February 3, 2023

Consumer activation: How we are finally changing our relationship with electricity

Flexibility from the demand side is crucial to a stable power system. Grid operators are now preparing to accommodate this flexibility, but are the consumers ready to adjust their consumption patterns? Read more in this new article by Powerledger's Cristina Mata Yandiola.

The energy crisis that was triggered by the gas supply issues seems to have brought many energy matters to a head. With high energy prices damaging the EU economy, and amidst a really tough winter, the EU commission released an emergency regulation plan requiring member states to reduce electricity demand by 5% during peak hours. However these measures, accelerated by the crisis, ought to have been introduced in the last decade. 

In the last few years before the crisis, Germany and the UK have each been investing over €1 billion to balance their power systems. This has been done in an effort to cope with the lack of flexibility from the generation side. 

Across 2021 we saw Germany investing up to €2.3 billion towards grid balancing initiatives, of which €807 million were exclusively invested in curtailment measures. Put another way, we’re seeing European countries spending over half a billion euros yearly in not using the renewables that are being produced, while customers struggle to pay their electricity bills, and countries miss their sustainability targets. 

This reflects very clearly the incapacity of our current market mechanisms to allow for the scaling up of renewables, despite this being an urgent need internationally backed by strict targets and goals to reduce greenhouse gas (GHG) emissions.

Our current power systems were not designed for coping with the variability of renewables such as wind and solar. Generators cannot simply adjust energy production of renewable energies in the same way that it is done with fossil fuels, just by controlling the fuel intake, because no one can control the wind or the sun. If we want to accomplish a stable, resilient power system, clearly there is a need to provide this flexibility from the demand side.

We have seen the industrial sector (i.e. energy-intense consumers) contribute with demand side flexibility for years. However, this has not been enough to cope with the variability of renewables. Furthermore, the full potential for large demand side flexibility relies also on the residential and SME sectors, both of which are still untapped due to the complexity and lack of market mechanisms to trigger consumer engagement. 

This autumn, the DSF2030 study commissioned by SmartEN and conducted by DNV showed some very interesting results; among them that the European Commission’s targets to reduce its GHG emissions by 55% before 2030 can’t be achieved without demand side flexibility. However, using the full potential of demand flexibility, including the residential sector, would allow 37.5 million tonnes of GHG emissions, while yielding annual savings of €71 billion directly for consumers.

While tackling the complexities of connecting large amounts of distributed energy resources (DERs) to their network, grid operators are getting prepared to accommodate this demand side flexibility. As Vincenzo Ranieri, President of EU DSO Entity, pointed out during the report launch: “Citizens are no longer at the end of the energy value chain and have become active and central participants in their own right. They self-produce distributed energy, individually or within energy communities and provide flexibility services to promote the stability of the grids. Our role, as DSOs, is to enable this new paradigm in an efficient and sustainable way.”

To unlock such flexibility, we clearly need consumers to adjust their consumption patterns, and given the skyrocketing energy bills it seems they’re now showing an increased willingness to do just that. Probably the clearest expression of this phenomenon is that Time of Use (TOU) tariffs, which have started making their presence in different European countries, are gaining relevance among energy consumers, even though they may have seemed strange in the first instance.

For example, in June of 2021 the Spanish system created a peak, shoulder and valley tariff scheme. At first consumers were somewhat sceptical about this new scheme, which gave a lot to talk about at the time, even leading to a range of jokes and memes being circulated.

Caption reads: “I have made some changes in the bedroom to take advantage of the new electricity rates”. Source: Instagram @SuperFalete

One year later, what was once a joke has transformed into something more serious, with daily articles published to help consumers use their energy when it’s cheaper according to such tariffs. And whether they yield small or large gains in the bill at the end of the year, such schemes engage consumers with Time of Use. This arguably is the beginning of demand response at residential level, albeit in quite a moderated way. 

Stepping beyond Time of Use tariffs, Peter King, the Global Energy and Utilities Lead for Capgemini Invent, points out that the uptake on many demand response programs has far exceeded expectations. “We were expecting 30,000, but the number that showed interest was far higher, over 1 million households. That suggests that this is definitely going to be an area for innovation,” said King.

If you look at the situation in terms of relationship with the wholesale market you could say there’s a paradigm shift. Up until now the consumer was effectively shielded from the vagaries of the wholesale market by lots of retail companies. These companies evened out the spikes in wholesale price, but charged a margin to do this. After the COVID-19 pandemic and the Russian gas crisis, a large number of these retail companies have now gone bust. They had not envisioned such market conditions and could not afford to supply the energy contracted to their consumers. The UK alone has seen over thirty retailers disappear from the market for this reason.

After a chaotic breakdown in this layer of retail protection, the consumer is now dealing with fewer retailers, none of whom seem particularly keen on taking on new customers. And even more concerning to them, they’re seeing an impact of the wholesale market volatility reflected on their electricity bill, which keeps rising on each term. 

Amidst such a complex situation to navigate, we’ve started seeing an increase in the amount of customers making use of alternative ways of procuring their energy - such as self-consumption units, or recently established local energy communities. These markets, together with demand response packages, can reduce in part their dependence on the ups and downs of the wholesale market, even for those who can’t afford the upfront costs of installing a battery.

An example of such community mechanisms can be seen both in large cities and in small villages like Almócita, in the South of Spain. In the village there is a 60kW photovoltaic solar system that serves different public buildings, coupled with 22kWh of battery storage and  two electric vehicle charging stations. The electricity can be traded peer-to-peer at below market rate, or even donated amongst the members of the energy community and the local town hall (which is leading this scheme). 

The improvements in regulation needed for these sorts of schemes don’t ramp up to full speed overnight either. The EU clean energy package was released in 2018, and didn’t give specific conditions on how such communities should work. It did, however, set a direction and obligation for member countries to release enabling schemes. 

Various countries in the EU have started with more conservative measures to test the field. Whilst in Spain the limitations on how electricity is shared have been gradually reduced, as have maximum distance requirements. You can now share your power up to a 2 km distance (an increase on the previous 500 meter limit), and on an hourly coefficient basis (compared to the fixed coefficients to start with). 

Not surprisingly, this has prompted an increase in energy communities registered in Spain to around 45 this year. Similar figures playout in other countries: In Italy, there are 41 in planning and 24 recently registered, giving a total of 100. In Austria, there are already 50 energy communities already active with 103 commissioned, 250 in France and 500 in the Netherlands. 

It seems that we are now at a turning point of customer awareness, activation and engagement. Until now it had been unthinkable that a substantial share of customers would shift their energy consumption outside from peak hours, or be willing to reduce/increase their load as per the grid needs. However, if there’s a positive outcome of the current energy crisis, it's that behaviour shifts that were not conceivable before, have become visible trends.

In the same way as work from home was inconceivable, and the COVID-19 pandemic triggered a 180 degrees change in lifestyle, in a few years we'll likely find it inconceivable not to participate in energy flexibly, and be active energy consumers that help the electricity grid work better.

We’ve seen the first customer-centred energy solutions and programs prove a clear appetite from customers to engage in such activities. We hope these initiatives will keep leading to further regulatory advances, and look forward to seeing more electricity retailers and energy management companies facilitating the customer-centred products that take us to the new electricity system.

Cristina Mata Yandiola

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