Energy price crisis: Demand-side measures and price reforms mulled to cut bills

National Grid ESO is reportedly set to discount electricity bills for homes that decrease their use during peak times, while the Government is pressing ahead with market reforms that could cut bills for renewable electricity buyers.


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Energy price crisis: Demand-side measures and price reforms mulled to cut bills

Almost 28 million homes have a smart meter

National news outlets are reporting that the ESO, which will run the demand response scheme, is likely to confirm full details in the next fortnight.

At this stage, it is understood that homes with smart meters will be able to receive a discount on their energy bills provided they avoid using ‘high-powered’ devices at times of peak demand. This will include activities like charging electric vehicles (EVs), using the washing machine or running the tumble drier or dishwasher. Peak times typically fall just before the start of the working day and shortly after the end of the working day, from around 5pm to 8pm.

It has been reported that the savings which homes could reap could be up to £6 per kWh saved during peak times. In a trial of the approach overseen by Octopus Energy and covering around 100,000 households, the savings were far lower, at around 28p per kWh saved.

The ESO will set out shortly how the money will be paid back to customers, following final talks with energy suppliers. The Sunday Times is reporting that the scheme will likely launch in October, coinciding with the increase to the price cap for dual-fuel domestic energy bills.

The Government was warned by MPs on the Business, Energy and Industrial Strategy (BEIS) Committee last month that its plans for dealing with the energy price crisis were “already out of date”, with October’s price cap rise set to be steeper than anticipated and with further interventions few and far to come by amid the Conservative Party Leadership race.

Among the interventions recommended by the Committee, following consultations with key external experts, was the creation of a national energy efficiency scheme involving both retrofitting and behavior change.

Electricity market reform

In related news, the Telegraph reported this weekend that BEIS Secretary Kwasi Kwarteng is pressing ahead with electricity market reforms in a bid to stop those who buy renewable electricity from paying higher prices than necessary.

July saw BEIS opening consultations on what it describes as the UK’s “biggest electricity market reforms in a generation”. Among the topics on the agenda is how best to de-couple global gas prices from UK electricity prices.

In the UK, wholesale electricity prices are informed by gas prices, partly due to the historic and present extent of gas-fired generation in the energy mix. It has been pointed out that this is not fair on domestic and business customers who purchase 100% renewable energy, which is likely to be cheaper. This unfairness will only become more pronounced in the future as unabated gas-fired electricity generation is phased out in the UK through to 2035.

As the consultation continues, Kwarteng is reportedly engaging directly with wind and solar producers which are stuck on old legacy contracts, tying their prices to gas. His BEIS team are reportedly planning to offer them a new fixed-term rate at which to sell energy to suppliers, reflecting the falling costs of renewable generation.

SSE has already publicly stated that it would be willing to sell some of its production at fixed rates “far lower” than current wholesale rates and is urging other firms to consider this approach.

Edie recently published an explainer looking at the various energy price interventions being considered by the UK’s main political parties. You can read that article here. Additionally, our sister title Utility Week is carrying an exclusive interview with former Ofgem boss Dermot Nolan, exploring the case for a ‘social tariff’ delivered by energy networks for vulnerable customers. You can read the interview here.

© Faversham House Ltd 2022 edie news articles may be copied or forwarded for individual use only. No other reproduction or distribution is permitted without prior written consent.

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