developed, weren't sure of the business models that were going to appear, so we parked that one and carried on with the code for business-to-business relationships.”

However, both Bryant and Martin agreed that some form of protection scheme will likely be needed later as demand side flexible capacity in the domestic sector increases as battery storage and electric vehicles become more common.

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