11 Demand side measures
253. Reducing demand for electricity is the most
straightforward and cost effective way of meeting our climate
change, security of supply and affordability objectives. Opportunities
to achieve demand reductions through the EMR must not be missed.
What can demand side measures
deliver?
254. The term "demand side measures" covers
a range of technologies, which can bring different benefits to
the electricity system. They fall into three main categories:
- Demand reduction—this
produces an absolute reduction in demand for electricity at all
times.
- Demand side response—this can be used to
shift the time at which electricity is used to smooth out the
peaks and troughs in energy usage and hence reduce the amount
of back-up capacity required to meet demand at peak times. This
flexibility could help with the problem of increased intermittency
resulting from increased penetration of certain renewables such
as wind and solar.
- Distributed energy—although this is technically
a form of electricity generation, it is sometimes considered to
be a demand side measure because the generating capacity is connected
directly to the distribution network rather than the transmission
network, allowing surplus energy generated, for example by domestic
photovoltaics, Combined Heat and Power or other means to be offset
against the call on centralised generating capacity.
255. Table 2, below, sets out some examples of demand
side technologies in each category, as suggested by evidence to
this inquiry.
Table 2: Examples of demand side measures
| Measure/ technology
| Description
|
| Demand reduction
| Lighting and building management control
| Automated systems that can help reduce energy use, for example, by turning off lights when rooms are not occupied.
|
| Efficient appliances
| More efficient appliances require less electricity overall.
|
| Building insulation
| Reduces the amount of energy required for space heating. NB this will only have an impact on electricity usage in buildings that use electric heating. Most homes in the UK currently use gas central heating.
|
| Demand side response
| Smart meters, grids and appliances
| Facilitate the introduction of time of use tariffs, which could encourage consumers to use electricity at times when overall demand on the system is low by varying price according to the overall level of demand. They could also encourage consumers to switch to sources of distributed energy (see below) at times when demand on the transmission network is high.
Facilitate opportunities for "dynamic demand" responses whereby smart appliances can automatically match their operation to times when overall demand is low.
Provide the opportunity for more actively managed distribution networks.
Provide an opportunity to aggregate demand side measures from a large number of small consumers, making these actions more "visible" to the System Operator.
|
| Interruptible contracts
| Already used by some industrial consumers who agree to reduce their usage at certain times or when demand on the system is particularly high.
|
| Electric vehicles
| Electric vehicles could potentially be used as a form of electricity storage as their batteries could be charged over night and then discharged back to the grid if the car is not used during the day time.
|
| Distributed energy
| Microgeneration, including small-scale PV solar panels and small-scale wind farms.
| Electricity generated at the local level reduces the need for large-scale centralised energy generation. For example, Hamburg's "Lichtblik" project plans to construct an "energy swarm" of microgeneration capacity rather than two new power stations.
|
| Combined Heat and Power
| District heating schemes have helped to provide system balancing in Denmark.
|
Sources: Ev w10 (CHPA), Ev 197
(ScottishPower), Ev w39 (Low Carbon Group), Ev 203 (Friends of
the Earth), Ev w45 (IET), Ev 206 (Friends of the Earth)
256. While the aims and ambitions of the Green Deal
are laudable, it will only help to encourage some forms of demand
side measures (most obviously building insulation). We therefore
perceive a role for the EMR in helping to bring forward some of
the other forms of demand side measures outlined in table 2.
257. It is not clear how much consideration DECC
has given to the scope for demand side measures to contribute
towards the EMR objectives of decarbonisation, security of supply
and affordability. Duncan Sinclair from Redpoint Energy told
us that the modelling work they carried out for DECC (on which
the EMR proposals are based) did include some types of demand
side measures:
We took DECC's views on demand going forward,
taking into account the Green Deal. We also looked at an overall
flattening of demand shape associated with, for example, heatpumps
or with electric vehicles, assuming that there were some price
signals to encourage consumers to flatten their demand. We took
that into account and we also recognised the possibility that
the demand side could play in providing additional capacity and
helping with the security of supply issue [...]. The big uncertainty
is smart metering, with the roll-out of smart meters. There's
a lot of interest around what that could do in terms of changing
consumer behaviour.[291]
258. There does not appear to be a consensus at this
stage among stakeholders about the scope for demand side measures
and we heard a range of different views throughout our inquiry.
Those who were more optimistic included Swanbarton, the Combined
Heat and Power Association, WWF, Juliet Davenport (Good Energy),
Alan Simpson (Friends of the Earth), Doug Parr (Greenpeace) and
Adrian Haworth (GE).[292]
Nick Molho (WWF) told the Committee:
On the demand side, we know from the UK Energy
Research Centre's 2050 project last year that it is technically
perfectly feasible to reduce energy demand in the home and transport
sectors in the UK by 50%, compared with business-as-usual levels,
by 2050.[293]
Adrian Haworth (GE) also thought there was a strong
potential but emphasised the uncertainty around the extent to
which smart technologies might be able to provide demand side
responses:
We think there is very big potential on the demand
side but we can't quantify it yet, so it would be very difficult
now to try to define where we will be in 20 or 30 years when we
are really stepping out into the unknown at the moment.[294]
259. However, some witnesses were more pessimistic
about the scope for demand side measures and in particular the
extent to which they might be able to help balance out intermittency
from renewables.[295]
Mark Ripley (National Grid) told us:
It's not clear to us, with the current range
of services that are available, that demand side could provide[...]
alternative capacity to offset the wind not blowing. If you think
about the first two weeks of December last year, we had a big
blanket of cold weather without much wind. At the moment, it's
not clear how demand would be able to step into that gap.[296]
The Welsh Power Group also expressed doubt about
the extent to which electricity consumers would wish to participate
in a market for demand side measures:
The government must be realistic about how much
demand wants to participate. Large customers currently respond
to the TRIAD system, where their consumption in the three winter
peak half hours dictates their transmission charges. This is
an extremely effective mechanism and should be maintained. However,
more active customer participation was one of the NETA design
criteria. The customers do not seem to want to participate in
the type of market created. This may be overcome with changes
in market design, but we suspect the problem of managing their
primary production while participating in the market will be extremely
difficult to overcome.[297]
260. The Government should undertake more thorough
analysis of the role that demand side measures could play as part
of the UK's electricity system in future. More thorough modelling
and cost benefit analysis of the scope for demand side measures
is required and the White Paper should clarify how such measures
can cut demand and provide flexibility to the system.
DEMAND SIDE MEASURES AND THE EMR
PROPOSALS
261. Many witnesses perceived a stronger emphasis
on support for new generating capacity than for demand reduction
in the consultation proposals.[298]
The Low Carbon Group and E3G suggested that energy efficiency
should be given an equal weighting to generation in developing
EMR proposals.[299]
Environmental NGOs and the IET suggested that demand reduction
should be a central objective of the reforms.[300]
WWF told us:
We are concerned that the EMR consultation paper
is overwhelmingly focused on proposals that seek to incentivise
investments in low-carbon generation and does not seek to address
the equally important question of how the UK can substantially
reduce its demand for energy. We believe that for the EMR to
deliver an effective and cost-efficient package of measures to
help decarbonise the power sector, proposals need to be put forward
to both incentivise low-carbon generation (in particular renewables)
and substantially reduce the UK's demand for energy.[301]
262. The Consultation Document states that the capacity
mechanism could reward demand side measures (so-called "negawatts")
as well as generation capacity. This principle was welcomed by
witnesses to our inquiry. However, we heard some concerns that
in spite of this principle, an unintended impact of a capacity
mechanism could be to undermine demand side activities. National
Grid and Simon Less (Policy Exchange) reported that by providing
support for backup generation, a capacity mechanism could dampen
price signals and hence reduce incentives for interconnection
and demand side measures.[302]
263. It is important that a capacity mechanism does
not close off the potential for innovation in demand side measures.
We heard from several witnesses who felt that there was scope
for much more innovation and development in this area.[303]
Doug Parr (Greenpeace) emphasised the difference between demand
reduction (which he equated to baseload generation) and demand-side
response (which he equated to flexible generating capacity).
He suggested that a capacity mechanism would need to be structured
differently to reward these two different aspects.[304]
He told us:
There are two different parts that a capacity
mechanism would need to account for, but I think it's important
because at the moment there is no innovation in that space. […]
I would say that is the key thing about the capacity mechanism:
to be able to open up that innovation.[305]
264. There is a risk that a capacity mechanism
that provides support for backup generation could undermine incentives
for demand side measures. The White Paper should outline how this
effect would be mitigated.
265. The White Paper must also specify for which
demand side measures the capacity mechanism will be available
and clarify whether it is intended to support demand reduction,
demand-side flexibility, or both.
CARBON PRICE SUPPORT
266. Although both DECC and the Treasury's Consultation
Documents focus on the role that carbon price support could have
in influencing investment decisions, a high carbon price could
also help to encourage greater energy efficiency. Simon Less
(Policy Exchange) suggested: "the key thing to drive demand
reduction is to price carbon properly, by pricing the environmental
externality".[306]
267. However, the Chancellor announced in the Budget
that the carbon price support would be introduced at £16
per tonne of CO2 in 2013, rising to £30 per tonne
in 2020 (in 2009 prices).[307]
This is unlikely to be high enough to encourage significant increases
in demand reduction.
FEED-IN TARIFFS
268. Some of our witnesses felt that if it was possible
to set contracts for demand reduction (citing the PJM market in
the USA as an example), then it might be possible to make demand
side measures eligible for long-term contracts under a FIT scheme.[308]
The Low Carbon Group, Simon Skillings (E3G) and Rachel Cary (Green
Alliance) all called for demand side measures to be eligible for
both FITs and a capacity mechanism.[309]
Simon Skillings told us:
We would expect demand reduction and distributed
generation to be potentially cheaper alternatives to low-carbon
generation. It seems to me, therefore, that the demand side should
have a fair crack at the FIT side, as well as the capacity payments
side, of the equation.[310]
However, others were not sure how this would work
in practice. Simon Less (Policy Exchange) said:
On the CfD proposal, I find it hard to get my
head around how the Government would go and contract with demand
that then does not happen. They are contracting for something
not to happen in the future—for that demand not to materialise.[311]
269. Professor Helm has proposed using a combined
instrument that would reward both decarbonisation and capacity.
This would take the form of long-term capacity auctions. In
principle, both low-carbon generation and demand side measures
would be able to bid into the auction.[312]
He told the Committee:
The auction could have demand-side bids, so you
can bid in to reduce capacity of demand by so much in so many
years' time, and that brings a long-term contract into the energy
efficiency side of the market, which has been sadly lacking to
date.[313]
270. The proposed Contract for Difference mechanism
should be expanded to include rewards for guaranteed demand side
measures. The White Paper should examine this possibility.
Conclusion
271. Demand side measures do not receive sufficient
consideration in the Electricity Market Reform proposals. Demand
reduction is the cheapest way to meet decarbonisation, security
of supply and affordability objectives. The White Paper must explain
the expected impact of the reform package on the three different
types of demand side measures: demand reduction, demand side response
and decentralised energy.
291 Q 293 Back
292
Ev w4 (Swanbarton), Ev w10 (CHPA), Ev 162 (WWF-UK), Q 152 [Ms
Davenport], Q 204 [Mr Simpson], Q 205 [Dr Parr], Q 238 [Mr Haworth] Back
293
Jim Skea, Paul Ekins and Mark Winskel [Eds], Energy 2050 -
Making the Transition to a Secure Low-Carbon Energy System,
[Earthscan 2010], Q 205 [Mr Molho] Back
294
Q 238 [Mr Haworth] Back
295
Q 269 [Mr Chapman] Back
296
Q 267 [Mr Ripley] Back
297
Ev w26 (Welsh Power Group) Back
298
Ev w10 (CHPA), Ev 162 (WWF-UK), Ev 195 (Greenpeace), Ev 203 (Friends
of the Earth), Ev 218 (RSPB) Back
299
Ev w39 (Low Carbon Group), Ev 151 (E3G) Back
300
Ev w45 (IET), Ev 162 (WWF-UK), Ev 195 (Greenpeace), Ev 203 (Friends
of the Earth) , Ev 218 (RSPB) Back
301
Ev 162 (WWF) Back
302
Ev 187 (National Grid), Q 101[Mr Less] Back
303
Q 238 [Ms Sorensen; Mr Haworth; Ms MacNaughton], Q 209 [Dr Parr]
Back
304
Q 209 [Dr Parr] Back
305
Q 209 [Dr Parr] Back
306
Q 102 [Mr Less] Back
307
HM Treasury, Budget 2011, March 2011 Back
308
PJM is a Regional Transmission Organisation [RTO] covering a large
part of the eastern USA. Back
309
Ev w39 (Low Carbon Group), Q 102 [Mr Skillings; Ms Cary] Back
310
Q 102 [Mr Skillings] Back
311
Q 102 [Mr Less] Back
312
Helm D, Market reform: rationale, options and implementation,
October 2010, www.dieterhelm.co.uk Back
313
Q 68 Back
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