Navigant Research Blog

Facing Power Shortage, United Kingdom Looks to Demand Response

Eric Bloom — July 10, 2014

Outside the United States, the United Kingdom represents the largest (and arguably most dynamic) market for demand response, as described in Navigant Research’s Demand Response report.  In some ways, though, the United Kingdom has surpassed the United States on the demand response front.  One of these is a proposed mechanism known as the Electricity Demand Reduction (EDR) program that would create financial incentives for customers to pledge permanent electricity reductions.

In contrast with traditional demand response programs, which pay customers to reduce power demand during peak periods and shift it to other times, EDR creates incentives for customers to invest in energy efficiency measures that result in lower overall peak demand.  The U.K. government launched a 2-year pilot in June and will continue to examine the viability and impact such a program would have on the country’s electricity system.

Crisis Ahead

Much of the impetus for demand response programs in the United Kingdom is due to the rise of intermittent renewable energy sources such as offshore wind energy.  However, with the country aiming for broader decarbonization of its energy system, demand response is being considered alternatively as a platform for deeper investment in energy efficiency measures that reduce energy consumption in terms of not only kilowatt-hours, but also kilowatts of power demand.

The United Kingdom is headed toward a potential crisis in its energy supply, with a severe shortage of new plants slated for construction to replace those being decommissioned.  The country is expecting to shut down more than a dozen baseload power plants by 2025 with a combined capacity of over 20 GW.  To put that into perspective, the United Kingdom’s peak demand usually hits 55 GW to 60 GW in the winter, so more than one-third of the country’s current baseload power generation is going offline in the next 11 years.  As a result, the government is looking into a wide range of options such as EDR that would make permanent reductions in peak demand to help close the gap with the decline in supply.

In its 2012 Energy Efficiency Strategy, the U.K. government concluded that, “through socially cost-effective investment in energy efficiency we could be saving 196 terawatt-hours in 2020, equivalent to 22 power stations.”  The EDR pilot will address the lingering questions about the program’s practicality and cost effectiveness.  If it succeeds, it will represent an attractive approach for meeting the country’s long-term decarbonization targets.

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