Your independent energy adviser
0800 051 5770

Government schemes wreck demand-side response intentions

Changing energy market schemes have undermined the value that customers could be receiving from demand side response (DSR) says electricity balancing and settlement company Elexon.

Demand side response is the scheme where customers are incentivized financially to lower or shift their electricity use at peak times. This helps to manage load and voltage profiles on the electricity network.

Elexon’s head of market design, Justin Andrews, said that the current market rules should be “ripped up” to “start again” after the principles of the market have been “bastardised” by new schemes.

Andrews said:

“Ofgem consulted a couple of years ago on what we need to do, what barriers are there to DSR, and our view was that we have typically tinkered around the edges of the energy market over the years and now we’ve got the imbalance mechanism and BSC, we’ve got the feed in tariff scheme and renewables and now Electricity Market Reform (EMR), and from a simplistic point of view that changes the principles of the way the market is working and adding all these things on the original intent of the market has been lost.

For me in order to get the right value to the end consumer it’s more than just an auction or bidding in, you’ve got to try and extract maximum value and therefore to do that I personally believe that we need a new market.”

So what can we do to help? The introduction of smart meters should be a significant win as suppliers will be able to see when energy is used most at certain times of day and charge more at peak hours to manage demand.

Others such as Jonathan Brearley from the Department for Energy and Climate believe that improving the capacity market could be the answer.

Brearley said:

“I think we need to look at the evidence of where we have had DSR previously, when we have had any version of the UK market we have had very little DSR, especially after the reforms in 2008 promised lots of DSR it never came.

The place where you do get lots of DSR is the United States and the reason you get that is because they have a capacity market and I don’t think the capacity market here is yet designed well enough to support DSR, but it’s there and actually if it was amended I think you’ve got a great vehicle to produce a decent set of DSR.”

With Amber Rudd at the helm, it looks like we’ll be waving goodbye to some of the renewables schemes so perhaps DSR will come back into fashion.

Northern Power Grid’s head of regulation and strategy sums it up perfectly: “I think people need to think about it in a fundamental way. DSR does have a part to play in the future, but not alone, it’s not going to be the panacea.”