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An industry commentary

In 2021 we saw a range of long term plans and consultation papers published by BEIS.

Where do we start

The best place to start is the ‘Transitioning to a net zero energy system’ (1) paper. Getting to Net Zero as fast as we can is obvious; if it can be done earlier than 2050 then that would be fantastic. This ministerial foreword sentence sums up the answer nicely:

“A smarter, more flexible system will utilise technologies such as energy storage and flexible demand to integrate high volumes of low carbon power, heat and transport and reach a carbon neutral future.”

And the Ofgem foreword expands that a little:

“As we change the way we fuel our cars and heat our homes, demand for electricity will increase from millions of new electric vehicles and heat pumps. Being more flexible in when we use electricity will help avoid the need to build new generating and grid capacity to meet this demand, resulting in significant savings on energy bills.”

In other words, we’re going to use more electricity (as much as 2x by 2050) due to EVs and heat pumps, it’ll come from green sources, which will be far more distributed and intermittent than the old style of large scale fossil fuel generators, customers will have things that intelligently use energy at the best time of day and the grid infrastructure will be able to cleverly cope with all that. Hence the frequent phrase ‘smart and flexible’.

That’s quite a fundamental change from today and it’s going to be achieved by “building 40GW of offshore wind by 2030, ending sales of petrol and diesel cars by 2030, and deploying 600,000 electric heat pumps per year by 2028”.

That should result in £10Bn less spend per year by 2050 (around 14% of investment with 80% of that being reduced generation investment and the rest on network saving) with a cumulative saving between 2020 and 2050 between £30Bn and £70Bn (2012 prices, discounted). But at the same time as reducing costs it means 24,000 new jobs too - 10,000 as a result of the UK domestic ‘smart systems and flexibility’ market worth £1.3Bn in 2050 (domestic DSR) and 14,000 on the equivalent international export market worth £2.7Bn by then. The export part sounds undervalued but the core idea is the UK being the silicon valley for energy which is really exciting for us.

A Smart Flexible Energy System

The answer is a Smart Flexible Energy System which “reduces consumer energy bills by reducing the amount of generation and network assets that need to be built to meet peak demand.” Something “Smart” can react and the “Flexible” bit means energy can be moved by location or time of use. That’s great - smooth out the peaks; something we’ve been experimenting with since 2018. Conceptually the idea is really simple to picture here - take any asset/system/product that can have its consumption shifted in time and use some algorithmic cleverness to do that; i.e. a balancing problem. Look a bit deeper and what’s being balanced depends on the grid constraints and that now becomes a hyper-local issue - we don’t have a homogeneously capable grid nor an even spread of assets (homes, tech) that can be smarten'd, nor a smooth spread of renewable energy generation. That’s a multi-dimensional challenge. Our homes are in towns and cities and our proximity to local renewable generation is poor - witness how frequently there's excess renewable generation in Scotland resulting in curtailment.

The there’s the commercial side of how energy is moved around and sold which involves organisations such as BEIS & Ofgem, the ENA, Elexon, the ESO, the National Grid, the regional DNOs/DSOs (and maybe the FSO - another consultation). Flexibility Providers & Aggregators (and potentially a new Domestic Flexibility Provider type of utility in the future) and the Energy Suppliers/retailers. The result is competing ideas where the control resides, how business models work and how consumers engage with the industry. Now it looks like a seriously complex problem.

The key is probably access to data - the more data such as 1-second EV charging data, digital twin data (profiles of assets) and standardisation of data (e.g. OCPP for EV charging, or PAS1878 for smart control) - the better a flexible system can function. This is probably the key takeaway from the 'Energy Digitalisation Strategy' (2).

Been there; working already

Our Agile tariff was the first step and we’ve proven it works as customers have achieved a saving by time-shifting their energy consumption. But taking it to the logical extreme (i.e. all consumers on Agile) you’d have daily oscillation - yesterday’s cheap half-hour, by having high consumption, becomes tomorrow’s peak half-hour and vice versa.

The ESO already sees the impact of thousands of EV chargers lighting up at 00.30 on our Go tariff so Go Faster was one of the ways we experimented with smoothing EV chargers out as we rationed out which Go Faster slots were available. If just a handful of thousands of EV chargers were ‘seen’ (manifested by a frequency blip) then the growth in EVs and ASHPs is clearly going to have an impact. Hence ‘smart’ and ‘flexible’ is where we’re going.

There’s a sentence in there “Flexibility allows for generation and demand to be shifted to avoid curtailment” that needs a bit more focus - if we look back at the pair of bank holiday Mondays in May 2020 the grid ‘curtailed’ (like any industry, obscure words like ‘curtailment’ are used - why can’t we just say ‘turned off’) wind generation which hit the national headlines.

There’s very little more in the papers that discusses how to cease curtailment as it’s just crazy to both incentivise investment and pay for it to be disconnected - I’d love to see a commitment to never curtail any renewable generation - there are demonstrators of Large-scale Long-duration Electricity Storage (LLES) planned although not for at least 5 years.

Back to business models though; wind generators are paid to turn off via the flexibility market and due to the subsidies wind receives they’re able to bid a lower price to be turned off so you end up with a perverse scenario of not decreasing carbon emissions as much as we could do on strong wind days - today the £1.5Bn wholesale flexibility market is 80% dominated by fossil fuel generators flexing. In the near future we’ll see EV charging (domestic and public) participating in the flexibility markets as new EV charger installs are now mandated to be smart. For example we're working on connecting Powerloop (V2G) participating in the National Grid ESO's Balancing Mechanism very soon - probably a first.

I mentioned above that your locality is significant in this complex problem - there’s a sentence that gives some indication this will get looked at: “continued development of local flexibility markets, or a more fundamental shift to regional or locational pricing”. I see this as vital given what I’ve talked about above so tariffs such as Fan Club that we’ve launched demonstrate ideas, although mindful of the postcode lottery. The UK is already divided into the regional GSPs with rates varying a couple of pence and I often see Scottish customers querying why their rates are similar to the rest of the UK whilst frequently hitting zero grams of CO2 emission per kWh generated according to the Carbon Intensity website.

Writing this at the end of 2021 we’re seeing this exaggerated as wholesale gas prices are driving up the wholesale cost of electricity - if you’re in Scotland why does this matter? Should we be worried about the Postcode-lottery effect? Why are are we also ‘curtailing’ cheap (in fact free in terms of production cost) wind energy whilst paying excessively high gas generation costs?

Insurance, house prices, train travel, beer, meals out all have much greater geographical price variation. Not to mention the frequent trade-off of an idyllic rural home knowing you’ll probably have poor mobile coverage and internet bandwidth issues - often a reluctant acceptance for the benefit of that rural lifestyle.

It’s called a Home Energy Management System and we’re in 1878 (and 1879)

Smart tech in homes includes electric heating & hot water (i.e. Heat Pumps mostly), EV charging and discharging (V2G, V2H, V2E, V2L or V2X - meaning Vehicle to Grid/Home/Everything/Load anything else which is just another way of saying the discharge is controlled and sometimes matched to demand), solar systems with home battery storage and in the future more connected home appliances such as dishwashers, washing machines and clothes dryers. Collectively these are expected to provide 13GW flexibility from domestic properties in 2030. We’re also likely to have 15m EVs on our roads in 2030 which also contribute to the smart & flexible need. These are significant figures so the technology and method is going to be important. Trials such as SmartSTEP experiment with Smart Meters using Proportional ALCS (Auxiliary Load Control Switch - a feature of smart meters) but the BSI PAS 1878 standard (8) doesn’t mandate the smart meter as the route (yet). PAS 1878 is likely to become talked about a lot over the next few years:

“The British Standards Institution has now published two standards (PAS 1878 and 1879), developed by industry, which set a technical framework for small-scale DSR, guided by the principles of interoperability, data privacy, grid stability and cyber security, and which is compatible with the GB Smart Metering system.”

Whilst the 'Transitioning to a net zero energy system' (1) paper expects “home energy management services that are cyber secure, interoperable across devices, and utilise time of use tariffs”, it also says “Government will aim to consult in 2022 on an appropriate regulatory approach for organisations performing this ‘load controlling’ role.” As usual: be warned, there’s more, not less, regulation looming. Really it’s too early to start applying regulation to such a new technology and consumer experience and this just isn’t necessary but this could point to a new Utility to the home - a Domestic Flexibility Provider of some sort as by 2030 consumers "will be in charge and able to choose how dynamic their participation should be".

The expectation is homes will have smart meters, smart appliances and energy storage - to quote:

“Smart and advanced meters which record usage in half-hourly periods, to help measure demand more precisely and enable cost-reflective tariffs and services.

Smart appliances, for example heat pumps, heating controls, air conditioning, electric vehicle chargers and white goods that can operate flexibly.

Energy storage, so that buildings have a source of heat during periods when they do not draw electricity from the grid, or to store electricity from onsite renewables. Storage can take several forms, including the heat stored in the fabric of the building, hot water storage, phase change materials (also known as heat batteries) and electric batteries. This storage can be in individual homes, across multiple buildings (e.g. serving a block of flats) or at city scale in large heat networks.“

Coming back to PAS 1878 the Electric Vehicle Smart Charging paper (5) requires PAS1878 in phase 2 so the scene is set for PAS1878 to happen and even before then the first phase is that EV chargers:

  • Must be smart

  • Must meet cyber security standards

  • Mustn’t be designed to prevent compatibility with energy suppliers

  • Must require the user to set up a charge schedule on first use and mustn’t default to the peak period

  • Must have randomisation built in (default of 10 minutes and configurable to 30 minutes)

  • Must meter the energy (doesn’t state anything about billing)

Worryingly “the smart metering system remains the lead option for delivering smart charging…” but at least “Government is continuing to explore alternative or complimentary solutions”. Applying the control via the smart meter is obviously very tempting given the massive investment and ubiquity of nationwide coverage (well nearly - 98% or so, and I have a long list of customers that have coverage issues). But the smart meter rollout is several years behind completion, still has significant issues (witness the beta nature of our tariffs and issues we face with half-hour data collection and meter connectivity holding back tariff innovation) and evolving a government IT system will be incredibly costly and complex versus letting commercial innovation take root. The only argument is the security oversight.

It’d better be secure

Smart Meters must pass CPA which is a process overseen by the NCSC given that a rogue actor being able to remotely turn off electricity supply of a large number of properties is a significant risk to grid stability. Similarly with the expected increase in smart flexible appliances the risk extends to the security of those devices. As we’ve written regularly about Smart Meters are technically complex and challenging and I’d like any smart flexible control to be independent of the meter infrastructure even though it sounds tempting to run it via the meter. Fortunately PAS1878 indicates the smart meter infrastructure as just one possible method and the government paper requires a ‘secure by design’ approach and it’s expected there will be a ‘minimum baseline’ for cyber security. The Electric Vehicle Smart Charging paper (5) for example relies on the EN 303 645 cyber security standard.

Domestic Demand-Side-Response (DSR) Flexibility Provider

Industrial flexibility has existed for many years but with the need for greatly increased flexibility to match the intermittency of renewable generation comes a new monetary flow for the domestic consumer - potentially a new type of home Utility provider, the domestic DSR flexibility service provider which might be an EV chargepoint provider, smart appliance manufacturer, energy supplier or a completely new entrant. Such a consumer may get rewarded (£s) for their assets (meaning solar-battery system, EV charger, electric heating system, etc) being available to the new domestic flexibility markets. Alternatively lower flat rate tariffs may be offered if the assets are controlled. Either way the consumer with assets that can be flexed will be financially better off. By 2030 it’s expected that consumers “will be in charge and able to choose how dynamic their participation should be” which hints at a choice of flexibility utility provider just like choice of energy supplier.

Along with such a new utility would be regulatory oversight, connectivity and management standards, privacy responsibility and cyber security demands. Either rates could be set centrally (like the original FIT scheme), or a reduction in a smart tariff or a market-led tariff scheme or something entirely new. It’s also likely to be very local meaning different availability and rates at a town or borough level and certainly well below GSP area scale.

The Electric Vehicle Smart Charging paper (5) for example refers to both DSR providers and DSR smart tariffs. There’s also a requirement for the energy import/export to be measured (But only to 10% accuracy) and available to DSR providers once a second. It’s easy to see how PAS1878 can be defined as the standard way to manage and control across all smart appliances for the domestic flex market.

Get me a Heat Pump

By 2028 the UK will be installing 600,000 heat pumps a year (up from 35,000 today) and by the mid 2030’s it’ll be 1.7m per year to combat the 30% of UK emissions from heating & hot water. From April 2022 a government grant (the Boiler Upgrade Scheme) of £5,000 will make a heat pump install the same cost as replacing a gas boiler and at parity without the grant by around 2030. By 2035, unless hydrogen goes ahead, no new gas boilers will be installed (except there’s a really dodgy caveat in the Heat and Buildings strategy “...once costs of low-carbon alternatives have come down”. Why that’s 5 years longer than EVs isn’t clear but at least we have a date. The Hydrogen “Strategic Decision” to decide ‘no’ isn’t due until 2026 - plenty of time for EV growth to show a quick end is possible.

Assuming a decent Seasonal Coefficient of Performance (SCOP) of a heat pump (say 3.5-ish) we’re past parity with the cost of gas, but to be more realistic and to correctly reflect the need to electrify heating, levies (such as REGOs) will move from electricity to gas “over this decade”.

Everything’s connected here - the plan is that by 2030 the cost of installing a heat pump will be at parity of a gas boiler and that the running costs will also be at parity.

I’ll be driving in my EV

There’s approximately 373,000 EVs on UK roads now (end 2021) which is expected to reach 15,000,000 by 2030 when new petrol and diesel vehicles will no longer be available. Similar to heating our homes, that targets the 24% emissions from transport today.

But in the same way heat pumps will increase energy consumption, electricity demand due to EVs will increase by 30TWh and 65 to 100TWh by 2050 resulting in 10% of all energy demand. Once V2X is happening at scale (by 2030) drivers may realise a financial benefit of £438/year for supporting the ‘smart flexibele grid’ and by 2050 when 48% of vehicles are expected to do so that will amount 30GW of flexibility.

Every 30 minutes

Before smart meters assumptions were made about a homes’ typical consumption which is referred to as the “Profile Class” (PC) and PC-1 specifically refers to domestic homes. PC-1 is an average curve of electricity use over 24 hours and over each day & week of the year. Wholesale domestic energy is purchased based on this average ‘profile’ for the 12 month contract (or part of the term - witness the issues of failed energy suppliers that crashed their hedging strategies or simply didn’t have one in the second half of 2021) and by being standardised across all energy suppliers sets the base for energy retail. That profile assumes everyone consumes the same amount of energy during the peak period so if a property consumes less during that period (EV charged overnight, solar-battery used, etc) then the total wholesale cost for that property is less.

​An ASHP day

​Charging the EV in the evening

The only way to know that is more timely measurement - half-hour being the UK chosen period. And half-hour settlement means buying the energy per each half-hour for each customer and that is referred to as Profile Class 0. Half-hour settlement has been in use for industrial supply for many years (using Advanced Meters, not SMETS) and from October 2025 we’ll change to half-hourly for domestic settlement.

Once we get to that point everything else around smart tariffs, flexibility, smart appliances, etc all starts to fit together. A smart tariff can reflect the actual cost of wholesale energy and/or the participation in the flexibility market.

Where’s the financial gain?

I mentioned that the consumer will financially gain either if they have a smart asset that can be paid to flex or if they’re offered a lower tariff because the asset is flexed. Under both conditions the flexibility provider places the asset in a flexibility market and so expects to make a margin on the cost of flexing that asset. But under a profile class 0 half-hour settlement world like we’ve done with Agile Octopus the price/cost signal can be visible to the homeowner the tariff could cancel out the flexibility market. The purpose of a flexibility market is to avoid the cost of grid investment; if the investment would be £10m in a local area and a flex value is set at an annual £4m that’s a £6m saving in year 1 but in year 3 has become more expensive (total cost).

Or if an energy supplier offers a tariff such as Agile Octopus and assets are flexed by that tariff should the energy supplier take a portion of that flex value or does the flexibility market no longer exist?

There’s a danger too that a portfolio of assets under control becomes leverage in making a flex market - kind of holding the FSO/ESO/DSO to ransom. How the market for flexibility works becomes critical here - consider a micro level of 50 properties on a street and one tries to achieve a higher flex return; they’ll be outcompeted by the other 49 if the demand for flexibility in that area is low and say 25 properties flexing is enough. Alternatively if the flex demand is high and more than 49 properties worth of flexing is needed then the return will be bid up.

There’s a danger the government papers are too top-down centralised control; something like saying ‘we need a smart flexible energy system so we don’t invest in the grid to meet high peaks if we can smooth everything out so we’re going to mandate all devices are smart and will be sent control signals over the massively expensive smart meter infrastructure because we’ve already spent a lot of money on it’.

Engaging customers by promoting smart flexible assets and markets is more powerful than a top down control. With our R&D Labs system we’ve experimented on this already by allowing a solar/battery system owner to set their own lower threshold of the Agile import price at which to charge their battery from the grid (e.g. I’ll take 50% charge when below 15p/kWh) and correspondingly their higher threshold on Agile export to export to the grid (e.g. I’ll export when the rate is above 20p/kWh). A customer setting a lower import threshold or a higher export threshold is less flexible by choice. Customers are able to choose the level of flexibility they want to engage in. The same can be applied to heating which we’ve experimented with too - a heating system can be run with a wider temperature range that reacts better to price signals.

Let’s interconnect

The interconnect capacity with the continent is set to increase (27GW of 57GW by 2050) which is expected to both improve flexibility and make the UK a net exporter of renewable energy. But there’s a danger in relying on a large interconnect to balance the system; certainly flexibility is easier if there’s more choice (i.e. bargaining different sources) but the continent is probably also more constrained at the same time as the UK - the one hour time difference won’t make much difference and weather may not vary enough across the continent unless we're relying on French nuclear to balance the UK renewables.

If that interconnect growth gives greater access to off-shore wind that’s not attached directly to the UK then this makes sense - however the plan is for 40GW of UK Offshore wind by 2030 already. Perhaps the leading argument is to use the interconnects to avoid the need for wind curtailment when we reach 40GW and 57GW - that sounds unlikely to avoid when we’re regularly seeing curtailment already - and even in the future to be a net exporter even if currently we’re a net importer. That’s a significant point given we’ll double electricity demand and eliminate half of today’s generation capacity (i.e. all gas generation) and highlights the massive change that’s happening over the next few decades.

Renewable Energy on your Doorstep

There’s massive investment in local wind, solar or hydro schemes with the intention for local communities and investors set to financially benefit from grid constraints at a local level. This is enough to incentivise renewable generation but it makes little difference to local consumption. This includes allowing communities to invest in a scheme (financial return via dividends, etc) but those that would benefit most from lower cost local energy (e.g. near or in fuel poverty) don’t have the means to invest. What’s missing is any suitable method to reduce local consumption in the way we’ve launched with the Fan Club. My analogy is the railway network (or London tube network) - it would be absurd to pay a fee to go anywhere rather than a zone 1 ticket and yet that’s exactly the case with electricity generation (ignoring my April 1st solution). Local energy purchasing is a missed opportunity in all these papers and demonstrates the top-down centralised approach to grid management rather than consumer engagement methods.

NZIP and more

There’s a list of new government investment and grants too; the Boiler Upgrade Scheme (£450m), the Home Upgrade Grant (£950m), the Social Housing Decarbonisation Fund (£800m) and the Net Zero Innovation Portfolio (£1Bn).

The NZIP in particular spans smart systems, flexibility and energy storage meaning everything from generation (including Nuclear), balancing, storage, homes (generally), bioenergy, hydrogen, GGR & CCUS as well as industrial.

New Build

No homeowner is going to be forced to replace their gas boiler although with a lifetime of 15 years the end of new gas boilers in 2035 takes us to 2050. However it’s expected that the new Future Buildings Standard (7) will come into force in 2025 and mandate no gas in new build from that date. That standard also requires new homes to be “Net Zero Ready” from 2025 too. If only the government and developers hit the targets, this is a significant contribution to achieving net zero by 2050.

I’m involved in several new build schemes with Octopus Real Estate and Homes England called the Green Homes Alliance where we’re looking at how the development finance is cheaper for homes that are built to EPC B+ and above. The easy wins are triple-glazing, insulation, solar & battery install but we’re already seeing that the SAP standards and EPC methodology don’t reward things like smart technology, smart tariffs, domestic flexibility, etc. PAS 1878 & 1879 begin that path and the Standard Assessment Procedure (SAP) is being updated. Use of the Future Buildings Standard ahead of waiting for 2025 will help. Similarly social housing providers are exploring new build standards and technology ahead of enforcement dates too.

What’s the Future?

The grid is a network to which we’re all connected including highly distributed renewable generation, highly distributed smart-consumption (and storage) technology, and it all needs balancing. These papers focus a lot on generation, distribution, consumption and therefore conclude that smart flexibility is the silver bullet that glues it all together. That’s the macro system level view which is more or less an extrapolation of today’s trends prodded along with government money.

But just 10 years ago arguing for all EVs on our roads, all heat pumps in our homes, no gas heating in new build, etc, wasn’t even worth the effort; for example the World Energy Council 2011 report for 2050 spends more time extrapolating population growth and transport and discounts the success of electric vehicles.

Go back only 25 years and mobile phones were only for stock dealers in London.

So what do we think is implausible energy technology change today that could be mainstream in 2030, 2040 and 2050 as it’s guaranteed not to be what we think it will be now in 2021. Will we replace house roofs with solar tiles. Will we convert properties to DC. Will we no longer own vehicles and no longer drive them ourselves. Will our windows also be solar panels. Will our homes be off-grid. Will we (finally) have ‘smart homes’. Or will it be something totally different that we can't imagine.

Any of these are technically feasible and many prototypes and DIY demonstrators exist today. A Future Scenarios methodology helps but realistically technology change happens in shocks when some new business creates something that scales that everyone else dismissed. I wrote part of this back in late 2021 but the Ukraine war is one such shock causing massive change very rapidly. Think Ford cars, or PCs or mobile phones (and even then look at the rise and falls of Nokia then Blackberry). Where will Tesla be in the next 30 years.

These government papers are all extrapolative trends so my bet is they’re all completely wrong. Two of my personal hopes are making homes off-grid and going all DC and I’ll explain why.

Take a look around you at all the things plugged in - laptop, TV, broadband, smart thermostats, mobiles, voice assistants, LED lights, and anything else which has a circuit board in it will all be running on DC. Electric cars, solar panels, home batteries are all on DC. It’s become popular to replace sockets with versions that have USB outlets too as USB power supplies take up too much space, block other sockets, etc. Ethernet already supports up to 100Watts DC supply. We’re surrounded by DC power devices in our homes so with dozens of AC:DC transformers there’s a fair bit of inefficiency. It could be quite feasible to have DC versions either using USB-C, Ethernet or some yet to be invented connection with the added benefit of connectivity included. That makes it sound simple but currently voltages vary - EVs at 400v to 800v, solar at 50v and above, USB-C devices 5v, 9v, 12v - so harmonisation and ability to support at least one high and one low voltage is needed.

Secondly our energy consuming technology will get increasingly efficient - we’ve already seen lighting plummet by 90% for example. Home insulation makes a massive difference to heating costs - a passive house virtually needs no heating at all. Heat pump COP will improve significantly. And solar will become simply replacement roof tiles and windows. If we no longer own (self-driving by subscription) cars in 2050 we won’t charge them at home. We may have domestic level long-term storage solutions. Add that up together and it’s possible for a home to be off-grid. Couple being off-grid and it’s easier to see how an off-grid home can also be all-DC.

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