1.1 Motivation

In recent years, there has been a growing concern that the UK may be heading towards an energy crisis (1). In 2008, the UK government pledged to reduce its carbon emissions by 80% by 2050 (2), yet this target might be jeopardised by the increasing demand for energy, especially given that most of the UK’s electricity is still currently generated from fossil fuels. Currently, the UK also suffers from an imbalance between its electricity demand and supply, and according to a study by UK Office of Gas and Electricity Markets (3), the UK’s electricity demand could outstrip its supply by 2016 if consumers continue to use energy at the current rate. The UK is not the only country with a problem; according to the International Energy Agency, the projected worldwide energy demand is expected to grow by 37% in 2030 (4), and the agency is uncertain as to whether the energy supply can keep up. These facts suggest an urgent need to either increase energy supply, or devise means to utilise our current energy supply more efficiently.

One way to increase the supply of energy is through investments in new electricity generation capacity. But while power plants now under construction may alleviate the problem, a large part of Britain’s aging power infrastructure still needs upgrades in order to meet the long-term growing demand. Unfortunately, upgrading capacity is a highly costly option; it could cost upwards of £200Bn by 2020 alone (3). Upgrading capacity through renewable energy sources, on the other hand, pose yet another set of challenges. While renewable energy production does not contribute to carbon emissions, it is costly and its electricity generation is erratic, often due to weather fluctuations. As a result, this mismatch of projected demand and supply in the future implies that a severe energy crisis may be imminent.

1.2 Aim: Maximising Efficiency of Generation Capacity

While coping with increased consumption through the use of renewable energy or through building new plants is not always viable, there is still another avenue open – to maximise the efficiency of current and future generation capacity. The market for household energy is currently inefficient. Since virtually all consumers pay a flat rate for each unit of energy, producers have to cater for the peak demand of consumers either through additional capacity or through energy storage mechanisms, both of which are costly to build and maintain. The underlying reason for these consumption peaks is the failure of the price mechanism in reflecting the relative levels of supply and demand in the marketplace. If prices were made to be more flexible, these consumption peaks could be tapered. A scheme that does is the Time-Of-Use pricing scheme, where consumers are charged different rates on electric power depending on the time of the day. However, while time-of-use pricing is a step in the right direction, it does not offer sufficient flexibility – the prices have to be declared far in advance and the price does not hinge heavily on supply and demand, but on expected supply and demand. Research has shown that the most flexible pricing scheme, Real-Time Pricing (RTP), where prices change every five minutes, has the most potential to flatten consumption peaks (5) (6).

In fact, RTP is currently being considered as one of the most important components of a modern electrical grid, called the Smart Grid, which refers to a set of engineering solutions applied through advancements in the field of control, computation and communication, so as to meet the need for intelligent power grids (7). Once the Smart Grid (including RTP) is implemented, information such as the price of electricity and the expected consumer demand can be exchanged between producers and consumers of electricity, giving the potential for the price of electricity to be made flexible.

1.3: The REACT System

While RTP can in theory be effective, the key challenge is whether consumers would be able to react to the feedback of changing prices. If they are not aware or able to change their demand in response to prices, the benefits of RTP would be unrealised. Our proposal is to develop a product to be used in conjunction with RTP when it is finally brought online, which will enable consumers to vary their demand in accordance with price levels. The Real-time Energy Adaptation for Consumption Tapering (REACT) system would monitor consumers’ energy usage and use that information to shift the usage of certain appliances to different times of the day during which energy is cheaper. This would effectively increase the responsiveness of consumer demand to prices and minimise consumption peaks. With usage data, the system will also be able to give recommendations as to where the consumer can consume less energy. Combined with RTP, the REACT system has the potential to significantly increase the efficiency of the energy market, resulting in cost benefits to both producers and consumers.

In summary, this report will focus on the consumer end of the smart energy chain and examine how the REACT system, combined with the RTP, can assist end users in saving energy. This report will first consider the technical aspects of how such a system could be implemented, both in terms of hardware and software. Secondly, this report will inspect the potential socio-economic benefits that can be gained from a system that enables a free flow of information between energy producers and consumers, while taking into account current household consumption patterns. Finally, a financial cost-benefit analysis will be conducted to ascertain whether the REACT system would be financially feasible.