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How businesses can participate in the Demand Flexibility Service

Last year, businesses earned up to 129p/kWh for reduced power consumption. As the energy grid becomes smarter and more responsive, businesses have a growing opportunity to get paid for using less electricity at key times.

The Demand Flexibility Service (DFS) rewards organisations that can reduce their power consumption when requested, typically with around six hours’ notice.

This guide explains how your business can take part in the scheme. Here’s what we cover:

• What is the Demand Flexibility Service?
• How the Demand Flexibility Service works for businesses
• Demand Flexibility Service eligibility requirements for businesses
• How businesses can join the Demand Flexibility Service
• Demand Flexibility Service event statistics
• How the Demand Flexibility Service helps the National Grid

What is the Demand Flexibility Service?

The Demand Flexibility Service is a scheme that incentivises businesses and households to voluntarily reduce electricity consumption during periods of peak stress on the British national grid.

Originally introduced as a winter contingency tool, the service has since evolved into a year-round, market-based mechanism for managing power demand on the grid. It is operated by the National Energy System Operator (NESO).

NESO informs participants of upcoming “events”, during which they are prepared to pay participants to reduce power consumption, based on a competitive auction.

Households are typically compensated by their energy suppliers with points or vouchers, which are exchanged for rewards such as cinema tickets.

In contrast, businesses which consume much greater amounts of power can generate significant credits towards their business electricity bills.

How the Demand Flexibility Service works for businesses

The following process explains how a registered business can participate in the Demand Flexibility Service. Each of the following steps occurs in relation to a single Demand Flexibility Service event.

Last year, there were 44 such events under the scheme.

Step 1: NESO identifies a demand reduction requirement on the grid

NESO, the grid operator, is responsible for maintaining the balance of supply and demand on the grid. NESO’s control function constantly forecasts both power generation and expected demand to anticipate periods when there is a shortfall in supply.

A week before a period in which NESO forecasts a shortage of supply, they will send an Anticipated Requirement Notice to provide advance notice that a Demand Flexibility Service event is likely to occur, along with an indication of the expected event period.

Due to the nature of power demand in Britain, these event periods typically occur between 16:00 and 18:00 on a Monday or Tuesday.

Step 2: NESO sends Service Requirement Notice

On the morning before an event, NESO will send participants a Service Requirement Notice to confirm that it is requesting demand reduction. It will state:

• Event start time
• Event duration (based on 30-minute settlement blocks)
• Required demand reduction volume

Participating businesses will receive the notice and will have 60 minutes to confirm whether they intend to reduce power consumption during the event, and how much power reduction they will be able to provide, in kWh.

The confirmation from your business will be sent to your DFS provider, who is either a licensed energy supplier or an aggregator.

Your DFS provider will submit a bid to NESO stating how much reduction in demand their customers, in aggregate, can supply and the price (in £/MWh of reduced demand) they expect to be paid for the reduction.

Step 3: NESO chooses which bids to accept

NESO principally uses the price per MWh to decide which bids to accept. In general, they will choose the lowest-priced bids that, in total, will achieve the necessary reduction in demand.

One hour after the bidding deadline, you’ll receive a notification from your DFS provider confirming whether or not their bid has been accepted.

Step 4: Planning for a demand reduction

If your bid has been accepted, you’ll need to begin planning how your business will reduce its energy consumption during the event window.

A typical way a business can reduce demand is by strategically adjusting the timing of industrial processes. For example, a business might pause one of its production lines during the event window, delaying that day’s manufacturing for a few hours.

Another common approach is to use an Energy Management System to programme commercial solar batteries to fully charge during the day so they can provide an alternative source of power during the event window.

Step 5: During the demand flexibility event

During the event, automatic meter readings from your electricity meter will measure your business’s actual power consumption.

Business energy monitoring software can be used to confirm that the expected demand reduction has been achieved.

Step 6: Reduction evaluation

After the event, your DFS provider will calculate the demand reduction you’ve achieved by comparing your consumption during the event to your business’s historical baseline consumption.

DFS providers typically do not impose penalties if your business fails to deliver the promised demand reduction. However, you will usually only receive a payment for delivering the expected reduction in demand.

Step 7: Payment for demand reduction

DFS providers are paid by NESO based on delivering against their initial bids.

Once NESO has paid your DFS provider, they will then arrange payment to your business, in line with the terms and conditions of your Demand Flexibility Service contract.

Demand Flexibility Service eligibility requirements for businesses

To take advantage of the Demand Flexibility Service, it is necessary to have an electricity meter that automatically measures and transmits readings every 30 minutes.

This is usually achieved with one of the following meter types:

• Half-hourly electricity meters – Already installed at commercial premises with a Maximum Import Capacity exceeding 100 kVA.
• Smart business energy meter – Smart meters that have been configured to transmit meter readings every thirty minutes.

💡Most smart meters are initially configured to transmit meter readings daily, but this can be changed remotely by your supplier. We recommend contacting the customer service department of your supplier to request this change.

When signing up for the Demand Flexibility Service, you must grant your aggregator or business energy supplier permission to analyse your consumption data. This analysis is necessary to establish a baseline expectation of your typical electricity usage.

How businesses can join the Demand Flexibility Service

Businesses cannot participate directly in the Demand Flexibility Service, but instead must sign up with either a licensed business energy supplier or an aggregator, who will submit bids on their behalf.

This section describes the sign-up process for both options.

Participating with your business energy supplier

The following energy suppliers are registered to participate in the Demand Flexibility Service for commercial and industrial customers:

• Drax Business Energy
• Engie Business Energy
• Good Business Energy
• Octopus Business Energy
• SSE Business Energy

Source: NESO registered participants

Using our business electricity comparison service, our energy experts can help you switch business energy to a participating supplier.

These suppliers will provide your business with a Demand Flexibility Service contract, enabling your participation in the scheme.

The contract will define how your business will be paid in relation to the bid your energy supplier submits on your behalf, and the timescale for receiving these payments.

Participating with an aggregator

In addition to licensed energy suppliers, NESO also allows aggregators to submit bids and participate in the Demand Flexibility Service.

An aggregator signs up individual households and businesses to the scheme and then submits bids on behalf of their portfolio.

To find and register with an aggregator, visit NESO’s list of DFS participants and follow the link to the aggregator’s website, where you will be able to sign up.

These aggregators are typically business energy monitoring software providers who offer a solution for automatically receiving energy meter reading data from commercial electricity meters.

Demand Flexibility Service event statistics

The table below summarises published statistics for the Demand Flexibility Service relating to events that have taken place over the past two years.

Source: NESO – DFS 2024/25, DFS 2023/24

In the past two years, the accepted prices per MWh for using the Demand Flexibility Service have fallen by 95%, making it significantly less lucrative for participants.

Here are the principal reasons:

• No guaranteed accepted prices – The test events in 2023/24 included a guaranteed accepted price to encourage participation. In contrast, events last year were based purely on competitive bidding, leading to lower accepted prices.
• Stacking flexibility – Changes to scheme rules now allow participants to earn incentives under other demand-side flexibility schemes, such as the Capacity Market and regional Distribution Network Operator schemes.
• Market maturity – Suppliers and aggregators participating in the scheme are gaining better data on the performance of their customers, enabling them to submit more competitive bids.

The reduction in accepted bid prices has made the Demand Flexibility Service a far more cost-effective tool for NESO to manage demand on the grid.

By reducing the need for alternative balancing activities, NESO’s actions are estimated to have saved £0.5 million.

How the Demand Flexibility Service helps the National Grid

The Demand Flexibility Service was first introduced in November 2022 to help balance supply and demand on the National Grid during the winter months.

The push to decarbonise the National Grid has increased the intermittent contribution of UK wind farms to Britain’s overall fuel mix.

Unlike reliable gas-fired power stations and nuclear power stations, power generation from wind farms is sporadic, depending on local weather conditions.

Balancing supply and demand on the grid becomes most challenging during still winter evenings, when electricity demand peaks. These periods are referred to as “grid stress periods”.

Currently, during grid stress periods, Britain’s fleet of gas-fired power stations and the Drax biomass power plant are used to bridge gaps in supply, but these sources produce harmful carbon dioxide emissions.

The Demand Flexibility Service is designed to provide a green alternative, where households and businesses are incentivised to reduce their energy consumption during these periods.

The scheme is funded through Balancing Services Use of System charges, which are levied on domestic and business electricity prices.

The future of the Demand Flexibility Service

As the contribution of intermittent low-carbon energy sources continues to rise on the National Grid, the need for balancing actions will also increase.

The Demand Flexibility Service is one component of a broader shift towards a flexible energy grid, where demand will dynamically adjust to match the availability of power.

In 2027, the Market-wide Half-Hourly Settlement reform is due to be completed, meaning every property will have electricity consumption recorded every thirty minutes, enabling many more participants to become eligible for the scheme.

Following the reform, it is expected that innovative energy suppliers will begin to offer automated demand-side response through direct control of their customers’ EV chargers, appliances, and solar batteries.

With this technology, the Demand Flexibility Service will become a more powerful and frequently used tool for keeping the grid in balance.

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