Net Zero in conversation: How digitally-automated demand could transform the way we use energy

Smart meter app

Automated energy demand: How digitalisation could transform the way we use energy

Demand side flexibility enables an electricity grid to smooth peaks in energy demand, but how can its value to a renewable energy system be unlocked?

Until recently, the balance of supply and demand in energy systems has rarely been front of mind. Yet, in December 2022, high temperatures in Argentina led to record electricity consumption which overwhelmed the grid and caused power cuts. In February 2023, Australia’s energy market operator warned of insufficient electricity supply to meet record levels of demand in Queensland, during an ongoing heatwave.

With energy prices rising and grid infrastructure struggling, how can policy makers and energy providers create systems that reward users for their part in restoring the balance?

Could you begin by explaining what demand side flexibility means? 

Laura Glover: It’s the ability of end-users to adjust their energy demand in response to what the grid needs. This could mean reducing it, increasing it, or shifting their usage to different times of day. When overall demand for energy is high, customers can decrease their usage or use on-site generation like solar panels rather than using the grid. They could even provide energy to the grid. If there are excess renewables on the system, users can increase their usage or use batteries to soak these up. 

Energy accounts for almost 75% of global emissions, so decarbonising the energy system is essential to achieving Net Zero. What role does demand side flexibility play in the fossil fuel transition? 

Mauricio Riveros: You normally balance supply and demand in a power system by adjusting supply. In a fossil fuel-based system you can adjust the amount you burn. But as you replace fossil fuels with renewables, the electricity supply becomes more variable. We can’t turn sunlight or wind up when we need to, which makes the system less flexible. In a Net Zero system, reliant on renewables, there’s less flexibility coming from the supply side; looking to the demand side for flexibility becomes very important.  

Bogi Hojgaard: It’s also about capacity. Even when the sun is shining, we can’t always harness this energy as the grid only has a certain number of cables. Demand side flexibility helps us make better use of renewable generation, as users can capture this energy using their own solar panels for instance. 

Laura Glover: And finally cost. We'll need a mixture of all forms of flexibility, including batteries, interconnectors and hydrogen storage, to reach Net Zero in the most cost-effective way. However, demand side measures are the cheapest. In the UK, the Carbon Trust’s systems modelling work found that a fully flexible system can bring savings of £9 -16 billion a year by 2050. We modelled a scenario which took away all the demand side flexibility, and it raised the costs to the UK system by about £4.5 billion. To maximise savings, flexibility needs to be scaled alongside decarbonisation of the power, heat and transport systems. 

Given the current energy crisis, why focus on the demand side rather than trying to secure the supply of as much cheap energy as possible? 

Laura Glover: A driving factor of this energy crisis is the cost of gas. If this goes up, the cost of meeting energy demand goes up, especially in providing reserve power. Influencing peaks in demand is quicker and cheaper than relying on current gas power stations or building alternative forms of flexibility. In the UK, the National Grid has launched a demand flexibility service in response to the crisis. When demand is really high, like on cold winter days, they're paying customers to reduce their energy consumption. This has been rolled out in a matter of months, even weeks, and they're seeing reductions of around 100 megawatts almost instantaneously, which is super impressive. That’s roughly enough to power 30,000 homes. 

Bogi Hojgaard: The more we can leverage demand side flexibility, the less we have to turn coal-fired power plants back on, which was the UK government’s other contingency plan. Coal may be cheaper than gas, but it's still not cheap and obviously much dirtier. The National Grid has to pay for a power plant to be on standby, even if it doesn’t generate anything, as you still have to cover fixed overheads. 

Mauricio Riveros: More broadly, demand side flexibility should always be a priority. It’s not just about decarbonisation or energy crises. Generally, as countries develop, demand for energy increases. If you unlock some capacity from demand side flexibility, you’ll need to spend less on installing new generation and reinforcing the grid. That means fewer construction projects and as a result, less disruption to the local environment and community. 

It’s important for countries to scale flexibility while ramping up renewables. In Latin America, for example, renewable capacity is expected to increase by 45% in the next five years. Can you quantify the value demand side flexibility could bring there? 

Mauricio Riveros: It’s a huge opportunity for Latin America. The Carbon Trust’s work supporting Colombia’s smart grid deployment found that the country will need 81GW more power capacity by 2040 to meet their decarbonisation targets, but by introducing demand side flexibility, they’ll only need 34GW. Essentially, demand side flexibility would allow Colombia to expand renewable capacity at lower costs, use renewable generation more efficiently, spend less on distributing energy, and decarbonise the whole system by 2040. All of this, we found, could deliver savings of up to $730m per year by 2040. The same could be seen elsewhere. Chile, for instance, has the right kind of geography for deploying lots of renewables and their grid greatly needs reinforcing. 

What role do customers play in demand side flexibility? 

The IEA says we’ll need to unlock 500GW of power from demand side flexibility globally by 2030 to reach Net Zero. That’s an enormous amount - enough to power 500 cities, each with around 300,000 homes. Could asking people to do their laundry at night generate that much grid flexibility? What are the most impactful actions individuals can take? 

Bogi Hojgaard: Is it enough to ask people to do their laundry at different times? No, but it helps. The most impactful activities are energy intensive, and easy to do at off-peak times, not so much laundry or lighting, but things like electric vehicle charging or heating and cooling. An electric vehicle typically charges at 7KW for around five hours. If you can do that at another time, that redistributes a material amount of energy. A heat pump uses less energy than vehicle charging but runs for quite a long time. You can switch it off temporarily without affecting comfort too much, but still helping to lower demand.

Although these new technologies create more electricity demand for the grid, they also bring more flexibility. For customers who don’t have either of those, tumble dryers, ovens and washing machines are where the biggest gains are. Industrial users also make a huge difference. They represent around a third of demand in the UK. Many are billed on a half-hourly basis, so they can switch off when energy demand peaks and prices are higher. 

Laura Glover: In warmer regions, air conditioning is important. Turning it off for half an hour doesn't change the room temperature that much. The Carbon Trust and WWF study on decarbonising Singapore’s energy system found that although rising demand for cooling will put a strain on the grid and increase infrastructure needs, low-carbon cooling can offer demand side flexibility and therefore a cost-effective transition. Cooling systems can consume and sometimes store excess renewable energy, while digital technologies like smart thermostats can shift cooling to different times of day by adjusting temperature.  

Mauricio Riveros: The immediate step is asking people to use less energy during peak times. But ultimately, what needs to change is not when you use energy but when you use the grid. That’s what provides flexibility to the system. That’s why it’s important to develop different systems which can work together to give and take energy from the grid automatically, so customers can, say, use electricity whenever they like without even realising when they’re using the grid. 

Bogi Hojgaard: Yes, getting people to change their habits around energy use is really hard, especially if it inconveniences them, so we should try to automate demand side flexibility to overcome these behavioural barriers and maximise the benefits to both end users and the grid. 

How can automation unlock the full potential of demand side flexibility? 

It sounds like automation is critical here. What does this look like and what technology is needed? 

Laura Glover: Installing a smart meter is the first step, to record whether someone has adapted their energy usage so that they can be rewarded for it. Step two is home automation devices, which detect price signals and control appliances to minimise energy cost. The next level up would be having a communication system with a provider to manage more sophisticated responses. For example, the company you bought your EV charge point from might also handle charging and maintenance for you. That’s why demand side flexibility is cost effective. We're talking about having a smart meter or a smart phone in homes, rather than new power stations or other big pieces of kit.

Mauricio Riveros: Smart meters, smart tariffs, and all the IT technologies that make up a smart grid are the backbone of a system needed to unlock the full potential of demand side flexibility. In one home you could have solar panels, batteries, heat pumps and several home devices connecting with a central unit controlling these. But none of these assets can interact with the grid without a smart meter. Further upstream you also need various elements to automate the grid itself. 

Carbon Trust research found high consumer engagement is needed, even with automation. If demand side flexibility is all automated, what do we need from customers? 

Laura Glover: There's a lot happening to advance digitalisation and automation technologies, but some of it relies on customers choosing to use them. At the moment, customers need to choose to have smart meters, electric vehicles, or flexible tariffs, for instance. For flexibility to be more effective and less disruptive to the customer, your heating provider, for instance, would need to control your heat pump to operate it as efficiently as possible. 

Bogi Hojgaard: Energy Systems Catapult ran a project introducing people to managed charging of electric vehicles. At first, people hated the idea of someone else managing the charging, but after about six weeks, it turned out there was power in the battery in the morning and they were paying less, so they were happy with it, but people need to get comfortable with this idea. 

How can we support customers to support the grid? 

How can we encourage people to make these choices? What barriers do they face? 

Bogi Hojgaard: When you buy a new smart phone, contracts are made as simple as possible and it’s easy to transfer your contacts and photos across to create an exact copy of the old one. That’s the kind of experience people expect in the smart digital world, which you don’t get with smart meters currently.  

Laura Glover: Exactly, governments can raise awareness of the benefits of demand side flexibility and help users understand how to manage their energy consumption, but the big thing is to make it seem easy, normal and attractive to make choices which benefit the system. Things like grants for smart appliances play a part. It also helps if you can leverage key decision points where people are already bought into the idea of change and haven’t yet developed alternative norms. When someone buys an electric vehicle or EV charging point, for instance, you can offer them EV tariffs that are easy to sign up to and will automatically optimise their charging to make it as cheap as possible. 

The Carbon Trust is involved with the UK’s Alternative Energy Markets Innovation programme, which is looking at designing compelling customer propositions under new market arrangements. Part of it is just a really slick customer journey, making it easy by bundling together EV charge points, smart charging tariffs, a warranty and a smooth installation process. 

Why don’t governments mandate time-of-use tariffs, where all customers pay a different price for energy every half hour? 

Laura Glover: Because there would be some big losers as well as winners. It’s not one size fits all, that’s very important to keep front of mind when thinking about market design, particularly in relation to vulnerable customers. We need a substantial number of people to participate in demand side flexibility, but it’s not possible for everyone. The market must be designed fairly, so that the right signals are there for people who have the interest and incentive to make use of them, without penalizing those who can't. 

Bogi Hojgaard: Also, if there’s not much in your pattern of energy consumption that can be shifted around, it might not make sense from a cost perspective to have a smart tariff. However, if you have an electric vehicle, having a smart tariff might be a no brainer, as it wouldn’t impact you whether your car charged at 3am rather than 2am. Or even 2am vs 2.10am if you just need to charge it enough to drive 10 miles to work and back rather than a big trip. We need to find the overlap between customers who are aware and willing to engage and those for whom there is actual value in engaging. 

The issue of privacy also comes up a lot when talking about smart devices, how do you tackle this? 

Bogi Hojgaard: Looking at someone's energy consumption can tell you a lot about them. For example, when they leave for work, sleep or go out. Sharing so much personal data is a real concern so strong security is key to help manage people’s privacy and give them reassurance. 

Laura Glover: Absolutely. The Carbon Trust is supporting a project called HOMEFlex, led by Flex Assure and Scottish and Southern Energy Networks, to design a code of practice that flexibility providers can sign up to. It will show they follow certain standards to provide customers with the greatest level of protection possible. Cybersecurity and customer protection concerns should also be addressed at government level. This is something the Colombian government and UK’s Digital Energy Task Force is currently working on. 

How can governments create incentives and standards for the energy industry?

Moving away from customers to other decision-makers, what sort of support does the energy industry require from government? 

Bogi Hojgaard: Governments must carefully determine the best way to support, as well-meaning interventions can stifle innovation. However, there is certainly a role for government intervention to mandate standards and create the right market nudges to encourage customers to adopt, and suppliers to develop, smart energy technologies. For example, in the UK, smart meter roll out was a supplier obligation. This meant that on any given street, you might have 30 different suppliers installing smart meters, which makes no sense operationally, and has slowed down deployment enormously. It should be done on a street-by-street basis. 

Laura Glover: In the UK, there’s also no standardised meter if customers want to switch providers. Governments can mandate certain standards or communication protocols that will allow your EV charge point to talk to your home energy system, for example, and it will work with whatever system you have. We want to avoid a situation where every manufacturer has their own control protocols, as we’re currently seeing with smart meters. 

Bogi Hojgaard: Governments can also push the concept of ‘presumed open data’. To enable digitalisation, lots of data needs to be available so everyone can see the same system and make rational decisions. Not consumer data, but things like where the cables are, how big they are, what they’re connected to and how much demand is going through them. Currently, we don’t know all that, so we dig up roads much more than we should, which has real cost implications. If governments advocate for system data to be free, unless there’s a good reason otherwise, it can open up really simple ways of optimising the system, and prevent companies from hoarding data to monetise it. 

Mauricio Riveros: Colombia doesn’t share the UK’s problem of competition between retailers, but they do have issues around incentives. In the UK, distribution network operators are paid to innovate and deploy new technology to keep the grid efficient. In Colombia, the companies operating the grid are the same companies selling energy. The way the current regulation works, they are incentivised to maximise profit as an energy supplier by minimising what they spend on developing the grid. I’d say the regulatory landscape is Colombia’s biggest barrier to demand side flexibility; there is still no clear policy for rolling out smart meters or pushing for digitalisation of the whole system. 

The UK is often seen as a leader in deploying demand side flexibility. What should other countries replicate or avoid from the UK’s experience? 

Mauricio Riveros: Other countries can learn from the UK, just as the UK can learn from other regions. Singapore, for instance, has a high deployment of smart meters, batteries and solar panels, even though the government isn’t currently leveraging these for demand side flexibility. Innovation is the backbone of all transformation in the UK and is embedded in regulation, which is a great thing to replicate, but the UK’s issues with rolling out smart meters were a good lesson in what to avoid. The Carbon Trust is working with the Colombian government on a framework to align digitalisation strategies with decarbonisation goals in the energy sector. It takes several principles from the UK’s Data Task Force, including the concept of open data. 

I'm imagining a triangle showing energy customers, governments, and industry. Customers need to engage with their energy use and consent to sharing their energy data with providers who can automatically optimise assets on their behalf. Governments need to provide customer protection and design a market that incentivises both customers and industry. And lastly, industry needs to provide smart technologies, attractive tariffs, and manage the demand. 

Laura Glover: Exactly, there are things which need to happen on all sides of the triangle. The best ways to make them happen is still being ironed out, but the key thing is to keep these collaborative conversations going. No one can do this in isolation. 

The Net Zero Intelligence Unit would like to thank Bogi Hojgaard, Laura Glover and Mauricio Riveros, as well as Hadrian Vivek and Kai Greenlees for their advice on this subject. 

Net Zero Intelligence Unit