Size of the Prize: How Flexible Heat and Transport Demand can be a Foundation of the Future Energy System

27 Mar 2024

By Andy Hackett

The demand-side of energy is featuring more prominently in UK policy conversations. That’s thanks to exciting new innovations, such as the Demand Flexibility Service testing the use of consumers, rather than power plants, as a grid-balancing resource. It’s also out of necessity. Variable renewables are already over 40% of our electricity needs and grid constraints today are costing consumers over £1bn each year. With the queue for grid connections almost five times current capacity in the system, shifting demand to maximise the use of renewables is paramount. Centre for Net Zero’s recent modelling, based on the system operator’s Future Energy Scenarios, explores the value of domestic demand flexibility.

What’s the potential of demand flexibility?

By 2030, flexibility from domestic heat and transport alone can unlock up to 30 TWh of renewable generation, reducing the use of costlier fossil fuels. That’s about 7% of total demand, or the equivalent to the energy use of over 2 million households today. It also ensures that networks operate more efficiently, with as much as 30% of electricity load able to shift from peak times and distribution capacity requirements reduced by 25%. These benefits could save us around £5bn each year by 2035, and a total of nearly £100bn over the period 2025-2050.

How does it affect grid expansion?

Demand flexibility helps to optimise grid infrastructure. At distribution level, it reduces build requirements – for example, a reduction of 4.5 GW in Greater London. At transmission level, we see a more nuanced picture and expansion of capacity in certain areas. Combined with zonal pricing, it causes generation to move closer to demand centres, creating sub-region hubs which can accommodate increased local renewable generation, while alleviating bottlenecks caused by transporting energy from Scotland to the South East.

What role do heat and transport play?

Electric vehicle (EV) batteries in our driveways can become crucial flexible assets, absorbing as much as 20 TWh of otherwise wasted wind and solar. This has an outsized impact early on: half of the benefits from EV flexibility are achieved in the first 25% of adoption. Heat pump flexibility is more constrained, but pre-heating our homes to avoid peaks can play an important role in smoothing demand. The addition of thermal storage can increase flexibility significantly, but its relative impact shows signs of saturation over time as it begins to “compete” with EVs to use renewable generation.

What does this mean for energy transition?

The size of the prize is clear: we need to rethink how consumers are incentivised to shift demand in line with variable supply. Supporting the rollout of low-carbon technologies is fundamental, with notable benefits early on in the transition. To ensure these are used flexibly, market redesign is key: work is underway to introduce half hourly settlement and some form of locational price signals, but the government can go further. A consumer-focused strategy to scale demand flexibility would help to focus efforts, including capacity targets akin to those for generation, following the example of California and Ireland.

About the author:

This blog is by Andy Hackett, Policy Manager at Centre for Net Zero. The blog is based on a collaborative working paper: Power System Benefits of Simultaneous Domestic Transport and Heating Flexibility in Great Britain’s Energy Transition.