1 Introduction

The RACE 2030 H4 Theme ‘Rewarding flexible demand: Customer friendly cost reflective tariffs and incentives’ aims to develop and demonstrate innovative, flexible and dynamic pricing and incentives for households. 1 It aims to accelerate their adoption and so support the effective deployment and operation of distributed energy resources (DER) including solar PV, batteries, controllable loads and smart appliances. This can provide benefits directly to households (by reducing electricity bills and fulfilling other values) as well as system-wide impacts that benefit other households, such as reduced wholesale spot prices, reduced network peaks and the provision of ancillary services.

This Opportunity Assessment focuses on the following priority challenge areas that were identified through previous consultation with RACE for 2030 partners. 1. Behavioural and social reactions of households to new tariffs and incentives

2. Household support tools 3. Tariff design

It is arranged as follows:

Sections 2 to 5 describe the current state of play with respect to available markets for flexibility, tariffs and other incentives available to households, the mechanisms that can be used to provide flexible response and the tools available to support customers in decision-making around uptake of and response to incentives. Sections 6 to 8 present the barriers to flexible incentives and how these are being addressed by research and industry development activities and analyse the gaps in this research in order to develop a research roadmap for the H4 theme. Section 9 describes an assessment of the potential financial value of household flexibility.

Section 2 ‘Because enabling technologies are an important contributor to flexibility capital, there is (or should be) a close interrelation between the types and availability of these technologies and the design and implementation of incentives, with the two sometimes bundled together to create flexibility products and mechanisms. Design and deployment of both incentives and technologies are, of course, strongly influenced by regulation. Feedback from households is an important consideration in the design of incentives, technologies and mechanisms.

The framework suggests that the multiple influences on household uptake and response will preclude ‘one-size fits all’ tariffs and incentives. Successful incentive design requires segmentation of households according to their available loads, capacity and values. It is incumbent on utilities to provide flexibility opportunities that align with household abilities and opportunities to respond.

Markets for residential electricity flexibility’ provides a summary of the existing and potential markets available for households to provide electricity flexibility2 .

Section 3 ‘Tariffs and other incentives’ details the available network and retail tariffs, as well as their current level of uptake. It also discusses other financial incentives for flexibility and a range of non-financial incentives that can tap into household motivations and values.

Section 4 ‘Mechanisms for electricity flexibility response’ describes the various mechanisms used to respond to tariffs and other incentives. These include energy management behaviour, Battery Management Systems, Home Energy Management Systems, Direct Load Control, Controlled Load, Behavioural Demand Response and Virtual Power Plants.

1 We refer to “households” (which are dynamic and multifaceted and subject to multiple influences) rather than “customers” (who are singular and defined by their relationship with the retailer or whoever else is selling them a product). 2 Electricity flexibility includes any change to end-user electricity use (demand or export) in response to a signal, including tariffs.

Section 5 ‘Tools to support household decision-making’ describes the existing tools available to support household decision-making with respect to taking up and/or responding to tariffs and other incentives.

Section 6 ‘State of research and barrier analysis’ presents a review of the academic literature and findings from industry trials and research and from the regulatory environment. The review covers regulatory and market considerations, metering and control technologies, social, cultural and behavioural issues, information and communication, as well as the specific issues affecting the ability of households experiencing vulnerability. This leads to an analysis of the barriers faced by retailers, networks and aggregators in making tariff and incentive products available to households, as well as the barriers faced by households in taking up and responding to tariff and other incentives.

Section 7 ‘Gaps in existing research and industry development’ builds on the previous sections as well as feedback from stakeholders to discuss the extent to which the barriers identified and related issues are being addressed by current research and industry development activities, and identifies the gaps that present opportunities for future research projects.

Section 8 ‘Research questions, priority areas and roadmap’ uses the research and development gaps and opportunities to derive a set of outstanding research questions across 7 priority areas. These are prioritised and synthesised into a research roadmap for the H4 theme.

A separate report ‘Benefit-Cost assessment for adoption of cost-reflective tariffs and incentives

in 2030 and 2035’ undertaken by EPRI describes modelling that was undertaken to provide a high-level assessment of the financial potential of household-friendly tariffs and incentives that reward electricity flexibility. It also identifies critical parameters that can influence household uptake and engagement with electricity flexibility, which therefore are identified as priority areas for research and industry development.

Note that the focus here is not so much as providing a comprehensive coverage of all the issues nor to solve all the problems facing the provision of electricity flexibility. It is to identify the research priorities for the H4 theme. Of course, priority areas more suited to industry opportunities will also be identified.

1.1 Conceptual Framework

The conceptual framework shown in Figure 1-1 has informed this report and aims to illustrate the multiple factors that influence residential electricity flexibility. It is conceived from a household perspective and does not purport to show the structure of the electricity system or the relationships between all stakeholders. If it was drawn from the perspective of a retailer, DNSP or aggregator it would look very different (and this would be a valuable exercise), but our focus here is the household.

The starting point for the framework is that, in order to deliver flexibility, households must first take up an offer (adopt a tariff, buy a battery, sign-up for a VPP or behavioural demand response trial, etc.) and then provide a flexible response to a signal (shift a load to avoid a peak tariff period, reduce demand during a network peak event, charge a battery to absorb excess solar generation, etc.). Both uptake and response are influenced by many factors.

The end results of increased flexibility can include reductions to peak demand, peak export, ramp rate and spot-prices, which flow through to reduced household bills, increased DER hosting capacity, lower emissions, higher reliability, jobs and social benefits.

To increase household flexibility, both the uptake and response steps must be incentivised. Possible household incentives (described in Section 3) include various types of cost-reflective tariff, other financial rewards such as discounted hardware or payments for reduced demand and non-financial (e.g., environmental or community) benefits. The structure and value of financial incentives are shaped by signals from the wholesale market, network constraints, etc., and also influence the financial outcomes of delivered flexibility. Other, non-financial, incentives and messages can also influence uptake and response, either alone or combined with financial ones.

The degree to which households can respond to these incentives depends on their capacity to do so, sometimes called ‘flexibility capital’ which includes their intrinsic abilities (health, understanding, etc.) their

level of opportunity (having appropriate loads, time to engage, insulated homes, money, etc.) and their access to enabling technology (including smart meters, data visualisation, control devices, etc.). Their response also depends on their values or internal motivations which, in turn, are shaped by the societal context.

Figure 1-1 Conceptual framework showing pathways to household electricity flexibility and the multiple factors that influence take-up of offers and flexibility response to signals