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UTILITY WEEK | 31ST MARCH - 6TH APRIL 2017 | 13 SUPPLIERS All suppliers present were looking to position their businesses to deliver or enable demand-side services in the immediate and mid-term future – both in the B2B and domestic markets. This intention manifests in a range of activities, many relating to time-of-use tariffs targeted at early EV adopters and, in the business market, the recruitment of firms with generation and/or storage assets to participate in flexibility trials. It was broadly agreed that the "size of the prize" could be significant – though the nature of the prize was more about system value than commercial gain. It was felt that early movers in the provision of demand-side services will gain commercial advantage, but that the political environment around energy supply makes it unacceptable at present for energy firms to express much interest in the possibility that demand-side services might be lucrative. The size of the DSR prize also depends on the uptake of key technologies such as electric vehicles, and to a lesser extent electric heat. It will also depend on the development of local energy systems and the "distribution system operator" agenda. It was generally agreed that a key benefit offered by DSR is that it could make each of the strands of the "trilemma" much easier to tackle, because it can flatten demand, and drive towards an overall reduction in demand. As a result, the need for new capacity of peaking plants is reduced and the use of renewable energy sources is facilitated. The barriers to realising DSR value were seen as significant. The group saw fundamental contradictions between recent and ongoing government interventions in the supply market on behalf of consumers, and the need to moti- vate users to engage in DSR. This observation prompted a discussion about the price signals and differentials between peak and lowest costs of energy. It was – cautiously – agreed that DSR will be enabled only when there is a bigger price differential and some also insisted that the peak price of energy will have to be higher to motivate customers to engage. Other problems identified were the complexity of the existing ancillary services system and DNO incentives for adopting smart con- straints management approaches. It was generally agreed that these incentives are not strong enough and/or are not targeted in a way that motivates DNOs to press on with the connection of storage, an alternative to conventional system reinforcements. Participants suggested that a simplification of the pool of ancillary services – to a choice of about six – would help enable DSR. They also called on Ofgem to strengthen the incentives in the RIIO regime for DNOs to avoid con- ventional reinforcement through smarter methods. They suggested that government could play a bigger advocacy role for DSR and support a national education/ awareness programme. The "size of the prize" depends on how you define demand- side flexibility, according to aggregators' representatives. Does it refer simply to reactive demand-side response (DSR) or it does it also include more proactive efforts to shi consumption permanently with time-of-use tariffs? In terms of DSR, there is a "population pyramid" with a small number of large industrial players at the top and the millions of household consumers in the UK at the base. For the moment at least, commercial sites are the "main prize" because there are higher profit margins up for grabs – the cost of installation per megawatt of DSR is much lower than it is for households. Nevertheless, the diffusion of smart technology into con- sumers' homes means domestic providers are still on course to make as big a contribu- tion to the market as industrial providers by the end of the decade. The Association for Decentral- ised Energy has said business customers alone could provide 9.8GW of DSR by 2020, but aggregators said this figure could extend well into the double digits if the UK proceeds with the electrification of both transport and heat. They said that one of the principal barriers to the growth of demand-side flexibility is the mindset of policy and decision- makers, who understand DSR on a theoretical level but have rela- tively little knowledge of how it works in practice. One aggregator called for them to make more site visits. "I want them to all have wellies," he said. The Department for Business, Energy and Industrial Strategy "will never leave Whitehall", said another; Ofgem say they are com- ing "but never do" and National Grid will send people but they are usually just account managers. "They've also never pitched to an investor," added one aggregator. This oen shows up in policy – in the capacity market, for example, demand-side response is essentially assumed to be the same as any other type of capac- ity. Under the current arrange- ments, if one of the providers in the portfolio that makes up a capacity market unit decides to drop out, the entire contract is cancelled, even if they could be easily replaced. Aggregators said this fails to take into account the way a DSR portfolio is usually managed and doesn't make sense, particularly because providers oen drop out when they decide to install energy effi- ciency measures that are beneficial to the energy system. Another major bar- rier to the success of demand-side response is the vertical integra- tion of suppliers that have "no incentive to find an alternative to their generation" and therefore cannot act as a "hero for the consumer". Aggregators said DSR only works in markets where suppliers are not acting as the gatekeeper to the consumer. There has been a "whispering campaign" from suppliers about the reliability of DSR, which appears to have influenced the thinking of policy- makers. Vertically integrated suppliers also appear to have difficulty delivering DSR themselves: "If you've built a company around larger generation you can't turn into a demand-side response organisation". Where aggregators have worked with suppliers, the aggregators have typically ended up doing the bulk of the work outside sales, because suppliers don't have the right expertise. Brought to you in association with "I want them all to have wellies." ONE AGGREGATOR ON POLICYMAKERS WHO NEVER GO ON SITE AGGREGATORS