Why we should all join the Demand Side

Every winter Britain’s “energy crisis” looms on the horizon, making headlines in newspapers. This so called “crisis” is symptomatic of the energy market’s inability to incentivise construction of new firm, or reliable, energy generation capacity (typically gas-turbines) to make sure there is a generation ‘safety margin’ during periods of extreme consumer demand. This is vital for the country, not least because having an electricity grid which can guarantee 99.99% reliability is essential for attracting further investment and economic growth.

Building extra generation capacity is just part of the solution, however; there’s another part to this equation which hasn’t previously received much attention in the UK. Energy consumers can also play a vital role in reducing peak electricity consumption, known as ‘demand side response’.

What is Demand Side Response?

Demand Side Response (DSR) is essentially the ability of electricity consumers to adjust their electricity use when required to balance the grid and keep the lights on, and get paid in the process. This could be turning off non-critical machinery to reduce demand at peak times (e.g. tea time during the winter), or more recently, increasing consumption to absorb surplus renewable energy generation to prevent the grid from becoming unbalanced (e.g. when it’s very windy but there’s not enough demand to use all the electricity generated by all those wind turbines).

DSR is not a new concept; in the UK the National Grid has been paying large industrial and commercial users to turn off machinery during peak periods for some years. The problem now, however, is that most of the larger users have already been targeted and the scope for further energy reduction at this level is limited.

Where is the market opportunity?

In the past couple of years, the market has seen new models emerging to open up DSR to smaller industrial and commercial consumers. In particular, companies known as ‘DSR aggregators’ now remotely manage the combined capacities of smaller consumers - typically those with a minimum switchable load of 200-250kW. Other markets have also been created to reward flexibility and capacity.

Companies that use a lot of energy that can be flexibly switched on or off or briefly vary their frequency (such as refrigeration, cold stores, baking ovens, metal melting and heat treatment furnaces, some plastics moulding processes or large buildings with air conditioning systems), may already be able to benefit from DSR.

But this is just the tip of the iceberg. There is real opportunity at the even smaller end of the market – including domestic consumers. If market forecasts for electric vehicles and domestic battery storage are accurate, homeowners could potentially use these assets to generate income in the same way. Already, there are trials for Vehicle-to-Grid technologies to enable electric car owners to be paid for exporting electricity from their battery back to the electricity network when the supply margin tightens.

The idea that increasingly smaller energy end-users can consume their electricity more intelligently and earn money in the process is all part of the wider market shift towards smart grids and cities, and localised energy generation and storage.  

You might be excused for thinking some of this is still a long way off, but there are already good business opportunities for small companies looking to capitalise on existing and emerging DSR markets.

Opportunities for the low carbon sector

If your business is in the low carbon sector and you work with companies to improve their energy efficiency, or develop new products or services which help companies better manage their energy through monitoring, control or analysis, you could potentially be sitting on new business opportunities.

According to market research, DSR aggregators are interested in companies involved with the design, supply or installation of sensors, meters and actuators – this is because the focus and intellectual property of many DSR aggregation companies is at the software management end.

Market opportunities don’t stop with the DSR aggregators. Since District Network Operators are managing increasingly stressed grids, some of them (Western Power Distribution and SSE particularly) are now targeting users connected to their networks for DSR capacity. There is also mention of large energy suppliers slipping into the smaller end of the DSR market.

While you may not be able to offer a direct route to the DSR marketplace, establishing contacts with the right companies and organisations, who are actively looking for innovative energy management products or to increase their client base in this market, could help widen your service offer to existing and future clients and open new doors.

Low Carbon Network

To help support companies in this space the Business Growth Hub has commissioned research into the market size for DSR and a summary is available to our Low Carbon Network members to download.  If you are not already a member, sign up here to access the benefits of membership and download the executive summary

Alternatively, get in touch with us directly to find out more.