Learnings

Outcomes

Initial research clarified that a key challenge for societal decarbonisation and the attainment of Net Zero is ensuring all consumers and communities have access to a range of products and services that enable decarbonisation and benefit to be gained from the investments being made in electricity networks.

Many consumers, however, are in danger of being left behind in the energy transition. This is due to not being able to access funding due to not qualifying or not being aware of their options or not being able to afford the upfront cost of expensive Low Carbon Technologies (LCTs) such as Heat Pumps (HP). Therefore, additional measures are required to improve access to these technologies at an affordable cost.

DNOs are developing a network that is fit for Net Zero which comes at a cost to consumers. Therefore, the network companies have a role in facilitating access to low carbon alternatives to allow consumers to take advantage of the network that they are paying for. DNOs possess data about the network and future investment plans that can help in the development of consumer propositions to accelerate access to LCTs.

The Equal LCTs project was undertaken by SSEN Distribution, Baringa and the Centre for Sustainable Energy (CSE) to understand which segments of society are in danger of being left behind in the energy transition, how to engage them and how to help them access LCTs and gain benefit from these technologies.

A review of previous innovation projects allowed us to gain insights into a range of areas relevant to Equal LCTs and refine these for the specific project purposes.
Various projects such as VIVID (SSEN), Spotlight (UKPN), Socially Green (UKPN) and VENICE (National Grid) helped us identify and refine our consumer segments and understand the barriers they face. We also looked at DFS Consumer Evaluation (NGESO) and projects such as Watt Heat (UKPN), Heat Risers (UKPN), Heatropolis (UKPN) and Hy-Fair (SGN). These gave us insights into consumer engagement and experience of flexibility services, as well as detailed insight into specific LCTs, including their characteristics and benefits.
When researching commercial propositions, we looked at projects such as EV Respond (National Grid), Q-Flex (National Grid), Resilience Consumer Response (NPG), Retro Meter (ENWL) and SHIELD (UKPN) to understand the different routes to market that are being trialled and therefore the potential revenue streams available to participating consumers.

The first workstream of the project was Understand the Ecosystem. This was the identification and formation of a consortium of industry actors that could help the project to understand the challenges faced by the consumers we were targeting and to develop robust solutions. The consortium consisted of 21 organisations consisting of Technology providers such as SMS and ELIQ, Energy Retailers such as E.ON, Advisors like Citizens Advice and Energy Savings Trust. These organisations could provide key consumer insights through workshops. We had representatives from Housing Associations and Local Authorities bringing specialist knowledge of their sector and tenants. Barclays bank provided information on loans and financing. The Department for Energy Security and Net Zero offered policy oversight to the project. NGESO offered system operator expertise about how the proposals fit into the wider industry landscape.

The second workstream was Understand the Consumers. This was the work done to define and understand the consumer segments that were most at risk of being left behind in the energy transition and understand the barriers that they are facing when it comes to participating in that transition.

An exercise in gathering evidence from previous work was undertaken. The outcomes of this were validated and refined by subject matter experts within Baringa and CSE. This resulted in the formation of a short list of six consumer segments. These were examined in both internal project workshops and an external workshop with members of the consortium. Following these, as a result of our assessment of the existing support available, the complexity of consumer needs and their suitability for the demonstrator, we narrowed down on a set of four potential target consumer segments:

• Low income
• Digital/language exclusion
• Landlords and tenants
• Off-gas grid

The third workstream was Define the Commercial Models, this was to explore the ways in which we could ensure that the target consumer segments could derive value from their LCTs. This would allow consumers to gain an income stream that would offset the cost of the LCTs they have adopted. We looked at:

• Energy Efficiency
• Electric Vehicle (EV) charging
• Batteries
• Solar PV
• Immersion Heaters
• Zero Emission Boilers
• Heat Pumps

And evaluated them against metrics such as:

• Estimated Costs
• Stackability, with other LCT types
• Key consumer benefits
• Key system benefits

This demonstrated that whilst all LCTs provide benefits to consumers and the network (via bill savings and demand reduction respectively), differences exist with which LCTs can be stacked together, as well as the substantial variation in costs between them. We also found that the ability to take advantage of time of use tariffs was not, on its own, enough to pay back the investment consumers would need to make to access the LCT technology. This needs to be supplemented with trading power, for example by storing self generated power and then exporting when prices are high. Providing system services is another avenue for gaining revenue that will help to offset the investment costs.

This workstream also identified a range of barriers to LCT uptake, EE installation and participation in flexibility. Examples are:

• Lack of knowledge or awareness of what is on offer
• Split incentives between landlords and tenants
• High upfront costs associated with LCTs
• Housing type and/or location
• Requirement to have a smart meter
• Low spread of prices between when prices are high and when they are low
• Regulatory frameworks

The next step was to create sustainable, scalable propositions to address and remove the barriers that had been identified. Initially, desktop research was undertaken to understand different commercial options that had already been explored. These were then examined in internal workshops and then external workshops with members of the consortium. In the external workshop we reviewed the approach to the commercial model development , the potential interventions and funding routes and the materiality of each intervention.

One particular set of interventions revolved around the use of community level schemes. These would address concerns around the lack of information, landlord/tenant split incentives, lack of capital and lack of space. This type of scheme would allow a greater pool of consumers to decarbonise through access to LCTs, removing the onus from individuals to fund and coordinate their own decarbonisation journey.

From a long list of 10 potential interventions, we created a shortlist of five. These were the ones that we determined could deliver maximum impact. To make the shortlist, the options needed to address multiple barriers, be able to be rolled out across the four target consumer groups and lead to increased access to decarbonised houses. The shortlisted options were:

• Targeted Community Energy Scheme
• Utilisation of Local Heat Sources
• Domestic Energy Efficiency
• Targeted Recruitment in to Flex Services
• Shared I&C EV Charging Infrastructure

These were also mapped to the barriers that they could alleviate. Each option could alleviate between two and five of the six identified barriers.

Each intervention required at least one supporting funding route to be realised before they could be viable. They also required a commercially viable route to market. There are other innovation projects that have demonstrated the feasibility of these for the relevant customer segments. For example, Project LEO, Local Energy Clubs, Brooklyn Microgrid and Ausgrid Community Batteries have demonstrated that there are viable models for the implementation of Community Energy Schemes.

However, each model still comes with risks that will need to be understood or mitigated.

The materiality of each scheme is another important consideration. The level of income or cost reduction that a household can achieve is a determining factor in whether householders feel it is worth adopting. A high level assessment indicated that community energy schemes and domestic energy efficiency deliver the greatest benefit to homes. More work is required in this area.

For any commercial model to be adopted and become a mainstream offering there must be a clear pathway that brings the product providers to the consumers. We looked at the data sets that the DNOs hold and particularly for SSEN, the LENZA tool which has been developed to help local authorities with their LAEP development and the Vulnerability Visualisation Tool. These tools (which are similar to those being developed by other DNOs) contain numerous data layers. These include information about EPC, energy efficiency ratings, income, council tax bands etc as well as network needs such as flexibility procurement zones or constraint managed zones. This data can be used to signal which areas of the network are most attractive for the Equal LCT approach.

The CBA that we developed estimated direct consumer benefits of £276 per household per year when looking at domestic energy efficiency upgrades in parallel with heat pump uptake in high constraint areas. It also showed that with a roll out of a targeted proposition we could take the number of customers signing up from c.246,000 in 2026, to c996,000 by 2035.

There are a number of recommendations for further work in this area. They cover Stakeholder engagement, testing the application of the mapping concept, fully developing the business models, designing the customer journey, trial planning and fully assessing and regulatory barriers or enablers.

Lessons Learnt

The development of the consortium of industry participants and consumer protection advocates brought significant value to the project as it meant that we had ready access to parties that would, in theory be putting the Equal LCTs principles into practice. The ability to incorporate their ideas into the project at the first stage and bring them along on the journey means that the outputs of the project are more robust and more likely to be implemented once they are mature.