Why flexibility is key to decarbonising GB’s grid with Marzia Zafar (Deputy Director @ Ofgem)

Hello and welcome to another episode of Transmission. Today, we're joined by Marzia Safar from Ofgem and the episode is all about consumer flexibility.

So, how do we enable flexibility in today's market and how does that help us hit Clean Power twenty thirty?

From the episode, I really like the elements that are essentially describing how the decision to go towards more consumer flexibility is essentially no regret in many ways, but also how consumer flexibility is turning into something that is more of a economic benefit both for the consumer, but also for the wider grid. Let's jump in.

Hello, Marzia, and welcome to Transmission.

Thank you so much. Thank you for having me.

So we're gonna kick off in the usual place. So please could you introduce yourself, but could you also introduce Ofgem as well?

Perfect. So my name is Marzia Zafar. I'm a deputy director at Ofgem.

I have been working in the energy industry for, oh god, for almost thirty years, which saddens me because that as I say that, now I realize that I'm really old as well.

I started with, Sunpro Energy Utilities in California.

There, I was, selling demand side, response, which, which in those days for us was, let's figure out how to replace a boiler or how to make the energy the CNI customer more more efficient. After that, there was an energy crisis in two thousand, two thousand one, and a lot of my clients lost their business.

It was it was a a very, strange period, and I couldn't figure out why. So I moved to the right regulatory side. And there, I realized, okay. What here are the market distortions that happened that allowed this crisis to happen. From that point on, I moved, to, the California Public Utilities Commission. So after spending ten years with the Sunpro Energy Utilities, I spent another ten years with the California PUC.

Former governor Schwarzenegger had appointed me to look after and advise him on overall smart grid technologies. So I spent about ten years there. And then after twenty years in California, my partner just got bored and said, let's go to Europe. And I said, okay.

Let's do it. And then I worked for the World Energy Council for a couple of years, just traveling the world talking about energy efficiency and demand response. Then I realized that I was missing the technology side of the energy side. You know, I had spent twenty two years there in in energy, but I really didn't understand what a billing platform, how how difficult it is to build, how how, you know, what are the ins and outs of it.

So I worked for, Kaluza and OVO, the technology arm of OVO Energy for two years, and I learned about software development. I learned about product development and realized how difficult it is when a when a regulatory body says, go go, create this tariff or create you know, figure out market right half hourly settlement.

You know, that that's a that's a nice waving hand of a of regulatory say go do this. But to implement that through the billing platform, through the the the IT system, it's extremely difficult. So I spent two years there, and then I went I came back to regulation where my heart is, and that's where Ofgem is. So Ofgem is an economic regulator.

We look after making sure that the energy system works for the customer. And and to do that, we have to balance.

We there's a lot of trade offs that we have to do, making sure that we need a viable market in order to have customer service, customer protection, and better overall propositions for the customer.

What a great intro.

We are gonna have, some listeners in California as well, who will be interested to kind of see some of the parallels, you draw between Caiso and and GB and Cal PUC.

California PUC. Yeah.

Okay.

Yes.

Okay. Thank you. So let's get started on consumer flexibility. Why are you focusing on consumer flexibility?

So consumer flexibility or flexibility as a whole, it is, you know, it's basically a tool for the system to balance supply and demand without having to ramp up supply. Because you ramp up supply, you ramp up cost to the customer. If we don't do this, we then have to build a lot of generation, a lot of pipes and wires to bring that generation to the customer. All of this costs money, and we have to get to net zero. So to do all of this, we're trying to figure out find different ways to bring to the customer cheaper, cleaner electricity.

And how to do that? One of the tools that we have is to ask the customer to shift their consumption in a convenient manner. You know, we're not asking people to turn off their their electricity, their refrigeration, or or their heating system.

What demand response is, at least consumer that flexibility, is to try to figure out if there's a convenient way for the customer to shift their consumption from a time where the system is constrained to a time where the system is not constrained.

Yeah. So, I mean, imagining that like, in sort of all the power flows that go on with the system, that last megawatt, that last megawatt hour that a consumer is using doesn't get used that often. But essentially, you have to get the generation capacity to make it. You have to get the poles and wires and the transmission and the distribution network to manage it. And actually, instead of having the generation capacity, the transmission and the distribution and all of the planning and building that goes on within that, plus all the financing on top as well, you could just shift that energy to another another period.

Yeah. Because it costs money. And and, ultimately, the customer pays for it. If we have to put more generation on the system, if we have to build the system more, it's all money and that comes from the customer. So this is a way to try to lessen the burden on the customer.

And what does that look like? What does the consumer flex journey look like for consumers?

So for us, and I think if you if you talk to any market participant in the UK, we have to automate it. The customer cannot be inconvenienced in any way, shape, or form. The journey has to be automated. It should involve, first of all, awareness.

We have to make sure that the customer knows what consumer led flexibility, demand response, what it is, how they can participate, what does it mean for them. So that awareness is important.

Enrollment, bringing that customer into the into the system.

And then automation, how do we automate the journey so the customer just sets their preferences and then technology makes it work. And then ultimately, at the end, a reward.

We need to reward the customer for shifting their consumption or else why would they do it? And some people may do it out of the goodness of their heart. Some people may want that price signal, and we want to give that option to the customer. So it's about awareness, enrollment, automation, and ultimately a reward system for the customer.

Okay. And would it look somewhat similar to kind of what we have today? So in previous years, we've had the demand flexibility service, so DFS.

Do you think that would be the kind of scheme that would roll on into future periods? Or or does that kind of go and does it morph into something else?

I'm sure DFS will evolve into something else. DFS has been very successful for us. It is a manual demand response product.

If if you look at, for instance, EVs, if we can figure out a way, and and we are, to send the right signals to the electric vehicle charging to charge it off peak times. And right now, I think the law is that, by default, EVs are charged, at off peak times, but they can cost that a customer can override that.

And they don't have an incentive to do one or the other. Right? So we we need to create an incentive for them. We're bringing in so suppliers can can create propositions for customers to do this to remotely control to remotely manage their charging. So the customer ultimately in the morning says, when I wake up in the morning, I want my EV to be charged a hundred percent by eight AM, and they're gonna plug it in at, say, two PM the day before.

As long as that that, electric vehicle is charged by, by eight AM for the customer, the customer doesn't care if it's charged at two PM in the afternoon the day before or at two AM in the morning. That's the kind of automation that we want. We want the customer to say, eight AM, I want it fully charged, then we want the system to do the work, to balance it such that it comes in when the system is not fully constrained.

Yeah. I think this is super interesting kind of as you go from, as you say, a more sort of manual DFS into something that feels much more like the customer doesn't even know it's happening, yet they're saving money for themselves, they're saving money for the system, and they're still getting exactly the same end product. Right?

Yes. But the customer has to make the choice, though. So that's why that awareness is key. The customer has to say, I want my car charged by eight AM in the morning, and I want to flex. Because we can't force it onto the customer. The customer has to make that choice, and that's the only thing I think the customer should make. Make the choice, but then technology should do the work for for the customer, and then they should get some sort of reward in terms of lower bills or or something like that.

Yeah. Because in in your example, if the car's being plugged in at two o'clock in the afternoon, they may also know, oh, I need to go and pick my friend up from the train station at four o'clock. So actually, I I have it. It has to charge in the next two hours. So they need a bit of choice in terms of Yes. How they do that.

I mean, the nice part is that they never need to go to a petrol station, which is, you know, sort of like a different topic.

Yeah. Okay. And so, obviously, we have the sort of tools in consumer flexibility today, so DFS being one of them. How does that change over the next five to ten years? What does kind of the roadmap of that change look like?

So right now, a lot of system reforms are happening to enable the market participants to come up with different propositions, more attractive propositions for the customers.

And, you know, the system the retail market may change a lot as a result of these reforms. For instance, the Energy Securities Act of twenty three looked at aggregators, load controllers, to set to say, you know, for the past couple of decades, we've had aggregators in the market, but they play a very small role. So governments saw that this could be a, they could aggregators could have an expanded role.

And what aggregators can do once we make them a licensable activity is they can get they they can go to the customer and say, if I offer you x, y, and z, your bill is gonna be lowered by five percent, ten percent, but you have to let me flat you have to let me remotely manage your smart devices.

And that's the proposition that the aggregator can make, that the supplier can make. So we think that once aggregators come into the market, that's going to push suppliers as well as aggregators to bring better customer service, better customer propositions into the market for customers to choose from. There aren't enough smart devices in the system for us to really make this work. And at the same time, this there's a lot of barriers in the system right now. So that's why we've introduced the flex market facilitator.

And the the market facilitator that we've appointed is Alexa. And we've told the Lexon that look at all the products that are in the market right now. Look at the Nissan ancillary services. Look at this is the, Nissan's system operator for for Great Britain.

Look at all the distribution network companies, the the DSOs and the DNOs, products, and figure out make sure that all the rules and regulations are aligned. So for instance, if if one product says you have to have one megawatt and you have to have this type of of requirement, we want all the products to have the same requirements because it may it takes that friction out. You know, if if an aggregate or a supplier wants to go into market x and they have a set of requirements and then they go to market y and it's a different set of requirements, it just makes it difficult to stock those revenues.

It makes it difficult to participate in those products. So what Aluxan will do is is facilitate this in in a way where the system operator, NISO, and the DNOs, the network companies, can align their rules such that all it's just one set of rules rather than twenty sets of rules.

So how does that actually work? Because I I can see how Lexicon fit into it in terms of they are extremely capable on, like, the data aggregation and data management side. But let's say you've got a distribution network operator one and distribution network operator two, And one of them says, oh, it needs to be one megawatt for a minute, and the other one says it needs to be one megawatt for two minutes. And those are the rules.

That's just how they've always been forever. And you come along and say, well, actually, you guys need to work out which one of those two it is. Obviously, they would rather just stay where they are and make the other person change to what theirs is. So, like, who who is actually gonna kinda force them to make sure they they actually all have the same thing?

So we have put we have put this in their license conditions that you have to abide by them what the market facilitator will do. So, obviously, we don't want the market facilitator to be a dictator there to say, I want this, make it happen. There's gonna be a a a process in place where there's gonna be committees, there's gonna be discussions, and we hope that that convening space can bring people together. And, ultimately, if there's any disagreements and if Lexon can't fix it, it's gonna fall onto Ofgem where they identify to say, we have come up with these ideas. They will propose it, and then we will ultimately have to make that decision. But we hope it doesn't get to that level. We hope that when when DNOs come into, come to the table, NISO comes to the table, that this convening space, this committee, and the the advisory groups around them can align the rules without us coming in and and putting the hammer down.

Yes. And I think that's actually a really, really nice description of how Ofgem intervenes and is active in the market and how in lots of ways the GB Power System is led by industry rather than being sort of a a forced process. I think that was a really good example to run through. So so just going back to the flexibility side, how do we how do we make sure that flexibility is for everyone and not just for, you know, a savvy group of customers?

Why wouldn't it be for everybody?

Everybody can change their can can change their consumption from point a to point b.

Everybody can reduce their their consumption today.

We're not creating something that somehow is exclusive to every to anybody because anybody can can flex, anybody can be energy efficient, anybody can think twice about turning on their washing machine at two o'clock in the afternoon because their bills are high today. And they and and if they continue to do that, they're they're gonna receive those high bills. So it's a choice. I think that overall awareness is important for for for us and for the market participants to say, this is for everybody.

Just because you don't have an electric vehicle and this electric vehicle tariff doesn't apply to you, that doesn't mean we're restricting you or excluding you from the process.

You don't have an electric vehicle, so you can apply for the EV tariff.

But you still can not use your washing machine at two o'clock in the afternoon if you don't want to. If you wanted to, you can. So so I don't buy this argument when a lot of people say, well, let's make sure Flux is for everybody.

It is for everybody. Why why are we creating these, you know, you know, we have so many other problems to solve and we're adding, like, nonproblems and making them problems.

Yeah. Yeah. It's a it's a funny thing. The energy industry does this a lot where, effectively, you have two people who are in very similar places. They having got to those places, they almost agree on every single thing. But if you put them in a room together, they will find a way to disagree, even though they are super aligned on on everything that's got them to that particular point.

We just don't have time for this right now. We don't have time. We have clean power twenty thirty. We have a huge target to meet. We don't have time to go around and come and chase every single risk, chase every single question.

Let's chase the opportunity. Let's chase the opportunity of getting us to, getting us to clean power by twenty thirty.

Yeah. So maybe if I rephrase that question, I think the I think where you're coming from is that as long as we sort of fairly reward people for shifting energy. So if I provide a service that's worth a hundred pounds to the to the grid in terms of, lower balancing costs, but I get paid ninety pounds for it. There's still ten pounds spare and so that can get socialized across everyone. So if I've bought an EV and that EV is kind of doing that work, I suppose the the the flip side would be the if I'm providing ninety pounds for the service, but I'm getting paid a hundred pounds for it, then effectively I'm getting overpaid for my flexibility, and therefore someone's gonna have to end up, like, carrying the cost of flexibility. But I think you would say that as long as you design flexibility right, not a problem.

Exactly. And if you if we don't figure out a way to bring in the EV owner into the fold, then the non EV owner is gonna pay for the EV owner's added consumption.

And that's what I think we're missing here is that we are so focused on making sure that we we don't over reward the EV customer, that we're forgetting that that EV customer is bringing on an additional, probably, eighteen hundred kilowatt hours of load onto the system per year. And that means we have to build the system for that. So if we have five million EVs, potentially, we have five gigawatts of additional load right onto the system.

Every everyone's gonna pay for that unless we figure out a way to take that five gigawatts and and make it a flexible five gigawatt, and then people will pay less.

Yeah. I I totally agree. And, you know, you see things like negative pricing in the wholesale market. So if you can get that five gigawatts to the right moment. All of a sudden, you can make a system that's that's working better.

Yeah.

Okay. You mentioned CP thirty, Clean Power twenty thirty.

What are the flexibility targets that are set within Clean Power twenty thirty, and and how can we hit them?

So Clean Power twenty thirty, and I'm gonna look to, NESO, published a Clean Power twenty thirty report.

Desnares then came up with an action plan. And the next step is a road map that's gonna be published by Desna's with input from Ofgem and and, NISO as well, and this will be sometime in July. So looking back at the NISO report that was first published, the flexibility goal is about twelve point seven gigawatts of, consumer led flux by twenty thirty. And then if you look in more detail, they definitely get put categories into that.

So I think it's four point five gigawatts of flux from EV owners and about, I think, one point one from general demand response. So anybody who can who wants to shift their load, they can do it. There's about, I think, one point nine gigawatts from v to g, And and then there's, I think, one point one from, CNI, so I can't remember the rest. But overall, twelve point seven, and that doesn't include storage heaters.

Because if you include storage heaters, then we move from twelve to between up to sixteen gigawatts.

How do we get to this? Can can we get to this? Is that is that the question? Yeah.

Why can't why not? I think we've spent what I'm what I get frustrated about is since the report has been published, since the action plan has been out there, everybody's trying to figure out ways to show that we can't get to that. And it drives me crazy. Why do we do this?

Why don't we try to put all that energy into finding ways of how we can get there? And and to us, there are multiple ways of us. We have to do a lot. This this by no means is a tiny, tiny little goal.

If you think about it and you look globally, our twelve point seven gigawatts by, by twenty thirty is the second highest target flexibility target in the world. The first one is China at sixty five gigawatts.

Obviously, there are more households there. There are more people there, so they can that's why their goal is is is so high. The next high, highest goal is is us at twelve point seven with twenty eight million households.

California is at seven gigawatts.

As in today or is that their target?

Their target. Sorry. So so California's target for twenty thirty, I believe, is seven gigawatts, and they have fourteen million households.

So we have China at sixty five gigawatts. We'll just leave them off this. But California is, I think, forty million people, twenty, fourteen, fourteen, million households.

Right now, they're, the target is seven gigawatts. Ours, we're about sixty seven million people, twenty eight million households. Our target is twelve point seven gigawatts. So it's a gigantic target.

It is a moonshot target. But I think unlike any other moonshot, this is a gettable target if we do if we do all the right things and we do it fast. Mhmm. I think the key is doing this fast.

If we can if we can if we can go at speed, we can do it. The things that we need to do is we need to think about mandation.

We need to think about customer awareness. First and foremost, we have to think about who is going to tell the customer, who's gonna inform the customer that this is a good thing for the system, for the customer, for their bills.

And then we look at potentially time of use rates. If you look at California, the reason they're successful so far is because they everybody's on time of use.

And I think they're moving towards dynamic time of use. If you look at China, they have a lot of they're they're heavily regulated. So similar to similar to California, China and California are heavily regulated. We are market driven, which which means we will we set the rules. We let the market drive us. Right?

I think if we if we can come together as an industry to say maybe come together as an industry and support the the flexibility road map that's gonna be published by, DASNAZ in in late July. If everybody's aligned with that and we move forward with those actions, I don't see why we couldn't. We shouldn't we we we won't be able to meet it. We should be able to meet it. It's basically asking a collect a millions of millions of customers to do the right thing and and and flex for the system to lower the bills for everybody.

But we have to do it fast. Can we do it fast? I don't know. I want to.

Yeah. There is so much in there. So, maybe a few logistics. So today is the twenty second of May.

So, just as we release this, if we end up if this ends up being closer to that flexibility roadmap, then then just some context for listeners. I think the other thing that kinda struck me is that a lot of what you're talking about in terms of flexibility feels like a a no regret option. So even if we get to six gigawatts, it's not like there's some sort of mistake that's been made. As long as that's built on sort of good fundamentals, so things like market wide half hourly settlements and time of use tariffs, that sets up that is this sort of enablement work for the very future of kind of flexibility that we will end up delivering even post twenty thirty.

So even if we're moving fast, there's no issue there. One thing that people might find useful is just just to think about that twelve point seven gigawatts. How big would you say the flexibility market is today? Just to give people a context.

Today, I think, for for ours for the GB system, it's three point eight. We have so far about three point eight gigawatts of flux load excluding storage heaters. Okay. So if you we have about four gigawatts of storage heater flexibility, but that that's not counted towards the twelve point seven.

Okay.

So twelve point seven point, minus three point eight is what we need to get to.

Okay. And, I think sometimes people struggle with gigawatts. So what I would say is that one of these absolutely massive power stations that you see are often something like one and a half to two gigawatts in terms of size. And so when we talk about three point eight gigawatts, really, this is like two absolutely massive power stations that we haven't had to build as a result of having that flexibility.

Exactly. That is a very effective point. Thank you.

So maybe let's move on to some of the areas that you've seen work quite well. So what sort of trials have you looked at and thought this has been a really successful thing? We'd love to either expand that or replicate it.

NISO, Ovo, and a bunch of partners, have gone together, and they're working on a project called CrowdFlex.

And what CrowdFlex does is they are trialing, a bunch of propositions with customers, I think around seventy five thousand customers, to see what's gonna work. And then, ultimately, that's gonna lead to NISO, the system operator, developing a probabilistic model of this is how much we can get based on the trials that we've done. And I think those trials most likely or maybe evolve into more trials so we can understand better. This is still a very nascent topic area, because customers still don't know. I mean, some customers realize it, but we haven't we haven't done a full scale awareness campaign to say, let's all flex.

What do CrowdFlex actually do?

CrowdFlex is is a set of trials with customers to understand if if they get some sort of financial incentive Okay.

Will they flex at the time that they're they they were told to flex.

Okay. I'm with you. So of those seventy five thousand customers, how come we're not seeing that across all customers in GB today?

Okay. So just just to be clear, the seventy five thousand customers, they're just in a trial trial period to figure out so we can understand and get data and then make decisions based on what customers will do, depending on the the push and pulls that they get through these trials.

We just don't have that data today. We have you know, Octopus has some data. Ovo has some data. But as an industry, there's a lack of understanding around what the customer what we need to do for the customer so they can flex. And so that's why we have these trials, going on so we can understand what the customer wants and then develop propositions around the around their needs.

Okay.

Fascinating. I think people are getting a really good insight in terms of what the roadmap looks like for flexibility and noting that later on this year, we we will have a sort of more official roadmap released. But I can see a lot of these trends are gonna be coming through, within that document. So, onto my final two questions. The first one is, is there anything that you'd like to plug?

I would like to plug the flexibility roadmap, actually, that's coming out by, that's gonna be published sometime in July. I think it's really important. I mean, not for everyday household to read that, obviously, but it's important for industry participants to read it, to understand it. We need that alignment. If we cannot if there's, I would say, over a hundred set of milestones and and actions that we need to do. And, does NAS, Ofgem and NESO, you know, we don't own the we don't own the customer relationship.

It's it's the supplier. It's the aggregator. It's the network company. We need them to get behind this and to implement this for the for the system.

Yeah. No. Really interesting. I think we had a podcast very recently, with Jess in Australia, and, she was asked her contrarian view. I just what you were just talking about there just made me think about it. And her contrarian view was something along the lines of, we've always thought it was an industry that we need to try and get all consumers to really be able to understand flexibility and be to sort of be able to understand the the the the niches of it.

And her controlling view was actually we need to forget about that. Actually, for many consumers, they need to know nothing about this. They don't need to be able to understand it. They just need to be able to to benefit from it.

Yes. And I and I thought, actually, the the pitfall we fall into all of the time is that we try and we like energy markets. We like flexibility. So we try and explain it to everyone.

And actually, we don't need to. I think there's some really key players who need to know this. But actually, for consumers, it they just need to feel the benefit from it.

They need to get the benefit. You're absolutely right. And we cannot bother them with becoming energy managers and energy advisers. We can't bother them with that.

They won't do it. What we need is attractive propositions for the customer to say, okay. I can do that. You know?

For for this much x reward, I'm okay with that. And it has to be easy. It has to be, you know, financially beneficial for them. And that's why, you know, these trials, like Crowd Flex, like other trials, will help us understand what's gonna take for the customer to do this.

Yeah. No. Totally agreed. Okay. And on to my final question. So is there a control view that you hold? So something that you believe that the majority of the market doesn't?

I would say that I think we can meet the goal. I would say the majority of the market participants are, you know, like I said earlier, are trying to find every which way to say this is why we can't meet it. And And I don't understand why we're doing this. I I I want us to stop that. I want us to start thinking on different ways where we could meet this. And if we don't meet it, it's it's means we can't get to clean power twenty thirty. It means our our path to twenty fifteen at zero becomes that much more difficult and that much more expensive for the customer.

Yeah. I think it's a that is very much on the money in terms of what you hear all of the time from industry in terms particularly in terms of CP thirty, and the challenge that it that it brings. Well, Marzia, that leads me to wrap up and say thank you very much for coming on. You've been a fantastic guest. I think so many people will benefit from understanding a little bit more what consumer flex looks like. So thank you for coming on.

Thank you so much. I'm a fan of Moto Energy podcast, so thank you for having me.