New EEF report: DSR should “be one of the first options” for electricity security

Under Theresa May’s Government BEIS has been tasked with delivering a comprehensive industrial strategy, ensuring that the UK has secure energy supplies that are reliable, affordable and clean, and tackling climate change.

The UK’s manufacturing sector has an important role to play but a report published this week by the manufacturers’ organisation, EEF, found that its members’ confidence in the Government’s handle on security of supply is tepid at best. Only one third of its members agreed with the statement that “the Government has a long-term strategy to ensure security of supply” and just 3.6% felt energy infrastructure had improved in the last two years.

The report “Upgrading Power: Delivering a flexible electricity system” makes a series of recommendations for Government to help manufacturers play a part in boosting UK energy security and improve how our electricity system operates. Demand Side Response (DSR) is identified as one of the first options that should be looked to in achieving electricity security.

As the authors note “Continuing to be over-reliant on supply side options and leaving DSR options untapped is rather like having the heating on at home, deciding it’s too warm and then opening a window rather than turning the heating down. Both actions will achieve the intended outcome but the former wastes energy and money.”

In a recent EEF survey only 9% of respondents took part in some form of DSR activity – compared with 29% in a recent cross-sector survey conducted by Ofgem – citing varied reasons from insufficient financial incentive to those that had utilised all of the available flexibility on their sites. However, by the far the most common reason given was the complexity of the system and resulting lack of understanding within manufacturing companies.

The report found that even manufacturing companies well versed in the DSR markets find the system bewildering and unwelcoming to new entrants. One company commented that “it is genuinely stressful to be in a regulatory environment alongside the big six”, further noting that energy companies have entire departments to deal with these markets, whilst even a large manufacturing company may have only one individual covering energy.

Those manufacturers who are engaged in DSR activities adopt a common approach and hierarchy to maximise potential savings and revenue streams. Where possible, companies will seek out opportunities to reduce exposure to higher power (wholesale) prices first, followed by minimising their network costs (Triads and Distribution red band charges) and finally participate in specific DSR products.

To help unlock the estimated 9.8GW of DSR flexibility available in the UK EEF recommends first increasing the number of businesses acting on straightforward price signals through time-of-use tariffs. Beyond this it calls on the Government, National Grid and Ofgem to look at what can be done to reduce the complexity of specific DSR services and regulatory barriers to entry.

Finally, it highlights the forthcoming ADE code of conduct for aggregators as an important step which will improve manufacturers confidence in these companies. Open Energi strongly supports this move. Aggregators occupy a position of trust and have a responsibility to educate businesses and be open and transparent about the benefits that exist.

Donna Hunt, Head of Sustainability at Aggregate Industries summed this up in a recent interview with edie, saying “businesses want to see what the value-case is. They need the confidence and trust in it. It’s not new technology but it’s perhaps not at scale yet. That’s a big reason why Aggregate Industries is proud to be out there talking about how it works. We should be doing more of it because we need a more responsive energy system that works for everyone.

“We need to prove that value-case, share knowledge and open doors. We just need there to be a level playing field between the aggregators to remove the confusion so people are clear about how they can engage.”

Unlocking the full potential of DSR is going to take time but National Grid is looking to source 30-50% of balancing services from DSR by 2020, creating a potential revenue stream for businesses of around £1 billion. As the world strives to find ways of delivering energy which is clean, affordable, and secure, the more that can be done to facilitate DSR participation – from business of all sectors – the better.

EEF Report: Demand Side Response Recommendations

  • The Government should investigate how to maximise the DSR benefits for manufacturers of smart meters, half-hourly settlement and time-of use tariffs.
  • National Grid, as part of its charging review and in consultation with industrial energy consumers, should seek to reform the Triad charging system to deliver greater predictability for industrial energy consumers.
  • The Government should explore the incorporation of DSR aims and related electricity cost reduction strategies into energy efficiency schemes such as ESOS.
  • National Grid, in collaboration with energy consumers and the Government, should seek to reform the ancillary market to reduce complexity and create greater transparency.
  • Ofgem should amend the Balancing Settlement Code rules to allow participation of DSR in the balancing market.
  • The Government should reform the Capacity Market to allow easier access for DSR assets in future auctions.

Download the full EEF report “Upgrading Power: Delivering a flexible electricity system”

 

 

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