In April 2022, Jonathan Brearley, the Chief Executive of Ofgem, announced the regulator’s intention to make significant investments in energy infrastructure to develop the flexible energy grid.
Here we explain the idea of the flexible energy grid, why this development is essential for decarbonisation and how this will affect the energy supply.
We explore the smart energy technology that will soon be rolled out in homes and businesses to help consumers of energy benefit from off-peak energy rates available in the flexible energy grid.
The way we currently pay for electricity
Most homes and businesses pay electricity at an agreed unit rate per kWh of electricity supplied. The rate paid is the same regardless of whether the electricity is delivered in the middle of the working day or the early morning hours.
The exceptions to this are:
- Homes on an economy 7/10 tariff pay electricity at a reduced rate during the night. See our complete guide to household energy tariffs for more information.
- Businesses on a time-of-use tariff use half hourly or smart meters to pay cheaper business energy rates during off-peak hours.
Either way, these two simple ways of paying for energy do not reflect the real cost incurred to supply electricity. The cost of electricity constantly changes throughout the day due to variations in supply and demand; let’s first explain why.
The ever-changing cost of electricity
The energy infrastructure is managed to avoid blackouts by ensuring a balance between electricity demand and electricity supply.
The balance between supply and demand determines the cost of electricity. Where there is peak demand, it’s necessary to import expensive electricity from Europe, causing the price of electricity to soar. The opposite also occurs in times of low demand where there is an excess supply of electricity in the grid, which causes the cost per unit kWh to fall to near zero.
Let’s look take a look at how the supply and demand for electricity change depending on the time of day and the weather.
Daily demand for electricity
Here’s a graph of the typical daily demand for electricity in Britain.
Source: UK government publishing service here.
The demand for electricity falls significantly between 10 pm, and 6 am, as most people are asleep (and not using electricity). The demand rises during the working day and peaks in the evening when people are at home watching TV. The maximum daily demand usually occurs during the adverts on evening television when people across the country switch on their kettle.
Electricity supply to the grid must be managed to meet the daily changes in demand.
Supply of electricity to the national grid
Here are the primary sources of electricity used by the British energy grid and how generation is managed to meet demand:
British wind farms – On windy days, turbines across the country will produce enough electricity to meet the entire British demand for electricity. On still days no electricity is made from this source. The energy grid cannot control the output of electricity from wind farms.
British solar farms – Solar energy is a significant source of electricity for the British energy grid but is also weather dependent. Solar energy generation is negligible on cloudy days but is significant on sunny days.
British nuclear power – Nuclear power stations provide a reliable output of electricity throughout the year. However, nuclear power stations cannot easily be turned up or down to reflect changes in demand.
Gas-fired power stations – Gas-fired power plants generate electricity by burning natural gas. These power stations provide a highly flexible output of electricity and are still the biggest producer of electricity in the country. The grid uses gas-fired power stations as a replacement for days when there is not enough renewable energy generation.
Electricity imports – Electricity can be imported using undersea cables (known as interconnectors) from the European continent when British power generation cannot meet demand.
Decarbonising British energy infrastructure
The cost of supplying electricity in Britain depends on the weather. Electricity generated from solar or wind farms is effectively cost-free, but electricity generation only occurs on sunny or windy days.
The UK aims to decarbonise the electricity grid entirely by 2035, which will require phasing out reliance on gas-powered plants. The push toward renewable energy generation will cause increased variability in the supply of electricity, making the price of electricity more volatile.
The flexible energy grid aims to match the volatile supply of electricity with the flexible demand for electricity by households and businesses.
The government has appointed Imperial College London to act as consultants to explore the technology that can help businesses and households vary their electricity usage. Let’s look at some of the smart gadgets that will be used in the flexible energy grid.
Real-time energy tariffs
Currently, energy suppliers offer time-of-use tariffs that split the day into a ‘peak’ and ‘off-peak’ which have two corresponding rates for energy.
Although better than a single unit rate of electricity, dual rate tariffs are still an oversimplification of the actual changes in the demand for energy.
The flexible energy grid will require real-time pricing of electricity. In the flexible grid, real-time information will be provided to homes and businesses to indicate the current state of the electricity market. Tariff bandings will determine the prices paid by the user to encourage deferral of energy usage in high-demand times.
Real-time energy tariffs are already a reality in France, where a visual indicator informs a user of electricity of the current price banding of electricity in three different categories:
- Red – A critical peak demand rate
- White – Normal peak demand rate
- Blue – Off-peak rate
An energy monitor will allow people to change their behaviour based on the current state of the energy market.
Smart appliances will go one step further, automating the behaviour of appliances to operate only in the lowest demand periods.
And if you look even further down the line, the implementation of blockchain technology into smart grids would allow for peer-to-peer renewable energy trading.
This new, alternative market would make energy prices even more fluid and competitive by allowing individual businesses and households to become their own power stations.
In the flexible energy grid, household appliances will respond to the real-time electricity grid to operate only in times of low demand.
Let’s take a look at the case of a smart dishwasher. You’ll be able to load your dishwasher in the evening, instructing it to run a wash cycle during the night. A smart dishwasher will be able to wait until it receives an instruction from the flexible energy grid so that it starts working only when electricity is at its cheapest.
In the future, the flexible energy grid may be able to control the start times of millions of dishwashers and washing machines every day. This demand side control will provide the grid with much greater flexibility to match energy demand with renewable generation.
Smart vehicle energy hubs
Electric vehicles (EVs) are the future. The UK intends to end the sale of new petrol and diesel vehicles by 2030.
In the future, owners of electric vehicles may choose to provide their electric vehicles with energy storage capacity to the energy grid. The flexible energy grid could use high-capacity EV batteries to store excess energy supply to be discharged when in a period of demand.
In the future, if you were heading off on holiday, you could choose to lend the power of your Tesla to the flexible energy grid to provide energy storage services. The grid would charge the battery when renewable generation is high and then discharge the battery to meet excess demand as a green alternative to burning fossil fuels.
Can I benefit from off-peak electricity pricing today?
In the current energy market, you can benefit from off-peak energy pricing with multi-rate energy tariffs. Find the cheapest energy prices with the AquaSwitch business electricity and home energy comparison services.