Net zero and energy bills: more payback, less push back

Rapid electrification, decarbonisation and digitalisation of Europe’s energy, buildings and transport systems have been reaffirmed as priority missions of the European Commission, following EU parliamentary elections and seminal reports on both future EU competitiveness and the Single Market. The first major challenge will be ensuring that national governments can galvanise enough political support to properly implement the Fit for 55 and Electricity Market Design legislative packages.

A simple, cost-effective and fair approach 

In the wake of the 2022 energy crisis and its severe aftershocks, the emphasis of political dialogue on energy transition in Europe reflects new caution. Governments are under pressure to demonstrate that a net-zero emissions economy is central to the goal of delivering secure and affordable energy for all, not at odds with it.

The Commission’s president has called for 2030 energy and climate commitments to be implemented in the ‘simplest, fairest and most cost-effective way’, strengthening the framework for a social and just transition. Citizen participation and transparent decision making were also highlighted as paramount. In the UK, the newly-elected Labour government has pledged to ‘make Britain a clean energy superpower’, and in doing so, help to ‘cut energy bills for good’. Amid rising backlash over a proposed cut to the winter fuel payment, there have been questions over how the administration will design their net-zero plans to deliver on this aim.

To maintain the consensus on clean energy, policymakers must not only set out clear (simple) plans for the implementation of commitments, driving green investment without undue strain on state budgets (cost-effective), but they must do so in a way that distributes burdens and benefits in an equitable way (fair).

Inclusive domestic flexibility is a no-regrets strategy which can contribute to all of these aims. An inclusive strategy is one that is not only accessible to all, but which understands and meets the needs of individual households.

Benefits of flexible homes 

 Demand flexibility is the ability of energy users to shift the amount or time of their energy consumption in response to system conditions. Households that are willing and able to use energy in a flexible way can minimise their bills. Energy-efficient homes and access to smart, controllable technologies make flexibility easier and more lucrative. 

Flexible assets in homes

Where available, customers may choose a dynamic tariff, which links a per kilowatt rate to wholesale prices, or a contract with set peak and off-peak rates. New business models are emerging, which offer reduced fixed rates or rebates for flexible actions:

In addition to flexible retail offers, households in some regions can be rewarded for demand reduction during critical peaks or supply shortages. In Great Britain, nearly 2.6 million homes took part in the Electricity System Operator’s 2023/24 Demand Flexibility Service, saving 3.7 million kilowatt-hours, or enough electricity to power over 1,300 homes for a year.

The system shift we need

Shifting demand into periods of high renewable generation maximises the benefits of low cost, homegrown wind and solar power, reducing the need to import fossil fuels. Flexibility also helps smooth out demand spikes, freeing up grid capacity for electrification and new loads, such as data centres. These system savings benefit all bill payers, through lower power prices, network charges and policy levies. Energy market design is evolving to incentivise flexibility, so when we use energy will increasingly impact bills, rather than just how much we use.

According to a 2022 study by smartEn and DNV, actively matching EU demand and supply could unlock over €300 billion in annual indirect systems savings by 2030. This would channel an additional €71 billion savings directly to customers actively engaged in flexibility. With figures like this, we can’t afford not to capture the full value of home flexibility. So why isn’t everyone doing it?

Access to direct benefits is limited

No household is the same: depending on building quality, financial and time constraints, family composition, health and other vulnerabilities, flexibility can look very different. With most products on the market today designed with more affluent early technology adopters in mind, many households can face barriers to participation. 

Renters have less ability to choose the appliances in their homes or request a smart meter. Other households may not be able to afford the upfront cost of flexible devices like electric vehicles without government support. More broadly, there is a question of whether people feel able to place their trust in new energy offers that seem complex and unfamiliar to them, especially in the wake of the energy crisis.

And while flexibility and market reform are key to passing the benefits of a net-zero power system on to households, they also present new risks that need to be managed. For example, dynamic tariffs could lead to some consumers facing higher costs if they are unable to shift their energy usage, or having to underconsume to avoid higher bills, which could be unsafe. On the other hand, excluding people from flexibility opportunities could exacerbate energy inequities. 

Safe and accessible home flexibility offers a new tool to improve comfort and alleviate energy poverty by shifting energy use rather than rationing it. This is an opportunity too important to miss.

Making flexibility pay off for all households

What actions are needed from a home flexibility perspective to achieve the European Commission’s goal of a simple, cost effective and fair delivery of climate commitments? 

1. Keep smart energy offers simple and clear at the user interface

Most of us use smartphones without needing to become experts in how the circuit board works. In the same way, as we move to a smarter, more digitalised energy system, home flexibility products and services should be designed to fit around people’s lifestyles, abilities and needs, not the other way around. Inclusivity and simplicity can be facilitated by: 

• Directly incentivising providers to create flexible propositions that cater to the needs of different energy users, through inclusive design best practice, regulation and competition.
• Providing independent, user-friendly support and comparison tools, using standardised language and real household data to recommend flexible options and predict likely cost outcomes.
• Building trust through clear guidelines on how customer data is used and kept secure, and full transparency around how value is extracted from data and home assets.

2. Maximise cost efficiencies by linking sectors and services

 Europe is slowly connecting functions that must come together for a timely and affordable energy transition. Housing and energy regulation have been brought under the same EU Commissioner, while the British energy regulator recently acquired heat network and net-zero duties. Joined-up implementation of electrification, energy efficiency, digitalisation and electricity market design regulation would reduce the cost of the energy transition for all households. This can be enabled by:

• Ensuring that the full social and multi-system values of smart and efficient homes are captured in the European Commission’s upcoming ‘Clean Industrial Deal’ strategy and national infrastructure plans.
• Tackling cost and competition barriers to innovators trading household flexibility by standardising eligibility criteria, unlocking data and requiring interoperability of devices.
• Incentivising co-location and coordination of renewable generation and flexible demand, for example through locational and time-of-use market signals, infrastructure planning and mechanisms that enable flexing for grid carbon avoidance on a granular level.

3. Close the flexibility opportunity gap for a fairer society

The opportunity to benefit from flexibility is greater for households with energy-efficient homes and access to enabling technologies. We need to ensure that the benefits of net-zero policies are more evenly distributed and more tangibly felt by lower- and middle-income households. Policies to address the ‘risk of missing out’, with robust safeguards and redress mechanisms built in, also help to avoid harms that could otherwise deepen existing injustices and undermine the transition. Fairer flexibility can be facilitated by:

• Enshrining inclusivity as a central objective in flexibility targets and regulatory duties, co-designing metrics and methodologies for measuring progress with citizen representatives.
• Prioritising lower-income and vulnerable households for access to public schemes to support the rollout of flexibility-enabling home upgrades.
• Ensuring that energy bill support and social tariffs do not exclude households from flexibility opportunities, and using social protections to de-risk and enable participation.

This article was first published on the Energy Transition Blog. The views and opinions in this article do not necessarily reflect those of the Heinrich-Böll-Stiftung European Union.