What can the US teach the UK about flexibility?

A three-phase utility stepdown transformer bank (37.5 kVA per phase) on a pole behind a business in Niles, Illinois, United States. Three single phase transformers are connected together in a wye configuration to act as a three phase transformer. This is used in the US to provide three phase power at secondary voltages used by commercial customers.

Flexibility is a big topic in the UK. It will be at the forefront of the minds of the leaders of distribution wires businesses as they start preparing and submitting their regulatory filings for the next price control period from 2023-2028. In that timeframe it is fully expected that the country will have to take significant strides towards a net zero energy system; meaning rapid de-carbonization of sectors, such as industry, heat and surface transport.  

All of these sectors will require massive adjustment at the consumer end of the power system, changing how and when energy is consumed; with much more of that energy being electric and renewable. That will inevitably put the distribution networks at the forefront of the net zero challenge, with an increasingly decentralized power system and changing demand patterns. 

Flexibility relates to how customers will be willing to flex, or change, their generation or load patterns to fit with when renewable energy is abundant, when the power system needs it (e.g. in a system event), or when the networks can transport it.  Europe, and particularly the UK, is very much seen at the forefront of the “Ëœflexibility’ journey but that doesn’t mean it can’t learn from elsewhere.

The United States (US) doesn’t commonly use the term flexibility, but oftentimes this is exactly what they are doing. And, as more vertically integrated utilities, they own the billing relationship with the customer, making customer engagement into flexibility programs easier. 

The four key learnings that we believe the UK could take from the US:

Engaging with Customers 

Because US (and many EU) utilities own the billing relationship, they have teams of customer service representatives talking to customers every day. They can run marketing campaigns, create tariff structures or rebates, and recruit thousands of customers into programs such as, for example, energy efficiency or demand response.  

By contrast, the UK wires companies have no direct customer relationship; the only time a customer is likely to call them is during a power cut. All the UK distribution utilities run events, have websites and promote their flexibility programs, but these tend to address industrial and commercial customers, as well as commercial aggregators who are sufficiently resourced and sophisticated enough to be able to engage.  

The energy retailers, by contrast, want to continue to own the customer relationship and have access to the same flexibility for their own purposes; managing their market position. Regardless of the complicating nature of vertical separation, we firmly believe that UK wires companies will need a step change in customer engagement and inventiveness around the customer proposition, even if flexibility is ultimately accessed through a third party, such as an energy retailer or aggregator. 

Having access to the biggest pool of resources for wires load relief as possible will drive market liquidity. The one time when the wires business does own the customer relationship, regardless of vertical integration or not, is during the connection process, and we think utilities should be using that as their opportunity to engage with the customer and deploy enabling capabilities.

Funding Models

It is not uncommon for a flexibility scheme to require the development and installation of new Distributed Energy Resources (DER).  Like the UK, wires utilities in the U.S. are usually not allowed to own the DER assets and must create an open market for developers. 

To encourage DER solutions to network issues, a number of U.S. utilities have run open solicitations for Non-Wires Alternatives. These recognize the merchant risk to the developer and are typically for long-term service provision, for example, five to ten years. Long term service provision gives the developer the financial security to underpin DER investment decisions. 

By contrast, most of the UK flexibility contracts are for shorter timescales and are seen as “Ëœstop gap’ or temporary solution, for example, one- to four-year contracts. Such short-term contracts limit the potential solutions space and participant interest, as they almost certainly cannot finance third-party investment in new DER assets. 

Value Stacking

The other challenge for investors is that the number of run hours per annum is often limited; meaning that the cost to retrofit “Ëœcontrol’ to existing assets or to construct new assets cannot be justified. There is simply not enough money from service delivery to make it worthwhile.  

The pool of DER that the distribution utilities is swimming in is therefore too small and uncompetitive; the DER assets really have to be viable in other markets, for example wholesale, ancillary service and more, with distribution services only as a “Ëœtop-up.’ 

Furthermore, some of those markets prevent “Ëœstacking’, meaning that assets cannot be freed up to provide multiple coordinated services. Initiatives, such as Value of DER (VDER) in New York State, specifically address this problem and enable new DER assets to benefit from additional revenues when they locate in areas that best support the system.

Locational Value

The UK is acutely aware of the locational requirement for flexibility services; most distribution utilities even have websites that publish information about open and upcoming tenders for flexibility by area or substation. As they only operate “Ëœwires’ they are not concerned about energy volumes or system balancing.  

However, states like California have mandated not just the publication of capacity heat maps but the locational value of DER across the entire network; in effect putting a price for flexibility on each node of the network and setting hurdle rates for when flexibility is the best solution. 

U.S. markets already operate using Locational Marginal Prices (LMPs) with strong locational price signals; the concept of LMP plus an additional Distribution dimension, so called LMP+D, has been under discussion for a number of years.  While still to be fully adopted, the principle of locational price signals at the distribution level and that being reflected through to the consumer is more advanced than the UK.  

What is clear is that there are important differences between the US and UK markets; the largest being the fact that distribution business in the UK are “Ëœpure’ wires businesses with little customer interaction. As wires utilities step up their efforts to support a net zero future, much more focus has to be placed on customer engagement, flexibility recruitment, setting the correct price signals and dealing with the financing challenges to create liquid markets and a vibrant pool of flexibility providers. The UK utilities have made large strides in recent years, and hopefully they can continue the journey by picking up a few pointers from markets such as the US along the way.


  • Alan Gooding is co-founder and executive director of Smarter Grid Solutions (SGS), a leading provider of distributed energy resource management system (DERMS) software. With offices in New York, Glasgow, London and San Francisco, SGS is a global solutions provider to distribution utilities and distributed energy resource operators.  

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Alan Gooding is co-founder and executive director of Smarter Grid Solutions (SGS), a leading provider of distributed energy resource management system (DERMS) software. With offices in New York, Glasgow, London and San Francisco, SGS is a global solutions provider to distribution utilities and distributed energy resource operators.  

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