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NETWORK / 26 / JUNE 2017 DEMAND-SIDE FLEXIBILIT Y A s renewable generation takes over from traditional power sources, the grid has to cope with inflexible, intermittent generation, as well as the challenges of distributed generation. Once a one-way power delivery channel, the electricity grid must evolve to compensate for the flexibility lost from generation, and cope with two-way power flow and local balancing. In 2016, Network's sister title Utility Week and CGI partnered on a major piece of market research on flexibility. This established three main routes to achieving it: demand-side flexibility (DSF), storage and interconnection. This follow-up study explores DSF in greater depth. DSF is defined as demand-side response (DSR) plus associated measures such as demand-side storage (DSS). We asked stakeholder groups in the energy sector for their views on the potential of DSF, their experience of DSF projects to date, the barriers they have encountered, the attitudes of their customers, and their future outlook with regard to DSF. The research revealed a market in its infancy. Much is expected of DSF as one of the main planks of a more flexible power system, but little has been delivered. All agree on the benefits that may arise from DSF, but they have yet to materialise, with regulatory and economic barriers placing a significant constraint on activity. Although there has been some early participation in DSF projects, the benefits they have yielded have been largely economic returns for customers and, to a lesser extent, for businesses. These are useful proofs of concept, but the potential benefits judged greatest by our respondents – those of cutting peak energy demand and helping to balance the grid as the energy mix changes – have been less apparent to date. For the energy sector, a number of things must happen before the potential benefits of DSF can become a reality. Our respondents expected a major uptick in consumer interest around 2024, which is widely expected to be a tipping point in the move towards a more flexible power system. In the meantime, despite the undisputed potential benefits of DSF, it remains an unproven and immature market that needs considerable development before reaching mass penetration. Customers are likely to remain largely unaware of its potential role, and market participants that understand its future significance are le' to jockey for position and seek to influence decision makers as its future structure is decided and enshrined in legislation and regulation. N KEY FINDINGS Potential of DSF l There is no doubt about the significance of DSF to energy businesses and the UK as a whole, with respondents rating it at 8.7 out of 10 for their businesses, and 9.1 for the UK, by 2030. These figures repre- sent an anticipated rise in significance of about a third over the next 13 years. l The biggest expected benefits of DSF are its ability to cut peak energy demand, maintain system balance and create flexibility to compensate for inflexible sources of generation. Towards a DSF market l More than half (57 per cent) of busi- nesses are adopting a limited or cau- tious approach to DSF. l Suppliers are the least enthusiastic, with 22 per cent not seeing DSF playing a sig- nificant role in their business's strategy in the foreseeable future. l Of those businesses that have engaged in early DSF projects, distribution network operators (DNOs) have seen the most success. Traders and flexibility providers rated success levels significantly lower than participation levels, suggesting results have not lived up to expectations. l DSF has yet to play a significant role in the energy mix, with only 28 per cent of projects to date resulting in reduced en- ergy demand, and 32 per cent in reduced pressure on infrastructure or reduced requirement for new infrastructure. Barriers to DSF l Most respondents (82 per cent) have experienced barriers to the success of their DSF projects to date, with economic barriers the most common. l The lack of incentives was highlighted as a significant barrier, with respondents selecting it as both the biggest regula- tory and economic hurdle. l Respondents identified a lack of policy and regulatory clarity around DSF, rank- ing it just 4.2 out of a possible 10. l Confidence in the forthcoming regula- tory reforms around DSF is low, with respondents rating their confidence that the reforms will remove the barriers to DSF at just 5 out of a possible 10. Customers and DSF l An uptick in customer appetite for DSF is expected around 2024, with domestic customers' appetite predicted to rise 64 per cent by then, and SMEs 50 per cent. It is expected to remain highest among industrial and commercial customers. l The lack of adequate price incentives is seen as the main barrier to non- domestic take-up of DSF by 63 per cent of respondents. l Lack of awareness is the biggest barrier to domestic take-up of DSF in the future, as more opportunities become available, according to 73 per cent of respondents. l More than half (54 per cent) of respond- ents say consumers are not adequately protected in the current market. l Vulnerable customers could be disad- vantaged by the transition to a flexible power system, and should be protected by the regulatory system, our respond- ents believe. Technology and DSF l Energy storage for commercial custom- ers is the most important technology to the development of DSF, at 7.5 out of a possible 10. l More important than any particular technology was increased awareness of and accessibility to the DSF market for industrial and commercial customers. Download the full report at www.utilityweek.co.uk/downloads