Energy price crisis: What demand-side measures are being planned in the UK?

Energy costs in the UK have been rising since last summer, most steeply since Russia’s invasion of Ukraine in February. The UK Government first intervened in February with a confirmation of one-off payments to homes. Payments were then subsequently increased.

Additionally, the Government unveiled new plans to boost domestic nuclear, offshore wind and oil and gas production to decrease imports in the medium to long-term. It also launched energy market reforms, including measures to decouple wholesale gas prices from electricity generation that does not involve gas.

Policymakers were repeatedly asked why the Government was not considering demand-side measures encouraging businesses and homes to use less energy, particularly at peak times. This could improve energy efficiency and also reduce bills, it was argued by many environmental, energy and civil society groups.

It could also be a necessity, some argued. National Grid was forced to import power from Belgium to London in July to avoid blackouts, with electricity use spiking amid heatwaves. The cost of the import was around £9 per KWh.

National Grid is now consulting on the introduction of a mechanism through which homes with smart meters would be paid to use less energy at peak times, following reports of such a consultation in August. It is proposing to test the scheme in November and December amid planned shutdowns at the Heysham nuclear power plant.

The Times has reported, however, that E.ON and Octopus Energy are not happy with National Grid’s plans to cap the level of payments to customers at 52p for each KWh of avoided electricity use at peak times. Octopus representatives have advocated for customers to be able to access at least £1-2 per avoided KWh. E.ON is reportedly advocating for payments per KWh around the £2 mark.

Octopus has stated: “Like in any new service, we need to find out what customers respond to and then adjust the price accordingly.

“So, it’d be wrong to set a price before finding out what works for people.”

So, what are the Government and National Grid considering – and not considering – in the way of demand-side measures to ease energy bills and improve energy security this winter?

OFF THE TABLE

Energy rationing

Before new Prime Minister Liz Truss confirmed a freeze on energy prices, some commentators were warning of shorter school weeks and of national schemes asking families to cook and use washers and driers only outside of peak demand hours. Before Truss’s election, the Government had stated that this will not be necessary, and this line has been maintained during her first week in office.

Nonetheless, National Grid is this year doubling the length of its emergency energy shortage planning exercise from two days to four. The organisation maintains that blackout risks for homes this winter remain “very unlikely” and has stated that there is no need to panic. The UK Government’s own modelling stated in August that rationing will only be needed in a “worst-case scenario”.

A national energy efficiency scheme

The price freeze intervention made by Truss had been advocated by almost all of the UK’s major energy suppliers and was welcomed broadly. But many organisations have warned that it may not be sufficient in the long-run and that a more affordable and equitable approach would be to pair it with a new national energy efficiency scheme for homes.

The UK is home to one of Europe’s oldest and least energy-efficient building stocks. Less than half of UK homes meet the EPC ‘C’ standard for efficiency or higher.

The Conservative Government’s two previous national retrofit schemes for homes, the 2012 Green Deal and the 2020 Green Homes Grant, are regarded as having failed due to flawed design, implementation and promotion. Truss had been asked to bring forward a replacement as a matter of urgency, but this was not included in her package last week.

ON THE CARDS

National Grid’s incentives

As detailed above, National Grid ESO is currently consulting on measures to pay homes for avoiding electricity use at peak times. Peak times in the UK are just before the working day starts at 9am, and from 4pm to around 8pm, on weekdays.

It is proposing payments for homes with smart meters fitted that avoid activities such as dishwasher use, tumble drier use and electric vehicle (EV) charging during peak times, with payments set at rates proposed by energy suppliers and facilitated through suppliers. However, it is proposing that suppliers offer a maximum of 52p per avoided kilowatt.

The approach is likely to be trialled this autumn and winter ahead of a potential wider rollout.

In the longer term, the Government and National Grid are considering whether energy efficiency projects can compete in the UK’s Capacity Market, subject to “significant changes” to market rules. Also under consideration is a flexibility-focused obligation for electricity suppliers, mandating the provision of low-carbon electricity and the provision of methods to help reduce demand during peak times. Such an obligation, the ‘Clean Peak Standard’, is already used in Massachusetts.

A public information campaign

The Times reported last Thursday (8 September) that Truss has instructed Ministers to create a public information campaign encouraging people to reduce energy use at home this winter. The campaign, it is reported, will encourage people to turn down thermostats and turn off lights and appliances that are not in use.

It was reported that the price freeze may discourage some homes from taking these measures, but some groups have argued that many of Britain’s poorest homes are already self-rationing and planning to take drastic steps to avoid using energy this winter, potentially to the detriment of their health and wellbeing.

In the absence of this campaign, people have been turning to other outlets for advice including Which?, the Energy Saving Trust, Martin Lewis, newspapers and social media feeds.