One of my capex projects this year has been to invest in solar (or photovoltaic aka PV) panels and a battery for our house. Partly to reduce energy costs, partly to be more ‘green’, but also to improve our domestic energy security / resilience (we’ve suffered ~40 power cuts in our local community over the last year).
The benefit of a battery in the summer is that you can store energy for when you need it, as household demand doesn’t line up perfectly with when the sun is shining. The benefit in the winter, when solar production is low, is that you can charge the battery from the grid when electricity is cheap (typically between 00:00 and 06:00), and then draw from the battery for the rest of the day. Of course if you produce more energy than you need, you can export it to the grid and get paid for it.
What’s fascinating about the UK market is that since the introduction of smart meters (which can record and report what you import from, and export to, the grid every 30 mins), we now have a range of time of use (ToU) tariffs available from utility providers. So, as a consumer, you can now access energy prices that change every day, or even every 30 mins if you want.
The incentives are therefore in place for you to help balance the demand and supply of electricity through the market mechanism of buying low, and selling high — consuming what you want, when you want, along the way.
Enter the Demand Flexibility Service (DFS) — a structured programme started by the National Grid, the electricity system operator (ESO) in the UK. To deal with really big mismatches between demand and supply, e.g. at peak times in winter when demand risks outstripping supply, the DFS incentivises consumers to use less electricity than they normally would. This is a net measure vs. historical usage, so you not only get paid to use less, you get paid even more if you can export more too.
The system is delivered through authorised participants, i.e. consumer facing energy companies. In most cases these are existing utility companies that you pay for your electricity usage e.g. British Gas or Octopus Energy. But there are also specialists who sit on top and just participate in the DFS programme e.g. Axle Energy — who partner with networks of end users, such as the manufacturers / suppliers of domestic batteries — in my case GivEnergy.
The DFS notify market participants a day in advance of what they need, participants submit bids for what they can supply and at what price, and the market is made. The participants then notify their consumers. And there’s a good margin to be made for all parties, as I found out by digging into the data from the test (16-Nov) and first live use of the system this year (29-Nov).
What stands out:
- Octopus Energy is the major player in the market at approx 42% share. This isn’t surprising as they offer the most innovative ToU tariffs that benefit consumers who can demand shift. They’ve also grown organically and inorganically (e.g. the take-over of Bulb). See the size of the blue bars on the bar chart above vs. the rest.
- The DFS was under-subscribed — i.e. the ESO procured less than what was requested — see the pink bars on the bar chart above that represent the unmet demand.
- Octopus Energy appears more of a price-maker than price-taker. Given their market share — they can afford to bid higher than most. See the blue crosshairs on the scatter plot below c £5.33/kW x 200MW.
- The ESO isn’t desperate — despite the DFS being under-subscribed, they rejected higher bids (8MW @ £6/kW from Infinis on 29-Nov, 2x 12MW @ £4/kW & £5/kW from Octopus on 16-Nov)
- The weighted average price per kilowatt paid by the ESO on 29-Nov was £4.69, £4.30 & £4.33 across 17:00, 17:30 and 18:00 time slots
Who you choose as your DFS provider matters. Octopus Energy had their bids accepted of c 200MW @ £5.33/kW. My chosen DFS provider (Axle Energy) bid just 6MW @ £3/kW. The bottom line for me: I will get paid £2.10/kW I don’t use / contribute to the grid — in cash. But if I had gone with Octopus I would have received £4/kW in Octopoints…
Looking at it another way — Octopus as the biggest operator netted almost £400,000 in 90 mins (200 MW x (£5.33–4.00 /kW) x 1.5 hours x 1000). Triple that amount was the return to their customers. I expect that the combined cost represents a saving to the ESO vs the expense of buying an emergency supply in the open markets if available — or the worse case alternative: power cuts. So it’s a triple win for the UK economically — before you even think about the green benefit of not burning fossil fuels to make up for the extra demand.