Consumers could save £2.5bn in 2025 with new energy efficiency feed-in tariff

The UK’s electricity market is distorted in favour of supply rather than cheaper demand management and reduction measures. New research has found that British consumers and businesses could save around £2.5 billion by 2025, and avoid the need for eight new power stations by 2030, if power stations were made to compete against electricity saving.

Demand-side response, which involves shifting appliance demand to different times of the day, has already grown four-fold in the past two years. It has the potential to scale up even further and could cover most of the electricity capacity deficit that will be created by the prime minister’s pledge to phase out unabated coal.

A new ‘negawatts’ strategy, proposed by think tank Green Alliance, would create financial incentives for electricity saving at less than half the cost of building new power stations. It would enable businesses to compete to deliver savings on the most cost effective basis.

The report, Getting more from less: realising the potential of negawatts in the UK electricity market, shows how the UK’s electricity market is distorted in favour of supply side measures at the expense of cheaper demand side measures. Businesses and consumers spend too much on electricity supply because they are not investing in efficiency.

Electricity demand reduction measures are available at £30 per MWh saved, and can compete with new power stations, which cost a minimum of £76 per MWh. Substantial cost and carbon savings have been achieved using these policies in Texas, California and New England.

The report proposes two changes to the electricity market:

1) Create a negawatts feed-in tariff, paid on the basis of avoided energy consumption, with recipients competing in an auction to deliver electricity saving, eg installing LED lighting in homes or more efficient electrical motors in manufacturing businesses. This could reduce electricity demand by 6.4 GW by 2030, equivalent to the capacity of eight 800 MW combined cycle gas turbine power stations. The ensuing investment in electricity demand reduction alone could yield net savings to British consumers of £2.4 billion by 2025.

2) Open the UK’s capacity market to competition from demand-side response and energy demand reduction on an equal basis with electricity generation. This could bring forward 6 GW of additional load shifting and reduction by 2023, covering most of the coal capacity deficit created by the prime minister’s February pledge to phase out unabated coal.

Amy Mount, lead author of the report, said: “Negawatts are a no-brainer for consumers. Not only are they the cheapest way to reduce carbon emissions. They also reduce the pressure on the electricity system by reducing peaks in demand. These policies would save the UK huge amounts of money, by avoiding the construction of unnecessary power stations. If government wants to reset energy policy for the  benefit of consumers this is where they should start.”

Sonny Masero, chairman of award-winning energy management business Demand Logic, said: “If the UK were to adopt an efficiency strategy like the one proposed by Green Alliance it would not only save businesses and consumers £2 billion a year, but also create top line revenue growth opportunities for businesses like Demand Logic to contribute even more to the UK economy. And the overall value created would be greater still, because efficiency services are exportable and in significant demand in international markets. Clean energy economics is overtaking environmental regulations and this strategy would be a timely initiative aligned with the government’s economic policies for growth. With government support, efficiency services could be an important growth sector, increasing the return for UK plc from investment already made by InnovateUK in efficiency innovation.”

Yoav Zingher, CEO and Co-Founder of KiWi Power, said: “Demand side balancing mechanisms are the greener and most cost effective grid balancing solutions. As outlined in Green Alliance’s report, the current market is structured in such a way that limits the ability of demand side solutions to compete with the higher polluting and expensive supply side alternatives. KiWi Power fully supports new policies advocating creating at least, a level playing field for demand side response to compete with supply and generation in meeting the needs of the UK power grid.

“Examples of how demand side response is keeping the lights on in the US are proof that DSR is not only a credible reserve function but should be prioritised as a core grid alternative to supply/generation. Aggregators such as KiWi Power have the scalable technology to increase our reach and operations exponentially, but limiting factors such as short term one year contracts in the capacity market act as disincentives for large commercial energy users to take up this credible alternative. We believe an urgent change to the Electricity Market Reform is needed to secure the future of the UK power grid.”