Insights

Smart Tech & Energy: opportunities for customers and utilities

Network companies and suppliers can benefit greatly from demand response programmes in the electricity sector, which require explicit permissions from participating customers. Advancements in smart technologies support the potential for widespread buy-in amongst household customers by allowing them to participate in these programmes with minimal disruption to their everyday lives. In order to capture value from this opportunity, network companies and suppliers must adapt their business models to become technologically innovative and customer-centric. This article will discuss demand response and smart technologies, the benefits for household customers and specific types of utilities, and what these utilities need to do to win in this environment.

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What are demand response programmes?

Demand response aims to alter electricity demand by changing the times and quantities of energy consumed. It allows utilities to provide wired or wireless signals to customers that request that they manually, semi-automatically or automatically adjust their consumption activities. This is a change from traditional approaches to electricity provision, where supply was expected to shift to meet inflexible demand.

Demand response programmes are typically run as opt-in schemes where customers can alter their consumption to receive financial benefits. Examples include time of use tariffs, where customers are charged lower rates at off-peak times and higher rates at peak times, real-time tariffs where customers are charged according to average electricity wholesale prices, or other schemes where customers receive low tariffs in exchange for a commitment to consume less during specified periods of time.

What are the benefits for utilities?

Demand response programmes can benefit suppliers by facilitating their participation in the capacity market, and by minimising their wholesale costs. Suppliers acting in the capacity market receive payment for the guarantee that a generation source can provide power in the case of supply shortfalls. During these shortfalls, suppliers with demand response programmes can send signals to customers to reduce their consumption, freeing up generation capacity.

With regards to wholesale costs, suppliers facing an energy shortage during the day typically resort, directly or indirectly, to the power wholesale market. Instead of purchasing more energy at a time when demand and prices are high, they can use demand response to send a signal to customers to consume less energy.

Demand response supports network companies in both the short and long term. In the short term, demand response programmes allow network companies (and system operators) to enhance the reliability of the grid through providing ancillary services such as load reduction, reserves, or frequency regulation. One way this is important is that it allows network companies to adapt to the challenges presented by distributed generation, through taking advantage of the distributed assets themselves. For example, participants in demand response programmes can provide ancillary services by allowing shifts not only in their consumption activities, but also in their local battery storage or generation capabilities.

Network companies can also capture long-term benefits from demand response programmes, using them to help defer reinforcement investments due to capacity requirements or asset degradation. By altering consumption patterns, demand response can smooth peak demand, making it lower and more predictable. This reduces the need to expand traditional generation to cope with increases in peak demand, for example, due to rising uptake of electric vehicles and heat pumps. In addition, this helps decrease stress on the grid, lessening infrastructure degradation and therefore prolonging the lifetime of these assets.

How have smart technologies enhanced demand response programmes?

Demand response has existed since the 1970’s, and there are established programmes for industrial or commercial customers in the UK.

However, new technologies such as smart meters and smart devices have vastly increased its potential uses for household customers. These technologies provide new technical opportunities for demand response, and increase the likelihood of customer buy-in because they minimise the effort and disruption involved.

Smart meters are digital meters with the capability to both receive and transmit information between the customer, the customer’s connected appliances, and authorised utilities or other third parties. In the UK, smart meters can record consumption data, provide energy pricing information, and enable remote load control.[1]

Smart devices are connected devices that can provide services to the electricity system by communicating with smart meters through the customer’s “Home Area Network” (HAN). Some devices are directly connected on the HAN; others communicate using different standards (e.g. the internet) and connect indirectly through a gateway device. [2] The latter distributes information from the smart meter while allowing information to be integrated from other sources, for example by also incorporating local weather predictions from a smart phone app.

The combination of these technologies allows for more sophisticated applications of demand response programmes, increasing their appeal to customers in at least two ways:

  1. Makes it easier for the customer to manually respond to prompts about their energy usage
  2. Allows customers to semi-automatically or automatically adjust consumption activities

First, smart technologies could assist the customer by sending prompts quickly and efficiently. For example, a notification on a phone or television could provide a reminder to customers to manually reduce their energy usage at a peak time.

Secondly, one of the greatest benefits of smart technologies is that they enable semi-automatic or automatic consumption adjustments, so the customer would not have to act or even be home to provide demand response. This can be done through auxiliary load control, or by smart device settings. These options require agreement and permissions from the customer, and usually offer manual override functions.

According to a set schedule, or remote control by a utility, the HAN could access auxiliary load control switches in the home that turn on or off electricity to connected devices. This could also be done remotely, to “connected” auxiliary load control switches.[3] An example could be control of charging times for an electric vehicle by adjusting its power supply.

Additionally, smart devices can access smart meter information up to every ten seconds to identify prompts indicating efficient or low-tariff times to run and consume energy.[4] A range of devices could take advantage of this capability, for example a dishwasher that is programmed to run at off-peak times or washing machine that could be automatically delayed or paused for a certain number of hours.

    1. Utility sends demand response signal to smart meters
    2. The smart meter signals to a gateway device, suggesting to reduce energy usage
    3. Washing machine and dishwasher receive signal from the gateway device to pause, or delay start
    4. Devices connect directly to the smart meter home automated network (SMHAN) to access signal. Electric heating is automatically turned off (while staying within certain temperature range). Solar panels and battery provide power to the home, not grid. Power is cut to electric vehicle charger, stops charging

How can utilities take advantage of demand response?

It is clear that smart technologies have increased the ease with which customers can participate in demand response programmes. Relatedly, the UK regulator, Ofgem, has expressed support for the increased adoption of demand response as it can help customers manage their energy costs.

Given this favourable environment, it is important for suppliers and network companies to take advantage of the opportunities for demand response uptake.

Sia Partners has identified two areas of focus for utilities who wish to integrate domestic demand response programmes into their business:

      1. Suppliers should support widespread adoption of smart meters
      2. Suppliers and network companies should clarify their service offerings, ensuring internal capabilities are in place and offering appealing programmes

In the context of demand response, smart meters are often a prerequisite for advanced uses of other smart devices, and are essential for increased customer uptake of demand response programmes. The impetus of smart meter rollout falls on suppliers rather than network companies, with the UK government requesting that suppliers offer installation of smart meters in every home by 2020.[5] Without the widespread installation of smart meters, utilities and household customers in the UK will miss out on the enhanced benefits they offer.

Second, suppliers and distribution networks must ensure that they are prepared to provide demand response programmes. This includes deciding whether to work as aggregators or with third parties, as well as the designation of whether suppliers or network companies will take responsibility for the contracts and demand response signals sent to customers.  There is some movement in this space already, with UK Power Networks trialling demand response in its Low Carbon London innovation project, and OVO Energy releasing vehicle-to-grid storage solutions.

Importantly, suppliers and distribution networks should also ensure that they have designed demand response programmes that are appealing to customers. They should conduct extensive customer engagement to determine the wants and needs of customers that would participate. The knowledge gained through engagement can contribute to programme development, marketing strategy, and customer support, ensuring that offerings are designed to best provide for customer desires such as financial savings, comfort, and/or environmental benefits.

In conclusion, smart technologies have increased the potential value that utilities and customers could gain from demand response programs. This value is yet to be fully seized in the UK, and requires that utilities build upon the technological advancements and clarify their service offerings.

[1] Department for Business, Energy & Industrial Strategy (BEIS). Smart Meters and Demand Side Response (2016). https://www.gov.uk/government/publications/smart-meters-and-demand-side-response.

[2] Ibid.

[3] Ibid.

[4] Ibid.

[5] Ofgem, Upgrading Our Energy System: Smart Systems and Flexibility Plan. (2017). https://www.ofgem.gov.uk/publications-and-updates/upgrading-our-energy-system-smart-systems-and-flexibility-plan