Demand side response: A tool for lowering household energy bills

DOI: https://doi.org/10.58248/PN715

Demand side response is changing consumption of electricity in a way that is beneficial to the electricity system, and covers a range of services that vary the demand of both domestic and commercial consumers to help balance the power grid. It is used for two main reasons: to manage peak demand to reduce the amount of network investment required to meet an increasing electricity demand, caused by the electrification of heating and transportation; and to match demand with the output of renewable electricity generation, which tends to be intermittent.

Opportunities for demand side response have increased significantly in recent years with the rollout of smart meters – now installed in half of UK properties. Demand side response could make household energy bills cheaper, and the British electricity system £3-8 billion per year cheaper to run by 2050. For reference, the projected annual electricity system cost in 2050 is about £70 billion.

According to academia, industry and the government, demand side response is one method of reducing the amount of infrastructure investment required to meet an increasing electricity demand. Yet consumers have differing abilities to understand what they have to do to engage effectively and provide demand side response, raising just transition issues. For example, electric vehicles offer greater flexibility compared to an electric cooker. People with children, shift workers, and households with medical devices may need to consume electricity at peak times. Households with less ability to shift may end up paying more for their electricity.

Key points

• Demand side response is changing when devices use electricity in a way that is beneficial to the electricity system. For example, an electric vehicle could charge during times of low demand at night.
• Demand side response is one method of reducing the amount of infrastructure investment required to meet an increasing electricity demand.
• Demand side response is used for two main reasons: to manage peak demand to reduce the amount of network investment required to meet an increasing electricity demand, caused by the electrification of heating and transportation; and to match demand with the output of renewable electricity generation, which tends to be intermittent.
• Demand side response could make household energy bills cheaper, and the British electricity system £3-8 billion per year cheaper to run by 2050. For reference, the projected annual electricity system cost in 2050 is about £70 billion.
• The role out of smart meters is an important component to demand side response services because they measure electricity use in real time.
• Consumers have differing abilities to understand what they have to do to engage effectively and provide demand side response. For example, electric vehicles offer greater flexibility compared to an electric cooker.

Acknowledgements

POSTnotes are based on literature reviews and interviews with a range of stakeholders and are externally peer reviewed. POST would like to thank interviewees and peer reviewers for kindly giving up their time during the preparation of this briefing, including:

Members of the POST board*

Claire Addison, Flexitricity

Avi Aithal, Energy Networks Association

Naomi Baker, Energy UK

Nick Banks, University of Oxford

Robert Barthorpe, University of Sheffield

Steph Budenberg, Baringa

Peter Bullock, Evergreen Energy

Simona Burchill, Octopus Energy

Azad Camyab, Pearlstone Energy

Timothy Chapelle, Energy Systems Catapult

Chris Collins, Baringa

Matt Copeland, National Energy Action

Simon Cox, Baringa

Sarah Darby, University of Oxford

Sam Do, UK Power Networks

Samuel Ebohon, Baringa

Xander Fare, Department for Energy Security and Net Zero

Michael Fell, University College London

Rebecca Ford, Regen

Elena Gaura, Coventry University

Alex Hart, National Grid ESO

Robin Healey, Centrica

Evelyn Heylen, Centrica

Sarah Honan, Association for Decentralised Energy

Charlotte Johnson, Centre for Sustainable Energy

Niall Kerr, Scottish Parliament Information Centre

Ben Kinrade, Hitachi

Nina Klein, Ofgem

Silvia Laera, International Energy Agency*

Andrew Larkins, Sygensys

Mark Lufkin, Wondrwall

Luca Mezossy-Dona, IONATE

Rachel Mills, Citizens Advice

Peter Morgan, Department for Energy Security and Net Zero

Thomas Morstyn, University of Edinburgh

Daniel Murrant, Energy Systems Catapult

Mark O’Malley, Imperial College London

David Parfitt, National Grid ESO

Natasha Patel, Baringa

Fahrat Raza, Ofgem

Alasdair Reid, Scottish Parliament Information Centre

Valerie Reif, Florence School of Regulation

Nicolo Rossetto, Florence School of Regulation

Florentine Roy, UK Power Networks

Vida Rozite, International Energy Agency*

Jon Saltmarsh, Energy Systems Catapult

Laura Schade, Department for Energy Security and Net Zero

Alex Schoch, Octopus Energy

Rebecca Shutt, Department for Energy Security and Net Zero

Goran Strbac, Imperial College London

Gemma Stanley, Piclo

Aidan Stennett, Northern Ireland Assembly Research and Information Service

Jacopo Torriti, University of Reading

Paul Troughton, Enel X

Calvin Tsay, Imperial College London

Robert Westmancoat, National Grid ESO

Matthew Williams, IONATE

Marzia Zafar, Ofgem

* Denotes people who acted as external reviewers of this briefing