22 January 2025
Michael Galley
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Overcoming Challenges in Demand Flexibility - Insights From Our Roundtable Discussion
In November 2024 we hosted a panel of six experts from academia, government, and the non-profit sector for an online roundtable discussion on the challenges associated with achieving demand flexibility. The panel considered the role of consumers, providers, and regulators in achieving demand flexibility, and debated the balance of economic and behavioural interventions required, in addition to highlighting crucial areas for future research. This blog post highlights key takeaways from the discussion.
Overcoming behavioural barriers will be the hardest challenge
Until now, energy providers and regulators have mostly focused on the regulatory, technological and market-related barriers to demand flexibility. Now, they are turning their attention to the behavioural factors inhibiting consumers’ flexibility response. These include the beliefs, knowledge gaps, habits, and biases of both consumers and decision-makers.
With this in mind, behavioural science has great potential to aid the uptake of demand flexibility. Behavioural segmentation can enable a rich and nuanced appreciation of different customer profiles, behavioural diagnostics can be used to understand the barriers to households consuming energy more flexibly, and behavioural insights can inform effective interventions to achieve just that. In addition, an experimental approach is key; we are currently in a ‘test and learn’ environment when it comes to designing and promoting demand flexibility services and behavioural science should play an important role in that.
The main focus should be on consumers
Ultimately, achieving demand flexibility requires changing consumers’ behaviour. Partly, this requires making more people aware of demand flexibility and its importance, as part of a greater effort to increase consumers’ energy literacy. This is a challenge that multiple stakeholders must engage with - from government and regulators to schools to utility providers themselves. Just as recycling is now taught from a young age in schools, energy should become a greater part of the school syllabus. That being said, we must aim to make complex energy markets as simple as possible for consumers to interact with so that whilst consumers become energy literate, they don’t need to be energy experts.
Although there is generally a positive reaction to the concept of demand flexibility, there are examples of myths, misinformation and lack of trust preventing consumers from engaging with low carbon technologies and demand flexibility. We must ensure that consumers’ feel “safe” purchasing such technologies and switching to time-of-use tariffs and are confident that it will be in their long-term financial interest to do so.
To better understand consumers, we must create more accurate and usable segmentation models that acknowledge heterogeneity. The demographics, behaviours, and pro-environmental intentions of households vary greatly and this can create different levels of interest in and ability to consume energy more flexibly. Understanding these different segments and customer journeys is vital to identify opportunities to “sell” consumers on demand flexibility.
Ultimately, taking a consumer-centric approach means to focus on the capabilities of consumers first and build out from there, rather than designing markets and services and expecting consumers to respond.
Getting the price right is essential
For all but the most environmentally conscious consumers, price is regularly a deterministic factor in consumers’ decisions to consume energy at off peak times. As such, it is essential for energy utilities to grasp the relationship between prices and demand to design tariffs that attract customers and change their behaviour. This is especially important as installing low-carbon technologies does not lead to flexibility on its own, but only does so when those consumers are matched to a time-of-use tariff with sufficient economic incentives. Designing effective tariffs requires knowing how much to raise prices during peak hours, how much to discount them during off-peak hours, how long these windows should be, and what other financial and non-financial features consumers value.
Social norms and peer effects are effective
Some of the strongest evidence of what works from a behavioural perspective is on the power of social norms and peer effects. These have been shown to be particularly effective at increasing adoption of smart technologies, which are essential to unlock demand flexibility. Just as Alcott (2011) found that social norms messaging (comparing a household’s electricity consumption to their neighbours) was effective for achieving energy conservation, similar techniques may also be effective for achieving demand flexibility. Interventions that harness social norms are also opportune for introducing elements of gamification, such as demand flexibility competitions which have proven to be an effective motivator.
Make demand flexibility easy for consumers
There are several areas of demand flexibility that act as barriers to consumers exhibiting demand flexibility. For example, receiving pages of data on their historic energy consumption or communications full of complex legal jargon is not helpful for consumers. We must make it easier for consumers to engage with demand flexibility through simpler messaging, simpler actions and accessible, timely data on their energy consumption.
Automation can help consumers’ flexibility, but is not always easy to set-up. As well as making smart technologies easier to operate, we must be careful to preserve consumers’ sense of control over these technologies and this can be done through careful message framing. The downside of making smart technologies easier for consumers to operate is it makes them more prone to over-riding their programmed set points, which can cancel out predicted and intended energy savings (Brandon et al., 2021); more research is needed into how to find the right balance.
More research is needed
Despite all the expert insight throughout the roundtable, arguably the clearest takeaway is our need for further research, primarily into consumers. There are still fundamental questions related to demand flexibility which require a greater evidence base, such as:
- What values drive consumer participation in demand response and how do we harness these?
- What are the main friction points in low carbon technology adoption for different consumer segments?
- What is the optimal design of time of use and dynamic tariffs, from an economic and non-economic perspective?
- What behavioural interventions are effective in building trust in smart technologies and automations?
- How can we effectively engage vulnerable and lower income consumers and ensure they are not excluded from participation in demand response?
- How can we gather complex research and convert that into simple messages and actions to change consumer behaviour?
All that being said, we are in a window of opportunity
Despite predominantly focusing on the challenges of achieving demand flexibility, the overall tone of the roundtable was positive. Panellists argued that many households are interested in reducing their energy costs and increasing their reliance on clean energy sources. This, paired with consumers’ growing environmental concern, means we are currently in a window of opportunity for consumers to become increasingly flexible around when and how they use energy. There have been some very positive developments over the last few years - for example, over ten million UK households participating in the Government’s Demand Response Service - and these are a cause for cautious optimism regarding our potential to unlock demand flexibility.
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Thank you to our partner for the event, Energy Saving Trust, and to our expert panellists for their valuable contributions: Abigail Ward (Energy Saving Trust), Freddie Herbert (Ofgem), Karina Knaus (Austrian Energy Agency), Nicole de Koning (TNO), Robert Metcalfe (Centre for Net Zero & Columbia University), and Russell Jenkins (DESNZ).