Impact case study database

The challenge of moving to low carbon generation is that the variability of electricity supply increases. This is because key technologies depend on both weather and daily and annual cycles. The general view in government and industry is that a more flexible system is required (see BEIS and Ofgem (2017), Upgrading our energy system: Smart systems and flexibility plan). Demand flexibility will need to play a vital role in the establishment of a stable electricity system grid as existing approaches to grid balancing are considered inadequate. DSR allows industry and commercial consumers to adapt by increasing or decreasing the volume and timing of their respective demand consumption. The research at the University of Reading has defined the potential contribution (including costs and benefits) to demand-side flexibility by different sectors of the economy and informed the UK government’s decision (2014) to include DSR in the Capacity Market. In the residential sector, the research has looked at the impact of Time-of-Use tariffs on demand and supply across different demographic groups; this has underpinned regulatory reform, which provides greater flexibility and potential cost savings to domestic end-users. While policies and regulations in the energy and climate change domains previously emphasised the need to reduce energy consumption through efficiency measures, they did not, prior to the Reading work, integrate temporary reductions in electricity demand (that is, demand-side flexibility). This research therefore provides a means across both industry and residential sectors to prevent supply and demand imbalance, reduce costs (in the region of GBP8,000,000,000 by 2030) and move towards a net zero carbon electricity system while maintaining security of supply and efficiency of the system.

Research on DSR creating Capacity Market opportunities and changing energy policy

The Capacity Market is a GBP24,000,000,000 scheme through which the national government issues contracts for additional power generation and demand reductions in case of significant imbalances created by intermittent wind and solar energy, for example.

The long-term research at Reading on demand-side flexibility has generated interest across government departments, the European Commission and beyond. This has resulted in invitations for Torriti to present the findings to the Department of Energy and Climate Change (DECC), the European Commission (Directorate-General of Energy and Directorate-General of Research) and the Energy and Climate Change Committee’s inquiry on electricity demand-side measures (2014). University of Reading research [ref 2] delivered estimates of the DSR potential across sectors in the Capacity Market. The research recommended that temporal aggregation could pull together short turn-down slots across a range of clients in the telecommunications, hotel and warehouse sectors to cover a Capacity Market stress event. This facilitated the creation of market opportunities for energy aggregators, and, through the engagement activities during the REF period, a change in national policy, including the DECC decision to include DSR participation in the Capacity Market (2014) [sources 2, 7,8].

In February 2016, Torriti was invited by the DECC onto the steering group for the new DSR policy. The research [ref 2] was subsequently used to evaluate the impact DSR had had on the Capacity Market as part of the BEIS Evaluation of the Transitional Arrangements (2017). It showed that there was a very large increase in the bids for DSR contracts as part of the 2016/17 Capacity Market Auction – 1,834MW compared with the 637MW which bid in the 2015/16 auction [source 9].

More recently, Torriti has been the UK representative member of International Energy Agency Demand Side Management Technical Collaboration Group (since 2018). He is also a member of the British Standards Institution’s Energy Smart Appliances (ESA) programme Strategic Advisory Group (since 2019), where his research demonstrating DSR in the residential sector has “helped guide the overall direction of the programme and supported the development of standards for the smart energy system” [Section 5, source 1].

As a result of the research which informed the policy to allow DSR to be part of the Capacity Market, several Distribution Network Operators (DNOs) (for example, Western Power Distribution and UK Power Networks) have opened up market opportunities for demand-side flexibility in the form of quarterly calls for business proposals for DSR participation. This DNO-led market is worth approximately tens of millions of pounds each year. For example Piclo, an independent marketplace for trading sustainable energy flexibility online, supported by BEIS, stated that in a 2018/19 online trial, 456MW were initially advertised by six DNOs and “the market for flexibility services is currently estimated to be worth more than £2.2b every year” [source 5].

Research on Time-of-Use tariffs underpinning regulatory reform

With regard to regulatory change and the introduction of Time-of-Use tariffs, Reading research [Section 3, refs 1,3,4,5,6] has underpinned Ofgem’s Market-wide Half-hourly Settlement policy reform [Section 5, source 3], which will deliver positive outcomes for consumers through lower bills, reduced environmental impact, enhanced security of supply and a better quality of service [source 3]. Specifically, the research [refs 5 and 6] demonstrating the “distributional effects across consumer groups [socio-demographic, family types] … offered unique value and insight assisting the development of the case for reform which will affect all residential consumers” [source 2]. For instance, in relative terms, low-income single parents are among the groups who would benefit most (or lose least). This reform would not have been possible without Torriti’s ongoing engagement with Ofgem. He has been on the Academic Panel since 2017 and played a key advisory role in the Impact Assessment for the policy reform, which was published in April 2020 citing his work on distributional effects [sources 2 and 3].

This is a key change in the way electricity pricing works. Currently, most customers are settled on a “non-half-hourly” basis using estimates of when they use electricity, based on a profile of the average consumer usage and their own meter readings (taken over weeks and months). In the words of Ofgem, “The implementation of Market-wide Half-hourly Settlement reform is a key enabler of the move to a smarter, more flexible energy system. Alongside the smart meter roll out, it will facilitate other changes to the future energy market. It has been estimated that a smart and flexible energy system could bring £17–40 billion worth of benefits by 2050 … In particular, Ofgem expects Market-wide Half-hourly Settlement to incentivise suppliers to develop and offer innovative products such as Time-of-Use tariffs that help consumers to use energy flexibly in order to realise these benefits” [source 2]. The research also informed the BEIS analysis of the resultant load-shifting which would occur as a result of the Market-wide half hourly settlement reform.

Impact on research investment on DSR for SMEs and domestic demand

The focus of Reading research has been on the residential sector and SMEs. In a 2015 DECC “Invitation to Tender for: Analysis of current and future provision of Demand Side Response in Great Britain”, it is stated: “Some of the most relevant and recent existing research we are aware of in this area includes … Grunewald and Torriti, 2013” [source 10]. It has therefore impacted the UK government research agenda and investment in research and development (R&D), including the 2018 GBP102,500,000 “Prospering from the Energy Revolution Challenge”, with specific pilot projects on flexibility for SMEs and the residential sector. This R&D investment decision was based on the previous 2017 BEIS report ‘Realising the potential of Demand Side Response’ [source 4], which directly cites the Reading research on the impact of Time-of-Use tariffs on residential electricity demand [ref 1]. On a similar scale, UKRI recognised the societal importance of demand-side flexibility by making it one of the Themes of the GBP23,000,000 Centre for Research into Energy Demand Solutions (CREDS), which was led by Reading (Section 3, Grant 5).

In summary, previous attempts to balance electricity supply and demand have focused on the supply side. But the key challenge of renewable energy (wind, solar) is its intermittent nature, resulting in over- or under-supply at any given time. In order to facilitate cost saving in the region of GBP8,000,000,000 [source 6], the research at Reading has demonstrated the importance of approaching the problem from the demand side. In underpinning UK energy policy reform, its focus on DSR and Time-of-Use tariffs has demonstrated the capability within different sectors for flexibility in usage. This is highly significant in terms of securing a balanced supply of electricity and achieving cost and carbon savings.