Octopus Energy has revealed around 1.5 million of its customers participated in the Electricity System Operator’s Demand Flexibility Service (DFS) over the last winter.
This was more than double the 700,000 customers which took part the previous winter when the service was introduced as one of several contingency measures to ensure the security of electricity supplies.
The Electricity System Operator (ESO) recently revealed that 2.4 million households and businesses took part in the service in 2023/24 – up from 1.6 million in the first year. They delivered a peak demand reduction of 400MW.
Kieron Stopforth, head of flexibility at Octopus Energy, said its customers contributed around half of this figure. If their response was extrapolated to all households in Great Britain, this would equate to a demand reduction of 5GW.
“The big picture is DFS has been really useful in showing the huge potential there is in customer demand flexibility,” he told Utility Week. “It’s shown that there is demand flexibility available at a potentially massive scale to system operators.”
Of the 3.6GWh of total demand reduction delivered across the winter, Octopus customers accounted for 2GWh. Stopforth said the supplier paid out £10.5 million to these customers.
The ESO held a total of 16 events – 14 tests and two live events – which Octopus has branded as ‘Saving Sessions’. In seven of the most recent events, all of them since the beginning of the year, the ESO removed the minimum price – referred to as the Guaranteed Acceptance Price – set at £3/kWh.
In these otherwise competitively priced events, Stopforth said Octopus chose to “subsidise” the payments from the ESO to ensure its customers received at least £1.75/kWh. He said their customers have been “really engaged” with the DFS and they wanted to “keep the momentum up,” adding: “We’re putting our money where our mouth is”.
The ESO has said it is considering withdrawing the Guaranteed Acceptance Price entirely in future years. It said the DFS should offer a price that is commensurate with the value it provides to the electricity system and does not overpay for services that could be procured at a lower cost in other markets. The ESO is also looking at enabling the “stacking” of the DFS with other services and markets.
Responding to the ESO’s proposed changes, Stopforth said he believes that domestic flexibility can compete on price with other resources such as large power stations. But he said domestic customers are not currently able to compete fairly with these assets: “When we look across all of the other resources that National Grid uses and that participate in the energy markets, almost every single resource has access to other forms of revenues and values”.
“I think if customers have access to some of these other services, then potentially the price that you’re getting on a half-hourly basis could be incredibly competitive with some of these other grid resources,” he added.
“What we need to get there is a level playing field. We need the right market arrangements. We need stacking.”
Stopforth also highlighted the growing costs of balancing services, which have swollen to around £3 billion per year: “We definitely see customer demand flexibility as a way of reducing costs. And if customers participate and reduce balancing costs, then they go down for every customer whether they’re participating in DFS or not.”
He said at Octopus they “don’t really care” whether the Guaranteed Acceptance Price remains in place as it was just “a way of attempting to level the playing field a bit and getting people into the market”.
Stopforth continued: “Rather than thinking too much about the Guaranteed Acceptance Price, I think what’s really key is to start putting in place meaningful change in terms of the future of what this service could be.”
For the second iteration of the DFS, the ESO removed within-day adjustments to customers’ baseline consumption. The change came after Utility Week reported that some customers had been earning large sums of money by artificially raising their electricity usage in the adjustment periods leading up to events.
Stopforth said there has been a lot of discussion within the industry about how to go about determining baseline consumption levels. “Basically, it’s an exercise in figuring out what a customer would have done if they didn’t participate,” he explained.
The ESO is considering further changes to the baselining methodology but Stopforth said the body has now largely got it right: “We looked at lots of different baseline options ourselves and the one that the ESO chose was statistically the most representative.
“I think there are probably dark rooms out there somewhere where a bunch of different people are having more debates over whether baseline A is better than baseline B and the difference between those points of view is statistically not very meaningful.”