National Energy Performance Strategy: consultation paper

A Suite 2, Level 20, 570 George Street
Sydney NSW 2000
PO Box A989
Sydney South NSW 1235
T 02 9220 5500
W energyconsumersaustralia.com.au
@energyvoiceau
/energyconsumersaustralia
/energyconsumersaustralia

ABN 96 603 931 326

10 February 2023

The Hon Chris Bowen MP
Minister for Climate Change and Energy

Senator the Hon Jenny McAllister
Assistant Minister for Climate Change and Energy

Submission to the National Energy Performance Strategy Consultation Paper
Energy Consumers Australia appreciates the opportunity to contribute to the development of the
National Energy Performance Strategy, starting with consideration of the issues raised in the National
Energy Performance Strategy Consultation Paper (the Consultation Paper) released in November
2022.
The 10 million households and 2.6 million small businesses that Energy Consumers Australia represents, are facing both challenges and opportunities in the transformation to a renewable energy system that is underway.
The most significant challenge is in managing their energy costs, at a time of steeply rising retail electricity and gas prices, that come on top of prices that have been high for the past decade.
We also know that the burden of higher prices is not experienced equally. For those households below median household income, electricity costs account for between 3% and 12% of their income, compared with households above median income who pay at most 2-3%. On top of this, are high petrol costs and gas costs for those who also use gas in their home.
Small businesses with high energy needs are also confronting difficult choices, forced to pass on higher energy costs to their customers, cut staff or sacrifice their own income.
As a result, consumer trust that the energy system is working in their interests is again low.
Empowering consumers to take control of their energy use requires effort and commitment, which is the opportunity provided by the National Energy Performance Strategy.
It will require effort from households and small businesses, in that they will need to change their energy use behaviour, habits and practices. This means that they need independent trusted information and advice, that builds consumer agency, and offers fit-for purpose protections from over promising and under-delivering, with defective products and misleading claims about services and consumer outcomes. We need to start now, connecting households and small businesses to reliable information on what actions they can take that can have an impact in bringing down their bills, through a national campaign.
It will also require significant levels of investment to make every home and every small business resilient and adaptive, the scale of which means governments will need to support those without the means or the opportunity to fund the upfront capital costs. The finance sector will also need to play its part, including in funding and recognising quality investments, which deliver tangible benefits for consumers. We estimate that the investment required is of the order of $500 billion or more, to bring buildings and appliances to the standard that is needed at the same time as switching from fossil fuels to electric, so that consumers’ exposure to high energy costs is mitigated.
It will also require effort and commitment from governments to ensure that the gap is closed between those paying relatively little for energy, and those for whom energy costs are a significant burden. The energy transformation cannot succeed if the divide between the “haves” and “have nots” becomes entrenched.
Given the scale of the investment required, as well as the opportunities for consumers to take control of their energy use in ways that is easy and convenient, in the longer term we need an independent source of trusted independent advice, that consumers can rely on to successfully take their own journey to 2050, at the pace they can manage. This is the purpose of an Energy Trust, which Energy
Consumers Australia is developing.
Sitting alongside of this are opportunities for a trusted and informed workforce with the necessary skills and capabilities, and a national manufacturing capability. The enablers to support consumers, such as mandatory disclosure of energy performance and mandatory minimum standards for rental homes, will support a steady scale up of workforce and manufacturing capability, creating a system that consumers trust.
Managing energy costs needs to be embedded in the architecture of the energy system and its policy and regulatory design. It means optimising energy efficiency within the system, to ensure a least cost energy transformation by 2050. It also means reshaping demand, so that wherever possible it responds and supports efficiency and reliability in an increasing variable electricity supply. Of course, ubiquitous storage will provide opportunities to fully utilise solar generation generated locally, in addition to the firming capability of large scale storage linked to generation. But that storage also has a price tag, which can be weighed against the opportunities and value provided by demand flexibility.
In our response to the submission we have placed a great deal of emphasis on the importance of governance and targets, as necessary to supporting the scale of what could be achieved when opportunities are made available for all households and small businesses.
We also see that together the National Energy Transformation Partnership and the National Energy
Performance Strategy together set the foundational architecture for equal weight being given to both the supply side and the demand side in the energy transformation.
We have supported our submission with findings from our own research (our surveys and the recent
Energy Efficient Housing report), as well as two commissioned reports from KPMG on demand flexibility, and Dr Mike Roberts from the University of New South Wales on lessons from the UK experience of developing demand flexibility by households.
There is also significant research from our Power Shift program that remains relevant in its behavioural insights, that we believe can be drawn on in shaping policies and programs at a national and local level.
We look forward to working with you, and state, territory and local governments in taking the National
Energy Performance Strategy forward.
Yours sincerely

Lynne Gallagher
Energy Consumers Australia

2
National Energy
Performance Strategy
Energy Consumers Australia’s response to the Consultation Paper
February 2023
Contents

1.Introduction 3
The case for a National Energy Performance Strategy 3
Reshaping demand 5
Response to the issues raised 7
2. Governance 8
Articulate consumer outcomes 9
New Institutional architecture is required 10
Obligation to consider energy performance first 11
Improving system planning 11
Enabling demand flexibility 12
Responsibility for delivering and reporting on targets 14
Improving accountability for delivering on targets 14
Engaging all levels of government 16
Review existing legislation and rules 17
3.Targets 18
Targets that deliver clear benefits to consumers 19
Commitment to an inclusive transition 19
The role of targets 21
National targets should measure co-benefits 26
4. Supporting consumer participation 27
Supporting consumers will deliver the Strategy’s outcomes 27
Building an equitable and fair transition 28
Designing for diversity 28
Building consumer trust and confidence 29
Supporting consumer decision-making 29
How the Strategy can support consumers 30
Role of Financial incentives 38
Small Business needs and challenges 39

2
ECA’s response to NEPS
Consultation Paper
February 2023

1. Introduction
Transitioning our energy system to clean resources, such as wind and solar, will require
some $320 billion of investment in generation, network and storage assets. If we are to limit
the impact this investment will have on consumers’ bills, there must be equal importance
given to reshaping the demand side of the energy system.
Energy Consumers Australia supports the National Energy Performance Strategy (the
Strategy) as an opportunity for leadership across all levels of government, working together,
to empower Australian households and small businesses to manage their energy use. There
are opportunities to ensure that energy efficiency and demand flexibility (though load shifting
and behaviour change) can together ensure that our future energy system is least cost.
The Strategy is an opportunity to develop policies and programs that prioritise, co-ordinate
and invests in improving energy performance in our homes and small businesses. It is a
necessary and critical complement to the National Energy Transformation Partnership.
By 2050, our aspiration is that all homes and small businesses will be resilient, their energy
costs are affordable and fossil fuels will no longer be used for heating, cooling, hot water,
cooking and transport.
As the Consultation Paper makes clear the benefits of a National Energy Performance
Strategy are:
• lowering household and small business energy costs;
• improving the health and well-being of individuals and the community, and closing
the gap in the energy divide;
• reducing emissions; and
• a least cost energy system, that takes full advantage of reshaping energy demand to
reduce the size of the investment required in large-scale, long-lived generation,
network and storage assets.

The case for a National Energy Performance Strategy
The affordability challenge
Retail electricity and gas prices are again rising, after remaining high for most of the past
decade (Figure 1).

3
ECA’s response to NEPS
Consultation Paper
February 2023

Figure 1: CPI growth, wage growth and electricity and gas price changes (December
1997 – December 2022)

Source: ABS, ECA analysis.
Note: Figures have been normalised to 100 in December 1997 to compare growth in each
figure since December 1997.
The National Energy Transformation Partnership, together with state and territory
government plans and roadmaps, commits to building the infrastructure needed to
accommodate a 100% renewable energy system at pace. While this will result in downward
pressure on wholesale electricity prices over the medium to longer term, it is clear that the
additional investment needed in transmission and distribution network capacity, as well as
firming resources, means that it is likely that retail prices could remain at historically high
levels for the next decade.
Since being established in 2015, Energy Consumers Australia has conducted bi-annual
Energy Consumer Sentiment surveys with the addition of an annual Energy Consumer
Behaviour survey in 2021. This research tells us that consumers want a transition to a clean
energy system, however, their primary concern remains affordability for themselves and
other Australians.
Affordability is consumers’ top priority, with 49% of households telling us that affordable
energy for all Australians is the most important issue in the energy transition. Nearly all
Australians are concerned that electricity and gas will become unaffordable for some in the
next three years.
• From 2006 to 2020, 18–23% of households in Australia experienced energy stress.
o Low-incomes, renters, and those with a long-term health condition or
disability are particularly vulnerable.
• The Health of the NEM 2022 report indicates hardship customers use more energy
on average than other groups, due to challenges investing in CER or energy efficient
home improvements
• Energy customers are holding more debt for longer.
• Small businesses have seen energy costs increase in the last two years and will
struggle to absorb any future energy price rises.
4
ECA’s response to NEPS
Consultation Paper
February 2023

People’s confidence that the market is working for them has declined – our last Energy
Consumer Sentiment Survey indicated that only 35% of households believe the market is
acting in their long-term interests, down 10% from June 2021.
Households’ confidence that they have the tools to manage their energy use has seen a
decline over the past 18 months. For people under financial pressure, their confidence that
they have the advice, information and tools to engage in the market was significantly lower.
Only a third of household seeking help from their retailer from bills stress say the help they
received was not helpful.
The energy divide is stark. As Figure 2 shows half of all households (above median income)
are paying between 2-3% of their household income on electricity, while the remaining half
are paying between 3-12%. Those with efficient homes, solar on their roof and a battery and
electric vehicle in the garage have more choices in how they meet their energy needs and
interact with the system.
Those who rent – around one third of all Australians households and most small businesses
– and those who live and work in shared buildings have fewer options and are likely to
continue to experience the highest electricity costs.

Figure 2: The energy divide

Source: Energy Consumer Sentiment Surveys, June and December findings

Reshaping demand
Reshaping demand from households and small businesses places them at the heart of the
system, as they way they use, generate and store energy has implications for the system as
a whole.
The demand side of system design has not always been given equal weight with the supply
side in policy and market decisions. However, our capacity to achieve affordable, reliable,
and clean energy will depend entirely on what people do at home and at work – that we
invest in renewable and more efficient appliances and equipment in our homes and
businesses, that we change our energy practices and habits to align with times when energy
is abundant and when it is scarce, and that we electrify our homes and businesses.

5
ECA’s response to NEPS
Consultation Paper
February 2023

Incorporating demand side flexibility into our system will require a better understanding of
when, where, and why people use energy.
The households and small businesses which make up our system are diverse. This diversity
is a strength, not weakness, of our system. The system doesn’t need everyone to shift their
load at the same time. What we need is for some of the people some of the time to shift their
consumption. A household with two adults who work from home may find it easy to shift their
consumption to the middle or the day, using less in the evening, and they should be
rewarded for this. Whereas a family of four with young children who need to be bathed, fed,
and entertained between 4-6pm every night may not be able to shift their consumption but
shouldn’t be punished for this. Instead, our energy system needs to be designed to take this
diversity into account by offering a variety of services, tools and rewards that suit different
motivations, ability and opportunities. In order to incorporate demand side flexibility into our
system, we need better understanding of what measures (programs and/or incentives) help
consumers take action, platforms to share what works, and mechanisms to track success.
The National Energy Performance Strategy is being developed at a time when a majority of
Australians are worried about their energy bills, are losing confidence that the market is
working, and expect – with good reason – the situation could get worse. To keep bills
affordable, people will need to undertake complex, onerous, and often expensive changes to
their homes and change the energy habits of their household or business in response to the
frequent periods of abundance and scarcity. We need to start equipping households and
small businesses with the tools and information necessary for them to be able to adapt to an
energy system, in which a house or small business which is able to maintain a comfortable,
healthy and safe environment despite outside weather with little need for additional
heating/cooling gives consumers back some control over their bills. Energy performance
along with electrification are essential tools for households in managing their bills and
maintaining a safe home.
Designing for diversity will require recognising that a significant number of consumers face
substantial barriers to engagement. Renters, those on low-incomes or consumers living in
apartments cannot easily improve the energy performance of their homes; online tools and
advice are not easily accessible by the 1 in 4 Australians who are digitally excluded and
small businesses are not sure how to manage the transition to net zero and what that means
for their business. Accounting for these diverse barriers must be an essential part of the
Strategy. Without support, those consumers who can’t access the tools they need to adapt
their behaviour and energy consumption will be left with higher bills and potentially
dangerous homes or businesses. A key objective for the Strategy must be that no-one is left
behind – an explicit goal should be that by 2050 no Australian should be living or working in
a building that is too cold or too hot, not insulated and paying disproportionately high energy
bills.
Helping consumers become more flexible in their demand for energy can help bring down
overall system costs for the transition. Electricity networks make up the highest costs in
consumers’ bills. This is because networks must be built to accommodate the highest peak
of electricity demand, even though this may only be one day out of the year. This means
most of the time there is additional spare capacity that goes unused, despite consumers
paying for it. Increasing flexibility in demand will help reduce the need for additional
infrastructure to be built to cater for peaky demand. This will in turn lower consumers’ bills
and reduce the strain on the system during peak times reducing the risk of outages.
Delivering a trusted market will require changes to the governance of the energy system. We
consider there is a need to build contemporary institutional architecture that better aligns
with the energy market and supports coordination and collaboration between all levels of
government and across relevant portfolios. We strongly support setting clear, tangible, and
timely targets to track progress and feed back into system design processes. We
recommend the establishment of a mechanism along the lines of the COAG Reform Council
to improve reporting and accountability for supply and demand side targets, and how they
are reducing system costs and energy bills.
6
ECA’s response to NEPS
Consultation Paper
February 2023

The National Energy Performance Strategy should be seen as the critical complement to the
National Energy Transformation Partnership, providing the plan that outlines how we will
achieve the demand side/consumer behaviour changes required, builds confidence from
consumers and industry that they are making the right investments, and engages with the
concerns and questions of consumers as they make these changes in a timeframe that may
not be in their control. The National Energy Performance Strategy addresses a longstanding
gap in the energy system, providing the other half of the solution to a fair and orderly
transition. Consumers will participate if assisted but need reciprocity from a market they can
trust.

Response to the issues raised
Energy Consumers Australia has responded to the issues raised in the Consultation Paper
in the three sections in this submission. Each section contains recommendations.
• Governance
• Targets
• Supporting consumer participation
The Consultation Paper raises the critical issues of local supply chains and workforce, which
in the time available we have not been able to respond to in any detail, though we do
address the issue of financing. To underline the importance of these issues, a simple
calculation that assumes that every Australian home invests $50,000 in the period up to
2050, means combined investment of $500 billion. This investment could include smart
appliances (replacing the current analogue versions); switching from gas to efficient
electrical appliances; retrofitting adequate insulation; electrical rewiring that could be
associated with installing digital meters and electric vehicle charging; and for those with the
means and opportunity rooftop solar systems and batteries on-site.
As part of our submission, we are also including two reports.
The first is a report, that we commissioned from KPMG to consider the system enablers of
demand flexibility, which we see as warranting separate and detailed consideration from
improving the energy efficiency of buildings and appliances, or the shifting (either by habits
or programming) of charging hot water, electric vehicles or batteries to periods of the day
when electricity is abundant and cheap.
The second is a report, “Engaging households in electricity flexibility – insights from the UK,”
by Dr Mike Roberts from the Collaboration on Energy and Environmental Markets at
University of New South Wales. It investigates policy and best practice in the UK for
encouraging household electricity flexibility. Dr Roberts received funding from the Grants
Program at Energy Consumers Australia to travel to the UK and conducted 40 interviews
with academics, industry stakeholders, and consumer advocates, upon which this report is
based.

7
ECA’s response to NEPS
Consultation Paper
February 2023

2. Governance
Recommendations
1. The National Energy Performance Strategy (the Strategy) should articulate consumer
outcomes – what will be delivered for Australians in their homes and businesses, and
how it will help them manage their energy bills and energy use.
2. A new institutional architecture is required to integrate energy performance into
energy system governance, which should be built through a hierarchy of legislation,
regulation, overseen by an intergovernmental agreement.
3. Reforms to the governance framework should include:
• an overarching objective acknowledging energy performance as ‘the first fuel’,
and obliges decision-makers to prioritise demand side opportunities wherever
appropriate in system planning and regulatory decisions;
• establishment of an annual Energy Performance Statement of Opportunities;
• prioritisation of initiatives and programs to support demand flexibility;
• establishing a mechanism that reports publicly and annually to Energy Ministers
on the targets set by the National Energy Performance Strategy and the National
Energy Transformation Partnership. We recommend the Government consider
the COAG Reform Council as a model for robust, appropriately resourced
reporting; and
• as an interim step, we recommend that the Strategy assigns an obligated
organisation responsible for monitoring progress against a Strategy target.
4. The Strategy commits to coordination and collaboration with all levels of government,
including consideration of mechanisms to support community-based energy
performance programs and share knowledge, learnings and resources about effective
programs.
5. The Strategy should consider how to identify and amend existing legislation and rules
that present barriers to improved energy performance.

The National Energy Performance Strategy (the Strategy) is a critical complement to the
National Energy Transformation Partnership.
The Strategy addresses a longstanding gap in energy policy and market design, delivering
demand side initiatives that represent the other half of the solution to a fair and orderly
transition, as well as a roadmap to embed consumers’ interests and assets into energy
system decision-making.
The National Energy Transformation Partnership delivered a welcome and necessary reset
for intergovernmental collaboration to support more efficient investment and planning; our
ambition is that the Strategy will deliver a comparable commitment to collaboration across all
levels of government to embed consumers and energy performance in decision-making.

8
ECA’s response to NEPS
Consultation Paper
February 2023

Figure 3: A balanced transition

Source: Energy Consumers Australia, 2022

As illustrated in Figure 3, the work done by governments and market bodies as coal-fired
power generators exit the market has produced various national and state plans to navigate
challenges to reliability and security of supply. We have not however undertaken the same
depth of analysis and research to understand how energy performance - energy efficiency,
fuel switching, load shifting and behaviour change - can support the energy transformation.
The National Energy Performance Strategy is therefore a timely correction. As electricity
consumption and maximum peak demand are forecast to grow significantly in the next 30
years1, energy performance becomes critical to avoiding expensive investment in generation
and networks, providing consumers with the tools to manage and reduce their energy bills
and usage, and achieving Australia’s emissions targets.

Articulate consumer outcomes
A good strategy makes clear its intended outcomes. Because the National Energy
Performance Strategy is focusing on people, in all their diversity and complexity, we
recommend that its outcomes be framed in terms of what it will deliver for Australians, and
not the enablers or processes it will create. System metrics will of course continue to be
important, but success in this strategy will be realised when people are making decisions on
their energy use that are delivering good outcomes for their households and businesses as
well as the system. So metrics should not just be how many kilowatts are saved, but how
much bills go down, or how many people felt confident to change their behaviour.
The following are the outcomes for households and small businesses that we would like
realised through the Strategy.
• People are living and working in energy efficient homes and business premises that are
powered by affordable and clean energy.
• All consumers can easily engage and respond, tailored to their individual needs and
preferences.

1
AEMO 2022 Electricity Statement of Opportunities
9
ECA’s response to NEPS
Consultation Paper
February 2023

• All consumers know how to find advice, information and tools to help them manage their
energy use and energy bills.
• Energy performance and consumer energy resources are considered in system
planning, and consumers are adequately rewarded when their assets and behaviour
deliver system benefits.
Recommendation 1: The National Energy Performance Strategy should articulate
consumer outcomes – what will be delivered for Australians in their homes and
businesses, and how it will help them.

New Institutional architecture is required
The following outlines Energy Consumers Australia’s response to the questions posed in the
consultation paper.
• How can demand considerations be better integrated into Australian energy governance
and what are the priorities for change?
• What new or modified coordination mechanisms or institutional responsibilities would be
appropriate to better drive energy performance action in the future?
We see a need for contemporary architecture that affirms a commitment by national and
jurisdictional governments to a national and integrated energy transition that leaves nobody
behind and outlines a shared vision of consumer participation.
The current legislative and regulatory regime does impose obligations on decision makers to
consider consumers.
• The Australian Energy Market Agreement (AEMA) includes an objective (clause 2.1 (b)
(iv)) to enhance the participation of energy users in the market including through
demand side management and the further introduction of retail competition, to increase
the value of energy services to households and businesses”.
• The National Energy Retail Objective, National Electricity Objective and National Gas
Objectives direct market bodies to act in the long-term interests of consumers.
However, as is acknowledged in the consultation paper, those obligations have not been
sufficient to give equal weight to supply and demand: we have not invested in understanding
the diversity of consumer needs, or how consumer assets and behaviour can support the
system.
The Australian Energy Market Agreement (AEMA) sets out the legislative and regulatory
framework for Australian energy markets. It was signed in 2004 and was last amended in
2013.
The energy market of 2023 is fundamentally different from that of 2013, and it is continuing
to change. New technology – digitalisation and the move to renewable and decentralised
generation – as well as decarbonisation of the energy sector have challenged the regulatory
and legislative framework. At odds with national and jurisdictional policies, AEMA objective
(v) provides a commitment to further increase the penetration of natural gas, particularly to
regional Australia, with the aim of lowering energy costs and reducing greenhouse
emissions.
That the current architecture does not reflect the evolution of the energy system is
understood within the sector, as was acknowledged by Gilbert and Tobin Energy
Regulations and Markets Review (2021).

10
ECA’s response to NEPS
Consultation Paper
February 2023

“Participants across the energy sector have long realised that these changes are not well
supported by current market and regulatory designs, which are fundamentally premised on a
legacy model of generation location and technologies.”2
While there are anomalies in the current regime, we believe the governance structure
underpinning the National Energy Market provided sound scaffolding for its creation and
growth - national legislation and rules that are overseen by an intergovernmental agreement
that outlines the respective role and responsibilities of Commonwealth and State and
Territory governments, and those of market bodies.
We see value in continuing a hierarchy of intergovernmental agreement, legislation and
rules, but a review is required to ensure it is supporting the integration of the demand side
into decision-making.
Recommendation 2: A new institutional architecture is required to integrate energy
performance into energy system governance, which should be built through a
hierarchy of legislation, regulation, overseen by an intergovernmental agreement.
The following recommends specific changes to the governance framework.

Obligation to consider energy performance first
Improving energy performance is imperative to achieving what we are calling a ‘least cost,
most participation system’. Least cost represents the supply side of the equation – that
decisions about building assets, their location and operation should minimise costs wherever
possible, and system planning should maximise asset utilisation. Least cost also actively
considers where consumer assets and behaviour can help reduce or shift demand and avoid
unnecessary investment in long-lived and large-scale grid assets. Most participation means
that consumers are willing and able to do what they can, in their own circumstances, to
better manage their use.
To embed that approach in decision-making, we encourage the Government to consider the
value of an overarching demand-side objective that requires decision-makers to prioritise
energy performance as ‘the first fuel’.
Moving from a broad objective to a clear obligation is critical – to be effective, it should
mandate demand side opportunities to be prioritised where appropriate in system planning
and forecasting, and decision-makers to actively consider energy performance. Examples of
such an approach include the European Union’s energy efficiency first principle which
requires countries to consider energy efficiency solutions in energy system and non-energy
sectors planning, policy and investment decisions. It is tied to an energy savings target, and
has been effective in generating new and increasingly ambitious energy efficiency policy
measures.3
We note the work underway to review the National Energy Retail Objective, National
Electricity Objective and National Gas Objective to include consideration of emissions. We
see an energy performance first objective as being separate to that process.
Recommendation 3: That the Strategy commits to an overarching legislated objective
to underline a national commitment to energy performance as ‘the first fuel’, which
obliges decision-makers to prioritise demand side opportunities where appropriate in
system planning and regulatory decisions.

Improving system planning
The current lack of prioritisation of demand-side solutions is starkly reflected in the
Integrated System Plan (ISP). The most comprehensive energy system plan in Australia fails

2
https://www.gtlaw.com.au/insights/energy-regulation-markets-review-2021-edition
3
Santini and Thomas, Regulatory Assistance Project: Article 7 of the Energy Efficiency Directive 3.0 Nov 2020
https://www.raponline.org/wp-content/uploads/2020/11/rap-Article7_policy_brief_251120.pdf
11
ECA’s response to NEPS
Consultation Paper
February 2023

to identify specific approaches required to enable a truly least-cost transition. The 2022 ISP’s
most likely scenario (Step Change) considers a “rapid consumer-led transformation of the
energy sector”, with over 22 TWh in annual energy efficiency savings by 2030 and 45 TWh
in distributed PV generation within the period.
However, it does not identify the steps required to realise this ambitious transformation.
There is no actual plan to make that happen.
For a truly Integrated System Plan with least-cost opportunities, we must have energy
performance recognised as a high-priority resource in the ISP. This can inform targets, plans
and priorities on the demand side.
Therefore, we support and echo the Energy Efficiency Council recommendation that
governments establish an annual Energy Performance Statement of Opportunities
(EPSO). Analogous work is conducted in the US and referred to as Energy Efficiency
Potential Studies. These potential studies include the investigation of technical, economic
and achievable potential for energy efficiency measures (Figure 4).
An EPSO and its identification of energy efficiency targets could be incorporated into the
GenCosts Report or used to improve the ISP’s current forecasting assumptions for energy
efficiency. The EPSO could disclose maps of efficiency potential for prioritisation of efforts
and programs across residential, commercial, transport and industrial sectors. The EPSO
could also provide sufficient evidence for a robust plan-based energy performance target
that can be integrated into future updates of the Strategy. This would follow a more diligent
process and methodological rigour to setting targets. In the absence of an EPSO-like
approach, which is not uncommon in other countries, we also suggest below key targets that
may inform the Strategy framework.
Figure 4: Energy Efficiency potential classifications

(Adapted from: US EERE, 2020)

Enabling demand flexibility
We commissioned KMPG to provide advice on how the system could better support demand
flexibility – where consumers reduce, shift or increase their energy use at or for specific
times. That report is attached at Appendix A.
Demand flexibility is under-utilised currently but has tremendous potential benefits for both
the energy system, as well as for individual households and small businesses, rewarding
their investment and behaviour change.
It is used most often to describe how consumption can be reduced at peak times to lower
wholesale prices or reduce congestion on the grid. KPMG’s analysis notes the potential
value of building demand flexibility as a reliable and established resource – Figure 3 below
identifies the potential peak demand reduction that could be contributed by demand
flexibility, of 8.5% by 2053 consistent with AEMO ISP forecasts, 10% by 2030 consistent
with the NSW Peak Demand Reduction Scheme, and !5% by 2030, using international
benchmarks.
12
ECA’s response to NEPS
Consultation Paper
February 2023

Figure 5: Estimated peak demand reduction

(Source: KPMG report4)
The KPMG analysis identifies 6 key enablers of demand flexibility which should be actively
built into governance arrangements. Those are outlined in Table 1 below:
Table 1: Key enablers for demand flexibility

ENABLER GOVERNANCE IMPLICATIONS
Integration into system Market bodies should be required to consider energy
planning performance as the first fuel and priorities demand side
opportunities wherever appropriate
Technology capability To ensure that we have the platforms to support consumer
response, the Strategy should support
• acceleration of the smart meter roll-out
• unlocking CER benefits, including through the
introduction of flexible trading arrangements
Information flows Ensuring platforms and policies for consumers and
regulators can easily capture and safely share relevant
data, as well as interoperability standards that enable
devices and appliances to easily engage in demand
response programs and services.
Adequate compensation Programs and policies that recognise and reward consumer
assets and behaviour, rather than penalise people when
they do not have the capacity or motivation to shift demand

4
see attached report at Appendix A, Supporting demand flexibility in the energy sector transition, p 21
13
ECA’s response to NEPS
Consultation Paper
February 2023

Clarity on responsibilities The Strategy should acknowledge that current consumer
protections are no longer fit-for-purpose5, and the
consequent need for a review that provides consumers with
most agency, clear protections and rights across all energy
suppliers, and access to effective dispute resolution.
Government and regulators should be resourced and
empowered to undertake research to identify where
different consumers might have opportunities, or face
barriers to engagement.

Recommendation 4: That the Strategy prioritise initiatives and programs to improve
demand flexibility.

Responsibility for delivering and reporting on targets
We agree with other stakeholders that an important part of the Strategy must be that it
monitors and reports publicly on progress on delivering energy performance targets.
Energy Consumers Australia proposes that the Government consider establishing a
reporting mechanism similar to the COAG Reform Council (the Council)6 which set a robust
and rigorous reporting regime for a national reform program.
The Council provided independent and evidence-based monitoring, assessment and
reporting on performance. It was independent of individual governments, funded by all, and
reported directly to First Ministers. It reported annually against agreed performance
indicators and benchmarks, reporting nationally but able to highlight contextual differences
between jurisdictions.
The Council’s Chair was appointed by the Commonwealth, a Deputy by jurisdictions and four
members on the basis of their skills and expertise. Importantly, the Council was supported
through a well-resourced Secretariat.
An Energy Transformation Council could be similarly established - through a partnership
agreement with jurisdictions and the Commonwealth that reports annually to Energy
Ministers (or the Energy and Climate Ministers Council) on the actions taken through the
National Energy Transformation Partnership and the National Energy Performance Strategy.
It is important that any reporting on progress should cover both the supply side and the
demand side, together, rather than treat them separately. The partnership agreement
should include an obligation to provide accurate and reliable data, and a framework that links
performance indicators to outcomes.
The Energy Transformation Council’s reports should report on progress, be public, and
highlight good practice.
Recommendation 5: A mechanism should be established that reports publicly and
annually to Energy Ministers on the targets set by the National Energy Performance
Strategy and the National Energy Transformation Partnership. We recommend the
Government consider the COAG Reform Council as a model for robust, appropriately
resourced reporting.

Improving accountability for delivering on targets
Within the Australian federal context, there is no existing entity that can easily be given
responsibility for delivering and reporting on all targets, given energy performance programs
can be:

5
See ECA submission on AER review of the Consumer Protections Framework at
https://energyconsumersaustralia.com.au/wp-content/uploads/20221221_Submission-to-MFeather-on-AER-Review-
of-consumer-protections.pdf
6
See https://www.pc.gov.au/research/supporting/benchmarking-federal-systems/13-benchmarking-federal-systems-
chapter11.pdf for more information about the mechanism.
14
ECA’s response to NEPS
Consultation Paper
February 2023

• national, jurisdictional or local;
• delivered and/or initiated by government, energy companies, not-for-profit organisations,
or other relevant intermediaries (e.g. banks or real estate agents); and
• developed and delivered by officials and companies that sit outside the National Energy
Market (e.g. workforce development and building regulation).

The Consultation Paper recognises the range of activities that should be considered within
the Strategy. In its 2022 State Scorecard, the American Council of Energy Efficiency
identified the range of best practice policy tools and programs to scale up energy savings,
summarised below in Figure 6. Responsibility for developing and delivering these sorts of
programs can sit with different Ministers and departments, or across different levels of
government.
Figure 6: Strategies for improving energy efficiency

Utilties or
indepentdent
entity must
procure set
amount of
savings

Explore and
promote Cost-effective
innovative efficientcy
financing to standards for
lower upfront appliances
costs

Energy
Performance
Targets

Government-led
incentives and Inclusive
programs, programs
including designed with
workforce communities
development

Improve and
enforce building
standards

Source: ACEEE 2022
There are a range of different models, internationally and in Australia, that can deliver
accountability for driving and delivering energy savings.
• Oregon’s Energy Trust is mandated to work on behalf of consumers to specify the
annual and long-term levels of cost-effective energy efficiency that should be acquired
as part of the integrated resource plan for each utility. The Trust is accountable for
securing those savings through its programs and activities7;
• California establishes a loading order that puts energy efficiency first, then renewables,
then conventional energy, and established targets for energy efficiency programs. The
State Energy Resources Conservation and Development Commission must establish
annual targets for state-wide savings and demand reduction. The Californian Public

7
See https://database.aceee.org/state/oregon
15
ECA’s response to NEPS
Consultation Paper
February 2023

Utilities Commission has a range of incentive program and can undertake ex post
verification of savings8;
• UK Energy Company Obligation (ECO): regulated through OFGEM, the ECO has been
in operation for some years, and has been successful in driving particular initiatives.
OFGEM identifies priority measures and publishes monthly reports. ECO4 came into
effect from July 2022 and obliges suppliers to promote measures to improve the ability of
low-income, fuel poor and vulnerable households to heat their homes.9
Several jurisdictions overseas have implemented the model of an Energy Trust (see
examples from Oregon and the UK) as a one-stop-shop provider of energy advice, support,
efficiency programs and incentives to help consumers reduce their energy consumption and
encourage the market to deliver better outcomes. Energy Trusts have an obligated mandate
to manage energy efficiency procurement across sectors and can be funded either by
networks (through energy consumers’ tariffs) and/or governments. Their main purpose is to
simplify the energy ecosystem for all consumers, centralising solutions and providing
tailored, timely and trusted advice while improving accountability and compliance
mechanisms. Again, this is one approach for effectively prioritising performance efforts at
the demand side.
As we noted earlier, a strong performance reporting framework will be integral to the
Strategy’s success in delivering to its targets. That includes clear objectives and outcomes,
as well as robust performance indicators and benchmarks.
Currently targets tend to be set at either a whole-of-system or whole-of economy level –
such as in the ISP – or at for a particular program or initiative. That approach has not been
effective in integrating energy performance into decision-making.
We see multiple potential benefits for consumers in establishing an entity like the Oregon
Energy Trust, which can provide a robust evidence base on achievable and effective energy
performance which can inform and adapt targets. We acknowledge that it is not a solution
that can be immediately implemented.
We therefore recommend that the Strategy consider a transitional step, that ties an
organisation – a Government department, market body or market participant – to a target,
requiring it to report on demand-side targets, as well as drive the development and design
of programs to achieve them.
Recommendation 6: That the Strategy improve accountability for delivering targets
through assigning responsibility for each target to an organisation that must drive the
development and design of programs to achieve that target, and report back through
the central reporting mechanism noted above.

Engaging all levels of government
The Strategy acknowledges that there are important enablers to action – for example
workforce development or rebates and concessions – that sit outside the remit of Energy
Ministers.
As well as promoting intergovernmental collaboration, the Strategy should support cross-
portfolio collaboration, to set whole-of-government (such as having all Australian homes
renovated to a 5 star level by 2035) and whole-of system targets (such as setting emissions
saving targets in line with Australia’s international commitments).
As the Consultation Paper acknowledges, State and Territory Governments have been
active in delivering policies and programs to help households and small businesses reduce
their energy use, invest in energy efficient appliances, or upgrade their homes or buildings.

8
See https://database.aceee.org/state/california
9
See https://www.ofgem.gov.uk/environmental-and-social-schemes/energy-company-obligation-eco
16
ECA’s response to NEPS
Consultation Paper
February 2023

Local government plays an important, but too often overlooked role in this space:
• promoting community-based programs to reduce climate emissions, such as energy
efficiency upgrades, solar installations;
• providing advice to consumers on the actions they can take to reduce their energy bills
or manage their energy use – see, for example, Zero Carbon Merri-Bek’s Electrify
Everything advice, based on solid consumer research;
• making planning decisions on new builds and renovations, including on the installation of
solar panels and electric vehicle chargers;
• working with local tradesmen and builders, including in some jurisdictions providing
certification of building upgrades; and
• sharing information and intelligence through networks such as Zero Carbon Merri-Bek’s
community of practice or the Cities Power Partnerships.
These community-focused programs have proven very effective in delivering improved
energy performance of homes, and providing homes and businesses with tailored advice
and information that has helped them manage energy use. Those programs can work with
local community groups and networks, and accommodate differences (in housing stock or
climate, for example) particular to a region or neighbourhood. Those are particularly valuable
in rural and regional areas, where the energy, economic and social infrastructure to support
a program can be widely variable.
• There are also existing local government networks, such as Zero Carbon Merri-bek’s
community of practice, the Australian Local Government Association and the Cities-
Power Partnership, who are already sharing information around strategies and programs
to assist their constituents.
We strongly support the Strategy’s intention to build close collaboration with jurisdictions,
and recommend it consider how it could engage with local government to help local
government identify the most effective programs to assist their communities and consumers,
and capture community initiatives and learnings to share with other jurisdictions.
Recommendation 7: that the Strategy commit to coordination and collaboration with
all levels of government, including how it could support community-focused energy
performance programs and share knowledge, learnings and resources about effective
programs.

Review existing legislation and rules
We regularly encounter legislation and rules that can delay or even obstruct action to
improve energy performance. Those can range from the AEMA’s objective of promoting the
use of gas in regional Australia, to local council planning regulations that use heritage
regulations to obstruct household rooftop solar PV, or charging stations for electric vehicles.
They can throw up significant – sometimes insurmountable – inadvertent barriers to
individual action, adding to cost and complexity for households.
We recommend that the Strategy include a commitment to review legislation or rules that are
presenting barriers to improved energy performance. That review can be undertaken in a
number of methods, including providing consumers with assistance and advice when they
encounter such a barrier and being able to capture and report to government on the
problem, or leveraging networks such as the Australian Local Government Association or the
Cities Power Partnership to share information where planning regulations encourage
perverse outcomes.
Recommendation 8: that the Strategy consider how to identify and amend existing
legislation and rules that present barriers to improved energy performance.

17
ECA’s response to NEPS
Consultation Paper
February 2023

3.Targets
Recommendations
6. The Strategy should set targets that deliver clear benefits to consumers. Targets should
be purposeful, ambitious and measurable.
7. That the Strategy include two meta targets, to make explicit and embed its commitment
to an inclusive and equitable transition.
• Meta Target 1: All homes and small business premises in Australia are net zero by
2050, if not sooner.
• Meta Target 2: Energy costs represent a small and manageable proportion of
households and small business input costs, with the level being to be determined
through consultation with consumers.
8. Targets should set priorities, fill knowledge gaps and address existing barriers. In
designing targets, there needs to be an understanding of how they impact the
diversity of consumers and/or address consumer needs, empower consumers to
participate, and include measures that enable progress to be tracked.
Suggestions for smart, measurable, achievable, relevant and time-bound targets:
• Target 1 – Energy efficiency and demand flexibility are Australia’s highest priority
energy resources. There are specific savings goals and obligations for each sector
(public, transportation, residential, commercial and industrial) and these are tied to
an obligated organisation with the mandate to manage and procure efficiency and
demand flexibility. This could also be directly related to emissions reduction
objectives for each sector.
• Target 2 – All new residential buildings are all-electric after 2030, and all Australian
homes are fully electrified and insulated by 2040.
• Target 3 – All homes have undergone a thorough assessment of their energy
efficiency by 2033, including their energy performance improvement potential, and
there is mandatory disclosure of energy efficiency ratings on point of sale or lease
in place for all homes by 2025.
• Target 4 - All premises are connected to smart meters by no later than 2030.
• Target 5 – Renovations to improve energy performance have doubled by 2035 for
residential buildings in Australia, with specific focus on the most impactful solutions
that deliver comprehensive benefits across energy consumption and costs, indoor
air quality, thermal comfort and wellbeing.
• Target 6 – All existing homes below 3 stars in the NatHERS rating must be upgraded
to at least 5 stars by 2035, and then to at least 7 stars by 2040. All homes in Australia
will range between 8 and 10 stars by 2050, according to technical capabilities and
cost effectiveness.
• Target 7 – Demand flexibility is proactively procured with programs that offer
incentives and suitable rewards to consumers in order to achieve between 10% to
15% reduction in peak demand across all mainland regions by 2050.
9. The Strategy should set and tracks targets that measure the range of co-benefits of
energy performance, including reduced incidence of hardship, avoided emissions,
workforce benefits and deferred system investments.

18
ECA’s response to NEPS
Consultation Paper
February 2023

We welcome the Strategy’s recognition of Australia’s opportunity on demand-side action to
enable the energy performance improvement we urgently need in Australians’ homes and
businesses. We agree that better energy performance delivers long-term and permanent
cost reductions for consumers, supports emission reduction targets, improves the security of
the energy system and improves health and comfort. Furthermore, demand-side actions to
improve energy efficiency, enable electrification of buildings and transport, and empower
consumers to benefit from load shifting and behaviour change are also among the least risk
and most cost-effective solutions to ultimately reaching net zero.
We agree that setting clear targets is essential to spur action of energy performance
measures, as well as to improve their effectiveness. Targets that are measurable and
achievable, delivering benefits to consumers as well as to the energy system set a
successful direction to achieve our net zero by 2050 goal through an efficient, reliable,
flexible, modern, and — most importantly — affordable energy system for all Australians.
With this in mind, this section is divided into four subsections that outline our main
recommendations and focuses on the importance of the Strategy in setting targets for
improved energy performance.
Targets that deliver clear benefits to consumers
The Consultation Paper notes Australia's Paris Agreement commitment to reduce emissions
by 43% by 2030 and the government's overall target of a net zero whole-of-economy by
2050.
Limited tracking of success and monitoring progress, however, prevent us from knowing how
far we are from reaching these targets. Buildings account for about a fifth of those
emissions, yet the responsibility for delivering is spread across national, State and Territory
and local governments.
Energy Consumer Australia’s starting point is that by 2050 we cannot still have Australians
living and working in poorly or uninsulated, very cold —or very hot— buildings, spending too
much on energy and having their health and wellbeing impacted by poor indoor air quality.
The targets in the Strategy should mitigate the deepening energy divide and commit to an
energy transition that leaves no one behind. Homeowners of separate (free standing) homes
invariably find it easier and more cost-effective to improve the energy efficiency of their
homes, fully electrify and install distributed generation and storage to reduce their overall
energy consumption and save on bills.
The other half of Australians households face discouraging barriers to take part in the energy
transition, conflicting messages and serious disincentives to act, which will lead to
increasingly higher bills. To this end, the Strategy must ensure energy performance is a
whole-of-community effort towards net zero homes and businesses that deliver benefits for
all Australians.
Recommendation 9: The Strategy should set targets that deliver clear benefits to
consumers. Targets should be purposeful, ambitious and measurable.

Commitment to an inclusive transition
The Strategy needs to provide a pathway to a net zero future for all Australians, not just
those who have the means and capacity to improve the energy performance of their homes
and business premises.
Therefore, we suggest that the Strategy considers as a meta target:

Meta Target 1: All homes and small businesses in Australia are net zero by 2050, if
not sooner.

19
ECA’s response to NEPS
Consultation Paper
February 2023

On the affordability aspect, we draw attention to the fact that a meta target for net zero
homes and small businesses by 2050 doesn’t necessarily mean energy efficient, affordable,
healthy, comfortable, and flexible homes and businesses not until 2050.
Our research tells us that households above the median income level of $92,872 spend
between spend 1.8% and 2.7% of their income on electricity bills. Those below the median
income, however, are currently paying between 3.1% and 12.4% of their income to electricity
costs. Fuel costs for transportation have reached a national average of $100 per week in
2022, which represents 5.6% of the median income.
If the Strategy is successful in improving Australia’s energy performance by encouraging
energy efficiency, load shifting, electrification and behaviour change, this is an achievable
meta target that will undoubtfully deliver major benefits to consumers by reducing energy
costs and freeing disposable income for other important needs and wants.
A complementary meta target that reflects energy affordability could be coupled with the net
zero meta target, as suggested below.

Meta Target 2: Energy costs represent a small and manageable proportion of
households and small business input costs

To deliver those overarching targets, the Strategy should consider smaller, tangible, and
action-oriented targets that can be delegated appropriately to a responsible entity. The
Strategy could benefit from a common yet very useful approach: the “SMART” framework for
Specific, Measurable, Achievable, Relevant, and Time-Bound targets.
In this section we make several suggestions on SMART targets that can be incorporated into
the Strategy. Clearly defined targets should be intentional, purposeful, ambitious and aim to
deliver system and consumer benefits altogether. Targets are critical enablers of the
sustainable and net zero future we envisage and must play an important role in scaling up
the market, the workforce and the innovation in products and services needed to meet
everchanging consumers’ needs.
The International Energy Agency (IEA) suggests six categories of energy efficiency targets
that can be directly broadened to performance measures: energy intensity (including fuel-
switching outcomes), energy consumption (which can encompass demand flexibility and
load shifting), policy progress, energy productivity, energy elasticity and transactional
targets. We expect that the Strategy considers all these options, as seen in Figure 7, when
defining more specific targets. More importantly, such targets should be able to be directly
transposed into actions for specific geographic regions or economic sub-sectors.
Additionally, as we experience the many changes in our energy system in the next decades,
targets in the Strategy should be updated to consider the supply/demand balance, i.e., if we
continue to see the early retirement of coal power plants, how can energy performance on
the demand side further contribute to energy security, reliability and affordability?

20
ECA’s response to NEPS
Consultation Paper
February 2023

Figure 7: Energy performance target categories

ENERGY INTENSITY ENERGY ENERGY CONSUMPTION
• A reduction in energy PRODUCTIVITY • A reduction in energy consumption relative
consumption per unit • An increase in activity to a base year, projection, or benchmark;
of activity, such as per unit of energy • A change in consumption through load
GPD. consumed. shifting and flexibility to optimise supply
and demand balance.

ENERGY ELASTICITY POLICY PROGRESS TRANSACTIONAL
• A reduction in the • An increase in the • An increase in market
ratio of energy impact of energy penetration of energy
consumption growth efficiency policies. efficient goods or
to activity growth. services.

(Adapted from IEA,2017)
Recommendation 10: That the Strategy include two meta targets, to make explicit and
embed its commitment to an inclusive and equitable transition.

The role of targets
The targets in the Strategy should consider that energy performance improvement on the
demand side is not a voluntary action; it’s an imperative and systemic approach to achieving
a least total-system-costs energy system.
The design of targets should recognise their impact on consumers, and how that may differ
across different types of households and small business. They should acknowledge the
different needs of consumers, and support consumer engagement. Targets should be
measurable.
Recommendation 11: Targets should set priorities, fill knowledge gaps and address
existing barriers. In designing targets, there needs to be an understanding of how
they impact the diversity of consumers and/or address consumer needs, empower
consumers to participate and include measures that enable progress to be tracked.
The targets in the Strategy should consider that energy performance improvement on the
demand side is not a voluntary action; it’s an imperative and systemic approach to achieving
a least total-system-costs energy system. This is consistent with the efficient and prudent
investment/operation of the energy system in the long-term interest of energy consumers.
Additionally, since Russia’s invasion to Ukraine, energy efficiency and demand flexibility
have gained a lot more relevance as supply security strategies, especially in Europe.
Consequentially, we recommend the Strategy adopting a first target that prioritises energy
performance improvement as a resource to be procured10, along the lines of:

10
Similar recommendations are in place in the US through the National Action Plan for Energy Efficiency, in which
energy efficiency is a high-priority resource, and the lowest-cost system resource compared to supply-side
investments.

21
ECA’s response to NEPS
Consultation Paper
February 2023

Target 1 - Energy efficiency and demand flexibility are Australia’s highest priority
energy resources. There are specific savings goals and obligations for each sector
(public, transportation, residential, commercial and industrial) and these are tied to
an obligated organisation with the mandate to manage and procure efficiency and
demand flexibility. This could also be directly related to emissions reduction
objectives for each sector.

Electrification of homes
Committing to energy efficiency and improved performance through the law is the first move
Australia needs to enable a major overhaul of our energy system. Saving energy
via demand-side energy efficiency programs can be achieved at up to half of the cost
of large-scale solar and wind supply alternatives, besides directly reducing greenhouse gas
(GHG) emissions, lessening peak demand and absolute values of network losses, and
enabling power bill savings and many other benefits to consumers. The IEA 2022 Energy
Efficiency report restates that “energy efficiency action is the unambiguous first and best
response to simultaneously meet affordability, supply security and climate goals”.
Another important aspect of the energy transition that is tied to energy efficiency prioritisation
is electrification. Electrification is a form of energy efficiency when it saves energy, money,
and reduces overall emissions, and the Strategy identifies both as measures for improved
energy performance. Electric vehicles, for instance, are roughly three times more efficient in
converting energy into motion than as a conventional internal combustion engine (ICE)
vehicle. Electric heat pumps for space heating or water heating can use less than one-third
of the energy (of an efficient gas furnace or gas water heater) to harness the same amount
of heat. Most gas appliances can be substituted for electric ones with significant gains on
efficiency and reduction on operation/maintenance costs. Upfront costs for electric
appliances are also declining. Despite the uncertainty about the gas future in Australia, the
2022 Gas Statement of Opportunities produced by AEMO projects that only 22% of current
residential and small business gas consumption still exists in 2050.
Particularly for the residential sector, the latest Multi-sector energy modelling 2022:
Methodology and results: Final report, produced by CSIRO and Climateworks to inform
AEMO on inputs, scenarios and assumptions for energy forecasting and system planning,
estimates that in all but one scenario (Green Energy Export) there is a very small amount of
residential natural gas consumption remaining in 2050, making up between 1% and 6% of
final energy demand in NEM-connected states. It should be noted that their modelling
doesn’t consider costs associated with maintaining gas distribution networks, which would
be “an important consideration in determining the economic feasibility of maintaining blended
gas networks under scenarios with low gas demand, and therefore low utilisation of the gas
network”.
It is very likely that gas consumption in residential homes will happen at prohibitive costs for
those consumers unable to electrify and still reliant on the gas network in the future. To this
end, supporting building electrification and energy efficiency remain the most cost-effective
decarbonisation pathway for residential buildings and the most affordable option for
consumers in the long run.
Therefore, we strongly recommend a review of the Trajectory for Low Energy Buildings –
Residential Initiatives, to explore building policies and supporting measures to accelerate
electrification as an efficiency measure. To mitigate the risk of increasingly high gas network
costs for residential consumers, the Strategy should set a target to electrify all homes in
Australia by 2040. This can be complemented by the recommendation to require all new
residential construction to be all-electric after 2030.

22
ECA’s response to NEPS
Consultation Paper
February 2023

Target 2 - All new residential buildings are all-electric after 2030, and all Australian
homes are fully electrified and insulated by 2040.

Understanding the energy performance of existing homes
Secondly, the Strategy should address major knowledge gaps on the demand side and build
the foundation and evidence that will support tracking progress towards better energy
performance. One of the reasons for Australia’s inaction and inertia with respect to demand-
side energy performance is the lack of data about the energy efficiency of existing homes,
including whether major renovations are improving energy performance.
The CSIRO’s Housing Data Portal has over a million NatHERS certificates for new
dwellings, but only just over 50,000 certificates for major renovations and existing dwellings.
Moreover, even new homes that should be compliant with NatHERS minimum requirements
are not wholly audited after construction, with research indicating loopholes that allowed
builders to sidestep energy efficiency requirements in the past. Thus, we would support the
Energy Efficiency Council’s call to prioritise creating a database of residential energy
performance – critical enablers to that include requiring owners to obtain an energy
performance rating on sale or lease of a home or business premise, as has been
longstanding practice in the ACT.
Target 3 – All homes have undergone a thorough assessment of their energy
efficiency by 2033, including their energy performance improvement potential, and
there is mandatory disclosure of energy efficiency ratings on point of sale or lease in
place for all homes by 2025.

Complete the rollout of smart meters
Smart meters are a critical enabler to improved energy performance, facilitating services and
technology that will help consumers understand their energy consumption and options for
energy performance improvement.
Target 4 - all premises are connected to smart meters by no later than 2030.

Incentivising retrofitting existing homes
The Strategy should set targets that rightfully acknowledge and address existing barriers.
Energy-related retrofit and renovation rates for Australian homes are not keeping up with the
urgency needed to decarbonise. The latest Building Activity Release from ABS (September
2022) indicates that current renovation rates to residential buildings have been declining in
line with cost of living pressures and supply chain constraints and comprise only 4.3% of the
total value of building works done in Australia.
While the opportunities for significant household and societal benefits from residential
energy efficiency retrofits are immense, the upfront costs of upgrades are very difficult for
many homeowners to realise on their own. Our 2022 research on Australians’ perceptions of
housing energy efficiency indicated that only a relatively small amount of households were
considering investment in energy efficient appliances or upgrades to their homes.
Furthermore, outright homeownership has also declined considerably and is likely to
continue to do so, with more homeowners in debt with mortgages for longer (nearing
retirement age), with potentially significant impact on household disposable income for
investments on energy performance.

23
ECA’s response to NEPS
Consultation Paper
February 2023

The EU Renovation Wave aims to double annual energy renovation rates for buildings until
2030. We believe that this is possible in Australia too with the right incentives and subsidies.
Target 5 – Renovations to improve energy performance to double by 2035 for
residential buildings in Australia, with specific focus on the most impactful solutions
that deliver comprehensive benefits across energy consumption and costs, indoor
air quality, thermal comfort and wellbeing.

A clear pathway for homeowners
To ensure that energy performance is considered at critical points of intervention, the
Strategy must focus on reducing transaction costs and potential friction for people to
undertake energy-related upgrades. Specific enabling measures, such as requiring all major
home renovation approvals (from council and financing/mortgages) to consider where there
is potential to improve energy performance through a subsidised energy audit, can be useful.
Alternatively, having specific government programs and incentives that encourage the
replacement of major appliances (electrification and heating/cooling) and the installation of
insulation with higher R-values can deliver significant benefits, especially for the worst-
performing buildings.
Setting specific and gradual targets across the entire housing stock provides homeowners
and landlords with time. Once we have mandatory disclosure of energy efficiency ratings in
place for all homes, the Strategy can commit to enabling upgrades that will ensure the
housing stock is future-proof by 2050. At the moment, Australia’s minimum energy efficiency
requirements are not set to cope with climate change and accompanying temperature
extremes. Research has shown that 81.7% of housing is designed only to meet minimum
standards, and 98.5% falls below the economic and environmental optimum.
There needs to be sufficient guidance and incentives (e.g., grants or low-interest financing
opportunities) for builders, major developers, landlords and homeowners to seek above-
Code requirements if we want to encourage net-zero buildings that can safely protect their
occupants from the extreme weather events and temperatures we’ll face by 2050.
Two common barriers that can overlap when it comes to improving homes’ energy
performance are the split incentive issue in rental properties and low-income households.
Housing tenure in Australia has changed significantly in the last 20 years. The private rental
sector is expected to continue growing over the coming decades, and the split incentive
issue needs to be addressed with stronger regulations with respect to energy efficiency of
rented dwellings.
Split incentives refer to the common rental situation where the person paying for renovations
and energy efficiency upgrades (the landlord or building owner) is not the one receiving the
benefits (the tenant). In these circumstances, the landlord may not be inclined to make the
necessary upgrades to the dwelling, or renters may fear their rent will go up because of
those upgrades. Adding to that, in the Australian private rental market, landlords generally
overestimate the likely thermal performance of their rental properties and/or have little or
zero knowledge about existing retrofit assistance schemes.
According to the AHURI Report 328 Australian home ownership published in May 2020, i.e.,
before the aggravation of the housing affordability crisis, cost of living pressures, and higher
inflation and interest rates in 2021 and 2022, “there appears little chance of Australia
sustaining home ownership at current levels. The [home ownership] rate is projected to
decline by 2040 to around 63% for all households, and to not much more than 50%—down
from 60% in 1981—for households in the 25–55 age bracket”.

24
ECA’s response to NEPS
Consultation Paper
February 2023

Low-income households are more likely to rent, and many can only afford to rent homes in
the lower range of the market, where dwellings are usually of poor energy efficiency. While
homeowners (without a mortgage) spend on average 3% of their income on housing costs,
households with low income in the private rental market are more likely to be in housing
stress, spending on average 32% of income on housing costs. In 2017–18, with nearly half
(47.8%) of low-income households in greater capital city areas considered to be in rental
stress. Higher energy costs due to poor quality rental homes only add to cost-of-living
pressure for those who have little or no agency over the energy efficiency of their homes and
limited resources.
A mix of carrots and sticks will be needed. Ensuring mandatory disclosure of energy
efficiency in all homes (Target 3), encouraging and providing incentives for energy efficiency
renovations (Target 5) and setting minimum energy rating requirements (Target 6) will
undoubtedly contribute to shifting the precarious situation of rented dwellings in Australia.
There needs to be a clear timeline and pathway that makes clear to landlords that they will
not be able to rent out poor performing homes until they're upgraded to a certain level, e.g.,
they won’t be able to rent out homes with ratings lower than 5 or 7 stars after 2035. That has
been an effective spur to action in the UK. Landlords also need time, certainty, and guidance
to conduct the required energy upgrade. Renters need their rights to good quality and
energy efficient homes assured in tenancy laws. It’s critical that landlords, renters and low-
income households are properly supported throughout the process, with targets that relate
specifically to their challenges. It may be that a specific proportion of NatHERS certificates is
directed to rented and low-income properties every year, financial incentives for renovation
may also be proportionally directed to these properties, and so on.
The Strategy should develop a clear timeline and identify the appropriate setting that
provides tenants with an energy performing home that is affordable and healthy.
Finally, it often receives little attention but there are also opportunities to develop and
promote manufacturing capability in Australia, to support energy performance improvements
in our building stock, as well opportunities for growth in the workforce that is qualified to
advise and instal on energy performance improvements and electrification.
We recommend the Strategy adopt the following:
Target 6 - All existing homes below 3 stars in the NatHERS rating must be upgraded
to at least 5 stars by 2035, and then to at least 7 stars by 2040. All homes in
Australia will range between 8 and 10 stars by 2050, according to technical
capabilities and cost effectiveness.

Designing for diversity
The Strategy should contain targets to understand and reflect the diversity of consumers’
and sectors’ needs and encourage consumer participation. Actions at the demand level
represent half of the solution to the energy transition and, in this sense, demand flexibility
can contribute considerably to reducing peak demand and ensuring supply security at all
times. It is possible to incentivise and reward certain consumer behaviours to benefit the
system at large. Whilst the previous targets addressed all homes and people, we note that
behavioural-related targets need not to be all-encompassing. Nevertheless, there’s limited
research in Australia about what energy consumers value in regards to demand flexibility
programs, how they wish to be rewarded, what their motivations are to take part in such
programs, what capabilities and level of automation are required/desired, which consumers
may be more or less able to participate and how we understand the social license aspect
controlling consumers energy resources. Therefore, we strongly suggest that the Strategy
supports a broad consultation and co-design process to understand consumers’ needs,
expectations, motivations, opportunities and abilities to participate in demand flexibility. This
will ensure demand flexibility programs are successfully developed and implemented, which
will ultimately result in a least-cost transition for all Australians.

25
ECA’s response to NEPS
Consultation Paper
February 2023

We believe effective demand flexibility will be enacted by some Australians, at some specific
occasions and for particular loads. It is important that the Strategy acknowledges that
diversity and puts in place provisions for procuring that flexibility. The Draft 2023 Inputs,
Assumptions and Scenarios Report (IASR) produced by AEMO and under consultation, for
instance, assumes demand-side participation to represent up to 8.5% of peak demand by
2053 in its most ambitious Green Energy Exports scenario. Whilst this may be the best
available data we have so far, we think the Strategy can support initiatives that will facilitate
higher levels of demand flexibility, such as targeting 10% to 15% reduction in peak demand
across all mainland regions11.
Target 6 – Demand flexibility is proactively procured with programs that offer incentives
and suitable rewards to consumers in order to achieve between 10% to 15% reduction in
peak demand across all mainland regions by 2050.

National targets should measure co-benefits
It is critical that the Strategy not only takes advantage of existing successful programs at the
Federal, State, Territory and Local Government level, but aims to expand and multiply these.
At present, States have varying schemes, targets and governance frameworks for their
Energy Efficiency Savings programs.
Nationally consistent targets that coordinate initiatives, programs, incentives and subsidies
at all government levels can leverage existing investments, showcase effective programs
and promote benchmarking.
Common targets between States and across levels of government can foster collaboration
between different portfolios and ensure that we are all heading in the same direction towards
successful outcomes.
Additionally, the Strategy’s intention to be a long-term commitment towards a national
framework with shared targets can provide the governments and market bodies with the
certainty needed to conduct the necessary regulatory reforms and develop long-lasting and
ongoing programs to improve energy performance. Consequentially, market participants will
be able to develop and mature new services and products.
As the Power Shift Multiple Impacts Framework outlines, improved energy performance can
deliver several economic, environmental, societal and health benefits. Developed in 2017,
that Framework identified where there existed robust measures of co-benefits, to encourage
any cost-benefit analysis or regulatory impact statement to take account of the full range of
benefits. Given the investment internationally in energy performance strategies, policies and
programs over the past two years in response to the energy crisis caused by the war in
Ukraine, it would be timely to review that Framework.
Thus, the Strategy’s targets should include impact measures that take into consideration not
only the avoided energy consumption and reduction in system’s peak, in terms of energy
efficiency and demand response savings, but also the reduction in customers’ debt and
energy poverty, the avoided greenhouse gas (GHG) emissions, the number of jobs created,
the overall energy efficiency and demand response market development, and the savings
associated with avoided network investment and reduction in network losses (total system’s
savings).
Recommendation 12: The Strategy sets and tracks national targets that measure the
range of co-benefits of energy performance, including reduced incidence of hardship
avoided emissions, workforce benefits and deferred system investments.

11
In the US, demand response programs can reduce peak demand an average of 10%, with some states reaching
over 20%.
26
ECA’s response to NEPS
Consultation Paper
February 2023

4. Supporting consumer participation
Recommendations
10. Supporting consumers will deliver the Strategy outcomes – the Strategy should:
• commit to building an inclusive, equitable and fair transition – no one is left
behind;
• design for diversity – recognise that different people face barriers;
• build fit for purpose consumer protections – enshrine consumer agency, provide
adequate protections and redress; and
• Improve the participation environment – actively making consumer decisions
easier.
11. The Strategy should support consumer participation through a plan that includes:
• Well resourced public communications campaign
• Finalising and deploying energy performance ratings tools covering all homes and
small business premises
• Creating a one stop shop to deliver independent and tailored assistance
• Mandating the discolure of the energy performance of homes on sale or lease by
2025
• Working with jurisdictions to mandate minimum energy performance standards for
rental properties
12. Prioritising retrofitting social and community housing, recognising the significant
detriment to those residents of energy inefficient homes and appliances.
13. Building on the Closing the Gap target and also addressing the consumer harm
through inefficient and unhealthy housing, retrofitting First Nations social and
community housing must also be a priority in the Strategy, undertaken in partnership
with First Nations communities.
14. Developing financial incentives to support consumers to improve the energy
performance of their homes and small business,
15. Focus on small business, including:
• providing tailored advice and information to small businesses, to help them
improve the energy performance of their operations and premises; and
• working with jurisdictions and small business peak bodies to identify effective
incentive and assistance measures that address substantive barriers.

Supporting consumers will deliver the Strategy’s outcomes
The success of the National Energy Performance Strategy depends on the day to day
decisions that households and small businesses will make. Those individual actions and
choices in aggegrate impact systemic reliability and affordability.
Energy Consumers Australia supports a National Energy Performance Strategy that
supports an inclusive, equitable and fair transition, designs for diversity, supports fit for
purpose protections and improves the participation environment.

27
ECA’s response to NEPS
Consultation Paper
February 2023

Building an equitable and fair transition
The Consultation Paper rightly recognises that improved energy performance benefits all
Australians, putting downward pressure on bills, reducing system costs and future proofing
our homes to adapt to climate change.
Our recommendation for a meta-target 1 (in Section 3) makes explicit that commitment that
no one is left behind in the energy transformation, and that all homes and small business
premises are net zero by 2050.
Barriers to participation can take a range of forms – we tend to focus on the individual’s
characteristics and circumstances (income, age, health, self-efficacy), but consumers face
structural barriers as well, including product complexity, housing type and tenure, where they
live, inadequate information and tools, consumer protections or dispute resolution.
The number of consumers who face those barriers is significant. Policy and program design
must actively consider where consumers encounter obstacles in making a decision – that
can be through their location, the type of house they live in, whether they own their house, or
their individual circumstances, for example, income, literacy, age, household composition or
mental health.

Box 1: The number of consumers likely to face barriers to engagement
We tend to assume that only a marginal number of Australians are at risk of exclusion, but
we did a quick drill into our Energy Consumer Behaviour Survey dataset which revealed
that at least 82% of households are likely to face one or more barriers to
participation.
Our Energy Consumer Behaviour Survey collects some demographic data from
respondents. We looked at the last ECBS to identify how many people:
• do not report they are financially comfortable: meaning that they can struggle to pay
energy bills, and are less likely to be able to afford to invest in energy performance
upgrades;
• rent their home, who cannot add solar PV or batteries, or improve the energy
performance of their house;
• do not live in a standalone property, who face constraints to installing solar PV or
batteries;
• live in rural areas: where the network can constrain consumer energy resources, and
have trouble accessing tradies and materials; and
• who are older than 75: where they are more likely to be on a fixed income, and at
home during the day, so can have limited capacity to shift their use.
This doesn’t include metrics on other factors that can also throw up barriers to
engagement (eg. people with poor digital literacy or access or CALD consumers).

Designing for diversity
Designing for diversity recognises that different consumers have different preferences,
values and needs.
The Strategy must accommodate and plan for that diversity. We have found value in
segmenting consumers who face similar opportunities (and barriers) utilising the Capability,
Opportunity, Motivation, Behaviour (COM-B) model, which is embedded in our Power Shift
Supporting Households Framework and for which we developed a Policy Makers Guide.

28
ECA’s response to NEPS
Consultation Paper
February 2023

The Supporting Households Framework makes clear that people’s motivation and ability to
change behaviour or take action can change depending on the decision facing them –
renters can’t instal solar PV but can reduce their use at peak times; people with small
children can’t easily shift their energy consumption at bath and dinner time but might be able
to schedule laundry during the day when energy is cheap; people living in uninsulated
housing can’t comfortably reduce their airconditioning on extreme heat days, and end up
with higher bills.

Building consumer trust and confidence
Consumers have low – and declining - levels of trust and confidence in the energy market.
Only 35% of households believe the market is working in their best interests. Our housing
research indicated high levels of concern about housing quality and availability, shortages of
materials and skilled tradespeople. Research participants talked about timeline and cost
blowouts, and builders going bust.
The Strategy should work to build consumer trust and confidence through encouraging fit for
purpose protections for consumers, which understands and incorporates diverse consumer
needs and preferences. It has three foundational elements.
• The enshrining of consumer agency: people feel they can make decisions that benefit
them and their circumstances.
• Consumer protections and rights.
• Access to free, effective and independent external dispute resolution.

Supporting consumer decision-making
The UK Behavioural Insights Team (BI Team) has developed a useful model to support
climate change action that makes clear the interaction between system settings and
individual behaviour, and aligns closely with the challenge in improving Australian energy
performance.
Its “upstream-downstream model” acknowledges that:
“Individuals make choices as a function of their preferences, knowledge, values and
biases (downstream), within choice environments that exert profound influence due
to the proximate effects of pricing, convenience, salience and norms (midstream),
which exist as they do largely because of a system of commercial incentives,
regulation, investment, infrastructure and institutional leadership (upstream).”12
Downstream means informing and encouraging people to take direct action where they can
(our emphasis). It recognises that people have agency, and will make choices based on
their perceived needs, values and capabilities.
Midstream requires altering the context for consumer participation - or what the BI Team
calls the choice environment. As the report says, we too often expect people to swim against
the current. Currently we are asking consumers to take action in a system that makes choice
hard – through complexity, confusing and fragmented information, and services or products
that don’t reward the desired change or even punish “non-compliant” behaviour. We need to
remove friction and make choices for consumers easier, more attractive, more socially
normative and more timely.
Upstream works on incentivising business and government to create the best possible
choice environment for consumers. That requires understanding and reviewing how the
system incentivises inertia or creates perverse incentives.

12
Behavioural Insights Team How to build a Net Zero society: a guide for policymakers and business p. 6
https://www.bi.team/wp-content/uploads/2023/01/How-to-build-a-Net-Zero-society_Jan-2023.pdf
29
ECA’s response to NEPS
Consultation Paper
February 2023

How the Strategy can support consumers
Policies and programs to improve the energy performance of new and existing buildings tend
not to recognise the diversity of household types and tenure, across locations, climates and
generations.
The recent Productivity Commission report underlined generational differences, with a sharp
decline in the number of younger Australians buying homes in recent years. It is unlikely that
enough people buy a home in later life to make up that gap. Of the 2.9m households living in
rental properties, 2.4m are in private rentals. Most rental properties are owned by mum and
dad investors, who themselves can be on relatively low incomes – they are nurses, teachers
or self-employed. About 79% of private rentals are managed by real estate agents, meaning
landlords may not be aware of the experience of their tenants or that their homes are
causing problems.

What consumers told us
ECA and Renew jointly commissioned research to understand how consumers are thinking
about the energy performance of their homes, where they see benefits or encounter barriers,
or what they thought about key policy proposals13. We initiated the research because too
often it is assumed that information and advice is enough to incentivize action, and address
what can be very significant barriers to action.
Key findings included the following.
The research found strong support for a range of reforms to improve energy efficiency,
providing a solid foundation on which to build policy and programs.
• Support was high – over 70% - for a range of reforms including the move to 7 stars,
improving energy performance when undertaking a major renovation, and retrofitting
social housing.
• Mandating minimum standards for rental homes was supported by 70% of respondents,
albeit with concern expressed about how costs would be passed through to tenants.
• And 66% of respondents backed mandating the disclosure of energy performance at
time of sale or lease.
• The benefits of energy efficient homes are well understood.
o People described energy efficient features in describing the ideal – good airflow,
comfortable living temperatures with minimal energy use.
o People also acknowledged the benefits for health, wellbeing and bill savings.
• Only a minority of people rate their homes as energy efficient.
o Tenants and financially vulnerable households rate the energy performance of
their homes significantly lower.
• People think energy efficiency has a connotation of luxury – they link it more readily to
major purchase and alterations.
• People are not sure what to do to improve the energy performance of their homes.
o Most people said they didn’t know much about energy efficiency – that result
was higher among tenants and vulnerable households.
o They indicated that their top three trusted information sources would be an
independent regulator, CSIRO or a consumer advocacy organisation like Energy
Consumers Australia.

13
SEC Newgate ran 20 focus groups across four States, talking to sole/joint decision makers on household finances
and energy related matters. We aimed for a mix of audience segments (gender, age, household type and ethnicity),
as well as ensuring we included people who were landlords, tenants, homeowners who had planned a new build or
major renovation. That was backed in by a quantitative survey of 2010 people.
30
ECA’s response to NEPS
Consultation Paper
February 2023

• Most people are not actively planning installation of energy efficient improvements.
• There are high levels of concern about affordability and availability of homes and energy.
o People think homes are becoming more expensive – harder to build and costly
to run.
o All demographics expressed concern about rising cost of living pressures -
younger Australians, tenants and financially vulnerable were particularly
concerned.
o Availability and quality of housing was a top tier issue - for new builds and
rentals.
• People expressed concern (55%) about shortages of building materials and skilled
tradesmen.
• Climate change was ranked highly as an individual issue, but fewer participants (28%)
were concerned about their home’s carbon footprint.

What that means for the Strategy
Our research made clear that people understand and support improving efforts to improve
the energy efficiency of their home, but they need help.
Figure 8 below uses the BI Team’s choice model to outline the key opportunities to improve
the energy performance of homes that should be considered by the Strategy – many of
those are under active consideration in the Trajectory for Low Energy Buildings process but
could be further accelerated.

Figure 8: Recommended actions to improve the energy performance of homes

Buiding knowledge and
helping people see what Making consumer
they can do decisions easier
(downstream): (midstream)
Accessible, independent Tailored assistance
and accurate information Accurate and consistent
Public awareness ratings of home enenrgy
campaign to make the performance
case for change
Creating the best possible
choice environment
(upstream)
Setting system targets
Electrification of all homes
Data
Mandatory disclosure on sale or
lease
Minimum rental standards
Workforce development
Smart meter rollout
Upgrading social and community
housing
Financing energy efficient
improvements
Consumer protections
Grants, rebates and taxation

31
ECA’s response to NEPS
Consultation Paper
February 2023

We are asking consumers to change longstanding behaviours, or undertake what they know
can be expensive, complex and disruptive upgrades to their homes. Figure 8 lays out that
complexity clearly - it maps the customer journey to undertaking an energy efficiency retrofit.
It was developed for the Sustainable Energy Authority of Ireland and makes clear the range
of decisions consumers must make.
The Strategy needs to actively support consumers through that journey – through active
assistance with decisions, and creating an environment that improves consumers’
motivation, ability and opportunity.
The following outlines programs and actions that should be available to all
consumers.

Building knowledge and helping people see what they can do (Downstream)

A key focus of the Strategy should consider how it facilitates information and advice to
households and small businesses, helping them understand what they can do, as well as
building their awareness that they are going to be asked to change their energy behaviour,
or make changes to their homes.
People told us that they don’t know much about energy efficiency and are struggling to find
low-cost, high impact changes. When they look for information it is often too generic to be
useful or is delivered by a company trying to sell them a product or service.
We see two important benefits to an appropriately resourced public communications
campaign.
• Providing accurate and independent advice to consumers about low cost and easy to do
actions that help address their immediate problems with high energy bills.
• Raising public awareness about the case for change, building support for the Strategy
objective and policies.
o Our research made clear that people are not aware of the urgency for change –
indeed people told us that while they support the intention for change, they told
us that they would prefer a staged roll-out, at their own pace.
• There has been a range of recent relevant research to help build effective
communications.
• Zero Carbon Merri-bek’s Go all electric campaign: it developed a messaging guide that
recommended the following.
o Support the transition – share resources that help people take action.
o Be careful with savings-based messaging.
o Don’t focus on the environmental benefit, as it’s not a broad lever for change.
o Do focus on the inevitability of electrification.
o Do talk about health and safety.
o Do celebrate renewable energy.
• Sustainable Energy Authority of Ireland’s Policy Guide to help anyone communicating
energy savings to the public – it recommends the following.
o Communicating actions people can take based on what is impactful AND what
people find acceptable.
o Consider carefully the framing of messages to avoid inadvertent outcomes –
framing savings in terms of a loss rather than a gain may be more effective, and
emphasising financial incentives might crowd out other motivations.
o Highlighting positive social norms.
o Emphasising need for collective action – we’re all in this together.

32
ECA’s response to NEPS
Consultation Paper
February 2023

• BI Team’s Net Zero Guide, which recommends a communications strategy that:
o informs your audience to know which steps they should prioritise;
o warms them up – build trust, familiarity, legitimacy, norms and knowledge;
o makes small ‘asks’ which are psychological or practical stepping stones; and
o steerspeople toward the big choice when ready.
• International Energy Agency’s collation of energy efficiency policies to manage the
energy crisis caused by the war in Ukraine.
Recommendation 13: The Strategy should consider public communications to provide
people with low cost and easy actions, as well as raise awareness about the case for
change, building support the Strategy objectives and policies.

33
ECA’s response to NEPS
Consultation Paper
February 2023

Figure 9: Typical customer journey to energy efficiency retrofits

Source: BI Team developed for Sustainable Energy Authority of Ireland

34
ECA’s response to NEPS
Consultation Paper
February 2023

Making consumer decisions easier (Midstream)

A key part of the Strategy should be to remove friction and make it easier for people to
navigate what are complex, onerous and disruptive decisions.
The energy ecosystem is complex and fragmented.
• The supply side includes companies selling energy and energy appliances, as well as
appliance manufacturers, builders, tradies, and financial institutions. Advice may not be
independent, and may not take into account the interests or circumstances of
consumers.
• Government, regulators, and not for profit organisations offer information and advice, but
it can be out of date, or pitched at too generic a level to be useful.
• Consumers also use their own networks, including through social media, to seek
information and advice, but that can be inaccurate.
Our understanding of what support is effective has also evolved. There is now a substantive
evidence base underlining the value of information, advice and tools that are tailored to an
individual household or small business preference, needs and values.
We recommend the Strategy consider the following actions to support consumer choices.
Tailored assistance
We asked people what potential sources of information about the reforms might be – they
pointed to non-commercial bodies, including an independent regulator, CSIRO or a
consumer advocacy organisation or government.
Several participants in the focus groups asked for real life case studies and information to
understand what they need to do how easy it might be and the returns they might get.
Recognising that there is no one size fits all solution, a number of overseas jurisdictions
have created a One Stop Shop - an organisation that provides independent and tailored
advice to consumers.
Examples include the Energy Trust of Oregon and Super Homes Ireland.
Recommendation 14: We recommend creating a similar entity in Australia, that could
undertake one or all of the following functions.
• Providing independent, up-to-date advice, information and tools.
• Linking consumers to Commonwealth and jurisdictional assistance programs and
measures.
• Providing or linking to energy auditors.
• Mapping the diversity of consumer need and decision-making.
• Providing feedback and evidence on what programs and interventions have been
effective in encouraging people to move to more energy efficient practices,
appliances or homes.

Accurate and consistent ratings
Accurate rating tools for the energy performance of homes offer a range of benefits.
• For the house occupant, it provides an indication of likely energy costs, as well as an
idea of where they can make energy performance improvements.
• Provides data that informs policy and program development, by providing a common
understanding of what level of improvement is required to move to net zero.
• Supports policies around mandatory disclosure and minimum standards for rental homes
(see below).
• Informs the setting of achievable targets.

It is important that ratings are easily understood by consumers. An example of a best
practice approach is the EU Building Renovation Passports which not only provide a rating,
but also a long-term renovation roadmap that identifies retrofits and installations to
decarbonise the property, as well as links to contractors, other service providers and finance
options.
35
ECA’s response to NEPS
Consultation Paper
February 2023

The Trajectory has progressed ratings tools, but there remains work to be done to ensure
consumers understand the ratings system and see value in their use.
Recommendation 15: The Strategy should finalise and widely promote energy
performance rating tools that deliver easily understood information to consumers,
and extend the tools to include apartments and other types of communal
accommodation, and how best to provide similar information and advice to small
businesses about their premises.

Creating the best possible choice environment (Upstream)

The “choice environment” comprises the system of commercial incentives, regulation,
investment, infrastructure and leadership. Upstream interventions include incentivising
businesses to formulate products and services that don’t require difficult behaviour change,
setting clear market signals that help consumers choose more efficient options, and
regulating to produce desired outcomes.
The earlier section on targets notes the value of electrifying homes and rolling out smart
meters. The discussion below focuses on other mechanisms and enablers to support
consumers.
The Trajectory for Low Energy Homes is already considering a range of enablers to help
improve the energy performance of Australian homes. We see value in accelerating or
strengthening those actions.

Mandating the disclosure of energy performance of homes on sale or lease by 2025
As we move to a world where energy supply moves from abundant cheap energy during the
day to scarce expensive energy at night – the time when people have limitations on their
ability to shift or reduce their consumption - it is important that people understand the energy
performance of the homes they live in.
Mandatory disclosure has been an ACT policy for decades, and has been a factor in
consumer decisions. It has also been an effective driver of action in commercial buildings.
Our research demonstrated strong support for mandatory disclosure – people thought it
would add value to their homes, and assist with decision-making. Landlords and a few
mainly older participants were concerned that it might reduce value. People did want more
information about how often ratings would need to be sought.
The Trajectory work on residential energy efficiency disclosure has been thoughtful and
consumer-focused – we have actively engaged in that process.
Recommendation 16: We recommend moving to mandatory disclosure by 2025, to
provide consumers with the information they need around energy usage.

Minimum rental standards
As outlined earlier in the submission, renters are currently particularly disadvantaged – the
split incentive means landlords don’t see value in improving energy performance, landlords
generally overestimate the performance of their properties and the use of third parties to
manage that relationship creates further distance between intention and outcome.
The harm caused to tenants by inefficient properties are significant – not just
disproportionately high bills, but to their health and wellbeing. Over half said they would be
wary of asking landlords for upgrades for fear of raising rent, and 52% agreed that landlords
were not investing in the energy efficiency of their home.
We have failed to find market-led solutions to those issues thus far.
Our homes research demonstrated high support for introducing minimum standards – 70%
of respondents supported that move. But it also revealed a level of concern that the cost of
upgrades would be passed through to tenants, worsening what is already a sector in acute
stress.

36
ECA’s response to NEPS
Consultation Paper
February 2023

We asked landlords what they thought – 63% told us that it was important to create a
healthy, safe and comfortable home for their tenants, and 55% agreed an energy efficient
property would be easier to rent. They identified the key barriers to change as affordability
and inertia.
Figure 10 below illustrates a strong level of support from landlords for measures that
incentivise landlords to take action, as well as a strong inclination to raise rents.

Figure 10: Landlord view on potential support measures

Source: ECA Energy Efficiency Housing report
Most participants agreed that there should be a mechanism to stop landlords passing on the
costs to tenants, and that government incentives (e.g. tax breaks or no or low interest loans)
were appropriate.
Recommendation 17: That the Government work with jurisdictional governments to
encourage mandatory minimum rental standards be introduced as a matter of priority;
and consider financial and tax incentives to landlords to take action, with a corollary
that any incentive precludes a pass through to tenants.

Upgrading social and community housing
Our homes research indicated very strong support for government programs to retrofit social
housing, with 73% of respondents supporting the proposal.
Participants also made the case that large-scale social housing programs would have a
number of secondary benefits, including:
• providing case studies to communicate to the wider community;
• bringing down the cost of materials;
• boosting the pool of skilled tradespeople; and
• saving taxpayers money as tenants would spend less on energy bills.
The ethos of ‘no home left behind’ resonated with several participants, particularly when
considering how to meet our goals of net zero by 2050.
Residents of social and community housing are perhaps at highest risk in the energy
transformation – their capacity to make amendments to their homes and major appliances is
zero, and they are likely to be already paying a disproportionate amount of their income on
energy bills.
The Commonwealth Government, in conjunction with jurisdictions has agreed to build
50,000 new social and affordable homes, which will be built to a 7 star rating, but there
remains work to be done to retrofit existing stock.
AHURI research found that the majority of social housing in Australia has a very low energy
efficiency rating, due to the age of the that stock, backlogs in maintenance and selling off
better quality properties. The individuals and families living in those homes face
unnecessarily high bills and poor health outcomes.

37
ECA’s response to NEPS
Consultation Paper
February 2023

Recommendation 18: Retrofitting social and community housing must be a priority in
the Strategy, recognising the significant detriment to those residents of energy
inefficient homes and appliances.

Upgrading First Nations social and community housing
We should also note the need to focus also on First Nations social and community housing.
The evidence base paints a poor picture of the experience of those households, particularly
in regional and remote areas.
• AHURI research found that current regional and remote housing stock for First Nations
people does not provide healthy indoor environments. There is inadequate funding and
attention paid to climate adaptation, and retrofits.
• ANU Centre for Aboriginal Economic Policy Research found that remote communities
using prepayment meters experienced high levels of involuntary self-disconnection,
particularly during extreme temperatures. The researchers recommended that policy
responses should work with community to develop solutions.
The new National Agreement on Closing the Gap included for the first time a housing target,
working toward the outcome that “Aboriginal and Torres Strait Islander people secure
appropriate, affordable housing that is aligned with their priorities and need”. Its target is
that by 2031, 88% of Aboriginal and Torres Strait Islander people are living in appropriately
sized (not overcrowded) housing.
Recommendation 19: Retrofitting First Nations social and community housing must
be a priority in the Strategy, in partnership with First Nations communities.

Role of Financial incentives
Our housing research indicated that consumers welcome the notion that government might
provide incentives to help drive change – 75% of participants supported incentives, which
they thought ensured everyone could ‘do their bit’.
People wanted any incentive scheme to be well- “if they don’t put the incentive in people just
won’t do it. With the cost of lining so high,
managed, and not encourage scammers or rorters.
people will just pay a little bit extra on the
Their suggestions for incentives included tax power bill over time rather than incur a huge
deductions and grants or zero interest loans. upfront cost which they can’t afford”

Participants also wanted guidance on how to go Participant, ECA/Renew research
about making upgrades – several mentioned online
calculators to help homeowners decide what
modifications were best, and the potential savings.
Preliminary findings from Climateworks’ Renovations Pathway project underline the case for
active government support and intervention, noting that reliance on market forces alone will
not generate the action required.
• Renovation levels are significantly more cost-effective for society than they are for
households.
• Analysis of the renovations pathways data shows basic renovations and intermediate
renovations are most cost-effective, at the societal level, on average, across 16
archetypes (residential buildings), which represent over 80% of the buildings in the
residential building stock across Australia.
• On average, the cost-benefit at the private householder level was also positive for basic
renovations meaning that overall, households would be better off financially, as well as
achieving a reduction in emissions and reduced energy demand through the ‘basic’
energy efficiency upgrades.
There are a range of policy levers and mechanisms that have been effective in improving
energy performance in the past – ranging from information programs, to major retrofits to
industry obligations to deliver energy savings across a group of households.

38
ECA’s response to NEPS
Consultation Paper
February 2023

Nearly all State and Territory governments have a range of programs currently, such as
grants or no/low interest loans to low-income homeowners to undertake audits and retrofits,
electrify homes, and install solar PV or batteries. NSW, SA and Victoria also mandate
energy efficiency schemes that oblige energy suppliers to invest in measures and programs
to reduce energy use (often with the primary objective of emissions reduction).
We see value in the National Energy Performance Strategy playing an important role in the
following.
• Developing principles for incentives schemes that address substantive barriers, in
lines with people’s expectations of effective and fair management.
o Inclusive - helping those who face barriers to action
o Designed to help diverse range of consumers
o Build consumer trust and confidence
o Actively consider how to make consumer decisions easier.
• Delivering national incentives to help people improve the energy performance of their
homes including through taxation reform (e.g. the Government’s decision to exempt
electric vehicles from fringe benefits tax, or potentially limiting negative gearing to energy
efficiency performances).
• Identifying best practice and innovative solutions developed in other jurisdictions.
o The US Inflation Reduction Act is delivering $270 billion in tax incentives to
catalyse private investment in clean energy, transport and manufacturing,
including:
▪ $2000 per year tax credit to purchase heating appliances; and
▪ $4000 per vehicle consumer tax credit for electric vehicles.
o The UK Green Finance Institute identified 21 projects it believes are scalable
and will overcome barriers to mobilising capital to finance energy performance
retrofits.
• Coordinating with jurisdictional governments to track effectiveness of how jurisdictional
and other incentives are driving behaviour change, and contributing to national targets.
The Trajectory for Low Energy Homes did consider financial incentives to drive change, but
its scope was limited.
Recommendation 20: The Strategy develop financial incentives to support consumers
to improve the energy performance of their homes and small business, particularly:
• develop principles for incentive schemes that address known and substantive;
barriers, in line with public expectations that they are fair and well-managed;
• deliver national incentives, including considering taxation reform;
• identify best practice and innovative incentives; and
• track effectiveness of national and jurisdictional incentives in achieving national
targets.

Small Business needs and challenges
The Consultation Paper notes that small businesses face unique challenges to improve the
energy performance of their operations or premises.
Many of the policy actions recommended above – including information and advice, tailored
assistance, and financial incentives for change - are of equal relevance to small business,
but there remains an evidence gap on the range of effective measures to assist and
incentivise the very diverse needs of that cohort of consumers.

39
ECA’s response to NEPS
Consultation Paper
February 2023

Business NSW has undertaken recent research that focused on information and advice.
That research made a number of recommendations, including:
• the need for an SME energy advice and support program;
• provide more businesses with free and independent advice from experts;
• messaging for SME energy policy should emphasise environmental and community
benefits as well as financial impacts;
• target agriculture, forestry and fishing, and construction – those sectors were
significantly less likely to seek advice;
• embed net zero and energy transition in future SME-focus energy advice and support
programs; Business support was strong for net zero, but only 4% of businesses had
achieved that target;
• introduce subsidy for the SME sector focused on heating, ventilation and air
conditioning, as had been done for LED lighting. The research noted that funding
remained the critical barrier to improving energy efficiency;
• messaging around new energy technologies must account for the reasons businesses
adopt them; and
• establish a loan/grant program to allow SMEs to overcome financial barriers to battery
purchases, and investigate potential for a REC-style scheme for distributed batteries.
The IEA has also collated small business strategies into its report Coping with the Crisis
which recommended a range of potential actions for government to support small business.
Recommendation 21: The Strategy:
• provide tailored advice and information to small businesses, to help them improve
the energy performance of their operations and premises; and
• work with jurisdictions and small business peak bodies to identify effective
incentive and assistance measures that address substantive barriers.

40
41

Supporting demand flexibility in the energy sector transition
Report prepared by KPMG for
Energy Consumers Australia

February 2023

© [year] [legal member firm name], a [jurisdiction] [legal structure] and a member firm of the KPMG global organization of independent Document Classification: KPMG Public
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Table of Contents

Potential for
demand flexibility Way forward EV Policies in Australia

02 04 B

01 03 A

What is demand Current situation Targets and Examples of
flexibility? Schemes

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved. Document Classification: KPMG Public
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Liability limited by a scheme approved under Professional Standards Legislation.
Overview
Capturing the full potential of demand flexibility – the ability for consumers to shift electricity demand in response to changing price signals or incentives – is crucial to lowering wholesale electricity prices, lowering electricity bills, and enabling the system transition towards net zero. While Australia is progressing reforms towards enabling the demand side, greater focus and immediate action is needed to achieve the necessary scale and capability to make flexibility a reliable resource for planning and procurement purposes, and alleviate barriers customers face in participating. This report recommends the introduction of procurement targets for demand flexibility building on the recent NSW initiative and progress internationally to encourage investment in supporting infrastructure and increased customer participation.

01 02 03 04 05

Introducing targets can act as an It is crucial to realise in full the Reforms are happening, but more Energy performance can be Australia should look to overseas immediate and powerful catalyst untapped resource of demand can be done achieved through both energy examples to learn from the models to make demand flexibility a flexibility now efficiency and demand flexibility that have been used reliable and credible resource
Establishing targets will help to better The Australian energy system is Recent years saw a number of While energy efficiency and demand Given the long-term nature of the value the benefits of demand going through significant change – it reforms in the NEM which are flexibility are both important for energy affordability crisis, various flexibility and compensate customers is important that all resources play a relevant to incentivising demand optimising energy use and reducing overseas jurisdictions have adopted plus foster innovation and new role to ensure that transition achieves flexibility. This included a review of greenhouse gas emissions, they unique and innovative demand business models, leading to the a fair, affordable and reliable the metering framework, two-sided involve different approaches and flexibility models. Through the use of demand side to be better reflected in outcome for customers. Demand market development, new tariff technologies. Jurisdictions have technology, cloud-based platforms planning and operational decisions. flexibility can support this by reducing structures and pricing signals. In established successful energy and innovative customer solutions,
Current policy reforms highlight costs through both lowering addition, technology is improving from efficiency programs. A co-ordination programs have been able to improve reluctance to solely trust markets and investment needed to service peak a cost and accessibility perspective. approach across both can help to grid stability and achieve material merchant investment to address demand and also reducing inefficient However, gaps remain – a provide a robust platform for reductions in peak demand.
supply side issues in the National spill of renewable generation. coordinated, clear framework is customer understanding and Overseas markets demonstrate that
Electricity Market (NEM); however for Achieving scale in demand flexibility required for value recognition, participation through better rewarding customers are willing to be part of the demand side there is an capability will also generate benefits accountability, integration into decisions by customer to invest in flexibility initiatives enabled by assumption that the market and and confidence for customers in the planning and progress monitoring. and participate in flexibility capability. technology advances. An commercial investment will provide energy transition. The energy sector The National Energy Performance understanding of what has worked the level of enabling infrastructure should work together to ensure that Strategy provides a vehicle to push overseas provides lessons for further and customer capability. Targets, in consumers, particularly those who the agenda forward and to shift the developing Australia’s own demand combination with the National Energy are vulnerable, are included in and focus to demand flexibility. flexibility arrangements
Performance Strategy, will drive not left behind by the transition.
coordinated action to fully capture the potential of the demand side.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 4
Liability limited by a scheme approved under Professional Standards Legislation.
Purpose of this report

Purpose
With respect to Australia’s position in the energy transition and the growing relevance of the role There is a large degree of progress in Australia in order to empower of the demand side of the energy market, KPMG has prepared this report to inform the consumers. However, changes are disjointed and there is no collective discussion on how to facilitate demand flexibility in the energy sector moving forward. framework to ensure the value of demand flexibility is recognised and
reflected in the planning process. This report aims to set an agenda and
The report aims to provide an overview of the positioning of demand flexibility in Australia’s
provide recommendations as to the key actions that need to be progressed energy systems currently and looks forward to identifying the required actions and changes to
towards an ultimate outcome where: unlock the full potential of demand flexibility in a timely manner. Such potential exists in multiple functions – to support the energy system in transition, to empower consumers experiencing vulnerabilities and those who are seeking to participate more actively in the energy market.
there are opportunities appropriate incentives the role of demand
Energy Consumers Australia have engaged KPMG to prepare this report. In addition to the for all customers to or requirements are in flexibility is reflected in broader purpose of the report outlined above, in the first instance, this report will provide a participate or share in place to unlock demand how energy is planned resource to inform Energy Consumers Australia in engaging with stakeholders and influencing the benefits of demand flexibility; and for and procured.
the policy agenda to achieve optimal outcomes for all consumers in an increasingly flexibility; decentralised energy system.
This report seeks to:

The National Energy Performance Strategy released for consultation in explore demand flexibility consider the key factors and recommend changes November 2022 demonstrates an increasing focus on energy efficiency and in Australia and relative enablers required to realise and required to release the the role of the customer in the market. Demand flexibility complements the to its international maximise demand flexibility benefits and potential of Strategy, and the introduction of targets for flexibility will support in the counterparts; benefits in a timely manner to demand flexibility. delivery of the Strategy and the Commonwealth Government’s objectives
effectively support the energy more broadly.
transition; and

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 5
Liability limited by a scheme approved under Professional Standards Legislation.
Scope of this report

Scope Report structure
This report intends to remain high-level in its approach and accessible in its description of demand flexibility, seeking to serve as an overview of a number of the key factors influencing the ability of consumers to be flexible in their demand and outlining the potential for demand What is demand flexibility? – exploring the concept of demand flexibility as it is unlocked in energy systems and markets. 1 flexibility, differentiating it from other concepts, and highlighting
its application to residential consumers.
Supporting the purpose described at left – the report provides:

Potential for demand flexibility – an analysis of the current an overview of opportunities Australia’s current more targeted balance between supply-side and demand-side investment, the demand flexibility consumers have to position and discussion on select 2 potential for batteries and EVs, and an overview of international potential and its role participate, and the international key enablers to demand flexibility models.
in the transition; barriers they may development; and driving change and
face in doing so; progress.

Current situation in the NEM – a look at demand flexibility
The report captures a broad range of concepts related to demand flexibility. However, flexibility 3 enablers, progress in the existing energy efficiency schemes, is highly varied in how it is defined and considered in the market. This report may not be and challenges to further demand flexibility development.
exhaustive in capturing all of the components of demand flexibility.
The report does not serve to provide precise forecasts of the potential and benefits of the demand side. We have drawn from existing studies and international outcomes to highlight the Way forward – considering how to drive effective change and potential impact demand flexibility could provide if effectively supported. 4 action through introducing procurement targets to enable the
scale and infrastructure needed for demand flexibility.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 6
Liability limited by a scheme approved under Professional Standards Legislation.
01
What is demand flexibility?
What is demand flexibility?
Demand flexibility involves shifting or shedding electricity demand to provide flexibility in energy markets, In response, the attention towards demand flexibility has increased with industry and policymakers working on helping to balance the grid. It is based on two main mechanisms: price-based programmes, which use price expanding frameworks and incentives to better enable demand flexibility and for it to evolve into a reliable signals and tariffs to incentivise consumers to shift consumption, and incentive-based programmes, which resource that is incorporated into energy procurement and forecasting processes.
monetise flexibility through direct payments to consumers who shift demand.
The key to harnessing flexible demand is scale. All customers have a level of flexibility in their energy
Such flexibility can be enabled by communication and smart technologies to shift electricity use across times consumption but it comes in small increments. Furthermore, different consumers consumption profiles are of the day while maintaining the quality and value of end-use services. It also includes the use of embedded very different, and imply different opportunities to be flexible at different points in the day and in different customer energy resources (CER) that adapt net demand profiles. In addition, a customer may decide to shift ways. As such, the change in demand is spread across many consumers, and only becomes worthwhile if the their consumption activities at certain times in response to a price signal or incentive. change in demand can be aggregated. The role of intermediaries to achieve such aggregation and manage
risks across diverse customer portfolios is important. The scale will be achieved if these parties have the
Historically, the focus on demand flexibility has been as a response tool during times of high stress on the confidence to invest in supporting infrastructure and new business models.
grid and hence as a means to remove costs from the energy supply chain. Recently the value of enabling demand flexibility has increased given its potential to aid the integration of variable renewable generation plus As the concept of demand flexibility progresses and technologies become more integrated, it is likely that as a tool to improve affordability and achieve net zero targets. Flexibility is generally seen as a way of forms of demand flexibility will become more interconnected and integrated into how consumers make balancing consumers demand for energy with renewables’ output. decisions about their energy use and the routine operation of the system. The perspective of an
instantaneous demand response capability with technology enabling appliances to respond to signals is
approaching.

Forms of demand flexibility
Smart technology Embedded generation and storage Shifting consumption patterns
Smart appliances are able to respond to price and demand and Using consumer-owned energy resources located behind the meter An energy user changes their behaviour to shift consumption to times
supply conditions, or act on a timed basis, in order to initiate a load to generate or store energy to be used for an energy user’s own of low demand and low prices, and/or reduces their load at times of
during low demand and low prices and reduce consumption during consumption or to be fed back to the grid thereby reducing net peak demand and high prices. This could be in response to a signal
times of high demand and high prices. demand. or request from a retailer, aggregator or market operator.
Smart meters allow energy users to be rewarded for demand For example… For example…
flexibility by measuring the extent of their demand response, as well
as identifying additional opportunities to achieve greater outcomes by storing energy generated through rooftop solar PV during the day a consumer may choose to use their washing machine when they are
shifting their consumption behaviour. with a battery to be used during the peak demand period later that home during the day, at times of lower prices, where it is practical to
day. do so. Alternatively, a consumer may charge their electric vehicle
For example… during the day, and discharge the energy stored at times of peak
demand.
smart thermostats initiate heating or air-conditioning units outside of
peak demand times.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 8
Liability limited by a scheme approved under Professional Standards Legislation.
Role of the consumer in demand flexibility
Energy patterns observed throughout the day and seasons are a direct consequence of what people and businesses do. Naturally, different people do different things over the course of a day but patterns of consumption across days and seasons contribute to common patterns and the occurrence of minimum and peak demand periods.
Energy demand goes hand in hand with what people do, so thinking about flexibility necessarily starts by looking at the rhythms of everyday life, including how technology is influencing behaviour. This covers both decisions that customer make on the day bur also their behaviour towards appliance changes and technology upgrades as this informs their capability for demand flexibility.

The role each consumer plays will differ Demand flexibility captures both day-to-day
behaviour and longer term decision making
Opportunities to engage in demand flexibility are relevant for energy consumers of all types, including Opportunities to engage in demand flexibility are clearly apparent within day-to-day energy consumption in the residential, small and medium business and large commercial and industrial (C&I) users. ordinary course of a customer’s everyday life. Changes in behaviour to shift energy demand between peak,
shoulder and off-peak periods of the day are perhaps the most simple form of demand flexibility.
However, the way in which residential customers use energy compared to C&I customers is very different, in terms of: However, considerations of demand flexibility are an increasingly important aspect of a consumer’s longer term
decision making. Noting the role of appliances and CER as technology enablers for customers to participate,
• the level of consumption; decisions regarding investment in these technologies have a significant impact on a customer’s energy outcomes,
despite arising much less frequently than the day-to-day behavioural decisions.
• the nature of their consumption activities; and
The outcomes of these decisions inform each customer’s ability to participate. Consideration needs to be given to
• the purposes that various forms of consumption serve in the customer’s household or business. the upfront decision to invest or not invest in a new appliance or technology, as well as decisions to manage the
Additionally, the extent and means by which consumers engage in demand flexibility may depend on cost and function of the appliance over its life, through to managing disposal and replacement decisions.
factors or barriers that influence a consumer’s motivation, ability or opportunity, such as:
• the nature of their consumption activities and alignment with motivations;
• perceived value and costs;
• their skills, knowledge, experience and opportunity;
• the tools available and their complexity; and
• the ability and willingness of the consumer to be flexible and responsive to the opportunities
offered.
The role of each consumer will also vary day-to-day. On some days participating in demand flexibility will work for a customer, while on other days the same customer will not want to be involved.
Aggregation of customers can help to manage this situation and the arrangements need to support such pooling of capability and risks.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 9
Liability limited by a scheme approved under Professional Standards Legislation.
The role of the consumer –incentives and enablers
Consumers have an active role to play in unlocking demand flexibility, however it is important that the consumer is not only a volunteer in this process. Consumers need to be aware, informed and willing participants, that are appropriately rewarded for doing so.
This requires two key aspects to be in place: incentives that are fit-for-purpose in driving and rewarding action, and that reflect the values of consumers; and tools and understanding in the hands of consumers to equip them to participate on an informed basis.

A diverse range of incentives are meaningful to What do consumers need to participate?
driving customer participation
Consumers must be rewarded and incentivised to provide flexibility in a way that they understand and can respond to. This requires more than standard financial incentives and price signals. Rather, it Information and data requires a deeper understanding of:
Information on energy consumption, how this translates to bills, where opportunities for demand
• what drives consumer decision-making, including their diverse values, goals, and expectations for flexibility may be present.
the future is needed; and
• the barriers and challenges consumers face, including perceptions with respect to concerns of
security of supply or variation in prices. Transparency

Hence the arrangements for demand flexibility need to facilitate such diversity and recognise the role Clear link between action and reward that is well understood by the consumer before participating.
of “enablement infrastructure” to help achieve demand flexibility, such as data management, software, and channels to raise awareness.

Processes
A defined role for the consumer that is well understood by all market participants. This includes
platforms to communicate signals to customers and offer opportunities to respond.

Understand risks and liabilities
Understand the implications of participating in demand flexibility, including potential availability
risks, and how these are shared among customers, third parties, and other market participants.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 10
Liability limited by a scheme approved under Professional Standards Legislation.
Demand for electricity in Australia is changing
The level and composition of demand for electricity in the NEM is changing with large increases forecast in the period to 2050.
As shown in Figures 1 and 2 below, the level of demand – both in terms of total consumption and peak demand – will increase significantly in the next 30 years and will be spread across more variable sources of load such as electric vehicles. In the absence of demand flexibility, further investment in the supply infrastructure of generation and networks is needed.

Figure 1 –Forecast consumption composition in the NEM Figure 2 -Forecast electricity demand in the NEM
Other Other
12% Residential
9%
Residential
12% 400,000 70,000

Annual Operational Consumption

Maximum Operational Demand
23% 350,000 60,000
Large
Large industrial Total 300,000
Total 50,000 industrial loads Consumption
loads
Consumption 250,000
Electric 22% 207,199 GWh Electric 40,000
26% 180,246 GWh

(MW)
Vehicles
2033 200,000

(GWh)
Vehicles
2023 3% 24% 30,000
Peak Demand 150,000
Peak Demand
Residential 45,144 MW 20,000
38,665 MW 5% 100,000
Other 50,000 10,000
Business 28% Business
30%
0 0
39%

2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
Total Consumption
336,291 GWh Operational consumption Maximum demand
Electric
2050 Vehicles Source: Australian Energy Market Operator, 2022 Electricity Statement of Opportunities 2022 (Central scenario)
39%
Peak Demand
58,183 MW The current environment is one of:

Large industrial • increasing demand for electricity;
loads
12% • rapid change in supply-side composition (including retiring of coal generation capacity); and
• increasing energy prices.
Business
16% Timeframes required to achieve new generation and network infrastructure is a concern.
Business – refers to Business Mass Market (BMM) consumers as defined by AEMO, i.e. all business loads, These factors underpin that now is the right time to focus on the role that customers can play in the energy except those in the large industrial sector. transition, and unlock the value of the demand-side to meet the increasing level of demand in the most
Source: Australian Energy Market Operator, 2022 Electricity Statement of Opportunities (Central scenario) efficient, least-cost means.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 11
Liability limited by a scheme approved under Professional Standards Legislation.
Energy efficiency and demand flexibility are
related but distinct
Customers have an increasing range of choices to meet their demand and lower their energy bills. Energy efficiency and demand flexibility both have an important role to play and arrangements should recognise their complementarity. All related options can help to minimise costs for customers and the grid, and a suite of mechanisms will be needed.

Customers now have the opportunity to optimise their energy use through:
1 2 3
Generating their own electricity Reducing the need for electricity Shifting the timing of consumption using consumer energy resources through energy efficiency

Energy efficiency and demand flexibility are related but distinct concepts – they are both important for optimising energy use but involve different approaches and technologies. Energy efficiency refers to the use of less energy to perform the same tasks, whereas demand flexibility refers to the ability to adjust energy consumption in response to changes in the availability of energy or its price.
Energy efficiency can be achieved through a variety of measures such as improving the insulation of a building, upgrading to energy- efficient appliances, or installing more efficient lighting systems. Current schemes in the NEM are described on page 28. These measures can help to reduce the amount of energy needed to perform the same tasks. Demand flexibility, on the other hand, may involve using smart technologies and controls to adjust energy consumption in response to changes in the electricity system. This can involve shifting energy-intensive tasks to times when electricity prices are lower.
Both can work together to lower energy costs and enable the transition.

Defining the cost curves for efficiency and flexibility
Understanding the marginal cost of providing flexible demand at each point on the cost curve, and how this changes with the load curve at different times of the day, is crucial to effectively value flexibility. Furthermore, determining the level of a target for demand flexibility must recognise the level at which people are most prepared to pay. The NEM is likely to progress further down the cost curve for demand flexibility as technology penetration and solutions becoming more widespread. While arrangements for energy efficiency are more mature and stable given the achievements in this sector, there is still widespread cost savings and environmental benefits available in the sector. Thinking about the complementarity role of both and the synergies between these customer actions will become more important going forward.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 12
Liability limited by a scheme approved under Professional Standards Legislation.
Energy efficiency and demand flexibility impact the load
curve differently
Figure 3 –Impact on demand curve
Grid purchases Consumer energy resources Energy efficiency Demand flexibility
Buy electricity from the grid as and when needed. Generate electricity, changing the profile of net Reduce demand whenever a load is operated, thus Shift eligible loads across the hours of a day to
system demand while reducing total grid demand. lowering the daily load curve. lower-cost times, reshaping the daily load curve.
Megawatts (MW)

0 4 8 12 16 20 24 0 4 8 12 16 20 24 0 4 8 12 16 20 24 0 4 8 12 16 20 24

Normal Load Normal Load Solar PV Net Load Net Load Energy Efficient Load Net Load Flexible Load

Demand flexibility and energy efficiency are different Energy efficiency measures and programs will evolve
into more integrated and dynamic systems
There are multiple energy efficiency programs led by state governments that support a
permanent reduction in the load curve (see Section 3). While there are still significant benefits
to gain through energy efficiency, in the future these programs may want to consider synergies
with dynamic load reductions and integration of renewable generation.
This could involve focusing less on individual technologies and appliances and more on holistic
Have a different impact on Require different Different parties are Can target different analysis at the household and factory level and the customer’s role in the wider energy system.
the normal load curve. technologies that may responsible: to date state participating groups -
vary in their sophistication governments have been residential, business, C&I This requires a focus on integrative design - choosing, combining, sequencing, and timing
and integration with the responsible for energy users. fewer and simpler technologies rather than deploying more and fancier, but disintegrated and
energy market. efficiency, and market bodies randomly timed technologies.
for demand flexibility.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 13
Liability limited by a scheme approved under Professional Standards Legislation.
Potential for demand flexibility in the residential
consumption profile
The energy consumption of each individual households only represents a small portion of total load, however if opportunities for residential consumers to be flexible are mobilised and aggregated, this can have a material impact on the total demand curve.
It is important that participation does not significantly constrain the consumer’s intended use of appliances in completing typical household activities. Smart technologies can support in this way, making it easier for customers that want to offer demand flexibility.

The case for residential energy consumers to be flexible in their demand
• The Australian Energy Market Operator (AEMO) forecasts total annual operational demand in the NEM in 2023 to be equal to
175,718 GWh, of which residential demand represents 40,986 GWh (23%).
• The residential demand curve is becoming more variable throughout the day, with minimum demand levels falling during the
daytime due to increasing uptake of rooftop solar PV, and peak demand levels rising in the evenings. Therefore, residential
loads are contributing more significantly to peaks and troughs in the overall network load curve.
• Many residential users can be flexible in their consumption, responding on shorter notice periods or almost instantaneously
where appliance technology allows for automation.
• Due to shifts in work patterns in recent years which have been expedited by the COVID-19 pandemic, more consumers are
working from home more often. These consumers may have a greater opportunity to engage with demand flexibility, as they
are home during the day and potentially able to actively engage in demand flexibility during these times.
• As consumers have and continue to invest in CER, it is important that opportunities are available for them to recover the cost
of the technology and maximise the benefits it can provide in reducing household energy bills.

Integration of variable renewable generation
The role of demand flexibility towards helping variable renewable energy integration means that demand flexibility is not solely about reducing peak demand. It is also how to adapt consumption to be better managed and balanced with the output of renewable generation. Doing so will reduce the possibility of generation curtailment therefore improving market efficiency and commercial risks for participants. The coincidence of output from customers’ own generation with large-scale VRE means that there is a greater emphasis on the ability of customers to adapt their consumption patterns to achieve this role.
This, therefore, requires thinking not only about the type of customer consumption at peak times but also about the discretionary nature of customers’ use of electricity and the ability to shift to different times of the day.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 14
Liability limited by a scheme approved under Professional Standards Legislation.
Sources of demand flexibility in the residential
consumption profile
Figure 4 –Sources of load and flexibility in the average household consumption profile

Heating and cooling Water heating Swimming pool pumps Lighting Appliances
In most households, heating and cooling is Water heating is the second largest source In households with a swimming pool or Lighting accounts for 10% of the average Appliances such as dishwashers, the most significant source of energy use, of household energy use, ranging from spa, the pump is often the largest user of household electricity bill. refrigerators, cooking equipment and home accounting for 20 to 50% of energy 15% to 27% of energy consumption. electricity, making up about 18% of the entertainment devices can account for consumption depending on the climate electricity bill. 25% of home energy use in total. Although zone. Air conditioning loads in particular no one appliance is a major source of have a strong correlation with peak energy use on its own, in aggregate they demand events, which often occur on hot are a large part of the household energy summer days. consumption profile.

There is potential for load from each of these sources of residential consumption to be flexible and time-shifted. It is important to recognise that the source of load flexibility within these appliances is secondary to their functional purpose to provide a service as an appliance to the consumer, and that consumers may be more willing to be flexible with some appliances than others. Opportunities to be flexible must not materially conflict with the consumers’ intended use of the appliance.
However, smart technologies and behind-the-meter storage can play a role in supporting the flexibility of residential appliances without constraining the ordinary course of the consumer’s consumption behaviour. Digitalization, automation, the Internet of Things, and other technological advances are creating an increasing number of customers that are capable of responding to real-time price signals. As evidenced in overseas demand flexibility schemes, technology is making it easier for customers that want to offer demand flexibility.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 15
Liability limited by a scheme approved under Professional Standards Legislation.
The application for residential water heating and air
conditioning
New technologies to facilitate controlled load are increasing in availability and penetration and will likely contribute to an increased role of controlled load in residential demand flexibility in the future.

The potential demand flexibility in residential hot water loads
Water heating is the second largest source of residential energy consumption, behind heating and cooling. Furthermore, hot water service technologies that have the capacity to provide a controllable load are increasing in availability and penetration. This is a key driver of enabling electricity demand from hot water to be flexible and shifted to provide a controlled load at times of low demand.
The concept of the controlled load has been around for some time, and uptake is particularly well-progressed in Queensland. New technologies to facilitate controlled load are increasing in availability and penetration and will likely contribute to an increased role of controlled load in residential demand flexibility in the future.

The potential demand flexibility in residential air-conditioning loads
For all states except Tasmania, maximum operational demand occurs during summer – household and small business air conditioning loads are a substantial driver of system peak.
Small air conditioning unit loads are highly weather-sensitive and under current usage patterns are often activated in the afternoon when the space is already heated up. Therefore, there may be an application for demand flexibility in the way air conditioners are used, which could have a significant impact on the network load curve.
However, it is important to note that there are barriers to engaging demand response from air-conditioning loads. In the context of hot Australian summers and many homes with ineffective insulation, households may be limited in their ability to switch off their air-conditioner and maintain comfortable living spaces. As such, despite representing a large load, air-conditioners may not be the most flexible appliance in practice.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 16
Liability limited by a scheme approved under Professional Standards Legislation.
Air conditioning and water heating loads in the NEM
Figure 5 –Maximum air-conditioning load against corresponding Figure 6 –Total and controlled water heating load rooftop PV generation
Controlled hot water load Total hot water service energy demand
Peak average hourly air-con consumption:
Victoria 0.6029 kWh (5pm). Corresponding 5pm
average hourly solar generation: 0.577 kWh
Per day % of daily demand from all sources per day

Victoria 1.5 GWh 1% 21.1 GWh

New South Wales 7.4 GWh 4% 20.2 GWh

South Australia 1.3 GWh 5% 5.4 GWh
Peak average hourly air-con consumption:
Queensland 0.5633 kWh (2pm). Corresponding 2pm
average hourly solar generation: 0.932 kWh
Queensland 6.0 GWh 5% 11.8 GWh

Source: CutlerMerz – Hot Water Demand Response study prepared for Energy Consumers Australia

Peak average hourly air-con consumption:
South Australia 0.6289 kWh (5pm). Corresponding 5pm
average hourly solar generation: 0.51 kWh

Source: CSIRO – Equipment Energy Efficiency (E3) program data dashboards

CSIRO has stated that over 50% of heating and cooling units currently available have the capability to engage demand response.
As the uptake of air-conditioning units with ‘smart’ or demand flexible capabilities increases, and solar PV penetration increases, the generation from solar PV and demand from air-conditioning may be coordinated to offset each other.
However, the timing of peak solar PV generation and peak demand is not coordinated, and storage will play a role in allowing such capabilities to be effectively harnessed.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 17
Liability limited by a scheme approved under Professional Standards Legislation.
Demand flexibility in the C&I consumption profile
To date, almost all wholesale demand response has been by large, relatively sophisticated consumers who are willing to invest in the supporting capability and systems. While C&I demand flexibility could be easier to unlock, significant potential still sits with residential customers who may be able to respond on shorter notice periods.

AEMO predicts business annual consumption will constitute 60% of the total annual sent- out consumption by 2030 representing a major potential towards enabling greater demand flexibility. For example, recent trials demonstrated that shopping centres,
Differences between residential and C&I demand flexibility equipped with a battery and solar PV, are able to reduce the load by up to 70% during peak times. • C&I users could be considered typically more engaged with their energy usage, relative to other types of consumers. Energy
Demand flexibility could be achieved through a number of sources, including control and forms a significant portion of costs, so C&I users have a clear incentive to investigate demand flexibility opportunities.
electrification of commercial and industrial loads such as heat pumps, electric furnaces However, this must be traded off against the opportunity cost of ramping down production, and any additional costs to re- and thermal storage for cold stores and commercial property. start/ramp systems back up. Further, C&I customers have bespoke supply arrangements – meaning price signals and
incentives, as well as peak and off-peak periods, can be tailored and likely more effective.
• Large C&I loads are predictable. This is because they operate large processes, often on fixed timetables and fixed hours.
The forms of demand response currently Given this, C&I users may be more suited to scheduled engagement with flexibility/demand response – whereas residential
users may be able to respond on shorter notice periods.
available to C&I users include: • Technology cost and adapting systems can be a barrier in C&I contexts – given the specialisation of C&I operations, adapting
a platform/solution that is fit-for-purpose can be more challenging relative to largely homogenous residential contexts.

1 2 • The demand flexibility reforms to date have been focused on C&I users as these are the biggest loads, potentially with the
most potential to be time-shifted. While recognising and realising flexibility in residential load profile is more complex, it has
Interruptible supply Direct load control of significant potential for example via hot water, EVs and air conditioning which may be relatively more untapped to date. Based
contracts appliances on Energy Synapse’s analysis of the AEMO demand side participation information portal, the residential sector appears to
have significantly more potential flexibility than the commercial and industrial sectors.

4 3
Smart Energy Hubs Deployment Project
Demand reduction bidding Price based approaches
into the wholesale market utilising different tariff
Shell Energy has been developing its commercial and industrial load flex product (LoadFlex) capability since 2019, culminating in
arrangements
the launch of a Smart Energy Hub pilot project at Chirnside Parking Shopping Centre. This project optimises the centre’s energy
system and uses predictive technology to achieve electricity demand reductions of up to 70% of peak demand loads. Given its
To date, almost all wholesale demand response has been by large, relatively success, Shell Energy will aim to implement Smart Energy Hubs throughout Queensland, New South Wales and Victoria across sophisticated consumers who are willing to invest in the supporting capability and 40 commercial and industrial customer sites to demonstrate new flexible demand capacity of 21.5 MW.
systems. As technology improves and becomes cheaper, more C&I users will be well- placed to provide demand flexibility. Advanced metering, smart communications and This project is co-funded by the Australian Renewable Energy Agency (ARENA), which announced $9.1 million in funding to Shell energy monitoring can all enable such customers to participate. Energy. The total cost of the project amounts to $31.6 million.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 18
Liability limited by a scheme approved under Professional Standards Legislation.
02
Potential for demand flexibility
Planning for demand flexibility as a resource
Recognition of demand flexibility in planning
AEMO informs the planning and procurement of future energy assets through the development of the Integrated System Plan
(ISP) and Electricity Statement of Opportunities (ESOO).
In developing the ISP, AEMO applies assumptions with respect to the proportion of peak demand to be addressed via demand- side participation. The assumption varies across different regions of the National Electricity Market, and for each ISP scenario modelled. In AEMO’s latest 2023 Draft Inputs and Assumptions – 8.5% of operational maximum demand is assumed to be met by demand-side participation by 2053 – representing the upper bound of AEMO’s forecasting.
The targeted level of demand-side participation is a forecasting assumption only – there is no obligation nor assessment of current capability to deliver the target over the forecast horizon.
In developing reliability forecasts in the ESOO, AEMO only includes existing or committed sources of demand-side participation.
Over the 10-year horizon of the ESOO, demand-side participation levels are expected to remain relatively low consistent with current levels.
The exception to this is in NSW where the forecast impact of the new target under their Peak Demand Reduction Scheme is captured – implying that if all states were to introduce a similar target, there would be material changes to reliability assessments and investment forecasts.
The assumed profile for flexibility appears conservative against international counterparts – both in the level of the target and the pace at which it will be realised. Furthermore, only recognising committed demand response in reliability planning may underestimate the demand response capacity likely to arise in the market over the next 10 years – considering improvements in the cost and availability of technology, and continuing price pressures.
Flexibility being a reliable and established resource that is recognised in the planning process will deliver substantial benefits in capacity cost savings and support an efficient transition pathway, mitigating the risk of over-investment, and best capturing value in the role of the consumer. However, Australia has a way to go before demand flexibility is seen as a reliable and credible resource.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 20
Liability limited by a scheme approved under Professional Standards Legislation.
Potential demand flexibility capacity in the NEM
Top-down estimates –reduction in peak demand Comparing demand flexibility with supply-side capacity
Figure 7 –Estimated peak demand reduction Figure 8 –Demand-side vs. Supply-side capacity
65,000 7,000
Maximum operational demand (MW)

60,000 6,000
55,000
5,000

Megawatts (MW)
50,000
4,000
45,000
3,000
40,000
35,000 2,000

30,000 1,000
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
2051
0
Demand flexibility reduction in Vales Point B - maximum Victoria Offshore Wind Target
NEM (total) 8.5% by 2053 10% by 2030 15% by 2030 2030 capacity (retiring in 2029) (by 2032)

Figure 7 above displays high-level top-down estimates of the potential peak demand reduction that could Estimated demand-side reduction in 2030 be contributed by demand flexibility, applying the following assumptions for the % of peak demand met by The top-down estimates shown in Figure 7 to the left indicate that, in 2030, demand flexibility could provide demand flexibility: a reduction of:
• 8.5% by 2053 – consistent with the upper bound of AEMO’s ISP forecasting.
• 1,919 MW under the 8.5% by 2053 scenario;
• 10% by 2030 – consistent with the target under the NSW Peak Demand Reduction Scheme, applying • 4,282 MW under the 10% by 2030 scenario;
this figure across all regions of the NEM.
• 6,423 MW under the 15% by 2030 scenario.
• 15% by 2030 – informed by international benchmark estimates applied by the International Energy
Agency. Furthermore, New Zealand began using demand response in 2007, and now meets over 16% For comparison purposes – Figure 8 above shows how the contribution of demand flexibility compares (in
of peak demand through demand response programs. We note for the USA, it has been forecasted MW terms) against supply-side capacity at a similar point in the transition:
that demand flexibility could equal up to 20% by 2030. • maximum operational capacity of the coal-fired Vales Point B, scheduled to be retired in 2029; and
Source: AEMO, Draft 2023 Inputs and Assumptions Workbook, Electricity Statement of Opportunities 2022 • offshore wind generation capacity targeted by the Victorian Government for 2032.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 21
Liability limited by a scheme approved under Professional Standards Legislation.
Batteries will enable greater demand flexibility
Batteries represent key ‘enabling technologies’ to facilitate and maximise
opportunities for consumers to engage in demand flexibility at scale.
Battery storage is a ‘game-changer’ for demand flexibility. Batteries enable energy to be stored and consumed at a later point in time, such that the load profile can be better matched to the generation profile.
An increased number of batteries across the grid, including large-scale, neighbourhood and small-scale behind-the-meter batteries, have the potential to contribute towards balancing consumption resolving both minimum demand and peak demand challenges. As the financial barriers to battery uptake fall, the benefits of consumers having access to energy storage must be recognised and maximised.
Medium-sized community batteries may be a key component in unlocking residential consumers’ flexibility and support the benefits of flexibility being shared among consumers – including those who may face barriers to installing rooftop solar and/or batteries in their household.
Further work is needed to progress the framework for community batteries integration into energy markets and benefit sharing among all consumers. Importantly, State and Commonwealth Governments are driving the deployment of community batteries through various programs. In December 2022, the Commonwealth Government announced the $200 million
Community Batteries for Household Solar program which will deliver 400 community batteries.

Virtual Power Plants (VPP) will maximisethe value of batteries and EVs
VPPs will play a key role in aggregating and integrating the resources that support multiple customers’ demand flexibility. This enables the value that each customer holds to be packaged as a service, the value of which is shared among the participating customers. The table below demonstrates that VPPs are forecast to reduce maximum demand between 6% and 16% in
2031-32.

Table 1 – Impact of VPPs on peak demand reduction
NSW QLD SA TAS VIC

VPP for batteries (MW) 1,818 1,609 565 125 1,402

% impact on reducing maximum demand 13% 14% 16% 6% 13%

Approximate number of residential batteries in VPPs 379,000 335,000 118,000 26,000 292,000
Source: Australian Energy Market Operator, 2022 Electricity Statement of Opportunities (Central scenario), p.69

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 22
Liability limited by a scheme approved under Professional Standards Legislation.
The challenge and opportunity EVs present
The value of flexibility in electric vehicle charging Figure 9 –EV charging load % of peak demand
70,000 16%
EVs represent a valuable consumer-owned demand flexible resource. EV charging represents a significant source of load - consumers may adopt smart charging behaviour to support the network, by charging and discharging energy from their EV batteries at 60,000 14% different times.
The annual charging load of EVs is expected to increase significantly from 160 GWh in

Maximum operational demand (MW)
12%
2022-23 to 12,607 GWh by 2032-33. The level and impact of EV demand will be 50,000 informed by the timing of charging loads – greater charging during daytime hours when

% of maximum demand solar generation is present will reduce demand at the evening peak and potentially
10% support the security of the grid against minimum demand challenges, alternatively charging loads in the evening will contribute to greater peak demand. 40,000

In planning for the demand impact of EVs, consideration needs to be given to 8% consumers’ needs and habits in commuting. It should not be taken as given that consumers will charge their EVs according to the needs of the grid. First and foremost, 30,000 the EV is a resource to support a consumer’s mobility in their day-to-day activities and 6% charging behaviour will be informed by what is convenient to the consumer.
20,000
The emergence of EVs represents both an opportunity and a challenge for the energy 4% sector. Maximising the benefit, and mitigating costs and risks are dependent on providing appropriate incentives for flexibility in charging, charging infrastructure in the right locations available at the right times, platforms to support consumers in providing 10,000
2% flexible charging demand, and integrating vehicle-to-grid technologies into the network.
Figure 9 sets out AEMO’s forecasting of the proportion of peak load contributed by EV charging. As EV loads represent an increasing share of peak demand, the value of 0 0% flexibility in charging increases, highlighting the increasing need to consider opportunities for flexibility in charging.
Appendix B provides an overview of the policies currently in place in Australia to EV consumption Total operational demand EV load % of total peak demand facilitate the uptake of EVs.

Source: Australian Energy Market Operator, 2022 Electricity Statement of Opportunities (Central scenario)

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 23
Liability limited by a scheme approved under Professional Standards Legislation.
International jurisdictions are capturing more
demand flexibility
Overseas jurisdictions are adopting unique and innovative solutions to meet the current energy crisis, demonstrating that technology can enable greater utilisation of demand flexibility and that customers are receptive to participating in such projects. Australia can learn from the design of these initiatives to drive action and address affordability challenges.

International developments 1 Demand Flexibility Service (DFS) –United Kingdom
The DFS is a service developed to allow the Electricity System Operator to access additional flexibility by having
In jurisdictions outside of Australia, governments have begun to realise the effectiveness of electricity providers contact consumers when the national demand is at its highest. The first five trial DFS tests over demand flexibility in combating rising electricity prices, reducing emissions and increasing November and December 2022 have seen over 780 MWh of real and projected demand reduction, with customers the uptake of renewable energy. This has led to the development of innovative overdelivering by at least 35%.
technologies and approaches to changing electricity consumption habits.
2 Piclo Flex –United Kingdom
Certain countries have focused on adopting technology to enhance the effectiveness of demand flexibility. For example, in the United Kingdom, Ofgem recently explored the Piclo Flex is an independent marketplace for energy flexibility services that enables distribution operators such as UK viability of flexibility platforms in electricity markets, where a market would be created to Power Networks to source energy flexibility from flexible service providers when there is high demand or low supply of allow contracted flexibility services to be traded as products, generating a monetary value energy. Flexibility providers awarded contracts through the Piclo Flex marketplace include demand-side response, for flexibility products. On the other hand, states like Vermont in the US have adopted electric vehicles, storage facilities and generators. As of 2021, Piclo Flex’s awarded flexibility contracts have totalled unique pro-social incentives, where individuals’ efforts benefit a charitable organisation, to £55 million ($95m AUD) with 16 GW of flex capacity registered, and 739 GW of flexible capacity procured.
manage consumption.
Overall, consumers have been receptive to these new ways of utilising CER. These
3 Vehicle-to-grid (V2G) Charging –France, Italy, and the US innovations challenge the common perceptions that CER is too difficult to implement or that There is increasing experimentation around utilising electric vehicles as a way of providing grid stability. For example, it negatively impacts on customers’ lifestyles. Importantly, most customers are drawn to the in California, Nuvve Holding Corp’s V2G technology helped buses in the Cajon Valley Union School District to idea of taking control of their own energy resources and having a positive contribution. generate power for 277 homes during nine Flex Alerts (periods with high electricity prices due to extreme weather). In
Massachusetts, Highland Electric Fleets utilized V2G technology of their two buses to supply over 7 MWh of energy
back to the grid during spikes of energy use, enough to power about 600 homes.

4 Virtual Power Plant –Korea
VPPs, which digitally link and control CER, are also being used to effectively manage grid stability. In Korea, the
Korea Power Exchange notifies aggregators (such as Enel X) to offer its portfolio’s capacity during times where power
is required. Through Enel X’s model, the customers receive regular payments for both their availability to provide the
service, and for when power is used to support the grid.

5 Defeat the Peak –Vermont
‘Defeat the Peak’ involved a unique approach to reshaping demand. Burlington Electric, a Vermont utility, launched a
program where customers efforts to meet consumption goals would result in donations to non-profits. The program is
estimated to have achieved a 13.5% decrease in peak energy use in August 2018 for 16,000 households.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 24
Liability limited by a scheme approved under Professional Standards Legislation.
The untapped potential of demand flexibility
Recognising the significant and currently untapped potential of demand flexibility in Australia’s energy system – the focus now needs to shift to the way forward.
Sections 3 and 4 of this report discuss the key enablers to unlocking the role of demand flexibility, and provide a high-level blueprint for the pathway to drive action and scale.

The supply side of the energy sector is undergoing significant and fast-moving change with high levels International jurisdictions are progressing through the same transition challenges as Australia, and of investment in new renewable generation and transmission capacity. are implementing a greater role for demand flexibility as a solution to meet these challenges.

• AEMO estimates more than $12 billion of investment in new transmission lines is needed to ensure • Relative to the upper bound of AEMO’s forecast (8.5% by 2053), international jurisdictions point towards
electricity security during the next decade. However, it is widely recognised that challenges such as demand flexibility addressing a higher proportion of peak demand, and sooner.
supply chain, labour force shortages, and cost increases plus achieving community support could delay • Technology and digitalisation is helping customers’ ease and willingness to adapt their consumption
the delivery of planned large-scale investments. patterns.
• Changes of this magnitude come at a significant cost, which is recovered from customers through
• International estimates suggest that with the right arrangements in place, the targeted level of demand
increased network charges on bills. Investments to support demand flexibility can also have a significant
flexibility in the NEM could be closer to 15-20%.
impact in supporting the transition, potentially at a relatively lower cost.
• Unlocking demand flexibility potential could help to relieve some of these pressures on the supply side
investment.

To achieve the transition in the most efficient manner, demand flexibility should play a key role in Enabling technologies such as batteries (including aggregation in VPPs) and EVs is a key component of enabling reliable and affordable outcomes for customers. It must be reflected in how investment is driving scale of demand flexibility.
planned, and actively recognised as a resource of equal value to supply-side assets.
• Demand flexibility, if incentivised and coordinated, can meaningfully support an efficient transition. • The volume of batteries and EVs in the system is increasing, driven by improvements in accessibility and
• In planning for the transition, consideration should be given to balancing cost and risk across both affordability for the technology.
demand and supply side resources. • The increased load associated with EVs, higher volume of storage capacity in batteries distributed across
the NEM, and aggregation of resources in VPPs underpin the emerging role of demand flexibility.
• Customers have resources and opportunities to contribute to this transition and improve energy
outcomes for themselves – however, the right incentives, capabilities and frameworks are not currently in • As total consumption in the NEM increases, the importance of shifting this load to alleviate pressure on
place to empower these positive impacts. the grid in peak times is magnified. Batteries play a key role in enabling energy to be stored and used at
• This could impact customers’ sense of involvement and awareness in the energy transition and their different times throughout the day.
willingness to participate which is not only driven by financial considerations but also social and • Effective integration of small-scale batteries and EVs can only happen if there are sufficiently robust
environmental aspects. arrangements for demand flexibility.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 25
Liability limited by a scheme approved under Professional Standards Legislation.
03
Current situation
System enablers to unlock demand flexibility
To fully unlock demand flexibility could be difficult in practice and depends on retail innovation and the key enablers outlined below. As demonstrated, many projects and reforms are happening to utilise the benefits of demand flexibility. However, as outlined on pages 29 and 30, some challenges remain. Importantly, the design of the system always needs to have the role of the consumer front of mind – reforms and changes should be cognisant of making it easier for the consumer to participate.
For demand flexibility to be seen as equal to the supply side, the credibility of demand response and scale are important. The framework for demand flexibility needs to provide confidence for commercial investment in the enabling infrastructure and business models needed to facilitate demand flexibility. Further, the reforms underway need to consider addressing the remaining regulatory challenges, such as achieving co-optimisation across multiple users, settlement of demand flexibility in the market, liabilities frameworks and roles and responsibilities.

Integration into planning Technology capability
• ESB EV Smart Charging Policy aims to establish foundations and • AEMC Review of the regulatory framework for metering services aims to
incentives to support the effective integration of smart charging for EVs accelerate the deployment of smart meters.
into the NEM.
• A rule change progressed by the AEMC considers unlocking CER benefits
• AEMO consultation on inputs, assumptions and scenarios proposed to through flexible trading.
be used in its 2023-24 forecasting and planning activities, including the • Ausgrid’s Project Edith aims to demonstrate how technology can
2024 ISP. participate in the market while staying within network limits.

Clarity on responsibilities Information flows
• AER Review of consumer protections for future energy services • ESB Data Strategy aims to manage changing data needs in the
assesses whether the current energy consumer protection energy transition.
framework remains fit for purpose.
• Development of scheduled-lite mechanism by AEMO aims to
• ESB Customer Insights Collaboration aims to understand how promote opt-in visibility and dispatchability.
customers might want to engage with different service providers or Consumer • Interoperability standards progressed by ESB aim to enable
products. customers to easily access different products and services.

Adequate compensation Tariff signals
• ARENA’s Distributed Energy Integration Program aims to maximise the • Network tariff reform progressed by networks through trials and tests of
value of CER for energy users. different tariff structures.
• Project EDGE aims to demonstrate an off-market, proof-of-concept CER • AER work on the introduction of flexible export limits and static zero
marketplace. export limits.
• Ausgrid demand response air conditioning program and community
batteries trials.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 27
Liability limited by a scheme approved under Professional Standards Legislation.
Supporting energy efficiency
The Federal Government is considering the State Overview of the scheme Reported savings introduction of an energy efficiency target. Energy efficiency jurisdictional programs - obligations on retailers
This initiative is welcomed by the industry and will consolidate jurisdictional efforts in VIC Victorian Energy Upgrades (VEU) • Energy emissions savings: 70m tonne abatement of this space. Provides participants with access to discounted energy-efficient products and services. greenhouse gases since 2009.
Accredited providers generate Victorian Energy Efficiency Certificates, which can be sold to • Energy bill savings: Participating households are expected to
Recognising the potential of energy efficiency, save, on average, $136 per year. The average participating the International Energy Agency (IEA) energy retailers; retailers have a legal obligation to surrender a certain number of certificates
each year. Targets set under the program aim to reduce Victoria's energy demand by seven business can save $2,940 per year.
considers efficiency ‘the first fuel’ representing more than 40% of the emissions abatement per cent by 2025.
needed by 2040. NSW Energy Savings Scheme (ESS) • Energy emissions savings: 12.8 Mt of CO2 emissions avoided
Currently, jurisdictions are leading the The ESS provides financial incentives for organisations to invest in energy-saving projects, under the scheme between 2009 and 2018.
introduction of energy efficiency programs. Only by installing, improving or replacing energy savings equipment. Accredited providers create • Energy consumption savings: Reduction in electricity
QLD and the NT do not have energy efficiency energy savings certificates, which are purchased and surrendered by retailers to meet consumption of approximately 2,100 GWh per year between schemes in place. legislated energy savings targets. The ESS contributed an estimated peak demand reduction 2014 and 2018.
of 450 MW at the point of consumption in 2018. • Energy bill savings: Estimated $1.5b between 2014 and 2018.
In its 2022-23 budget, the Federal Government committed to providing $62.6m over 3 years to SA Retailer Energy Productivity Scheme (REPS) • Energy consumption savings: 2.4m GJ of deemed energy support SMEs to fund energy-efficient savings were delivered in 2021.
The REPS sets energy productivity targets to be met by retailers. To achieve their obliged equipment upgrades. • Energy bill savings: REES deliver $1b in energy bill savings to
targets, retailers offer incentives to households and businesses to deliver energy efficiency
In addition, through the National Energy activities. The REPS commenced in January 2021, replacing the existing Retailer Energy households and businesses over the life of energy efficiency
Performance Strategy, the Federal Government Efficiency Scheme (REES), which ran from 2009 to 2020. From January 2021, the expanded activities implemented between 2015 and 2020.
is considering the introduction of an energy REPS provides incentives for participation in demand response programs and shifts to time- efficiency target, noting that many of Australia’s of-use tariffs.
top trading partners have ambitious targets.
This includes the EU 42% energy efficiency ACT Energy Efficiency Improvement Scheme (EEIS) • Energy emissions savings: Delivered lifetime emission target. The scheme requires electricity retailers to deliver energy savings activities to households reductions of 390kt CO2e from 2013 to 2017.
and businesses, or make a financial contribution to support ACT Government energy • Energy consumption savings: Has been delivering an
This initiative will likely be supported by the increasing trend in energy savings from 0.4% of total ACT
efficiency programs. As part of the scheme extension from 2021 to 2030, demand response industry as it will consolidate jurisdictional stationary energy use in 2013, to nearly 2.9% in 2017.
capability was included in the minimum product requirements for eligible heating and cooling efforts. However, the implementation of an • Energy bill savings: Between 2013 and 2017, the total lifetime
technologies.
energy efficiency target is insufficient as greater energy bill savings to EEIS participants were $240m.
benefits of dynamic demand flexibility are still to be unlocked. In this context, the National Other jurisdictional energy efficiency initiatives include:
Energy Performance Strategy provides a 1. ACT Minimum efficiency standards for new homes: ACT recently implemented minimum energy efficiency standards for ceiling insulation for rental properties.
vehicle to push the agenda forward and to shift 2. TAS Energy Saver loan Scheme: Provides interest-free loans between $500-$10,000 over 3 years to eligible applicants to invest in certain energy-efficient products.
the focus to dynamic demand flexibility. 3. WA Household Energy Efficiency Scheme: Four-year, $13m program aims to reduce energy costs for households experiencing hardship by providing individuals with
tools and knowledge to improve energy efficiency.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 28
Liability limited by a scheme approved under Professional Standards Legislation.
Demand flexibility initiatives in progress
Demand flexibility, if incentivised and coordinated, can meaningfully support an efficient transition.
Recently, key reforms were progressed to unlock demand flexibility, including the NSW Peak Demand Reduction Scheme, Wholesale Demand Response (WDR) Mechanism and ESB CER Implementation Plan. However, barriers and challenges remain. Regulatory gaps should be addressed to fully unlock demand flexibility.
Customers have resources, access to technology and opportunities to contribute to the energy transition and improve energy outcomes for themselves – however, the right incentives and frameworks are needed to empower these positive impacts.

Key demand flexibility initiatives: While considerable work is underway to unlock demand flexibility, more focus is required to realise its full potential

NSW Peak Demand Reduction Wholesale Demand Response ESB Horizon One CER
Scheme (PDRS) (WDR) Mechanism Implementation Plan
The Scheme was established in September 2021 to reduce peak The WDR mechanism commenced in the NEM on 24 October The ESB post-2025 review proposed several reforms seeking to demand by incentivising households and businesses to reduce 2021. It allows demand-side participation in the wholesale achieve better integration of CER. This included: energy consumption during peak demands. This is being electricity market. Demand Response Service Providers • Dynamic Operating Envelopes to dynamically vary network achieved through a certificate scheme that began in November aggregate the demand response capability of large loads for limits.
2022. The Scheme sets a savings target for retailers and large dispatch through the NEM’s bidding and scheduling processes.
energy users equivalent to their share of electricity sales each The DRSP receive payment for the dispatched response, • Reforms to improve interoperability of the equipment that year. Participants create or buy certificates for eligible activities. measured in megawatt hours against a baseline estimate, at the individuals install.
electricity spot price. • Review of consumer protections for future energy services.
• Review of current metering arrangements.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 29
Liability limited by a scheme approved under Professional Standards Legislation.
Challenges in progressing demand flexibility
Identified regulatory challenges to unlock the full potential of demand flexibility:

Achieving co- Settlement of Liabilities Roles and
optimisation across demand flexibility in responsibilities
multiple users the market
The value of demand flexibility is maximised A question raised by demand flexibility is the How the risks of participating and dispatching The clarification of responsibilities is especially when it is able to be co-optimised across extent that local settlement of transactions demand flexibility are managed should not needed in the context of models that are already multiple value streams. VPP trials are a tangible outside the wholesale markets is required. For create an unreasonable barrier to participation. underway such as community batteries, VPPs example of such an application. The level of example, under a community battery scheme There are international examples that share and distribution system operator (DSO) sophistication of platforms markets established there could be multiple power flows to and from availability and diversity risks rather than placing platforms. Striking the right balance between will have implications for how demand flexibility the customer premises and the battery, and the these on participating residential customers. competition and providing certainty for business value is maximised. Hence, how the concurrent market only settles the net flows to and from the Third parties can also use monitors and investment is extremely difficult. However, operation of competitive platforms and battery. Alternative peer-to-peer transactions affordable technology at the household level to currently the policy thinking is not transparent commercial transactions allow co-optimisation may not need to be settled in the market. determine the availability of discretionary nor defined.
may become more important in the longer term. Hence, clarification on what exactly needs to be household appliances (e.g., hot water systems)
The challenge is establishing the right visible to market participants and system for dispatch in aggregated market services.
environment to enable co-ordinated and operators plus in what timeframes will become sufficient investment in the enabling IT systems. important in the future.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 30
Liability limited by a scheme approved under Professional Standards Legislation.
04
Way forward
What is the way forward –how to drive scale in the
right timeframes
There is a degree of action underway in Australia and things are moving in the right direction. Existing and emerging programs and policies are constructive, and consumers are becoming more engaged and aware of their energy consumption and how they may participate. Technology advances and increase uptake in electric vehicles will enable greater potential in demand flexibility capability across the NEM.
However, the current level of activities and development alone are unlikely to be sufficient to achieve scale and fully incorporate flexibility as a reliable and credible resource into planning and operational decisions.

Setting clear targets for demand flexibility procurement will
accelerate change and address the identified challenges
Commercial drivers
Customer Regulatory Targets will accelerate the establishment of frameworks for demand flexibility and can act to align the 3
and business key drivers of demand flexibility capability. It can encourage investment in supporting infrastructure and
participation treatment
models technologies due to increased certainty of treatment and returns. A target will facilitate an important and
credible revenue stream helping to alleviate the transactional, financing and informational barriers
facing providers of demand flexibility. In turn, it can provide a platform for engagement and awareness
with customers, fostering greater participation.
Targets can help clarify roles and responsibilities by providing a clear and specific goal for policymakers
and businesses to work towards. By defining a specific target, policymakers can communicate their
Drivers of demand flexibility capability
expectations and intentions to those who are responsible for implementing the policy, making it easier
for them to understand their role and what is expected of them. Policy targets can also help to identify
which parties are responsible for achieving the target.
In addition, targets will be a basis for flexibility to be appropriately reflected in the planning and
procurement process. Instead of having assumptions on demand-side participation based on desktop
research and estimations, targets will provide a more accurate and reliable basis for forecasts. This is
because there will be a clear pathway to achieving the required level of demand flexibility and parties
Improved energy performance
responsible.
Defining targets helps to set expectations and provide a focal point to guide action and
participation.

In addition to efficiency targets, governments can consider setting demand flexibility targets to establish a clear and ambitious goal for the use of demand flexibility as a means of optimising energy use and reducing greenhouse gas emissions. The benefits of integrating CER are significant, with potential savings estimated to be up to $6.3 billion over 20 years, which are intended to flow through to consumers through lower system costs and lower electricity prices. By setting targets, governments can provide a roadmap for the adoption and deployment of demand flexibility measures and create incentives for businesses and organisations to adopt these measures. In addition to setting demand flexibility targets, governments can also play a number of other roles in supporting the adoption of demand flexibility measures. These can include clarifying responsibilities, promoting co-ordination in decision making and providing targeted support where appropriate.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 32
Liability limited by a scheme approved under Professional Standards Legislation.
Enabling demand flexibility through a target
based scheme
The energy system is evolving with a growing need for integration of renewables, utilisation of CER and increased pressures on network capacity availability. These challenges over the coming years amplify the need for innovative solutions as we transition to a low carbon energy system. As a result, the introduction of targets for demand flexibility is increasingly being seen as the key to solving these challenges and achieving a balanced, affordable and efficient energy transition.
It is now the right time to consider the implementation of a target in Australia, building on the introduction of the NSW peak demand reduction scheme.

Targets The case for targets in Potential design
Australia
Targets have been implemented in several jurisdictions in Australia and Greater demand flexibility will address the following trends: Any scheme must be administratively simple, quick to elsewhere around the world, requiring energy businesses to achieve an • Intermittency in generation which contributes to increased need for implement and deliver effective outcomes for customers. Ideally annual target of energy savings. system balancing. it should be market-based and open to all customers, not just
In most cases, these programs have used tradeable certificates (‘white large industrial customers. It should complement existing state
• Electrification placing pressure on network capacity. energy savings schemes and encourage contribution from certificate’ schemes) where liable parties must purchase certificates from businesses that create the action that generates the saving and • Need for network investment for resiliency and to accommodate flexibility service providers and manufacturers of CER.
then surrender these to meet their targets. This could be on either CER. Extending the NSW scheme to apply nationally is one option.
retailers, networks or integrated utilities. Adapting demand across periods helps to manage stress on the system, As shown by the NSW model, a peak demand target scheme
and thereby improve reliability and lessen the need for investment. A can be designed to complement existing energy efficiency
While these existing measures have been effective at achieving annual
target scheme can act as an immediate and powerful catalyst to better measures.
reductions in energy consumption, recent initiatives have focused on creating further obligations and incentives to reduce peak demand (see capture these benefits of demand flexibility. While the current reforms Another approach could be to place an obligation on network
Appendix A). In Europe, the EU has recently introduced a mandatory (discussed on page 30), will help encourage and better value flexibility, businesses to procure a defined percentage of peak demand
5% reduction target on electricity consumption in peak hours to help they do not address some of the fundamental market failures, such as reduction. This would help establish a market for such relieve their current energy crisis. enabling the full market value of flexibility provided to be compensated. capability plus progress development of rules on service
These new schemes aim to reward activities which not only A target will facilitate an important and credible revenue stream, helping activation, verification, and remuneration of participants.
permanently reduce the peak demand, but also provide temporary peak to alleviate the transactional, financing and informational barriers facing The development of a demand flexibility target can also help demand response and peak demand shifting. The level of the target providers of demand flexibility. It would encourage participants to look facilitate the objectives being considered through a capacity tends to be informed by economic analysis of the expected benefits below typical and standard demand-side management programs enabling mechanism. This would help to achieve alignment in incentives and can increase over time as capability improves and scale in greater innovation, labour skills and investment in supporting and signals across the system and treat supply and demand provision is achieved. infrastructure to enable long term demand flexibility capability. side resources fairly.
There are other considerations in designing a target scheme, including A fit for purpose target scheme, appropriately designed will promote the defining the peak period, eligibility, exemptions and verification plus the active participation of consumers and communities in providing flexibility setting of any penalty price/safeguard arrangement. and help accelerate and optimise the energy transition for all consumers.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 33
Liability limited by a scheme approved under Professional Standards Legislation.
Appendix A
Targets and Examples of Schemes
Demand flexibility target scheme examples
The table below provides an overview of specific targets that have been implemented by Governments, as well as examples of programs to meet demand flexibility targets.

Location Project Overview

Demand flexibility targets that are being implemented, or already being utilised, in overseas jurisdictions

EU27 Energy Ministers agreed in September 2022 on a proposal for a Council Regulation to address high energy prices. This proposal stands out for its inclusion of a
mandatory 5% reduction target of electricity consumption in peak hours. Member States are responsible for identifying peak hours corresponding to 10% of the overall
European Union September 2022 Proposal
hours of the period between 1 December 2022 and 31 March 2023. The demand reduction target will apply to the identified peak hours. Member States are free to
choose the appropriate measures to reduce consumption.

To promote demand-side management programs for electricity, the public utilities commission was authorised in 2007 to establish electricity goals for electric utilities to
Electric Demand-side
Colorado achieve by 2018, including a demonstrated reduction of peak demand by at least 5% of the retail peak demand level in 2006. In 2017, a bill extended these programs till
Management Program
2028.

The UK announced a new target to reduce energy consumption from buildings and industry by 15% by 2030. The statement also made clear that a further £6bn
($10.3bn AUD) would be spent from 2025-2028 on energy efficiency, on top of the £6.6bn ($11.4bn AUD) already being provided until 2025. The new £1bn ($1.7bn
United Kingdom Autumn 2022 Statement
AUD) ECO+ scheme will provide homes across the country with new home insulation – providing a saving of £310 ($540 AUD) per year for consumers. New campaigns
are also being organised to give the public advice on how they can save on their energy bills without having to sacrifice comfort.

Demand flexibility schemes that are being implemented to achieve targets in overseas jurisdictions

“Beat the Peak” led by the ESB Networks (the Irish distribution system operator). It is limited to exploit flexibility of larger commercial consumers from 250kVA through
Ireland Beat the Peak – 2022
aggregators. These initiatives aim at filling the gap in generation during peak hours of winter 2022/23, as well as for winter seasons until 2025.

In Illinois, there has been significant success in engaging customers through a peak time savings programme which also set out to move demand outside of peak hours.
Illinois Defeat the Peak – 2018 The programme supported over 300,000 families in reducing their peak usage with an average reduction of 6% - 9% and modest personal financial incentives (average
saving of $15 per family).

Since 2008, Maryland has set energy efficiency goals through the EmPOWER Program, which states that utilities must achieve annual incremental cost-effective energy
savings of 2% of retail electric sales through 2023, and a target of 15% reduction in per capita peak demand from 2007 levels by 2015. Residential account holders with
Maryland EmPOWER Program
installed smart meters are automatically enrolled in the program, and are notified by phone, email, or text before an Energy Savings Day. Customers who reduce their
usage from 1:00 PM to 7:00 PM the following day receive a $1.25/kWh bill credit.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 35
Liability limited by a scheme approved under Professional Standards Legislation.
Energy Efficiency Resource Standards in the USA
The table below provides an overview of different energy efficiency resource standards that have been implemented across the United States. The following information has been extrapolated from the American
Council for an Energy-Efficient Economy (ACEEE).

Average incremental
State Description
electric savings per year

Incremental savings targets began at 1.25% of sales in 2011, ramping up to 2.5% in 2016–20 for cumulative annual electricity savings of 22% of retail sales, 2% of which
Arkansas 1.2% (net)
may come from peak demand reductions.

For 2015-18, Public Service Company of Colorado was required to achieve incremental savings of at least 400 GWh per year; starting in 2019, this was increased to 500
Colorado 1.7%
GWh, or roughly 1.7% of sales. HB 17-1227 extends programs and calls for 5% energy savings by 2028 compared with 2018.

Incremental savings targets vary by utility, averaging 1.77% of sales from 2018 to 2021, 2.08% from 2022 to 2025, and 2.05% from 2026 to 2030. SB 2814 also sets a
Illinois 1.4%
rate cap of 4%, allowing targets to be adjusted downward should utilities reach spending limits.

In 2009, transitioned away from a combined RPS-EERS to a stand-alone Energy Efficiency Portfolio Standard (EEPS) goal to reduce electricity consumption by 4,300
Hawaii 1.4%
GWh by 2030 (equal to ~30% of forecast electricity sales, or 1.4% annual savings).

Electricity use reduction goal of 15% per capita by 2015 (10% by utilities, 5% achieved independently); 15% reduction in per capita peak demand by 2015 compared with
Maryland 1.6% (net)
2007. After 2015, targets vary by utility, ramping up by 0.2% per year to reach 2% incremental savings.

20% of retail electricity sales to be met by renewables and energy efficiency by 2015, and 25% by 2025. Energy efficiency may meet a quarter of the standard through
Nevada 1.1% 2014 but is phased out of the RPS by 2025. SB 150, signed June 2017, directed the Nevada Public Utilities Commission to set new savings goals for NV Energy. The
utility’s 2018 Joint IRP Demand Side Plan established state-wide goals of 1.18% in 2019, 1.14% in 2020, and 1.14% in 2021.

New Jersey 1.6% Under 2018 legislation A3723/S2314, utilities must achieve 2% of electric savings (as a percentage of average annual usage from the prior three years) within five years.

The state’s three public utilities must achieve 5% savings of 2020 retail sales by 2025. HB 291 (2019) directs the Public Regulation Commission to set additional targets
New Mexico 1.0%
through 2030.

An April 2018 New York State Energy Research and Development Authority white paper called for 185 trillion British thermal units of cumulative annual site energy
savings under the 2025 energy use forecast, as well as an electric site savings sub-target of 3% of IOU sales in 2025. A December 2018 Public Service Commission
New York 2.0%
(PSC) Order adopting the 3% electric goal calls for utilities to propose detailed targets. Natural gas goals ramp up to 1.3% by 2025. In January 2020, the PSC authorized
annual incremental utility-specific budgets and savings targets for electric, gas, and heat pump portfolios.

Varying targets have been set for IOUs amounting to yearly state-wide incremental savings of 0.6% for 2021–2026. EERS includes peak demand targets. Energy
Pennsylvania 0.6%
efficiency measures may not exceed an established cost cap.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 36
Liability limited by a scheme approved under Professional Standards Legislation.
Appendix B
Electric Vehicle
Policies in Australia
Electric vehicle policies in Australia
Northern territory Queensland
• NT Electric Vehicle Strategy and Implementation Plan: free NT registration and a • Zero Emission Vehicle Strategy 2022-2032: 50% of new passenger vehicles sales to be zero emission
$1500 reduction in stamp duty. by 2030 and 100% eligible Qld Government fleet passenger vehicles to be zero emission by 2026.
• Increase number of EVs in the NT Government Fleet by 20 per year over 10 years. • QLD Electric Vehicle Super Highway: network of 55 fast-charging stations to facilitate longer distance
• Install 400 charging points at priority Government buildings. travel in EVs.
• Discounted vehicle registration and $3000 rebate for certain EVs.
Commonwealth New South Wales
• The Federal Government recently published a consultation paper for its
National Electric Vehicle Strategy. • 30% electric and hybrid vehicle target for the NSW Government fleet by 2023.

• There has been limited federal policy on EVs, the Government released • $209 million to ensure widespread, world-class EV charging coverage to future proof the
its initial discussion paper on their Future Fuels Strategy in February EV network, including $149 million being invested into EV fast charging grants.
2021, which indicates the early focus will be on commercial fleets and • Lower rate of tax for hybrid and EVs, including removal of stamp duty for certain EVs.
charging infrastructure rather than private vehicles.
• In 2021, a further $177.7m was allocated to the Future Fuels program to Australian Capital Territory
increase roll-out of enabling infrastructure in Australia.
• Interest free loans of up to $15,000 under the Sustainable Household Scheme to
• The Treasury Laws Amendment (Electric Car Discount) Bill exempts low assist in the upfront costs of investing in EVs and charging equipment.
and zero emissions cars from Fringe Benefits Tax.
• 2 years free registration: for vehicles purchased 24 May 2021 – June 2024, plus
• ESB EV Smart Charging Policy aims to establish foundations and 20% ongoing discount.
incentives to support the effective integration of smart charging for EVs.
• $2,000 incentives for installation of EV charging at multi-unit buildings in 2023.

Western Australia South Australia Victoria
• As part of the McGowan Gov’s $43.5m • Target for all government fleet, public taxi and • Road user charge of 2.6c/km for electric vehicle drivers.
investment to boost EV infrastructure, rideshare vehicles to be fully electric by 2030.
WA is building the longest continuously • Goal for all new passenger vehicles sold to be
Tasmania • $3,000 subsidy for zero emissions vehicle purchases
from May 2021.
connected electric highway, with 98 electric by 2035. • Target to transition the entire government
EVSEs over 6,600kms. • The Zero Emissions Vehicles Roadmap was introduced
• Electric Vehicle Action Plan delivered in fleet to EVs by 2030.
in May 2021, it has a target for zero emissions vehicles
• Minimum 25 per cent EV target for new December 2020. • EV home-charging trial launched by to make up 50% of all new light vehicle sales by 2030.
light and small passenger, and small TasNetworks in 2021.
• Exploring demonstrations for EV VPPs – • $19 million to accelerate the roll-out of EV charging
and medium SUV government fleet
centrally coordinated charging and discharging • ChargeSmart 2 Grant Program allocated infrastructure.
vehicles by 2025/26.
of EV batteries. $775,000 towards fast charging stations.

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 38
Liability limited by a scheme approved under Professional Standards Legislation.
References
Section 1 –What is demand flexibility? Section 2 – Potential for demand flexibility
• Department of Climate Change, Energy, the Environment and • AEMO, 2022 Electricity Statement of Opportunities, August 2022
Water, National Energy Performance Strategy • National Grid ESO, Demand Flexibility Service delivers MWs and savings, December 2022
• Energy Synapse, Demand response in the National Electricity
• Current, Sixth Demand Flexibility Service test set for 21 December, December 2022
Market, December 2020
• Ofgem, Flexibility Platforms in electricity markets, September 2019
• ARENA, Unlocking flexible demand at commercial and industrial
sites, October 2022 • Piclo, Piclo and National Grid launch new marketplace for flexibility services in New York state, December 2022
• AEMO, Electricity Annual Consumption Operational (Sent-Out), • ESB Networks, ESB Networks’ Beat the Peak Initiatives, August 2022
September 2022 • Bonnie Wylie Pratt et al, Defeat the Peak: Behavioral insights for electricity demand response program design, March 2020
• Australian Government, Department of Climate Change, Energy, • Nuvve Holding Corp, Nuvve and “V2G” Featured as California Governor Signs Aggressive, World-Leading Climate Action Legislation,
the Environment and Water, Households September 2022
• ARENA, Shell Energy Smart Energy Hubs Deployment Project • Electrek, Electric school buses give back over 80 hours of power to Massachusetts energy grid, August 2022
• Brattle, The National Potential for Load Flexibility, June 2019

Section 3 – Current situation Section 4 – Way forward
• IEA, Energy efficiency is the first fuel, and demand for it needs to grow, December 2019 • ESB, Post-2025 Market Design Final advice to Energy Ministers Part A, 2021
• Department of Climate Change, Energy, the Environment and Water, National Energy Performance Strategy: Consultation • Department of Planning, Industry & Environment, Energy Security Safeguard –
Paper, November 2022 Position Paper, September 2021
• Ministry for Industry and Science, Improving energy security, reliability and affordability, October 2022
• Essential Services Commission, Victorian Energy Upgrades Performance Report 2021, June 2021
• New South Wales Department of Planning, Industry & Environment, NSW Energy Savings Scheme, Final Statutory Review
Report 2020
• Point Advisory, Review of the Energy Efficiency Improvement Scheme, June 2018
• Essential Services Commission, Retailer Energy Productivity Scheme Annual Report 2021, June 2022
• Energy & Mining SA, Air conditioners regulation change, December 2022

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 39
Liability limited by a scheme approved under Professional Standards Legislation.
References
Appendix A
• Council of the EU, Council agrees on emergency measures to
reduce energy prices, September 2022
• Colorado General Assembly, Electric Demand-side Management
Program Extension, 2017 Regular Session
• UK Government Press Release, UK government takes major
steps forward to secure Britain's energy independence,
September 2022
• American Council for an Energy-Efficient Economy, The 2020
State Energy Efficiency Scorecard, December 2020

Appendix B
• New South Wales Government, NSW Electric Vehicle Strategy
• Victoria Government, Victoria’s Zero Emissions Vehicle Roadmap
• Australian Capital Territory Government, ACT’s Zero Emissions
Vehicles Strategy
• Queensland Government, Queensland's Zero Emission Vehicle
Strategy
• Tasmania Government, Supporting Electric Vehicle Uptake Fact
Sheet
• South Australia Government, South Australia's Electric Vehicle
Action Plan
• Northern Territory Government, Northern Territory Electric
Vehicle Strategy and Implementation Plan
• Western Australia Government, State Electric Vehicle Strategy
for Western Australia

©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Document Classification: KPMG Public 40
Liability limited by a scheme approved under Professional Standards Legislation.
Contacts:
Eamonn Corrigan
Head of Utilities Policy & Regulation ecorrigan1@kpmg.com.au
+61 428 231 220 kpmg.com/socialmedia
©2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International
Limited, a private English company limited by guarantee. All rights reserved.

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.

The information contained in this document is of a general nature and is not intended to address the objectives, financial situation or needs of any particular individual or entity. It is provided for information purposes only and does not constitute, nor should it be regarded in any manner whatsoever, as advice and is not intended to influence a person in making a decision, including, if applicable, in relation to any financial product or an interest in a financial product. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

To the extent permissible by law, KPMG and its associated entities shall not be liable for any errors, omissions, defects or misrepresentations in the information or for any loss or damage suffered by persons who use or rely on such information (including for reasons of negligence, negligent misstatement or otherwise).

Liability limited by a scheme approved under Professional Standards Legislation.
Document Classification: KPMG Public

Engaging households in flexibility - insights from the UK

Engaging households in electricity flexibility – insights from the UK
Mike Roberts, Centre for Energy & Environmental Markets, UNSW Sydney

Table of Contents
1 Introduction .................................................................................................................................................... 2
2 Domestic flexibility in the UK market ............................................................................................................. 3
2.1 Key loads for residential flexibility ..................................................................................................................... 3
2.2 Octopus and Ovo ............................................................................................................................................... 4
2.3 Bundling energy services ................................................................................................................................... 5
2.4 Customer protections ........................................................................................................................................ 5
3 Barriers to flexibility ....................................................................................................................................... 6
3.1 Visibility and transparency ................................................................................................................................ 7
3.2 Insufficient value of household flexibility .......................................................................................................... 7
3.3 Multiple disruptions .......................................................................................................................................... 8
3.4 Technology costs ............................................................................................................................................... 9
3.5 Distrust ............................................................................................................................................................ 11
4 Engagement .................................................................................................................................................. 12
4.1 Are households engaged and do they need to be? ......................................................................................... 12
4.2 Case studies in engagement ............................................................................................................................ 13
4.2.1 Project LEO ...................................................................................................................................................... 13
4.2.2 Zero Carbon Rugeley ....................................................................................................................................... 14
4.2.3 Eigg Electric...................................................................................................................................................... 14
4.2.4 Repowering...................................................................................................................................................... 17
4.2.5 Energy Local Clubs ........................................................................................................................................... 17
4.3 Understanding ................................................................................................................................................. 18
4.3.1 Lack of understanding ..................................................................................................................................... 18
4.3.2 How much understanding is needed? ............................................................................................................. 19
4.3.3 Understanding through engagement .............................................................................................................. 20
4.4 Automation & technology ............................................................................................................................... 20
4.5 Community motivations .................................................................................................................................. 21
4.6 Flex and resilience ........................................................................................................................................... 22
5 Fairness ......................................................................................................................................................... 23
5.1 The need for fairness ....................................................................................................................................... 23
5.2 Who gets left behind (and does it matter)? .................................................................................................... 24
5.3 Smart and fair: the capability approach .......................................................................................................... 25
5.4 Fair flex ............................................................................................................................................................ 26
5.5 Life flex ............................................................................................................................................................ 27
5.6 Social tariff ....................................................................................................................................................... 28
5.7 Inclusive innovation ......................................................................................................................................... 28
6 The role of governance ................................................................................................................................. 29
6.1 A stake in the energy system ........................................................................................................................... 30
6.2 Community energy .......................................................................................................................................... 30
6.3 Public ownership ............................................................................................................................................. 33
6.3.1 Transmission and distribution network ........................................................................................................... 34
6.3.2 Retail ................................................................................................................................................................ 35
6.4 Nested governance .......................................................................................................................................... 36
6.5 Accountability & representation ..................................................................................................................... 37
7 Conclusion .................................................................................................................................................... 38
Acknowledgements .......................................................................................................................................... 39
References ....................................................................................................................................................... 39

1
Engaging households in flexibility - insights from the UK

1 Introduction
This report is the result of a 2019 application for a Gill Owen Scholarship from Energy Consumers
Australia. Gill Owen had a significant impact on the energy landscape on two sides of the planet – particularly with regard to consumer policy - and I have been struck by the respect and affection expressed towards her – and towards her partner David Green - by many of the people I met in the
UK.
This project set out to explore policy and best practice in the UK for engaging consumers in demand side management. It has been considerably delayed by the Covid pandemic and, three years later, much has changed. Not least, the language of ‘demand side management’ has been replaced by ‘flexibility’ and the need to reduce evening demand peaks is now combined – in Australia at least
- with a need to address daytime minimum demand. But the importance of harnessing households’ ability to shift their energy use has not diminished, and nor has the question of how to achieve it been resolved.
“The academic or the engineering work basically goes, ‘We need all the flexibility we can get,’
which is not terribly helpful!” (Interviewee 20).
This research builds on substantial contributions made by other researchers in Australia, the UK and elsewhere. But the motivation came from my own conversations with energy users about home energy management, demand response and virtual power plants. Many people want to help make the energy system work better, to enable a cleaner, cheaper and more reliable electricity supply.
However, it is becoming increasingly clear that price signals alone won’t achieve the levels of engagement needed - trust, fairness, agency and a stake in the system are needed to unlock their participation.
My aim is to understand how different business and governance models, and diverse modes of consumer engagement might engender trust in and shared responsibility for the energy system, and support households to engage positively with flexibility opportunities.
There are both parallels and significant differences between the energy landscapes in Australia and the UK. In both countries, there is a common perception amongst industry stakeholders that lack of engagement is a problem. But British scholars are exploring the diverse ways (beyond simply participating in a market) in which people do engage with the energy system, while, in Australia, one in three houses has rooftop solar – arguably demonstrating a very high level of household engagement.
As energy costs climb in Australia, household bills in the UK are already soaring, pushing huge numbers into poverty and driving the collapse of energy retailers. This crisis is sparking new conversations. While there is a danger that fears about energy security could delay or derail decarbonisation, there is also a new and urgent opportunity to explore what kind of energy system would serve the interests of the public.
This report is based on 40 interviews with academics, industry stakeholders and consumer advocates in Brighton, Oxford, Norwich, London, Manchester, Glasgow, Bristol, Reading, Rougeley and Eigg: experts in socio-technical change, demand response, community energy and energy efficiency; community energy organisations and advocates; representatives from energy retailers and aggregators; policy analysts and advocates for energy users and energy system reform. Most of these participants know far more than me and I have used their own words extensively throughout the report. Some are named and others are anonymised (as Interviewees 1 to 40), according to their preferences. I am grateful for their time and generosity.
2
Engaging households in flexibility - insights from the UK

The next two sections of the report set the scene. Section 2 gives a brief overview of the current status of residential energy flexibility in the UK energy market, describing the available loads, existing and potential tariffs (including bundled services) and initial development of consumer protections.
Section 3 describes some of the barriers to engaging households in domestic flexibility. These include lack of information and challenges in accessing data, the insufficient and unpredictable value of flexibility combined with significant investment costs, major disruptions to households and their routines, and distrust of technology and the energy sector.
These include technical challenges and financial barriers, but technical innovation, investment and price signals on their own are not sufficient to motivate households to act; behaviour is driven by a combination of economic, social and cultural factors. The following sections develop the main themes of this report: engaging households – people – in flexible energy use, the importance of fairness
(whether for its intrinsic value or its contribution to building trust) and the role of governance. The 40 interviews revealed a wide range of views about how to approach each.
Section 4 discusses different approaches to developing household engagement in the energy system and its importance to the provision of flexibility, drawing on evidence from five UK case studies and touching on the role of understanding, automation, community benefits and energy resilience.
Section 5 describes different ways fairness is interpreted in relation to flexible energy provision, whether it matters if some households are “left behind”, and approaches to combining flexibility with fairness. Section 6 explores how engagement in flexibility might be affected by different governance models, including Community Energy, various forms of public ownership, nested governance structures and systems of representation.

2 Domestic flexibility in the UK market
This section presents a very brief overview of the current status of residential energy flexibility in the UK energy market. This includes a summary of the key loads available for flexibility (2.1) and the available residential tariff offerings from retailers Octopus and Ovo (2.2). Section 2.3 describes some approaches to bundled energy services and Section 2.4 presents current and potential practice in regulation and consumer protection.

2.1 Key loads for residential flexibility
In Australia, the most significant residential loads for providing flexibility are heat pumps (for air heating and cooling), electric hot water (whether heat pump or resistive heating), household batteries and EVs, though widespread deployment of EVs and batteries is yet to happen. In the UK, the focus is on EVs and heat pumps (for air and water heating).
The UK EV market is more developed than in Australia, with nearly a million plug-in vehicles including 520,000 all-electric (Lily, 2022), far beyond Australia’s fleet of 40,000 EVs (Schmidt, 2022).
The growing availability of smart tariffs and smart chargers targeted at EV owners bodes well for EVs becoming a source of flexibility, rather than having a negative impact on the grid.
32% of all UK energy use (after losses) is in the domestic sector, predominantly space and water heating (BEIS, 2022). Most heating uses gas (78% of households use gas-powered hydronic central), with only 11% using electric heating (Sonnischen, 2022), while much of the UK housing stock, in common with Australia, has very poor thermal performance (Committee on Climate Change, 2019).
There is growing awareness of the urgent need to electrify heating in order to reduce household carbon emissions. This has potential to provide a significant source of flexible demand.

3
Engaging households in flexibility - insights from the UK

“If your primary goal is to decarbonise, now in the UK, I don’t think spending your time and
effort on adding more renewable generators to the system is actually that helpful. I think
you should be focusing on decarbonising the way we’re heating our buildings […] You’re
gonna get much bigger bang for your buck, and probably the decarbonising of the electricity
system is gonna happen anyway” (Tom Nockolds, Energy4All, Interview).
“Electric heating […] is gonna be potentially another big source of shiftable demand… we are
expecting the vast majority of homes in the UK to end up with some sort of electric heating
source” (Rachel Fletcher, Octopus Energy, Interview)
2.2 Octopus and Ovo
As in Australia, the competitive retail market for electricity in the UK is dominated by a small number of retailers (known as ‘suppliers’ in the UK). In Australia there are three; however, in the UK, the “Big Six” have now become the “Big Five”: British Gas, E.ON, OVO Energy, EDF and Octopus
Energy. Octopus Energy, launched in 2016 with the vision of “using technology to make the green energy revolution affordable whilst transforming customer experiences” (Octopus Energy, 2022c), now has 10.8% of the market share (Ofgem, 2022), supplying over 2 million customers (Octopus
Energy, 2022b).
Octopus was established by technology entrepreneurs and is widely seen as an innovator in the retail market. Its success is built on the efficiency of its Kraken integrated customer relationship management (CRM) platform, which reduces overhead costs and is now being taken up by other retailers including E.ON and Origin Energy (Rachel Fletcher, Octopus Energy, Interview). Kraken has been further developed into the KrakenFlex platform, which combines CRM with management of behind the meter DER resources and is central to Octopus’s strategy of “rebuilding trust through technology”(KrakenFlex, 2022).
Octopus’ innovative tariff offerings include:
• Octopus Agile: Retail tariff with day-ahead half-hourly pricing, tied to wholesale costs
(including negative ‘plunge pricing’) and capped (currently at 78p/kWh) (Octopus Energy,
2022a)
• GO Tariff: A ‘dumb’ TOU tariff designed for overnight EV charging
• Intelligent Octopus: An EV tariff which uses a smart charger to optimise charging depending
on wholesale market costs and to provide flexibility to the network operator within
constraints set by the user (time of departure, required state of charge). Driven by machine
learning through their Kraken Flex platform.
• Big Dirty Turn Down: a behavioural demand response in partnership with the market
operator, National Grid ESO, which rewards customers for reducing consumption to shave
network peaks.
Significantly, Octopus are starting to move beyond electricity sales, combining smart tariffs with sales of smart appliances such as EVs and smart chargers or, in the future, heat pumps. However, despite Octopus’ innovation and significant market share, the majority of their residential customers are on a flat tariff, with only 60,000 on any kind of a smart tariff. “If we can’t persuade people to switch out their gas boiler or switch to an electric vehicle, we ain’t gonna hit our decarb targets […] how do we make that easy and affordable and an attractive thing for customers to do?” (Rachel
Fletcher, Octopus Energy, Interview).
The third biggest retailer with 13.8% of the market (Ofgem, 2022), OVO Energy also offers tariffs designed specifically for EV owners. The basic tariff, OVO Drive is a flat rate tariff, but they also offer an Anytime low-rate tariff exclusive to smart chargers (OVO Energy, 2022). Like Octopus, OVO are trialling offers bundling EV leasing with electricity supply and smart charging, and trialling flexibility aggregation of heat pumps.

4
Engaging households in flexibility - insights from the UK

2.3 Bundling energy services
One approach to the difficulty of engaging households in the complexity of flexibility services is for a third party to manage it for them
Examples of bundled or blended assets and services include (Laura Sandys, Interview):
• Dual fuel contracts
• Energy as a service (EaaS) or Heat or Comfort as a Service (HaaS / CaaS) where the provider
invests in building fabric and electrification and uses flexibility income to repay the
investment
• Electric vehicle (EV) sales or lease contracts that include ‘free miles’ allowing the EV supplier
to aggregate flexibility across their fleet
• Residential tenancies with a social housing provider or private landlord that includes energy
and smart tech which the landlord uses to provide flexibility services
One of the first companies to use domestic assets in the balancing market is Social Energy (Social
Energy, 2022) who install solar and batteries in residential buildings and monetise the aggregated flexibility across their fleet. Their business models include a range of options for social housing, including an ‘economic’ model where tenants buy energy at a market rate, a ‘fuel poverty model’ with housing providers investing so that energy can be supplied free to tenants, and a ‘funded model’ with no upfront costs to landlord or tenant.
While some bundled services don’t require consumers to understand the energy system, they may actively make it harder for households to make conscious decisions about their energy use.
Consumer advocates raise concerns that bundling makes comparison of offers harder and may result in ‘lock-in’ (Citizens Advice, 2022b). While advocates of bundled services seek to remove current restrictions on energy resale, they increase the complexity and difficulty of regulation, and there are concerns that this could undermine consumer protections and reduce transparency: “The tension with that is of course that you make consumer protection around what is an essential service more complicated than it currently is” (Laura Dye, Interview).

2.4 Customer protections
Consumer advocates have identified a range of customer protection measures that would increase household’s confidence to engage in flexibility. These are based on user research and include requirements for no-fee exit clauses in flexibility contracts, minimum levels for information provision and service quality, user control over their data, and assured security of supply (Citizens
Advice, 2022c). In particular, households need clear information to be able to compare offers, which means calculating and presenting tariffs using standard terms and language (Citizens Advice, 2022a).
As business models develop, regulation is needed to allocate liabilities between different actors – energy companies, aggregators, technology suppliers, etc. – in a way that households can understand. "The point is I think there’s quite a lot of risk. You see it with heat pumps and all kinds of things, people are just getting mis-sold things, or not being offered things they were expecting, or things not working the way they thought, and there seems to be no redress because the energy supply does this but they haven’t structured the liabilities associated with the kit working and maybe that’s a third-party provider has all that…” (Interviewee 20).
However, some stakeholders see customer protections – or at least the perceived rigidity of regulations – as a barrier to the development of flexibility markets. “I think the way through this is actually a much more Agile approach to regulation as well. Rather than putting a whole load of

5
Engaging households in flexibility - insights from the UK people in a room with wet towels coming up with what they think is the right answer on customer protections, could we not […] come up set of customer protection principles, minimum viable product, and then six months later – what have we learned? How might we improve these principles?
What were the downfalls of them? What were the unintended consequences? And then let’s update and evolve them” (Rachel Fletcher, Octopus Energy, Interview).
The trade association, Association for Decentralised Energy (ADE), representing aggregators and some suppliers, is contributing to the development of a set of voluntary standards for household flexibility products. The Household Or Microbusiness Energy flexibility (HOMEflex) project will build on their commercial flexibility guidelines (Flex Assure). The Centre for Sustainable Energy is contributing to development of HOMEflex with user research and guidance on protection of vulnerable households. ADE hope that a HOMEflex code of conduct, voluntary compliance scheme and dispute resolution process will avoid the need for extensive top-down regulation.
“Our understanding at the moment is that the initial formal regulations will likely be focused around technical aspects and cybersecurity aspects […] and consumer protection in a rather limited sense”, while HOMEflex will include “quite a lot of detail around how you actually engage with customers and the sorts of information you provide, and how you actually document the offers that you provide to a potential customer are based on legitimate figures and estimates and forecasts and whatnot” (Interviewee 08). As well as providing reassurance for households, the intention is to protect aggregators and DNOs from potential reputational damage of rolling out flexibility schemes that don’t work for consumers.

3 Barriers to flexibility
This section describes the diverse barriers to realising household flexibility that emerged from the interviews. These span the range of issues described by the EnergyREV study on the potential of
Smart Local Energy Systems (SLES) to deliver flexibility (Vigurs, Maidment et al., 2022), shown in
Table 1, but a greater focus is placed here on the barriers to engaging households.
Table 1 Barriers to flexibility (Vigurs, Maidment et al., 2022)

• The policy making ecosystem
• Knowledge and learning ecosystem
• A system not designed to incorporate flexibility
• Transitional complexity arising from incorporating more
energy from renewables (and so creating a need for greater
flexibility)
• Realising value from flexibility
• Barriers to new entrants (investors, community interest
groups and flexibility service providers)
• Managing risk to the consumer
• Attitudes and beliefs
• Participation and behaviours

6
Engaging households in flexibility - insights from the UK

3.1 Visibility and transparency
As in Australia, a lack of distribution network visibility and transparency is a barrier to flexibility in the UK. There are a number of dimensions to this issue.
One aspect is the difficulty for third parties in accessing information to inform decision making about siting generation, take-off, flexibility services, etc. The quality and accessibility of information varies between network operators: “Some of them are […] providing open-source heat maps of this is where you could potentially connect to the grid, this shows where we’ve got capacity, where we haven’t, where we’re completely full, where works needs to take place. That’s brilliant, but probably only 50 percent of the DNOs do that. So, you kind of enter into a postcode lottery. If you happen to be in a forward-thinking DNO region […] you know you’re gonna get pretty decent transparency; you can see what they’re doing and they’ll work with you. If you’re in another area, you might not get that support” (Tom Hoines, Younity, Interview).
Related to this is transparency of costs for grid connection. One Community Energy organisation gave an example where the non-contestable costs of connection were 10 times greater than the initial DNO estimate “So, we’ve got a rough estimate. We can go off. We can get planning permission. We can go and recruit our community. We can set up a share offer. We can do all of this work. You then get to the full submission and pay your deposit and stuff, and the final non- contestable costs come back, […] this is an extreme example, but there was one where they shifted the decimal point. It was ‘we think this work is going to cost between 180 and 250 grand’ for a two- megawatt solar farm – tiny little thing. […] The full quote, the non-contestable, came back and it was two million quid” (Tom Hoines, Younity, Interview). This lack of transparency affects connections for batteries and loads, as well as generation, and creates a significant barrier for small or community organisations seeking to deploy infrastructure.
As in Australia, but uniquely amongst European countries, UK smart meter installation and operation is the responsibility of suppliers (retailers) rather than distribution network operators
(DNOs). As well as slowing deployment, this results in difficulties of data access for households,
DNOs and aggregators “…and they haven’t been installed. […] The value of that information is for the distribution network operator to know what’s going on when you’re having two-way exchange of electricity [but] there are different suppliers for the street and then we have to negotiate how the data gets shared…” (Interviewee 21).
The UK government estimates annual savings of GBP 16 billion through widespread deployment of smart meters, and plans to install them for all customers by 2024 (BEIS, 2020). Half of all residential meters were smart by the end of 2021 (BEIS, 2022) but much of the value from these meters flows to DNOs and suppliers. “All those benefits are remote disconnection, better load management, utility compliance, better control, better efficiency. So it’s commercial benefits, not residential benefits” (Interviewee 25). Indeed, there is broader evidence that smart meters – at least in the way they are currently being deployed – may benefit incumbent energy businesses more than energy users, and support existing business models more than innovation (Sovacool, Hook et al.,
2021).

3.2 Insufficient value of household flexibility
Insights from Project LEO (Section 4.2.1) and other demonstrations suggest that the economic value of flexibility at an individual household level is quite low, and may be insufficient – on its own – to motivate households. This may point to the need to develop markets to better value the benefits of flexibility across the whole electricity system, and enable households to access that value.

7
Engaging households in flexibility - insights from the UK

Flexibility trials often involve subsidies external to the market and so their findings should be treated with caution (Crawley, Johnson et al., 2021). However, a purely financial transaction may be inadequate, and broader, non-financial incentives and motivations may also be required.
“I think if we just focus on the finance and encourage people to do it for the finance, and
unless something radically changes in the way the flexibility markets are created. That’s
never gonna be a huge amount of money in a way that enables people who are giving very
small amounts of flex for it to be sufficiently-motivating. So what is it that you can do that
adds to the value proposition? That might be around any of the social or the environmental
benefits, or the community benefits” (Saskya Huggins, Low Carbon Hub, Interview).
This is particularly true if the costs of developing household flexibility capacity are considered.
“The demand or value created by domestic electricity is still quite small at household level,
and so, yeah, our business model is quite sensitive to how long it takes to get a customer and
how long it takes and the cost to serve that customer” (Felix Wight, Repowering London,
Interview).
Meanwhile, Octopus Energy’s smart tariffs allow households to opt out if the benefits are insufficient, and limit the market risk they are exposed to. “We’ve thought about off-ramps for customers. Agile – we have capped the downside for customers on Agile as well” (Rachel Fletcher,
Octopus Energy, Interview). But the cost of these additional incentives is beyond the value generated by the flexibility they provide, and is currently borne by the retailer. “These products are not commercially viable for a number of reasons. But one of the reasons is that we’ve, if you like, deliberately put them out there in a safe way, customers know that they are effectively participating in a learning experiment” (Rachel Fletcher, Octopus Energy, Interview).
This lack of available value is partly due to the absence of suitable markets, particularly price signals from the distribution network operators (DNOs). “If you think about the revenue stack, the demand side response and flexibility needs, you need wholesale price arbitrage, you need transmission system, ancillary services, and some kind of reward for alleviating constraints, managing constraints on the distribution system. And that third part of the equation, we do not have dynamic price signals at distribution level” (Rachel Fletcher, Octopus Energy, Interview). There is an additional financial barrier to electrification which is that environmental tariffs are applied to electricity (not gas) bills – an effective subsidy of gas (Rachel Fletcher, Octopus Energy, Interview).
The future value of flexibility is also unpredictable. “The challenge with flexibility services is the revenues – the forecastable revenue streams are always short term […] So, your flexibility contracts that you might secure under whichever format you go for – three to four years sort of seems to be the time scale”(Tom Hoines, Younity, Interview). This is a particular challenge given the significant investment costs of flexibility infrastructure (Section 3.4).

3.3 Multiple disruptions
While household heating promises to provide a substantial source of flexibility, it cannot happen without electrification of space and water heating. In turn, substantial improvement to the thermal performance of the housing stock is needed to enable efficient electrical heating and keep ongoing energy costs affordable and at a level that can be met by renewable generation. Building regulations need updating to require smart, flexible technologies as well as improved energy efficiency (ADE,
2020), but the major challenge is retrofitting to older buildings. It has been estimated that electrification of existing housing would increase electricity demand to 30 times the UK’s current

8
Engaging households in flexibility - insights from the UK renewable generation, while insulating the housing stock would reduce this to a more achievable fourfold increase (Tom Nockolds, Energy4All, Interview).
The good news is that a fabric-first approach to household retrofits – insulation followed by electrification – will increase energy efficiency and deliver bill savings to households. And there are significant co-benefits, including increased resilience to climate change (Climate Change Committee,
2022) and improved comfort. However, households face a range of barriers to retrofitting insulation and electrification before flexibility is even on the agenda.
“Electrification, of itself, is a necessary ingredient but it’s not flexibility itself. We thought we
were encouraging people to take part in innovation trials around flexibility of their heat
pumps [but] the innovation for many people was just getting their heads around the idea of
switching from gas or oil central heating to a heat pump – that required a big step change.”
(Saskya Huggins, Low Carbon Hub, Interview).
The multiple steps involved in retrofitting fabric improvements and new technologies to existing housing stock have an associated set of technical challenges, exacerbated by the imperfect marriage of new technologies with diverse housing stock and existing infrastructure. Every solar installation is site-specific and may need wiring and switchboard upgrades. Particular difficulties are encountered finding suitable locations for inverters and batteries in the UKs relatively small residential buildings.
Heat pump systems operate at lower temperatures but higher flow rates than gas central heating, and their installation may require replacement of pipes and radiators. Heat pumps and smart controls have different control configurations leading to interoperability issues.
Moreover, each step can be hugely disruptive for households. Fabric improvements and heat pump installation involve significant work throughout the house, damage to décor, etc. Poorly designed or installed systems will fail to provide adequate heating, while the operation of well- designed systems will be different to more familiar heating systems. All this disruption is encountered before even starting to provide flexibility services.
“It’s not a surprise, I suppose, that galvanising community groups and householders to adopt
these disruptive technologies and install all the kind of complicated control systems as well
has proved much more difficult than we imagined.” (Nick Banks, Environmental Change
Institute, Oxford, Interview)
Some actors are recognising the extent of this necessary disruption and the corresponding need for giving households compelling reasons to engage. “In entering almost every home in the UK and conducting significant disruptive building works, the drive to win public hearts and minds should not be underestimated” (TUC, 2022). This requires a process of long-term engagement and trust- building.

3.4 Technology costs
Most of the potential sources of significant household flexibility require major investment in new technologies, whether EVs and smart charging infrastructure, or electric heating (and insulation).
One exception is an old technology – electric “storage heaters” (resistive heaters embedded in blocks of concrete), originally installed in several 100,000’s of social housing units in London to utilise off-peak coal generation. This old technology needs updating with control and communications technology, such as HeatSage (Connected Response Ltd., 2021) which is relatively low-cost in itself. However, retrofitting to old technology can be problematic, requiring multiple visits (and therefore increasing costs) due to faulty or non-standard equipment (Syed Ahmed, Energy for London, Interview).
9
Engaging households in flexibility - insights from the UK

Another is existing electric hot water systems, which typically involve 2 resistive heaters – one connected to an off-peak supply, and the other on the general supply. Retrofitting these with smart controllers could harness a large flexibility resource but, again, there are often problems with the existing infrastructure that add significant costs.
“The big finding for the project, I would say, is that most people’s electrical hot water
systems didn’t work well or at all. […] There’d be two immersion heaters in it, and one would
be you could turn on anytime, and one would only turn on or off at peak times. Well, often
the off peak one is broken. So most of what we did was get them fixed or try working with
our landlords and the really dysfunctional supply chains” (Felix Wight, Repowering London,
Interview).
The costs for newer heating technologies are much more substantial. Installation of a heat pump supplying an existing hydronic central heating system costs around GBP10,000, but many systems need additional pipework or radiator upgrades that can increase costs considerably.
Government grants of GBP5,000 are currently available to replace a gas boiler with a heat pump.
Octopus Energy believe this puts a cost-effective solution within reach, with the government incentive combining with private investment in research and training to support development of a market that can scale and reduce costs. “All of our trajectories show that, with scale up, that cost without government subsidy: you should be able to get that down to more or less parity with […] the cost of replacing a gas boiler which is about 3K. That’s about innovating in the manufacture and the tech of the heat pump itself, really working on streamlining the install process and getting to scale.
We are coming up with a microbore solution …with microbores, you’re not having to replace the pipe work. If we are right, we’ll get to a point where, if your gas boiler goes, it would be a no-brainer to replace it with a heat pump” (Rachel Fletcher, Octopus Energy, Interview).
“I’m not looking to trivialise the challenge, but I think we’ve made the mistake, on a number
of occasions, of underestimating how quickly costs can fall when you start getting to scale”
(Rachel Fletcher, Octopus Energy, Interview).
However, much of the existing housing stock also needs significant improvement to the thermal performance of the building fabric, which can add substantial costs. A third of houses with lofts have less than 125mm of loft insulation and 30% of houses with wall cavities don’t have insulation in the cavity (BEIS, 2022).
“The Climate Change Committee advice to the UK Government is saying something like
£25,000 per property […] but that takes it to a level of energy efficiency which many in the
industry would say is not actually the optimal level, given how much more energy generation
we would need to support that level of energy demand. So more common estimates are
£50,000” (Chris Carus, Loco Home Retrofit Community Interest Company, Interview).
In the able-to-pay sector, some environmentally motivated owner occupiers are making substantial investments to lower their emissions, increase comfort, reduce bills and, potentially, add to the future value of their properties. But, for many households, this is not an option.
“And when you’re in fuel poverty, not everyone has the luxury of choices, and so you may want
to do all of these, you may want to electrify your heating, you may want to improve your
insulation, but if haven’t got the capital to invest in it or access the right support, then that’s
going to be really, really tough call” (Saskya Huggins, Low Carbon Hub, Interview).
With two thirds of UK households facing fuel poverty by the end of 2022 (Crerar, 2022), up from
13.2% in 2020 (BEIS, 2020), retrofitting insulation and heat pumps across the UK housing stock at the
10
Engaging households in flexibility - insights from the UK necessary scale will need major investment, beyond the ability of households to pay. The Climate
Change Committee has recognised the need to accelerate retrofits, but their recommendation of government grants to support 30,000 heat pump installations (Climate Change Committee, 2022) fails to meet the scale of the task.
“The scale of money that you’re talking about is huge. It can’t really be overstated about
how much investment this needs” (Interviewee 36).
While improvements to building fabric is essential to decarbonisation, they are unlikely to generate the same return for investors that other technologies can.
“Some aspects […] you get a really fast return on investment and others is a much slower
return, essentially. So the challenge is avoiding investors coming in and just cherry picking
the stuff that they like, ‘All right, we’ll stick a load of […] heat pumps in people’s houses, and
then we’ll get all the money back really quickly’” (Interviewee 36).
Moreover, even where returns are sufficient to attract private or corporate investment, there may be long-term debt implications for house owners or renters.
“And we need, for any of these projects to work, we have to demonstrate that it can help
make rich people even richer. That’s frustrating. And then I think there’s some practical
questions about asking people to take on essentially another mortgage in a lot of cases”
(Interviewee 36).

3.5 Distrust
Giving over control of household appliances to automation requires trust in the technology, which may be lacking for a range of reasons, including concerns about malfunction, “I mean, the trouble with automation is you always have the fear of the headline of defrosted sausages […] your energy company can turn off your power and you lose all your stuff in your freezer” (Tom Hoines, Younity,
Interview). Concerns about making ‘wrong choices’ encompass issues of interoperability and future support in a rapidly evolving market: “I know one day I’m probably gonna get a heat pump, but I wanna know that I got VHS, not Betamax,” . And then they’re like, ‘I don’t know what you’re talking about.
Go away’” (Interviewee 21).
Conflicting messaging from different service providers can add to the confusion.

18
Engaging households in flexibility - insights from the UK

“So the green tariff sale is another message that massively outweighs anything we say about
the time or incidence variation in carbon intensity of electricity, and so it’s a bit of a struggle
to get that idea across sometimes” (Chris Carus, Loco Home Retrofit Community Interest
Company, Interview).
4.3.2 How much understanding is needed?
The extent to which it is necessary, achievable or even desirable, for households to understand flexibility is also contested.
“The common assumption used to be that the public have a deficit of understanding that
needs to be corrected with improved communication or bypassed altogether. While
information and awareness are necessary, this traditional emphasis on communication to the
public has proven to be problematic and limited in empowering societal transformations”
(Chilvers, Pallett et al., 2022).
“I have a slight frustration with how a lot of market players see consumers as like ‘They don’t
know. They don’t understand. They don’t want to know. They don’t want to understand.’ And
I’m sure there are those types of consumers, but I also think that there’s a really important
messaging around – what does this whole balancing of the grid actually mean?” (Interviewee
08).
Different levels of understanding are needed for different modes of engagement. On one hand,
Energy as a Service (EaaS) and bundled offerings, with flexibility automated and managed by third parties, require little understanding from households. Indeed, a household signing up to EaaS may be prepared to pay a premium precisely to avoid having to think about how and when they use energy. However, the new technologies themselves may require increased understanding from a range of stakeholders. There may be a need to educate households in how to use the new technology, as well as to train plumbers, electricians and engineers to design and install them.
Conversely, engaging households in behavioural demand response requires them to understand, at least, what actions are being asked of them and when they need to happen. Crawley, Johnson et al. (2021) discuss how the need for understanding can be distributed between different actors, such as energy companies, aggregators and installers as well as households, with implications for capacity building, including education and training, in different parts of the energy system.
“There was a tendency to try and explain all the features of flexibility when we’re trying to
involve communities, and they didn’t need to know any of that. You need to be able to explain
it if they ask but actually they need to know what do you want me to do, and when, and how
would that help, or what will it cost. It’s like classic marketing point that you sell benefits, you
don’t sell features. We have to learn: how do we get better explaining to people what is it that
we’re asking them to do” (Saskya Huggins, Low Carbon Hub, Interview).
The reasons why flexibility is needed can be understood at different levels. While a full technical explanation includes discussion of frequency, inertia, real and reactive power, etc., simple analogies and models can provide sufficient understanding to justify engagement. “It is actually really difficult for most people to actually understand what physics of the grid is doing. So it’s this question of how far do you simplify to get that balance?” (Interviewee 30). The academic literature relating to ‘Social
Licence to Automate’ describes “the ways that the acceptance of automated DSM depends on users’ knowledge of why the program is being implemented and how all the actors involved – including themselves – may benefit.” (Adams, Kuch et al., 2021)

19
Engaging households in flexibility - insights from the UK

Other researchers describe the need for messaging about the energy system to be both true and meaningful. Truth (or enough truth) is needed to underpin trust, while meaning is necessary to motivate engagement. For example, “many people would say [green tariffs are] somewhat meaningful to quite a few people, but a lot of them aren’t really true when it comes to the meaning people attach to them” (Interviewee 30). This has implications for designing characteristics of flexibility schemes, such as geographic scale; for example, the truth of energy sharing is easier to see
– and therefore more meaningful for people – if it takes place in a small locality. The idea of energy citizenship can make sense to people if it is linked to a sense of place or community. “We need to teach communities that they need to know their network, which they didn’t before” (Nick Banks,
Environmental Change Institute, Oxford, Interview).
4.3.3 Understanding through engagement
Rather than being a pre-requisite for meaningful engagement, understanding can be the result of some types of engagement. There is evidence that ownership of distributed energy resources, particularly solar, can lead to development of sensitivity to the relationship between renewable generation and energy use, with solar households intuitively shifting their demand to maximise solar self-consumption.
“I’ve often believed that the more you’re exposed to distributed energy assets, particularly PV
on your roof – and particularly if you have a sense of ownership with those assets – that that
will change your behaviour. Because it’s a bit like growing vegetables in your own yard,
electricity always tastes better when you’ve grown it on your own roof, kind of thing“ (David
Shipworth, University College London, Interview).
However, this increased sensitivity is not inevitable and is sometimes limited by traditional gender roles (Sovacool, Barnacle et al., 2022). There is also some evidence of a rebound effect, whereby households increase their energy consumption after installing rooftop solar, increasing appliance such as televisions, tumble driers or hot tubs, justified by their solar generation (Sovacool, Barnacle et al., 2022), although it is worth noting that the environmental impacts of this apparently adverse behaviour change depends, of course, on the degree of temporal alignment between the increased consumption and solar generation.
This type of sensitivity is not restricted to individual DER. On the Isle of Eigg, understanding of the energy used by different appliances is widespread.
“I was at the Centre for Alternative Technology and I was in the wee room that they’ve got like
a little doll’s house, and they’ve got all these different things throughout the house and you
could press a button and it lights up and it tells you how much and I just found it fascinating. I
was standing just watching other people press. There was just one elderly lady and, ‘Look how
much an iron uses? I’m gonna stop ironing,’ people don’t have that notion whereas we do, but
that’s because of our situation really.” (Maggie Fyffe, Isle of Eigg Heritage Trust, Interview)

4.4 Automation & technology
Automation is seen by many as an alternative to engaging households. If technology can be used to automate flexibility, then households don’t need to engage; they can simply set their preferences and carry on with their lives.
But this analysis is based on an overly narrow definition of engagement. Certainly, automation can remove the need for households to respond directly and manually to a price signal by reducing their energy use, but they first need to ‘take up the offer’ (Roberts, Passey et al., 2021). This can require multiple forms of engagement such as signing up for a tariff or a bundled energy service; buying an
20
Engaging households in flexibility - insights from the UK

EV and smart charger; or insulating a house and installing a heat pump. Automation does not remove this step, and it may add barriers – some people will be less comfortable with an automated response than a manual one.
More generally, the Social Licence to Automate literature suggests that “the expectation that automation can achieve flexibility ‘behind the scenes’ overlooks the extent to which it also requires of users a new kind of flexibility, assuming [people] to be unbothered by the alteration to household energy practices, undesirable indirect effects, and additional ‘flexibility labor’[sic] that automated demand side management can bring” (Adams, Kuch et al., 2021).

4.5 Community motivations
“People are more than homo economicus – they work better when you appeal to their better
selves, rather than small financial returns with the suspicion that someone else is making more
money than they are” (Mark Luntley, Energy4All / RESCOOP / Westmill, Interview).
Just as households engage in the energy system in many different ways, they do so for diverse reasons. While individual financial benefit is one consideration, it may not be sufficient to overcome barriers. “Users’ requirements for a sense of control may not simply be satisfied or offset by financial compensation or other measures” (Adams, Kuch et al., 2021). The need to consider other motivations is particularly relevant in the context of small - or uncertain - financial rewards (Section
3.2), but is important in securing widespread participation even if the financial benefits are significant. In Australia, for example, households commonly deploy rooftop solar because the financial and environmental benefits align. Multiple studies suggest that “targeted value framing that applies altruistic, biospheric, and hedonistic messages in a selective manner, could be a key component in recruiting more consumers to participate in flexibility programs” (Adams, Kuch et al.,
2021).
“It might be that it’s a civic thing to do, wherever it is, because you’re a global citizen and
climate change, or it’s about helping your neighbours get access in creating capacity”
(Saskya Huggins, Low Carbon Hub, Interview).
Households may also be motivated by an appeal to community – rather than individual – benefits.
In this context, ‘community’ could be local, national or global. At the local level, this can include aggregating small or negligible individual flexibility payments into a community fund that can finance local (energy or non-energy) infrastructure, from EV chargers to children’s playgrounds. “If you can do something that benefits your local community, the importance of place in all of this is gonna come out” (Saskya Huggins, Low Carbon Hub, Interview).
Households may be motivated by shared community action as well as shared community benefits.
“Community action shows promise as an alternative or supplementary motivation to price signals.
[…] Participants “were motivated by the idea that they were not acting alone, but as part of a collective effort and welcoming of comparison with neighbours for the purposes of sharing knowledge and supporting each other” (Melville, Christie et al., 2017).
Meanwhile, European researchers (SONNET, 2022) are exploring the idea of energy communities based on shared interests or motivations, rather than locality. “Energy communities don’t have to be communities of place; they can be digital communities. And those types of digital communities, that collective self-consumption, collective virtual power plants are extremely appealing, and cross space and time in ways that get around some of these issues of markets, and some even transcend countries” (Interviewee 25).

21
Engaging households in flexibility - insights from the UK

Certainly, while local community benefit can help motivate engagement, understanding of wider considerations is also important. “In the UK context, the current grid infrastructure […] will not be able to cope with the electrification of heat and transport. So, unless there’s flexibility online, there will be taxpayers’ money going into building out the infrastructure, which again, is a message to put across, right?” (Interviewee 08).
The management of water during extended periods of low rainfall that result in low reservoir levels may provide lessons for the management of electricity. Water, like electricity, is an essential service, but not all water use is essential. “When you get a drought, they don’t just do it through pricing. They say, ‘Don’t wash your car’” (Maggie Fyffe, Isle of Eigg Heritage Trust, Interview). In the first instance, this messaging is often framed in terms of community responsibility, and although it is sometimes backed up by sanctions or enforced through social pressure, its effectiveness is testament to household understanding of their shared responsibility for a common resource. People are invested in water “Well, we all use water […] We all like to have a nice clean river!” (Cat Hobbs,
WeOwnIt, Interview).
“And if you can see that you really are helping, and it felt these small changes collectively are
making some really massive changes to our ability to de-carbonised the grid and put more
renewables, and use the energy we got more efficiently, I think for some people, that would
be really motivating” (Saskya Huggins, Low Carbon Hub, Interview).
However, appreciation of the benefits of flexibility at a national or global scale may require a greater level of understanding and, perhaps, abstraction. Engagement with smaller local (or virtual) energy communities may be a necessary first step towards building this wider understanding.
“Taking a place-based (or neighbourhood) approach to re-imagining the energy system is key to achieving benefits for everyone. It helps entire communities come together to pool resources into new flexibility markets, whilst identifying and negotiating the benefits they want to receive for helping balance the local energy system” (Huggins, 2020).

4.6 Flex and resilience
The intersection of flexibility and energy resilience is developing as an area in need of detailed exploration. In the UK, as in much of Europe, concerns about security of energy supply have been exacerbated by the war in Ukraine and are shifting the conversation away from decarbonisation.
“The only mitigation measures that will become politically acceptable fairly soon will be those that address adaptation and resilience, so energy security and climate adaptation as well as delivering mitigation, which is narrowing the subset” (David Shipworth, University College London, Interview).
Moreover, supply insecurity raises the question of how households will behave in a future hypothetical scenario. It is well documented that households prefer to retain the ability to opt out of flexibility schemes including automated demand response and VPPs, and that, for many, having this ability to opt-out may be a pre-condition of participation. “The concern is that people’s behaviour will change as circumstances change and so that you might get participation and buy-in, particularly if it’s very transactional for an economic reason, up until such point as other societal drivers overwhelm any economic considerations. And then you might get large scale market defection from flexibility markets at exactly that point when you need the flexibility markets […] If we grant them an opt-out clause in order to increase participation, then do we risk those assets defecting from the market when we need them?” (David Shipworth, University College London, Interview).
Conversely, research (CEEM, 2021) and trials (ITP Renewables, 2021) in Australia are exploring the role that flexibility can play in increasing community resilience to grid outages due to fires, floods and other extreme weather events. To some extent, households may be more willing to behave
22
Engaging households in flexibility - insights from the UK flexibly or curtail their demand to support a local microgrid during a period when it disconnects from the main network due to a weather event. If engagement in flexibility is strongly motivated by considerations of local community benefit, it may increase precisely at the time when it is needed.
“If we think about a hierarchically balanced bottom-up network, if it decomposes hierarchically as
well, so it fails into a set of islanded – individual islanded systems – then as that failure occurs,
potentially the social implications or the social requirements to behave well increases as the
system fails, which is interesting” (David Shipworth, University College London, Interview).

5 Fairness
This section explores the relationship between fairness and flexibility, including diverse viewpoints on whether fairness and inclusivity are necessary to the development of a flexible energy system (Sections 5.1 and 5.2), different approaches to combining these two apparently conflicting aims (Sections 5.3, 5.4, 5.5 and 5.6), and an emerging framework for assessing the inclusivity of smart energy systems (Section 5.7).

5.1 The need for fairness
The importance of fairness to households has been well documented, including, for example, in relation to shared battery storage (Hoffmann and Mohaupt, 2020), VPPs (Roberts, Adams et al.,
2020), and peer-to-peer energy trading (Temby and Ransan-Cooper, 2021). Households are more willing and able to engage with new energy technologies and business models if they are – and are perceived to be – fair. This includes fairness of opportunity and process (who is able to engage and how this is facilitated) as well as fairness of treatment and outcomes – fairness of compensation for providing flexibility in terms of both the value offered relative to the effort required, and the distribution of benefits across different households and between different stakeholders.
“For this transition to work, it needs public consent […] and that, in this country in particular,
is heavily dependent on it being seen - possibly through a misguided lens - but being seen to
be fair both in terms of who gets to gain and who gets to pay, but also in terms of who gets
to take part"(Interviewee 20).
Fairness should be included as a principle in designing local energy systems.
“The success of a service offering will depend on the efforts of many stakeholders. The value
created by the service, and costs that arise, should be fairly distributed amongst those
stakeholders”(Huggins).
Ensuring fairness in flexibility offerings is challenging, not least because people’s perceptions of what is fair are diverse and are not fixed. While equal reward for flexibility delivered might appear fair, it does not account for the multiple factors which affect a household’s ability to both engage with and respond to a flexibility offering. These include social, health, cultural factors affecting their abilities, and technical, economic and physical aspects of their circumstances affecting their opportunities and access to enabling technologies (Roberts, Passey et al., 2021).
The concept of ‘flexibility capital’, well established in the academic literature (Powells and Fell,
2019), describes how a household’s ability to engage in flexibility may be derived from social means
(including sacrificing comfort or inconvenience) or through financial resources, and highlights the unfair outcomes that can arise from superimposing a flexibility market on underlying inequities.

23
Engaging households in flexibility - insights from the UK

5.2 Who gets left behind (and does it matter)?
“The energy transition is creating 1,000 new ways for unfairness to be entrenched in the energy
system because some groups, vulnerable groups, are not gonna have either the finances or the
other skills that you need to participate in the smart local energy systems and are therefore at risk
of being left behind” (Nick Banks, Environmental Change Institute, Oxford, Interview).
It is widely perceived that a tension exists between a smart energy system and a fair or equitable one. At one level, both flexibility itself and the local energy systems that might help deliver it are inherently unfair. If incentives are given for flexible energy use or for ownership of automated appliances, then those whose behaviour or expenditure is constrained are – unfairly – excluded from access those incentives. Similarly, households outside the geographic boundaries of local (smart) energy systems (whether these are aligned with community or political boundaries or with electricity distribution infrastructure) are excluded from the benefits of participating in the system.
“It is in all our interests that no one is left behind in the transition to a zero-carbon energy
system. Opportunities must be available to all businesses, households, and communities. Any
new, locally balanced energy system, needs to benefit and be fair for everyone, not just a
minority with their own solar panels, battery storage or electric vehicles” (Huggins, 2020).
There is little consensus on how best to address this tension, or even that it can or should be addressed.
The energy transition is urgent and, some argue, cannot wait for everyone. Moreover, introducing flexibility into the energy system will facilitate greater (low cost) renewable penetration and reduce distribution costs, and thereby improve outcomes for everybody. “You can’t roll anything out if you want it equal to everybody unless you’re going to give everybody the same... I think you have to say that this participation in the system actually reduces the cost for everybody […] perfection shouldn’t be the enemy of the good” (Laura Sandys, Interview). This approach underpins Octopus’s strategy.
“Academic research suggests that we could be saving 16 billion pounds a year if we create a flexible energy system […] the overall cost of energy system will shrink and everybody will benefit, whether you’re providing demand side response yourself or not” (Rachel Fletcher, Octopus Energy ,
Interview). Although Octopus are sharing data with the Centre for Sustainable Energy (CSE) to support research and development of their capability framework, they don’t currently target specific households. “The approach we tend to take is we tend not to segment our customers and push products their way. We tend to put products out and see who comes” (Rachel Fletcher, Octopus
Energy, Interview).
This approach relies on the market to enable households to find flexibility offerings – and levels of engagement - that suit their capabilities and preferences.
“We’re gonna have a mixed economy where you’ve got some […] incredibly sophisticated
customers managing their half hourly energy use through technology they’ve bought, cobbled
together, built themselves; people that want an easy plug and play – so I plug my EV in or I set
my heat pump for it to be warm at this time; others that might dip in occasionally to participate
in the turndown service or might have 80 quid off their annual bill to be called on six times a year
to provide turndown service, and others who, for whatever reason, continue to pay a pence per
kilowatt hour fee and not really engage in this perhaps ‘cause they can afford to or whatever.“
(Laura Sandys, Interview)
While this approach certainly offers choice to some households, it fails to address those whose lack of engagement is not a choice, but is the result of financial, social or other constraints. In an

24
Engaging households in flexibility - insights from the UK unconstrained market of flexibility offerings, some people may choose to pay a premium to avoid the inconvenience of providing flexibility, but others will forego comfort and risk their health to reduce their bills and those who are unable to provide flexibility will be penalised.
However, if the flexibility brought about by this market reduces network costs, increases hosting capacity for renewables, reduces emissions and drives down energy costs for everyone, does it matter if some benefit more than others? Some argue that addressing inequality is not the job of the energy system, and should be dealt with through social policy. But a pure market approach is not neutral in its impacts on fairness; it is likely to entrench and exacerbate existing inequities, and create new ones.

5.3 Smart and fair: the capability approach
The ‘capability lens’ is a related framework developed by the Centre for Sustainable Energy (CSE) for understanding the ability, suitability and willingness of households to participate in flexibility or other types of smart energy offer necessary to the energy transition (Roberts, Bridgeman et al.,
2020). It organises capabilities into five clusters: energy usage and technology; dwelling and local area; financial; personal and social; digital tech readiness. Using this lens, CSE have built an “offer profiling tool” which analyses the capabilities needed for households to participate in a particular offer. The tool is intended to be used in designing and targeting offers.
Building on this, CSE have also created a “consumer classification model” which identifies the types and locations of households most likely to take up and benefit from a particular offer, and determines the impact of mitigation strategies to extend participation beyond those most likely to engage. The tool is linked to spatial household demographic data so the information it generates relates to specific localities.
Using this model, CSE have estimated that 49% of UK households are likely to take up 1 of 6 smart energy offers, (dynamic TOU pricing, storage as a service, EV smart charging with TOU tariff, hybrid heating as a service, PV with an aggregator-owned battery, or vehicle to grid EV leasing. However,
8% are only likely to do so given suitable mitigation strategies, which include grants or low-cost loans, increased high-speed broadband roll-out, and regulation to support tenants to install smart meters and DER. Importantly, the group of households who would not access any of these 6 offers, although diverse in many characteristics, has low average income, high rates of fuel poverty, financial stress and poor health (Roberts, Bridgeman et al., 2020).
The capability approach has also been used to analyse Project LEO (section 4.2.1) and further developed to include capabilities of communities and systems, as well as individual households and businesses, to participate in smart local energy systems and local energy markets. This enables identification of suitable interventions to overcome inequity or unfairness that “either, a) change actor capability so that the energy services or […] benefits become accessible or b) change the […] offer itself to meet and work with the communities’ capabilities as they stand.” (Banks and Derby,
2021). System capabilities can be increased, for example, by introducing actors into the marketplace with business models and value propositions more likely to enable participation of households with low capability levels. This could include models that are not based on maximising financial returns, such as a not-for-profit community aggregator.
CSE’s Smart and Fair approach aims to strike a balance:
“A lot of people are pushing the smart thing but ignoring the fair thing. There’s also quite a
lot of people who are pushing the fair thing and ignoring that you do need it to get smarter,
and if you push fair too hard too early and insist everything is equitable and anyone can
25
Engaging households in flexibility - insights from the UK

participate and you’re making sure every offer coming into the market is fair in the sense of
who can join in, then they will not ever come forward” (Interviewee 20).
Their Smart and Fair approach involves creation of a diverse market of flexibility offers that will be attractive and accessible to different types of household, while tempering the worst inequities of this market with targeted interventions, recognising the limitations of the market in delivering fairness.
“It would be unreasonable and unhelpful to expect or require ‘smartness’ to align with
‘fairness’ at the micro level of each offer; we will not secure a smart energy system if we do.
However, this brings with it an uncomfortable (but perhaps obvious) corollary: If we can’t
expect to require or deliver fairness in the particular of each smart energy offer coming into
the market, we can’t expect fairness to be achieved across the generality of offers in the
market” (Roberts, Bridgeman et al., 2020).

5.4 Fair flex
The concept of “fast and fair” originated in the Australian Community Energy Movement. “Fast and Fair, that really came from Nicky [Ison] and Erland [Howden] in planning the 2007 Community
Energy Congress” (Tom Nockolds, Energy4All, Interview). It is used to describe the benefit of community ownership in driving the development of renewable energy generation.

“It becomes really self-referencing and quite circular, because the only way the transition to
clean energy can be fair is if it is fast. So it can only be fair if it’s fast, it can only be fast if it’s fair,
and the reason it has to be fast to be fair is because of climate change and the injustices that
come from not acting fast enough” (Tom Nockolds, Energy4All, Interview).

Discussion of flexibility, by contrast, often assumes that, while fairness may be a beneficial outcome in itself, it can conflict with or hold back the transition to a smart energy system – Smart and Fair is a balancing act. However, others see fairness as necessary for ensuring the transition takes place.
“Any arrangement considered fair is more likely to meet with social approval. Social licence to
operate not only then makes it more likely that local energy solutions will be agreed and
implemented, but that we will achieve the mass participation required to deliver a locally balanced
energy system at sufficient scale. The pursuit of energy equity therefore is not only an admirable
goal for the energy transition – but also a means to our end” (Huggins, 2020).
Indeed, even if fairness were not a worthwhile aim in itself, it may be necessary to achieve the social licence required for multiple aspects of the transition: building renewable energy generation, deployment of distributed energy resources, digitization and data access, and automation. “The environmentalist in me thinks the first priority is to get the carbon out of the atmosphere - if some people end up better or worse off, that’s a secondary effect. And then I think: ‘Well, hang on a sec, we’ll never get the carbon out of the atmosphere unless we make sure it’s done equitably.’ I tend to be quite utilitarian about this. I want to reduce atmospheric carbon, and if doing this equitably increases public acceptance then that’s the strategy we should adopt.” (David Shipworth, University
College London, Interview).
There are parallels between the ‘fast and fair’ framing of community energy and the ‘smart and fair’ approach of CSE. ‘Smartness’ and flexibility are needed to ensure the speed of transition; at least some degree of fairness is needed to engage households and thereby facilitate that flexibility; and the resulting fast transition ensures benefits for all. But the outcomes of the transition are not
26
Engaging households in flexibility - insights from the UK automatically fair, and fairness is important in its own right – not only for facilitating speed and smartness.
“There’s a presumption that communities are just, like, someone to be involved, potentially
because they might object and that could slow you down. It’s only part of the thinking, I think.
You’ve only got the pathway there. And for me, it just really cuts to the heart of the whole just
transition question […] The transition to clean energy is creating a once in a lifetime opportunity
to not only decarbonise, but to build a fairer energy system. […] Put another way, if all we do is
replicating the same systems, ownership structures, business models, etcetera, that led us to the
current outcome (run-away climate change, over extraction), then we’re just gonna end up with
another problem down the line” (Tom Nockolds, Energy4All, Interview).

Rather than seeing flexibility and fairness as oppositional, a ‘fair flex’ approach can be proposed which might focus on how they can reinforce each other. Demonstrable fairness can help secure social licence for flexibility and household engagement in flex opportunities and local energy initiatives. In return, flexibility might help increase fairness in two ways: First, the value unlocked by flexibility – through reduced network costs, lower emissions and cheaper generation – could be used to increase access to distributed energy resources, improve housing fabric and accelerate electrification, increasing fairness in the process. And, second, the network benefits of flexibility can increase capacity for hosting, for example, rooftop PV or electric loads - and so enable fairer access to the network. “If all the people who already have a heat pump are prepared to be flexible about how their heat pumps are operated in the streets, so that for the people in the street who hadn’t yet got one, there’s now capacity in the grid” (Saskya Huggins, Low Carbon Hub, Interview).
A ‘fair flex’ approach would give equal importance to flexibility and fairness. It would use fairness to engage households in flexibility, and ensure that the value of that flexibility was distributed fairly.
But, to avoid penalising (and therefore excluding) households with limited capabilities or lower levels of flexibility capital it should go beyond offering a ‘fair’ reward for flexibility delivered, to fairly distributing the benefits of the transition, regardless of capability.

5.5 Life flex
Many of the constraints on household flexibility are the result of inflexible social schedules.
Households sleep, eat, wash and travel to fit routines that are largely dictated by work and school times. “When you look at the energy curve for the country, we’ve got this very intense use of energy which means you have to turn the gas on and so on to pump out enough electricity to power everyone being at work” (Interviewee 36).
But assumed behaviours and practices also vary between countries and across cultures. For example, in Germany, the main meal is usually taken in the middle of the day rather than the evening. This has health and productivity benefits, but also has major implications for energy.
Practices change and can be changed by interventions. For example, providing good food at subsidised rates in works canteens supports this behaviour. Similarly, providing communal laundries
(which could use heat from co-generation) could affect how and when people do laundry (Philipp
Grunewald, University of Oxford, Interview).
“I’d be keen to look at flexibility in a wider system sense than just straightforwardly energy,
because, quite often, we don't have a choice about when we do all our laundry and stuff. But
then I think there's the behaviour change aspect to energy use as well, like, ‘Do we all need
to have a washing machine in the house?’ These are quite embedded cultural ways of
behaving.” (Interviewee 36).
27
Engaging households in flexibility - insights from the UK

The Covid pandemic gave a hint of how usual routines of work and travel – and therefore of energy use – can be disrupted. Less rigid social routines would enable greater participation in flexible energy use. “It's frustrating that the flexibility aspect of it I think could also extend into social life, everyday life, the wider systems than just simply energy where if people had flexible working.
Some of the trials that have been done in Scandinavia with four day working weeks, and so on, which means that everyone's more flexible across the week” (Interviewee 36).

5.6 Social tariff
To provide a fair foundation for flexibility requires a commitment that those who cannot engage will not be disadvantaged or deprived of essential levels of services or comfort. One proposed approach that goes some way to ensuring a base level of energy services is the social tariff. Although the term is used to mean different things, the core concept includes a basic level of low-cost (or free) energy provision, available to everyone and subsidised by high energy users.
For proponents of a diverse market of bundled products and services, a social tariff could provide a safety-net to catch those unable or unwilling to participate. This might take the form of an inclining block tariff, such as the ‘slab tariff’ (Ahmed, 2008) introduced in Dubai and other Emirates (Laura
Sandys, Interview). The TUC propose a social tariff with an initial free energy allowance and bills capped at 5% of income for low-income households (TUC, 2022), subsidised by increased tariffs for high energy users. Additional allowances or subsidy would be needed for low-income households with high essential energy needs (e.g., to support home kidney dialysis or other medical equipment).
Such a model could be extended to include a capacity allowance, just as households on Eigg have a 5kW capacity limit. This could be time-specific and include the option to purchase additional capacity at a premium rate. This model disincentivises excessive demand during peak periods, without penalising households for accessing essential energy services.
Another approach to increasing fairness proposed by consumer advocates in the UK is to remove fixed charges and support sunk and future costs of network investment and/or levies through general taxation. Existing fixed charges are neither cost reflective nor related to ability to pay, so arguably result in the worst of all possible worlds. “The standing charge effectively penalises low energy usage,” (Mark Luntley, Energy4All / RESCOOP / Westmill Wind, Interview).
“ The tax system is incredibly flawed and there are issues with it, but in theory, it’s designed
to make sure those who can afford to pay more, and those who can’t, don’t, […] in theory,
that’s what it’s there to do, which is a better tool than an energy bill, because if so much of
your energy bill is dominated by non-commodity, it doesn’t matter how much you use” (Tom
Hoines, Younity, Interview).
These approaches are undeniably popular. 75% of the public support free energy for basic needs
(while only 10% oppose it) and 81% support abolition of the standing charge (Fuel Poverty Action,
2022).

5.7 Inclusive innovation
Adrian Smith and others at University of Sussex, working through the ROLES programme, are applying an inclusive innovation framework, shown in Figure 2 (Heeks, Amalia et al., 2013). This was developed in other spheres (Heeks, Foster et al., 2014), based on a ‘ladder of citizen participation’
(Arnstein, 1969) to explore how digital energy and smart local energy systems are – or could be – designed to enable greater and more participation (Smith, 2022).

28
Engaging households in flexibility - insights from the UK

Higher levels of inclusive innovation are based on the perspectives of marginalised and excluded groups, or involve co-design of structures to include those groups. These levels allow consideration of alternatives to the existing electricity market paradigm and may include more “social-collectivist” approaches (Levidow and Papaioannou, 2017), including commons and public goods – although adopting a social-collectivist approach does not guarantee high levels of inclusive innovation.
At lower levels of inclusive innovation, “insights useful for co-designing new institutions, alternative models of economic value, and conceiving electricity as a public good, for example, tend to be eclipsed by priorities to develop technologies and move households along adoption curves understood within prevailing market, policy and regulatory norms” (Smith, Contreras et al., 2022).

Figure 2 Different levels of inclusive innovation (Heeks et al., 2013)

This approach to inclusive innovation, described as “liberal-individualist” (Levidow and
Papaioannou, 2017) “takes the electricity market regime as an immutable context for innovation”
(Smith, Contreras et al., 2022). And focuses on “incentivising some financialised, market-based and technology-led solutions to be attentive to low income and vulnerable households” (Smith, Contreras et al., 2022).
In the UK, as in Australia, “liberal-individualist” approaches dominate flexibility and SLES trials and demonstrations. There are some exceptions amongst community energy demonstrations involving collective ownership and control of assets, data and/or flexibility services. Examples include
Repower’s CommUNITY trial in London, and Carbon Co-op’s Community Aggregator Service in
Manchester. “But they remain hobbled by a regime context privileging liberal-individualist arrangements” (Smith, Contreras et al., 2022).

6 The role of governance
This section examines the potential for different governance models to engender a sense of responsibility for, and agency towards, the energy system and thereby motivate engagement in flexibility. It draws on learnings from the case studies described in Section 4.2, different approaches from the world of Community Energy (Section 6.2), diverse models of public ownership (Section 6.3),

29
Engaging households in flexibility - insights from the UK nested governance structures (Section 6.4) and systems of representation (Section 6.5) proposed by consumer advocates, trades unions and others.

6.1 A stake in the energy system
If electricity is an essential resource, then households have the right to a safe, reliable and affordable electricity supply. But rights come with responsibilities.
“Where rights come, I think also responsibilities, so how we might be able to tap into that,
and so everyone should have the right, not just to be able to connect to electricity, but to
have a certain share of that space in the grid, but if you’ve got that, then you’ve also got the
responsibility to use that in a responsible way, that enables everyone to benefit, and then
have an interest in that, the stewardship of that local area energy” (Saskya Huggins, Low
Carbon Hub, Interview).
Asking households to provide flexibility is asking them to take some responsibility for the energy system. There is evidence that many households in the UK and Australia (Roberts, 2020) are willing to take on this responsibility but, in return, they want some control over how they engage, and to see fairness in who contributes and how benefits are distributed. This relates to the extensive literature around ‘energy citizenship’ which, in one framing, describes people’s “orientation to the energy system—that is to say their knowledge, and meanings of the system and their role within it”
(Goulden, Bedwell et al., 2014).
Residents on the Isle of Eigg accept the need to manage their energy use within a capacity limit and in response to real time information about power generation, in part, because they have part ownership of the electricity system – and therefore take some responsibility for managing it.
“It’s ours and so it’s up to us all to make it work!” (Maggie Fyffe, Isle of Eigg Heritage Trust,
Interview).
Eigg is not the UK (and nor is it Australia) and, clearly, the governance arrangements for Eigg
Electric cannot be applied directly to the mainland electricity system. However, if common ownership and shared accountability play a significant role in securing household engagement in flexibility on Eigg, are there governance models with these characteristics that might facilitate greater flexibility in a national energy system?
“People are ready to take responsibility, assign responsibility to themselves and fellow citizens,
but it needs to be in a context where they can see the government and big industrial parties
taking their responsibility. I think most people are ready to say, ‘We all have a responsibility’”
(Interviewee 08).

6.2 Community energy
Community Energy describes a wide range of models that often involve co-ownership of, and shared responsibility for, elements of the energy system, and so support energy citizenship behaviours (Goulden, Bedwell et al., 2014).
“The thing that we’re trying to work towards is an energy system or experience of the energy
system which has […] care and trust as its starting point, and recognises energy as an essential
good, a public service and something that can connect people - so all the things that it isn’t at
the moment. And it’s a really hard thing to do!” (Duncan Law, Community Energy England,
Interview)

30
Engaging households in flexibility - insights from the UK

Community energy (CE) has had great success in the UK with 495 CE organisations across England,
Scotland and Wales in 2021 (Community Energy England, Community Energy Scotland et al., 2022).
UK CE organisations are involved in renewable heat (including heat networks and heat pump bulk buys), low carbon transport, energy efficiency (advice and education, subsidies for energy efficiency and building upgrades) and, to a lesser extent, energy storage and flexibility.
“It seems like there is two very distinct things that community energy groups do in UK. One of
them is fuel poverty which is a very people-focused business model where it is really about
ensuring that people are […] able to access certain benefits within the system that they’re
entitled to because they are on very low incomes and they’re paying a large share of their
income on energy.” (Colin Nolden, Environmental Change Institute, Oxford, Interview)
However, as in Australia, the dominant CRE model in the UK involves community ownership of renewable generation assets. These are mostly solar and onshore wind, but including hydroelectric and biomass, with an offshore wind project under development. In the UK, 271 CRE organisations own 331MW of generation capacity. Community members invest in a share of the generation assets
(which may be wholly community owned or shared with a developer or landowner) and receive a return on their investment from sale of the generated electricity. The legal structures are diverse, but include co-operatives, community benefit societies and community interest companies.
However, lack of regulatory support, including the removal of solar feed-in tariffs, have made it more difficult to develop effective business models and have slowed the development of new CE generation projects (Community Energy England, Community Energy Scotland et al., 2022).
As well as its environmental benefits (143kt/year avoided carbon emissions), revenues from some
CRE generation projects are channelled to community benefit funds, energy efficiency and other projects, as well as to investor returns, so that a high proportion of the value of generated electricity stays in the local area. “CE shortens supply chains and enables local, social control of the means of energy production,” (Mark Luntley, Energy4All / RESCOOP / Westmill Wind, Interview).
One of the great strengths of CE is its ability to engage households and communities in the energy system. UK CE organisations have 58,000 members, investors and shareholders, while the sector is driven by the activities of 3,325 active volunteers. As well as being a vehicle for distribution of financial returns, the strength of co-op (and other community benefit structures) is to give members agency in decision making, with a strong emphasis on transparency and openness.
One of the criticisms levelled at CE is that it is inherently inequitable. Although it is typically organised by geographic area, engaging communities close to the site of renewable generation,
“locational inequities are less significant than age and wealth inequities” (Mark Luntley, Energy4All /
RESCOOP / Westmill Wind, Interview). Investment in CE is obviously restricted to those with sufficient financial resources; the time commitment needed means volunteers are disproportionately retired; and the extensive set of skills and social capital required to develop a renewable generation project favours the professional classes.
“Not all communities are the same. Low-income communities have been shown to be much
less politically active, much less sort of confident to engage in a process of governance for
their area. They don’t have the professional skills and resources embedded amongst the
community members that will give them the confidence to say, “Look, this is a kind of energy
project that we’d like to happen here. Come in and help us develop it.” So, there’s a sort of
inequity there that’s waiting to happen at community scale.” (Nick Banks, Environmental
Change Institute, Oxford, Interview).

31
Engaging households in flexibility - insights from the UK

However, in London, Repowering London is focused on “how to create opportunities for people who might not otherwise benefit from or participate in the transition to a low carbon energy system and might not otherwise participate” because of structural, economic or social barriers (Felix Wight,
Repowering London, Interview).
“Community energy starts to break down the ‘what’s in it for me?’ approach.” (Mark Luntley,
Energy4All / RESCOOP / Westmill Wind, Interview). Given the small (perhaps inadequate) market returns currently available for flexibility services (Section 3.2), this alternative approach could be helpful in enabling household flexibility. If CE participants are motivated by social and environmental, as well as economic, benefits, they might be well placed to engage in flexibility on the basis of shared responsibility for the network. Indeed, active engagement in demand management and response could be a better fit for community engagement than the traditional investment model of CE, which requires a more transactional engagement. “Members are aware of the energy system and are willing to change their behaviour – to take collective responsibility: We own this energy – how do we use it more effectively” (Mark Luntley, Energy4All / RESCOOP /
Westmill Wind, Interview).
But achieving widespread and ongoing engagement in flexibility may be more difficult than securing community investment for generation. Developing an RE project is “a one-hit project. […]
You’ve got to sell the financial alongside the social environmental impact because you wouldn’t see the financial returns that you might expect from a commercial project, so you’ve got to put that with the wider benefits. But, actually, once you’ve done this big push of effort […] you’re then left managing a large asset but it just keeps ticking over and doing its thing, whereas something like flexibility needs constant input so it’s actually a much bigger ask of whichever community group is involved” (Saskya Huggins, Low Carbon Hub, Interview). The size of this ask is perhaps greatest for communities with more social constraints on their energy practices, but might be reduced by automation. “We’ve done 2 demand side response projects and both of them, the core idea was that people wouldn’t require ongoing engagement. It required a decision to participate, but then the demands and response were basic, could be provided through automation … you can make it as easy for them as possible rather than asking them […] to start changing their lifestyle, which is quite an ask.” (Felix Wight, Repowering London, Interview).
A significant challenge for CE organisations developing flexibility projects is the uncertainty of returns (Mark Luntley, Energy4All / RESCOOP / Westmill Wind, Interview). While the early state of market development makes this an issue for all flexibility offerings, CE organisations are, perhaps, least well placed to manage this risk, due to their small size, lack of financial reserves and reliance on volunteers. Moreover, the potential future decline in value of flexibility means that business models are likely to need constant refinement and development. “If there is a lot of flexibility around and a lot of organisations with high skillsets providing flexibility, obviously the marginal profit will shrink and ultimately will be, of course, zero. So that means that in the long run, logically, there can’t be a sustainable business model in there. Whatever your business models, they are always about keeping one step ahead of your competitors, and that’s not community energy.” (Colin Nolden,
Environmental Change Institute, Oxford, Interview).
Despite these challenges, the CE sector sees an important role for itself in the future of smart local energy systems markets (Community Energy England, Community Energy Scotland et al., 2022).
Whether that involvement includes facilitating community engagement for other actors (such as aggregators), providing a test ground for technical and social aspects of new flexibility business models, or allows CE to develop into a significant flexibility provider in its own right, remains to be seen. There is certainly a need for greater policy support for CE to enable its participation in
32
Engaging households in flexibility - insights from the UK developing flexibility. This requires restoring CE as a government priority. “You need a community energy department within BEIS [the Department of business, Environment, Industrial Strategy]. There used to be a community energy team” (Tom Hoines, Younity, Interview). Potential routes to increasing CE participation might be for social and environmental outcomes of flexibility to be valued and included in tender processes for flexibility markets (Community Energy England, Community
Energy Scotland et al., 2022). Alternatively, “some form of long-term security mechanism, for community groups who wanted to have equity in projects” (Tom Hoines, Younity, Interview) might help de-risk community flexibility projects.
“My feeling is that community energy is the alchemy in the system, that because of its local
knowledge and its local focus, and its intent to extract benefit, and its entrepreneurialism, it
is able to create or identify potential synergies and opportunities, and with a little bit of help,
realise that.” (Duncan Law, Community Energy England, Interview).
While Community Energy’s ownership of generation assets could assist it in engaging households in flexibility, it currently operates at the fringes of the energy system. Some advocates suggest that supporting CE to grow its share of the market would bring its broader benefits to the energy system.
”CE should be playing a significant role in the energy generation ecosystem; we should be one of the
‘Big 6’. In England, CE is too focused on village hall projects – which allows market domination by big business” (Mark Luntley, Energy4All / RESCOOP / Westmill Wind, Interview).

6.3 Public ownership
“The question for me is always who owns it, who owns what, and that goes all the way down to
smart meter data and who has access to all that stuff” (Interviewee 36).
The transition from centralised fossil-fuel generation to distributed renewable generation is commonly described as a shift from state ownership and centralised control to a liberalised, market- driven network of privately-owned distributed generators. This implies that taking the energy system back into public control would also be a step backwards on the path to a decentralised, decarbonised and democratic system. The traditional model of a centralised, state-controlled energy utility is certainly not appropriate for governance of a distributed energy system, and it is hard to see how it would support engagement in flexibility at the household or community level. However, diverse models of public and community ownership are emerging, each with its own potential impact on the energy system in general and on the provision of household flexibility in particular, as well as its own financial and political implementation costs.
Public ownership of energy is overwhelmingly popular in the UK, with support from 66% of the public, compared to just 22% who think it should be in private ownership (Survation, 2022). The collapse of numerous small – and some large – retailers, as well as massive household bill increases alongside expensive government intervention to cap prices, suggests that the UK electricity market as it stands is failing to serve customer interests.
“[People] don’t trust the electricity market. And if you like, that’s off the agenda. […] When I
talk to community groups, they kind of get that and they’re up for new ownership or
institutional reforms or new regulations, but it’s almost like that’s maybe swearing in church
a bit […] and so, if you like, it’s okay to conceive and work on a radically different electricity
system technologically - and maybe even what happens inside households - but politically,
economically, some new forms of collective ownership – we just aren’t there” (Interviewee
24).

33
Engaging households in flexibility - insights from the UK

Public ownership could include any or all of the generation, transmission and distribution (T&D), or retail / supply parts of the electricity system. Advocates for public ownership understand that the complexity of the system demands a nuanced approach. “[Public ownership] is the way forward, but it’s not like you just flick your fingers and it’s publicly owned and everything’s lovely, [...] it’s really important, especially with the transition, that we look at what the evidence base says about its role in the energy sector overall and what best practice looks like in countries that are using public ownership to achieve better outcomes.” (Cat Hobbs, WeOwnIt, Interview).
The idea that households – and business customers – manage their electricity use differently when they own the generating assets has been demonstrated at a micro-scale (such as on Eigg) but is untested at large scale. While there is currently no serious discussion of taking existing generation into public ownership, the opposition Labour Party has announced its policy of establishing a government agency to invest directly in renewable generation, with the aim of reducing costs and accelerating development of clean technologies.
6.3.1 Transmission and distribution network
“The interesting part of the system is the network and the way that’s managed - that’s the
asset!” (Interviewee 20).
Flexibility has a role in balancing generation and demand at the system level, but is also important in supporting management of the transmission and distribution (T&D) network. Public perceptions of the role played by the network, both in the UK and Australia, are diverse. While some people do not distinguish between suppliers and DNO’s (i.e., retailers and DNSPs), others see the role of network companies as managing a public asset for public good, distinct from the more commercial role of suppliers.
While many people might be keen to contribute to balancing the grid, they are wary of a private network company profiting from their contribution, or of unfair distribution of contributions and benefits between users. Studies suggest that “the idea that demand side management is necessary to maintain the electricity grid in the interests of all stakeholders may have resonance with energy users. It has been observed that people may be more engaged where there is a sense of ‘being part of something bigger’” (Adams, Kuch et al., 2021).
As a natural monopoly, the T&D network could be an obvious candidate to be returned to public ownership, as it is in many European countries. Although the cost of buying back the infrastructure would be high, and so presents a significant political barrier, the network’s high profits and overseas ownership (Baines and Hsager, 2022) could make nationalisation a popular strategy. At the 2019 election, this was the policy of the Labour Party (The Labour Party, 2019), who saw public ownership and democratic control of the network as a means to prevent decentralisation from exacerbating existing inequities. “For example, there is a risk of creating gated energy communities or ‘local energy islands’, where communities with the financial and physical resources to generate and supply electricity opt out of energy networks, leaving poorer communities with the disproportionate burden of financing wider infrastructure. Public ownership is thus required as a backstop to community control, to ensure that decentralisation reinforces rather than undermines shared regional and national infrastructure, and allows for the pooling of resources needed to guarantee universality of supply most efficiently” (The Labour Party, 2019). However, the Labour Party has since dropped this

34
Engaging households in flexibility - insights from the UK proposal, due to concerns about public perception of the cost involved. “Politically, public ownership of retail and generation is easier” (Cat Hobbs, WeOwnIt, Interview).
6.3.2 Retail
The past 8 years have seen the rise and fall of a number of publicly owned energy suppliers
(retailers) in the UK. The first, Robin Hood Energy, was established in 2015 by Nottingham City
Council as a not-for-profit entity with the aim of providing low-cost energy to residents of
Nottingham, and grew its customer base to 130,000 households. Similarly, Bristol City Council established Bristol Energy; a group of housing associations, councils and community groups launched
Our Power, with backing from the Scottish government; and Robin Hood Energy established a number of white label partnerships with other councils.
These suppliers were popular with the public, benefiting from public distrust of the ‘Big 6’ suppliers (Robin Hood was ranked second nationally for customer satisfaction in 2019). However, none of them survived the market turmoil of the past few years which has seen the collapse of over
30 suppliers. While the various councils’ lack of energy market experience may have been a contributing factor, it is apparent that local (and therefore relatively small) suppliers are unable to managed market risk and are therefore disadvantaged under current arrangements. “There was this rule of thumb about five years ago which suggested that you need at least 200,000 customers to operate as a supplier. But that feels like that figure has risen now, given that 30 or 40 companies have folded in the last year and a half” (Colin Nolden, Environmental Change Institute, Oxford,
Interview).
The government decision to place Bulb Energy, the country’s seventh largest retailer, into Energy
Supply Administration to avoid its collapse may present an opportunity to create a national, publicly owned supplier, backed by government to manage market risk. “You don’t need to buy out the big six. You just create a default state structure and allow it to take up a good chunk of the market, […] and it’s national. And it can just mop up customers as other companies collapse”(Cat Hobbs,
WeOwnIt, Interview). Meanwhile, the Trades Union Congress (TUC) goes further, with a proposal to nationalise the Big 5 suppliers (serving 70% of household customers), with an estimated cost of
£7.8billion, comparable to the costs to customers of recent failed suppliers (TUC, 2022).
Although the political opportunity for public ownership of energy suppliers (whether a single supplier or the Big 5) is the result of high energy prices and public perceptions of profiteering, the potential benefits go beyond reducing household bills, with significant implications for provision of residential flexibility.
A national electricity supplier under democratic public ownership could go a long way to restoring public trust in the energy system, whether accountable to local government or at a national level.
Moreover, the TUC proposal includes introduction of a social tariff to help address energy poverty and increase energy efficiency by providing all households with an initial free energy allowance and increasing costs for high-consumption households. With careful design to avoid penalising households with low capabilities, such a tariff could be extended to include flexibility incentives.
More significantly, a publicly owned supplier could accelerate the massive programme of housing retrofits necessary to underpin the development of residential flexibility services. This could include acting as a vehicle for training and employing the necessary workforce, deploying fabric-first, whole house retrofits at scale and, importantly, overcoming distrust and concerns about disruption to engage households.

35
Engaging households in flexibility - insights from the UK

“In entering almost every home in the UK and conducting significant disruptive building
works, the drive to win public hearts and minds should not be underestimated. Publicly
owned supply companies would allow a level of engagement with consumers that we’ve not
seen before. Customers would be more willing to engage knowing this was not a commercial
drive but a matter of public interest in which they could save the planet and cut their costs”
(TUC, 2022).

6.4 Nested governance
Melville, Christie et al. (2017) and BuroHappold Engineering (2016) explored the application of
Elinor Ostrom’s design principles (Ostrom, 1990) to management of energy as a common pool resource. As well as clear boundaries for ownership and sharing of assets and information, collective participation in designing rules appropriate to local social and environmental conditions, and appropriate graduated sanctions and conflict-resolution mechanisms, Ostrom proposed that
“appropriation, provision, monitoring, enforcement, conflict resolution, and governance activities are organized in multiple layers of nested enterprises” (Ostrom, 1990). BuroHappold Engineering (2016) built on the example of island communities (such as Eigg) where localism and community engagement enable shared responsibility for infrastructure to develop a model of a spatially nested energy system with congruent boundaries of governance, infrastructure and data aggregation.
Water, like electricity, is an essential service, with both local and centralised supplies feeding into a distribution network, and with interdependent users in competition for a finite supply. The OECD have developed 12 principles for “good” governance of natural resources such as water across the dimensions of effectiveness, efficiency and engagement. With some provisos, these principles can be applied to governance of a distributed energy system (Brisbois, 2020). In particular, each aspect of the system should be governed at an appropriate level. “Decentralisation will be most appropriate if governing tasks are broadly participatory, allocated to the lowest appropriate level, designed with adequate internal accountability mechanisms, and with attention to ensuring adequate capacities, financing and powers” (Brisbois, 2020).
“In effective electricity governance regimes, central coordinating authorities will likely cede
considerable autonomy to decentralised authorities who are best placed to manage issues
like siting, grid access, and local balancing. However, there is also a need for a clear structure
for ensuring negotiation of best overall system functioning that balances local and larger
system concerns and ensures policy coherence across scales” (Brisbois, 2020).
The UK Labour Party’s 2019 manifesto proposed a nested governance structure for a publicly owned energy system (The Labour Party, 2019), combining decentralised, local participation with national regulation and regional planning. In this model, Local Energy Communities (LECs) and
Municipal Energy Agencies (MEAs), accountable at a local level, develop and operate renewable generation, local microgrids and SLES; Regional Energy Agencies own and manage the wider distribution network with responsibility for decarbonisation of heat and electricity; and a National
Energy Agency is responsible for the transmission network, system regulation and setting decarbonisation targets. “The guiding principle is subsidiarity, where decisions are taken as closely as possible to citizens and communities, with central authorities performing tasks not deliverable at more local levels” (The Labour Party, 2019).
Such a nested system would give households and businesses a stake in their LEC or MEA, participating in community ownership of the local generation and distribution system. Inclusive participation across different communities would be supported by providing skills development and low-cost finance. This could create opportunities and motivation to provide flexibility at the local
36
Engaging households in flexibility - insights from the UK level, aggregated to provide services to the distribution network. It could also increase network resilience, as described in Section 4.6.
Importantly, the right combination of central co-ordination and local governance can give households a genuine stake in the system, supporting their active engagement, while ensuring equity and fairness in the distribution of costs and benefits across the whole system.
“If the balance between participation and system coordination is not well managed (i.e. if
accountable authorities tend toward too much control, if authorities unduly restrict the scope
of governance activities undertaken by collaborative bodies), there is the potential for grid
defection by those with sufficient resources” (Brisbois, 2020).
Determining the right balance may be challenging and highly dependent on context.

6.5 Accountability & representation
While the issue of ownership of the energy system is important, and some form of public or community ownership could contribute to engaging households in flexibility, public ownership does not automatically result in public benefit, and there are other important aspects to energy governance.
“It’d be lovely if [the energy companies] were all owned by us all in some collective way, but
they aren’t, and it seems a little bit unlikely that they ever will be. And, therefore, the exact
model of ownership is less important than how well they are controlled, managed and
regulated it, particularly for the monopolies” (Interviewee 20).
Whether the energy system is under public or private ownership (or a hybrid of both), there is a need for new governance arrangements to ensure accountability, fairness, social acceptance, and agency, if we want households to participate as energy citizens. “Our democratic institutions have grown up with this energy system where we became centralised and so […] we created these institutions and these systems to ensure a more equal society with a centralised model. So, that’s not to say that we couldn’t have [equity] with a decentralised model, it's just that our institutions, our structures, our markets are suited to the centralised model and so it's just a question of evolving them. But we would have to have the same values that we had in the post-war era where we wanted life to be better for everybody” (Interviewee 23).
“Public services have this kind of overall impact on the whole of society, and so, you need this range of different groups to be represented” (Cat Hobbs, WeOwnIt, Interview). Advocates propose multi-party representation in governance structures, with participation from government (at a level appropriate to the infrastructure being managed), users (households and businesses), utility workers
(management and unions, bringing operational expertise) and civil society (including community groups, social or environmental organisations bringing specific public interest perspectives)
(WeOwnIt, 2019). This model borrows from the governance of the Paris water supply: “It’s called an observatoire, and then the idea is that you have scrutiny by different relevant sectors of society. So you have the water users, you have water workers (those two groups aren’t always agreeing also)
[…] They also have water scientists involved in the governance. So making sure that you’ve got professionals and experts but you’ve also got the people who use the services, people who work in services, and broader social, environmental interests represented is really important” (Cat Hobbs,
WeOwnIt , Interview).
Diverse modes of engagement may be needed to ensure participation is widely accessible. “We thought there should be an organisation that represents the users of public services, […] gives them a voice, and they elect people to stand up for them and fight their corner on a range of public services.
37
Engaging households in flexibility - insights from the UK

And those people would then also sit on boards and be accountable to their members. We talked about shopfronts on high streets where people can kind of pop in and say, ‘Here’s what’s going on with my energy system?’ or that sort of thing. We talked about public meetings” (Cat Hobbs,
WeOwnIt, Interview).
“Perhaps most importantly, participatory governance can help facilitate social acceptance of the
rules required to ensure a functional electricity grid that can provide sufficient and reliable
supply” (Brisbois, 2020).

7 Conclusion
“And all we’re trying to do is point out: there’s a bit of a lack of imagination in this, in the way
we’re thinking about transformations” (Interviewee 24).
In the UK, as in Australia, the old, centralised, fossil fuel dominated electricity system is dying, and the new distributed, decarbonised, digitised system struggles to be born; now is the time of monstrous energy bills!
Despite their significant differences – in climate, generation mix, population density, building structure and technologies – the problems facing these 2 countries are remarkably similar. There is an urgent need to unlock flexible demand to enable full decarbonisation and ensure a resilient and affordable energy supply.
It is increasingly clear that price signals alone will not overcome the many barriers to flexibility.
Upgrading building fabric, electrifying heating, cooling and cooking, and deploying smart technologies requires massive financial investment, training and skills development and regulation.
More than anything, it requires engaging households in the project, giving them a reason to invest time and money, put up with disruption to their homes and their routines, and change the way they use and think about energy.
The success of community energy projects in the UK and the high penetration of rooftop solar in
Australia demonstrate that households are willing to engage. In return, they need fairness in the distribution of costs and benefits, inclusive and accessible processes and technologies that compensate for (rather than exacerbate) existing inequalities, as well as a stake in the system, agency in decision making and a reason to make it work.
The energy price crisis is having a huge and devastating impact on UK households, with average annual energy bills forecast to reach $4,200 (over AUD7,000) and an estimated 45 million people likely to be pushed into energy poverty (defined as spending over 10% of income on energy costs) by
January 2023 (Crerar, 2022).
“And people have also started to understand that the net zero and the energy price crisis are
driven by the same common factor that we haven’t really dealt with - our reliance on fossil fuels”
(Interviewee 20).
As much as the current crisis fuels public anger towards the energy system, it also provides a political opportunity to start reshaping that system into one where people have a stake and a reason to engage. A nested network of smart local energy systems, with devolved and democratised governance structures accountable to government, communities and households could give people the capability – and, more importantly, the motivation – to unlock the flexibility in their homes.

38
Engaging households in flexibility - insights from the UK

Acknowledgements
This research was funded by a CEO Grant from Energy Consumers Australia with additional support from the Australian Centre for Advanced Photovoltaics (ACAP). I am grateful to the funders for their support and for their patience. I am indebted to Lynne Gallagher and to David Green for generously opening their address books (which, in turn, opened numerous doors) and to the participants and interviewees for sharing their time and expertise. Particular thanks are due to Tim
Braunholtz-Speight for reviewing the report, though the views expressed and responsibility for any remaining errors are, of course, my own.
I am also grateful to my colleagues in the Collaboration on Energy and Environmental Markets
(CEEM) and the School of Photovoltaic and Renewable Energy Engineering at UNSW for supporting me to take time away from other projects to complete this research.

References
Sophie Adams, Declan Kuch, Lisa Diamond, Peter Fröhlich, Ida Marie Henriksen, Cecilia Katzeff, Marianne
Ryghaug & Selin Yilmaz 2021. Social license to automate: A critical review of emerging approaches to
electricity demand management. Energy Research & Social Science, 80. 10.1016/j.erss.2021.102210
ADE 2020. Let’s talk about Flex: Unlocking domestic energy flexibility. The Association for Decentralised
Energy. https://www.theade.co.uk/resources/publications/getting-retrofit-for-net-zero-an-
approach-for-existing-homes
Afkar Ali Ahmed 2008. Sewa launches slab tariff system. Khaleej Times, 1/4/2008.
Sherry R. Arnstein 1969. A Ladder of Citizen Participation. Journal of the American Institute of Planners, 35,
216-224. 10.1080/01944366908977225
Joseph Baines & Sandy Brian Hsager 2022. Profiting Amid the Energy Crisis: The Distribution Networks at the
Heart of the UK's Gas and Electricity System. CommonWealth.
Nicholas Banks & Sarah Derby 2021. A capability approach to smart local energy systems: aiming for ‘smart
and fair’.
BEIS 2020. Government sets out plans to drive up smart meter installations [Online]. Department for Business
Energy & Industrial Strategy,. https://www.gov.uk/government/news/government-sets-out-plans-
to-drive-up-smart-meter-installations.
BEIS 2022. Uk energy in brief. Department for Business, Energy & Industrial Strategy.
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/f
ile/1094025/UK_Energy_in_Brief_2022.pdf
Tim Braunholtz-Speight, Maria Sharmina, Dimitrios Pappas, Janette Webb, Matthew Hannon & Fabián Fuentes
González 2022. Beyond the pilots: Current local energy systems in the UK. EnergyREV.
Marie Claire Brisbois 2020. Decentralised energy, decentralised accountability? Lessons on how to govern
decentralised electricity transitions from multi-level natural resource governance. Global Transitions,
2, 16-25. 10.1016/j.glt.2020.01.001
BuroHappold Engineering 2016. A White Paper: Energy island. https://www.burohappold.com/news/energy-
island-research/
CEEM 2021. Energy Sustainability through Knowledge and Information Exchange and Sharing (ESKIES) [Online].
Collaboration on Energy and Environmental Markets. https://www.ceem.unsw.edu.au/eskies-
energy-resilience-extreme-weather-events.
Jason Chilvers, Helen Pallett, Tom Hargreaves, Phedeas Stephanides & Laurie Waller 2022. An Observatory for
Public Engagement with Energy. UKERC.
Citizens Advice 2022a. Demanding attention - Managing risks with demand-side response, to improve
consumer experience tomorrow.
Citizens Advice 2022b. Innovation in the tariff market discussion paper.
Citizens Advice 2022c. Smartening up: How to improve people’s confidence in smart home technology.
Climate Change Committee 2022. Progress in reducing emissions 2022 - Report to Parliament.
Committee on Climate Change 2019. UK housing: Fit for the future?
Community Energy England, Community Energy Scotland & Community Energy Wales 2022. Community
Energy State of the Sector UK Report.
39
Engaging households in flexibility - insights from the UK

Connected Response Ltd. 2021. Optimisation of electric storage heating and hot water [Online].
https://connectedresponse.co.uk/electric-storage-heating-optimisation/ [Accessed 6/1/23].
Rachel Coxcoon, Harriet Sansom, Joe McMullen & Caitlin Ballard 2015. Community Energy Action (Less is
More). Centre for Sustainable Energy.
Jenny Crawley, Charlotte Johnson, Philippa Calver & Michael Fell 2021. Demand response beyond the
numbers: A critical reappraisal of flexibility in two United Kingdom field trials. Energy Research &
Social Science, 75. 10.1016/j.erss.2021.102032
Pippa Crerar 2022. Two-thirds of UK families could be in fuel poverty by January, research finds. The Guardian,
18/8/2022.
Eigg Electric Ltd. 2020. Isle of Eigg Heritage Trust [Online]. http://isleofeigg.org/eigg-electric/ [Accessed
8/10/22].
Engage Zero Carbon Rugeley 2022. Twitter.
https://twitter.com/Engagezcr/status/1548303846006407170?s=20&t=yt8i7KXDw6vfXM863EtXfg.
Fuel Poverty Action 2022 Press Release: 75% support the right to free energy to meet basic needs.
Murray Goulden, Ben Bedwell, Stefan Rennick-Egglestone, Tom Rodden & Alexa Spence 2014. Smart grids,
smart users? The role of the user in demand side management. Energy Research & Social Science, 2,
21-29. 10.1016/j.erss.2014.04.008
Richard Heeks, Mirta Amalia, Robert Kintu & Nishant Shah 2013. Inclusive Innovation: Definition,
Conceptualisation and Future Research Priorities. University of Manchester.
http://hummedia.manchester.ac.uk/institutes/gdi/publications/workingpapers/di/di_wp53.pdf
Richard Heeks, Christopher Foster & Yanuar Nugroho 2014. New models of inclusive innovation for
development. Innovation and Development, 4, 175-185. 10.1080/2157930x.2014.928982
Esther Hoffmann & Franziska Mohaupt 2020. Joint Storage: A Mixed-Method Analysis of Consumer
Perspectives on Community Energy Storage in Germany. Energies, 13. 10.3390/en13113025
Saskya Huggins 2020. Developing an ethical framework for local energy approaches. Local Energy Oxfordshire.
ITP Renewables 2021. Cobargo Microgrid Feasibility Study and Load Management Trial [Online].
https://itpau.com.au/projects/cobargo-microgrid-feasibility-study-and-load-management-trial/.
KrakenFlex 2022. Consumer engagement - a critical step on the road to net zero [Online].
https://www.krakenflex.com/post/consumer-engagement-a-critical-step-on-the-road-to-net-zero.
Les Levidow & Theo Papaioannou 2017. Which inclusive innovation? Competing normative assumptions
around social justice. Innovation and Development, 8, 209-226. 10.1080/2157930x.2017.1351605
Chris Lily 2022. Electric car market statistics. https://nextgreencar.com/electric-cars/statistics/ [Accessed
3/9/22].
Local Energy Oxfordshire 2022. Project LEO [Online]. https://project-leo.co.uk/about/.
London Assembly 2022. Home Response: supporting smart energy use in London [Online].
https://www.london.gov.uk/what-we-do/environment/energy/energy-londoners/home-response-
supporting-smart-energy-use-london.
Emilia Melville, Ian Christie, Kate Burningham, Celia Way & Phil Hampshire 2017. The electric commons: A
qualitative study of community accountability. Energy Policy, 106, 12-21.
10.1016/j.enpol.2017.03.035
Octopus Energy 2022a. Agile Octopus [Online]. https://octopus.energy/agile/ [Accessed 3/9/22].
Octopus Energy 2022b. Octopus Energy Group [Online]. https://octopusenergy.group/octopus-energy-retail.
Octopus Energy 2022c. Octopus Energy nets yet another acquisition with ENGIE’s UK residential energy supply
business [Online]. https://octopus.energy/press/octopus-energy-engie-acquisition/.
Ofgem 2022. Electricity supply market share by company: Domestic (GB) [Online].
https://www.ofgem.gov.uk/retail-market-indicators [Accessed 3/9/22].
Elinor Ostrom 1990. Governing the commons: the evolution of institutions for collective action, Cambridge
University Press.
OVO Energy 2022. OVO Drive + Anytime [Online]. https://www.ovoenergy.com/electric-cars/anytime
[Accessed 3/9/22].
Helen Pallett, Jason Chilvers & Tom Hargreaves 2019. Mapping participation: A systematic analysis of diverse
public participation in the UK energy system. Environment and Planning E: Nature and Space, 2, 590-
616. 10.1177/2514848619845595
Gareth Powells & Michael J. Fell 2019. Flexibility capital and flexibility justice in smart energy systems. Energy
Research & Social Science, 54, 56-59. 10.1016/j.erss.2019.03.015
Mike B Roberts 2020. Smart Home Energy Management Systems: User Needs - Final Report. UNSW / Solar
Analytics.
40
Engaging households in flexibility - insights from the UK

Mike B Roberts, Sophie Adams & Declan Kuch 2020. VPP User Research - Final Report. UNSW / Solar Analytics.
Mike Roberts, Rob Passey, Sophie Adams, Elise Caton, Lucas Whittaker, Rebekah Russell-Bennett, Ryan
McAndrew & Ron Ben-David 2021. H4 Opportunity Assessment: Rewarding residential electricity
flexibility: User friendly cost reflective tariffs and incentives. RACE for 2030.
Simon Roberts, Toby Bridgeman, Daisy Broman, Nicky Hodges & Catherine Sage 2020. Smart and fair?
Exploring social justice in the future energy system - Phase One report and recommendations. Centre
for Susteainable Energy.
Rugeley Power 2020. Zero Carbon Rugeley Project [Online]. http://www.rugeleypower.com/zero-carbon-
rugeley-project/ [Accessed 9/10/22].
Rob Saunders 2022. Zero Carbon Rugeley [Online]. UKRI. https://www.ukri.org/about-us/how-we-are-
doing/research-outcomes-and-impact/innovate-uk/zero-carbon-rugeley/ [Accessed 17/12/22].
Bridie Schmidt 2022. The EV transition: How electric car uptake has grown in Australia. The Driven [Online],
https://thedriven.io/2022/05/02/the-ev-transition-how-electric-car-uptake-has-grown-in-
australia/ [Accessed 3/9/22].
Adrian Smith 2022. Inclusion in the innovation of digital electricity. Responsive Organising for Low Emission
Societies (ROLES) [Online], https://roles.w.uib.no/2021/08/11/inclusion-in-the-innovation-of-
digital-electricity/.
Adrian Smith, Gerardo A. Torres Contreras, Marie Claire Brisbois, Max Lacey-Barnacle & Benjamin Sovacool
2022 ROLES - Inclusive innovation approaches to unlocking flexibility. Short paper for Unlocking
Flexibility: a research, policy and practice workshop (Newcastle University, 16-17 May 2022).
Social Energy 2022. A new world of energy is waiting for you [Online]. https://social.energy/.
SONNET 2022. Social Innovation in Energy Transition [Online]. https://sonnet-energy.eu/.
N Sonnischen 2022. Most used heating methods in the United Kingdom 2022 [Online]. Statista.
https://www.statista.com/statistics/426988/united-kingdom-uk-heating-methods/ [Accessed
3/9/22].
Benjamin K. Sovacool, Max Lacey Barnacle, Adrian Smith & Marie Claire Brisbois 2022. Towards improved solar
energy justice: Exploring the complex inequities of household adoption of photovoltaic panels. Energy
Policy, 164. 10.1016/j.enpol.2022.112868
Benjamin K. Sovacool, Andrew Hook, Siddharth Sareen & Frank W. Geels 2021. Global sustainability,
innovation and governance dynamics of national smart electricity meter transitions. Global
Environmental Change, 68. 10.1016/j.gloenvcha.2021.102272
Survation 2022. New poll: Public strongly backing public ownership of energy and key utilities.
https://www.survation.com/new-poll-public-strongly-backing-public-ownership-of-energy-and-
key-utilities/ [Accessed 22/9/22].
Hugo Temby & Hedda Ransan-Cooper 2021. ‘We want it to work’: understanding household experiences with
new energy technologies in Australia - Final report of the. Victorian Energy and Water Ombudsman’s
Investigation of Consumer Experiences (VOICES) Project.
The Labour Party 2019. Bringing Energy Home - Labour’s proposal for publicly owned energy networks.
TUC 2022. A fairer energy system for families and the climate. Trades Union Congress.
https://www.tuc.org.uk/research-analysis/reports/fairer-energy-system-families-and-climate
Carol Vigurs, Chris Maidment, Michael Fell & David Shipworth 2022. Building and unlocking flexibility with
smart local energy systems (SLES). EnergyREV.
WeOwnIt 2019. When We Own It - A model for public ownership in the 21st century.
https://weownit.org.uk/when-we-own-it

41