Nesta, through its Demand Response Challenge, aims to find a new product, technology or service that will give households or small businesses the ability to alleviate the escalating pressure on the UK’s energy supplies. Entries should demonstrate a measurable decrease in carbon emissions by shifting energy demand to off–peak times or towards excess renewable generation. The focus of the challenge is on households and small businesses with daily electricity usages of up to 50 kWh.
The Dynamic Demand Challenge Prize will offer incentives, financial assistance and expert guidance for projects that make it to the finals. In addition, a prize of £50,000 will be awarded for the solution that demonstrates the most significant impact.
This isn’t the first demand response (DR) management challenge. The UK government has introduced a number of initiatives in its quest to resolve the energy security crisis. According to UK power regulator Ofgem, the nation faces an increasing threat of blackouts if the power industry fails to manage the energy supply carefully. The risk of power blackouts in Britain has doubled since last year and reports show that margins between electricity supply and demand could tighten to as low as 2% by 2015/16. An increase in electricity consumption and the closure of 20% UK power stations by 2020 is mainly to blame for the pressure on the system. As a result, demand response has never been so important.
Finding ways to intelligently manage demand will help address the growing energy supply crisis. However, while it is essential to come up with innovative demand response products and services, we feel that it’s just as important to engage the customer-in the case of the Nesta Challenge, it would be the small business or homeowner. It’s all very well coming up with an innovative demand response product or service but the customer will want to how it will serve them in the long-run. The problem is that consumers and appliance manufacturers are expected to invest in demand response technology and services while utilities and government reap the rewards by not having to invest in extra capacity, for instance.
UK National Physical Laboratory Jane Burston explains that incentives may attract a consumer’s attention but are not yet fully understood. The industry will need to find out what works best. Effective communication and incentives may help people to understand their very significant role in demand response management. She asks: “Will cash incentives change behavior or might recognition of the wider societal benefits encourage us to shift our electricity usage to off-peak times in our homes?”
We like to think that people are concerned about the wider implications such as climate change but financial gain and savings are hard to ignore. Mark England, Sentec CEO, points out that the biggest challenge for DR is the lack of motivation for the consumer. There must be a way for the consumer to benefit otherwise DR innovation will be unsuccessful. Without consumer interest, there will be no business incentive for potential smart appliance manufacturers to invest in product creation in the first place, as there is simply no market for them. With this in mind, business models must be designed with the aim of motivating and incentivizing investment, as well as encouraging manufacturer and consumer participation.
To make it easier for the customer to obtain DR products, it has been suggested that popular shopping channels get involved. Mr England suggests that the ability to reduce the cumulative loads from millions of smart appliances during peak times could be sold by these aggregators for a good price. Basically, when the customer buys the appliance, the retailer could pass a fair portion of this revenue onto the consumer in the form of a cash rebate or shopping voucher. The rebate is offered when the appliance is registered with the demand response aggregator.
Once the customer sets up and connects the appliance to a Wi-Fi network, the customer registers it to the aggregator’s demand response service over their broadband network. The customer then starts receiving credit (rebate vouchers or reward scheme to be used at their chosen retailer) on their account for ongoing participation in DR events. The idea here is that these rewards are separated from the electricity bill. Mr England explains that by ring-fencing the rewards from demand response (instead of offering small discounts on existing energy bills), consumers will then be able to measure the benefits of their smart appliances.
So basically, as long as the appliance remains connected to the network and the consumer doesn’t override the DR events, the consumer will automatically receive credit for each DR event. The aggregator will also know what DR capacity they have in order to sell to the generators or network operators when it is at its most valuable. This creates a win-win situation for both the consumer and aggregator.
This is only one business model. Let’s hope that each Demand Response Challenge entrant realizes the important of creating a product (and business model) that will be consumer-focused too.
Demand response technological innovation is utterly useless if the consumer is not convinced by its benefits. Without their involvement, demand response for residential and small business consumers won’t take off. Innovation in technology needs to be focused on engagement, and ensure information is sent to where consumers can react their smart phones. Energy prizes should encourage this innovation but need industry support.