An evaluation of relative strengths of demand side price signals

Foreword by Steve Johnson,
CEO of Electricity North West

Whenever a customer in the North West flicks a switch, they can take for granted that the lights will come on.  As we move to a lower carbon economy, where our electricity will be coming from less controllable resources, such as wind energy, the energy system will need to adapt to continue to provide the same high standards.  In order to deliver affordable energy prices in the low carbon future, we will need to help customers to participate in the energy balancing process. This is likely to be best achieved through the provision of “demand–side” and “generation-side” response services, where customers change the time they choose to use energy to benefit from lower prices or even payments.  In order to facilitate this we need to understand how the current UK energy market mechanisms affect the value and flow of benefits to the participants including customers, and in particular how those mechanisms might need to evolve.

Electricity North West is proud of its track record in innovating and leading the commercial development of distribution networks.  As part of our ongoing commitment to developing the networks needed for the low carbon economy we invest in new technologies, new operating practices and new ideas.  Together with National Grid (Electricity Transmission) we have recently commissioned Pöyry to examine the relative value of the likely range of interactions and transactions between the market participants in the future.  In particular this important report examines the relative strength of signals available as an alternative to investment by network operators and as an alternative to energy generation by wholesale market participants.  This report builds upon the work published by Department of Energy and Climate Change in June 2011 and takes this work on to explore potential scenarios and outcomes where energy balancing signals overlap or contradict network balancing signals. The report contains key findings for all electricity network operators and therefore, I am pleased to publish it in full for all to benefit from and have asked Mike Kay, our Network Strategy Manager to précis the key learnings.