As economies electrify and renewable generation expands, balancing electricity supply and demand is becoming both more challenging and more important, and demand flexibility will become a cornerstone of future power systems.

During winter 2023-24, the UK’s National Energy System Operator (NESO) ran the second year of its Demand Flexibility Service (DFS), paying households and businesses to voluntarily reduce electricity demand during periods when electricity supply margins were tight. Unlike traditional price-based demand response programmes, which tend to use critical peak pricing to incentivise demand reduction, the DFS took a “critical peak rewards” approach, paying consumers to reduce demand.

Centre for Net Zero partnered with Octopus Energy to evaluate its participation in the DFS in 2023-24. We ran a nationwide natural field experiment using a randomised encouragement design - an approach used in economics and medicine when direct random assignment is impractical - to accurately measure demand from approximately 2.7 million households and businesses. To our knowledge, this represents the largest field experiment on residential electricity demand flexibility ever conducted.

Our findings provide strong evidence that households can deliver substantial and persistent reductions in peak demand when incentivised. The future role and value of the DFS will depend heavily on its responsiveness to system stress.

1. Households delivered substantial reductions in peak electricity demand during events. We estimated that those who opted into events reduced their electricity consumption by 23.1% during events.
2. No observable rebound or displacement effects. Reductions in electricity use were concentrated during event periods, with no meaningful increase in consumption before or after events and no evidence of broader long-run changes in electricity use.
3. Demand flexibility remained effective across repeated events, with no signs of participation fatigue. Demand reductions remained stable across repeated events, while households invited later in the winter responded similarly to those invited earlier.
4. Low-carbon technologies substantially increased demand response. Households on time-of-use tariffs also showed greater response, but effects did not vary based on property type, homeownership or area-based measures of deprivation or income.
5. Estimated social welfare depended on system and market conditions. The DFS was most valuable during periods of system stress and if alternative balancing actions became more expensive. In winter 2023/24, household remuneration of £688/MWh was the level at which societal benefits of the DFS outweighed the cost – about three times the incentive levels that became common after the programme shifted to competitive auctions.