I've asked regulators, system operators, suppliers, networks and consultants this question and I haven't found a consistent answer yet.
Perhaps this is because there are many overlapping flexibility markets; here’s how 50GW could be provided: 23GW of Grid scale (mostly batteries), 11GW of interconnectors from the continent, 10GW from consumers, 4GW from long duration storage like pumped hydro, and 2GW from low carbon dispatchable power like biomethane plants.
Some of these money flows are well understood and use existing market mechanisms, but the 10GW consumer flexibility market is where the question gets interesting.
If each house can save £300 per year that’s a £6bn market, and it’s surprising that no one seems to know where this will come from.
If well off homes race ahead with their EV’s and batteries and it’s the inflexible others that pay through higher bills, someone’s got a tough job explaining why this is fair.
It’s very hard to find £6bn per year of efficiencies in a domestic market currently worth around £20bn. Retailers are making slim margins, and I’m not sure we want the network companies to slow down investment in new lines.
A suggestion is that the overall system will be cheaper to operate with flexibility built in: Wholesale markets will have lower costs as the peaks will be lower, balancing costs reduced due to tighter control of supply and demand, windfarms can charge batteries so lower curtailment costs, and lower capacity market payments as the network is more resilient.
Add these up and it’s hard to make the domestic component of these costs add to £6bn let alone find £6bn of savings from them. Anyway, our market has been designed with these high costs baked in and investors won’t be happy to see their returns reduced.
We have spent years discussing the physical and digital systems needed to deliver 10GW of consumer flexibility. Now an urgent question is whether there is £6bn of value available to pay for it. If there isn't, then even the most sophisticated technology won’t get used.
Time to step back and do some proper thinking on retail market reform.
