Demand-side flexibility: why, how, and who?

In Great Britain, we are getting more of our electricity from renewable sources like solar and wind power. At the same time, we are increasingly using electricity to power our cars and heating systems. This is a necessary part of getting rid of carbon emissions from energy, but it poses challenges for energy system management. Unlike fossil fuel power stations, renewable generation can’t be turned up at will to meet high levels of electricity demand. As such, it is expected that demand-side flexibility will play a more important role in balancing the grid.

Demand-side flexibility means changing patterns (eg, the amount, time, or place) of electricity use. An example of this would be a household choosing to run a washing machine in the morning instead of at evening peak time, which occurs roughly 16:00-19:00 on weekdays. If everyone did this, the evening peak would be smaller, meaning that we could avoid the need to turn up costly, polluting fossil fuel power stations to meet that high evening demand.

Right now, the value of flexibility (and therefore the prevalence of flexibility products and services) is limited. In future, as renewable generation and electrification increases, rewards for being flexible (and potentially penalties for not flexing) could be much more significant. And in some countries, flexible tariffs are becoming either the default option (such as in Ontario, Canada), or even obligatory (such as in the regulated Spanish market).

There is growing evidence that households differ in their ability to provide and benefit from demand-side flexibility. For example, a household with a domestic battery can reduce its consumption to practically zero for a short period of time, while continuing to do the same activities as they would normally. Reducing demand at specific peak times is something that households are increasingly being offered financial incentives to do, particularly through National Grid ESO’s ‘Demand Flexibility Service’ (DFS) – see below. However, a household with children (meaning they are on a tight bedtime schedule) and which cooks with an electric stove will either have to make changes to the way they eat during a DFS event, or miss out on savings.

The costs of operating the energy system are passed on to all consumers through energy bills. So getting more flexibility is good for everyone, because it will help keep these costs as low as possible in the future. But if some customers stand to see significant direct savings from being flexible, while others either miss out or face higher costs – or have to compromise on comfort or convenience – there is a risk that the net-zero carbon transition could increase inequality.

At Nesta, one of our primary missions is to reduce carbon emissions from homes, and flexibility is expected to play a role in achieving this. Doing so in a way that benefits as broad a range of households as possible is not just fairer, but mitigates the risk of breaking the social contract underpinning support for net-zero transition. As such, we want to understand how more households – across a range of incomes, tenures, household make-ups, and so on – can be better enabled to provide and benefit from flexibility. In this study, we wanted to learn more about a specific group of households, and how they are already providing flexibility, by focusing on smart prepayment meter customers’ participation in the DFS.

The DFS and smart prepayment customers

While flexibility has long been a part of Great Britain’s electricity system management, the introduction of smart meters is opening the door to new opportunities to benefit from it. In 2022, National Grid ESO introduced the DFS. Offered by companies to their customers, it rewards households for reducing their electricity use below a calculated baseline at specified times (known as ‘events’) over the winter. Events are usually scheduled when periods of high expected demand coincide with low forecast generation.

The rationale is simple – it is cheaper to pay households to turn down demand at event times than it would be to generate the power that would otherwise be needed. This way system costs are reduced for everyone (lowering bills), while participating households see direct compensation for reducing their electricity use for a short period.

In this project, we partnered with the energy supplier Utilita, who specialise in serving prepayment meter customers. Prepayment customers – of which there are around 4 million in Great Britain – are significantly more likely than credit customers to be on low incomes, renting (private/social), without or with lower qualifications, aged 65+, disabled, or on the Priority Service Register (PSR) (CMA 2016, p455).

We believe prepayment customers may have different needs to credit customers in terms of benefiting from flexibility. They need to budget differently month-to-month, and often feel the impact of their increased or decreased energy usage more quickly and directly in their disposable income. Having a prepayment meter can be used as a way to avoid or manage energy debts – which for some customers can be linked to wider issues of energy affordability. Prepayment customers using smart meters can benefit from better real-time information about the energy they are using. This also means their energy supplier may be better able to pass on rewards from the DFS, as they can prove that they have shifted or reduced their demand to help the grid.

There has been increasing interest in the ability of different households to benefit from flexibility services. Assets that enable more flexibility, such as modern electric heating systems, electric vehicles, or home batteries, may be less likely to be accessible to prepayment customers given their higher probability of renting or being on a lower income than credit customers. But social factors, such as employment, the presence of children in a household, or living in a rural area can also play a role. Prior evaluation work by the Centre for Sustainable Energy (CSE) on the DFS has looked at prepayment customers’ experiences alongside that of credit customers, and found they actually report a slightly better experience on average, reporting slightly higher rewards and satisfaction.

Utilita’s DFS offering is called Power Payback, and it has operated for the last two winters (2022-2023, and 2023-2024). To read more about what it involves, click the dropdown.

We interviewed nine customers, recruited by Utilita, about their experience of Power Payback and their perceptions of a more flexible future for the electricity system. We wanted to delve in detail both into their DFS experience, and their perceptions of a more flexible future for energy. To provide context, we also conducted an analysis of posts on the Money Saving Expert (MSE) forum concerning DFS, identifying key themes and sentiments. For more detail, see the Methodology section at the end of this report.

We drew on this work to develop user personas, or fictionalised descriptions representing groups of users with similar characteristics. We can use these directly in future studies, informing our work to design and scale services that will help a broader range of households to provide flexibility and contribute to building an affordable low-carbon energy system. The following sections introduce our interview approach and some of our participants, our learnings on customers’ experiences of Power Payback, and perceptions of future flexibility. We then develop a range of representative personas and illustrate their different journeys attempting to provide flexibility, and how they might be improved. Finally, we suggest avenues that future work in this space could explore.