What caught my eye this week.
After several false alarms, the past week saw National Grid throw the switch on its demand flexibility service.
Like much else in modern life, there’s a bit of double-speak going on here.
The ‘service’ on offer for those taking part actually involves degrading something we in the UK take for granted – electricity at the flick of a switch, whenever we want it, and the luxury of use without guilt or much thought.
Instead those who sign-up (and who must have a smart meter) are paid an incentive for using less power than they normally would during set peak periods.
For example, on Tuesday from 4.30pm to 6pm window.
According to The Guardian:
During the trials, typical households saved about half a kilowatt hour, which will be worth about £2 on Tuesday, putting the cost to National Grid at £2m. Those funds will be passed on to those participating, with suppliers keeping a share to cover their costs.
In total, National Grid is expected to pay just over £3m to suppliers for the service over Monday and Tuesday – with about £850,000 on the first day, and £2.1m for the longer session on Tuesday.
Octopus Energy – which has been running trials since early last year – reckons 400,000 of its customers took park in Tuesday’s session. They were offered £4 for each kilowatt hour of electricity they avoided during the hot zone.
(Interestingly, that incentive had been bumped up on account of National Grid lifting its payouts. Competition counts.)
In total more than £1m was paid out to Octopus customers on Tuesday. That’s meaningful money. But of course you have to divide it by the large number of customers taking part.
Which in turn leads to headlines like This Is Money’s ‘Would you switch off your cooker and washing machine for an hour to save 39p?’
Cognitive load
While the This Is Money angle rankles, I don’t blame it for going there. The small amounts saved do seem derisory if you pay attention to them.
Even doing it every week isn’t going to move the dial for many families. It’s been estimated that Octopus customers who took part in 25 powering-down events over winter might save just £100 in total.
That’s not nothing, but there are easier ways to save money than having to think about how you’re using energy a couple of dozen times for three months.
Instead, just remembering to never use big electrical appliances between 4.30pm and 6pm every day would cut the cognitive load. But at some point you’d presumably stop saving money that way, as your smart meter would get wind of your new pattern of usage.
Which means there’s actually an incentive to keep using power at peak times during the rest of the week. That seems a perverse incentive!
Vanishingly beneficial
With all that said, as a prophet of environmental danger myself I’m all for this direction of travel.
The key is for the system to become invisible, and ubiquitous. All consumers should have smart meters and their bills should be lowered whenever they use more energy outside of peak demand. These peak times should just become generally known, the same way we all understand that if we want to travel at rush hour there will be crowds.
Consumers shouldn’t have to police their bills to ensure they see savings. And in time AI and other smart home features should respond to known patterns of demand, too.
For example, you might switch on your washing machine at 5pm only for it to chirp back: “Do you want to wait until 6pm to save money?”
An emergency load can still get done. But I’d bet 90% of washes would simply be punted forward to beyond the peak period.
Every little helps
Apparently Tuesday’s scheme saved energy equivalent to the city of Liverpool shutting down for an hour.
That’s a result, and I think this will scale.
Critics of renewables understandably raise issues about intermittent supply, peak demand, storage and so on. There’s no single killer fix, but I believe there are myriad small fixes – from using electric vehicles as a vast distributed battery to devising fossil fuel power stations optimised explicitly for short-term back-up, to these sorts of energy demand schemes.
Nobody said it will be easy, but if saving the planet involves not tumble drying my underwear at 5pm on a Tuesday then sign me up.
After that signing though, I don’t want to have to think much about it. That’s crucial.
Enjoy the links, and have a great weekend!
From Monevator
The excellent Vanguard cash interest rate hiding in plain sight – Monevator
Swap rates and mortgage rates – Monevator
From the archive-ator: Beware the lure of the exotic – Monevator
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
British business output falls at steepest pace for two years – Yahoo Finance
Plans for more banking hubs as branches close – BBC
UK equities no longer a ‘must own’ asset class, warns shareholder group [Search result] – FT
CBI boss urges Sunak to show more ambition on economy – Guardian
Flybe: all flights cancelled as airline ceases trading – Guardian
“I was lied to by Boris Johnson”: UK fishing industry waiting for [*cough*] Brexit benefits – iNews
Post-pandemic, more people are feeling disengaged from their work – NPR
Products and services
Happy 30th birthday to the ETF [Search result] – FT
Banks slash mortgages rates, as five-year fixes edge back 4% – This Is Money
Low-cost housing: how can you escape the rent rat race? – Guardian
Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor
Santander launches new £200 current account switching bonus – Which
Netflix crackdown on password sharing to begin in coming months – Guardian
NS&I boosts premium bonds prize fund again, now 3.15% – Be Clever With Your Cash
What can we expect from the upcoming pensions dashboard? – Which
English homes where your money goes further, in pictures – Guardian
Comment and opinion
How long is the long term? – Retirement Researcher
Is this the start of a great buy-to-let sell-off? [Search result] – FT
Learning the hard way: [US] 2022 portfolio rankings – Portfolio Charts
Challenging Morningstar’s Safe Withdrawal Rates [Two weeks old] – Alan Roth
Walking around money – Humble Dollar
UK pension age may rise to 68 in the 2030s: what’s going on? – Guardian
Bear markets and identity crises – Young Money
Why the French want to stop working at 60 – The Atlantic via MSN
Study reveals cognitive dissonance about passive funds by active managers – TEBI
Why we can’t stop changing our investment process – Behavioural Investment
Who should pay on a date? Money, dating, and dealbreakers [Podcast] – Ramit Sethi
Layoff brain – Culture Study
Compound interest only spreads its wings at dusk – Simple Living in Somerset
Musical investing mini-special
Should you be investing in stringed instruments? – Inside Hook
“You’ll go a long way…” Music financing boom reverberates to markets [Search result] – FT
Justin Bieber’s $200m sale to Blackstone-backed fund Hipgnosis – Billboard
Naughty corner: Active antics
FTSE 250 CAPE valuation and forecast for 2023 – UK Dividend Investor
After a timeout, back to the meat grinder [PDF] – GMO
Hedge fund investing, turnover, and taxes – Albert Bridge Capital
UK fallen angels: is it time to buy? [Video] – Vox Markets via YouTube
Even software start-ups with long runways can’t grow into 2021 valuations – PitchBook
(Don’t) buy back large cap growth just yet mini-special
Dotcom Redux – Verdad
What are growth stocks? (Really?) – Finominal
Alternatively: sticking with quality growth stocks – Quality Share Surfer
Crypto o’ crypto
The price of Bitcoin – Fortunes & Frictions
Wild West crypto firms fail FCA corruption checks – This Is Money
Kindle book bargains
What Should I Do With My Life? by Po Bronson – £0.99 on Kindle
The Investment Trusts Handbook 2023 by Jonathan Davis et al – Free on Kindle
Stuffocation: Living More With Less by James Wallman – £0.99 on Kindle
Factfulness: Ten Reasons…Why Things Are Better Than You Think by Hans Rosling – £0.99 on Kindle
Environmental factors
How climate change threatens to close ski resorts – BBC
UK pension schemes search for forestry investments [Search result] – FT
Farmer, the world may not be your oyster – Hakai
Off our beat
What the poet, playboy, and prophet of bubbles can still teach us [Search result] – FT
Why success doesn’t lead to satisfaction – Harvard Business Review
Remote work saved workers 72 minutes a day, study finds – Axios
Six healthy lifestyle choices to slow memory decline named in ten-year study – Guardian
Interesting stats on how much Japan has changed in recent years – Noapinion
Bernie Madoff: the monster of Wall Street [Podcast] – A Long Time In Finance
And finally…
“If you think your odds of solving your problem are bad, don’t rule out the possibility that what is really happening is that you are bad at estimating odds.”
– Scott Adams, How to Fail at Almost Everything and Still Win Big
Like these links? Subscribe to get them every Friday! Note this article includes affiliate links, such as from Amazon and Interactive Investor. We may be compensated if you pursue these offers, but that will not affect the price you pay.
A small typo has shifted us a century back 🙂 – “UK pension age may rise to 68 in the 1930s: what’s going on?”
@flotron — Blimey, yes, things are rough but hopefully we’re not headed into a Great Depression! Thanks for spotting before I emailed out! 🙂
I agree with your views about energy, with simple changes to daily lifestyle we can help.
As a family we managed to save £2.03 from Eon by simply finishing work early , IT home worker and going for a walk and limiting electrical device usage.
Its not the money its the combined will of a people, who do actually care, that can make a difference.
You can see the UK electricty & gas usage from some interesting UK websites, if you want more info;
https://energynumbers.info/gbgrid
https://gasdata.nationalgrid.com/
I find like viewing the world covid stats during the pandemic seeing real numbers does help enforce the lifestyle choices/change.
A tumble dryer, TI? There goes your eco-street cred.. 🙂
I’ve not looked into the details of the demand flexibility service but I guess from what you say that it must look at one’s average usage over the relevant time slot. Not sure that I’d make any real saving but then my electricity supplier estimate my annual usage to be 40% higher than my actual usage thus far (I moved house three months ago) so maybe I would be assessed as lowering my consumption against their assumed amount.
@Curlew — I have a line and portable external driers that I use for about eight months of the year. 🙂 But in a modern insulated flat even with trickle vents and a cracked window etc, in the cold/wet months it’s mostly either tumble dry or get more condensation problems I fear (or stuff just taking days to dry).
I do still give it a bash outside if it’s relatively crisp and breezy. I’ve also experimented in the past with drying in a small room and running a dehumidifier. Perhaps I should give that another go with energy prices having risen so much.
Yes, the big switch offs haven’t saved us much because we were already avoiding peak hours due to have solar PV (when the sun is shining it’s a doubly good time to do the washing) and being signed up to Energy local (some of our energy comes from a local community energy supplier – pricing according to time of day). Still every little helps, and as you point collectively it adds up to quite a bit in energy saved (and presumably CO2 from needing less coal based power).
I disagree that we shouldn’t have to consider our energy timing/usage.
It would be nice if we didn’t but in a world of constraints it’s inevitable.
We already think of when we’ll do things – like trying to avoid rush hour traffic or visiting (Edinburgh) on a Sunday for free parking.
Why shouldn’t it be the same with our energy usage?
Personally, I try to use electricity when the co2 levels are lower – generally at sunny times, windy times, night time and at weekends but seldom all at once (obviously.)
The website https://carbonintensity.org.uk/ is my guide.
Well, I started to recently use washing machine, tumble drier, washing machine during peak hours along with the oven, I got paid a fiver the other day to go back to how I used to use them when I didn’t get anything.
Suffice to say I will now be using during peak hours and look forward to being paid when before I wasn’t rewarded.
@GFF — Yes, we agree more than disagree and I mention the rush hour aspect in the article 😉 What I’m saying is rather than it being a new hobby for a small minority, we need to get to a point where it’s not a big deal — it’s just something that happens and everyone is at the margin aware of. 30 million households making small decisions are what will move the dial. 🙂
My personal energy consumption dropped dramatically after my two children left home. Often my wife and I will have all lights off in the whole house, as we watch a film in the living room. Unfortunately we won’t get paid for this as we don’t have a smart meter yet 🙁
Has everyone else been experiencing a pleasant recovery in their portfolios recently after Annus Horribilis 2022? I’m now almost back to my all time peak at the end of August 2022: I’m just 0.37% below today. Also I have been having consistent gains both from a Sterling as well as a US Dollar point of view. My small caps and value have been on steroids lately and more recently European stocks.
The Portfolio Charts piece this week is very interesting as well as the link about Morning Star’s new SWR. Thank you for generously providing us with our weekly financial links fix, which I enjoy religiously with my morning coffee fix 😉
Bit ironic for This Is Money ((Daily Mail) to mention is saving 39p a day worth it,when if memory serves they are running a promotion at the minute where if you subscribe you save I believe 40p a day
To add to the laundry thread: my solution to drying laundry in a flat is to do the wash first thing in the morning and immediately hang it in a spare room with the windows wide open and the door shut for the rest of the day. If the humidity outside is lower than the humidity in the room, the moisture will be sucked out and the washing will dry relatively quickly (exactly how quickly depends on relative humidity) without the need for the tumble dryer.
@Tyro – if you can point a desk fan at them to keep the air moving they’ll dry faster.
Just noticed the above comment is time stamped @3:55pm and it is now 3:03pm GMT. Time zone issue somewhere?
@xeny
TI never moves the site back to GMT but stays on BST year-round.
Surprised economy 7 hasn’t been mentioned. Was available decades ago. Not as nuanced but still must of helped to balance the grid. Personally with young family stuff just needs to get done. I cba delaying things for the sake of the odd pound here or there I’ll take the financial hit and reap the extra brain bandwidth dividend.
FYI The ETF article from the Financial Times is from 2020. I mention because towards the end it mentions that the week previously was the biggest market sell off since 2008 which freaked me out. As a good passive investor should I don’t follow the markets very closely (though I probably would have noticed if there was a sell off that big).
I’m a big fan of the DFS “Saver Sessions” as I have an EV, a large (19kWh) house battery, and I’ve read the documents on the algorithm used to work out your baseline for establishing what you save in the sessions.
The last one I have data for is the 23rd and I saved 12kWh earning me £40 gross and £30 after deducting cost of me using energy in peak times to establish a high baseline versus in my cheap overnight off peak.
Our electric bill was close to zero for December despite very little solar and I expect that January and February will see us making a healthy profit.
I’m not sure this is exactly how they intended it to work, but I am shifting our demand and making a tidy profit.
Regarding tumble driers, modern heat pump ones aren’t expensive (we’ve had one for years and it’s a Beko so cheap) and it uses well less than 1kWh per cycle. We run it on delay at 23:30 so it costs us less than 8p to run on cheap and low CO2 overnight electric.
@Passive Investor — The one I am trying to point readers towards was published on 26 January 2022, and features a graph with data up to that year.
Perhaps on your browser the Search Result is taking you to a different article due to cookies or similar?
Here it is paywalled: https://www.ft.com/content/e76d3efd-08ee-42b6-b051-07b9fdcc0f41
Bieber didn’t sell to $SONG, the listed fund which is hugely discounted, but to a private vehicle Mercuriadis manages for BlackStone. Just in case you meant that 😉
@Nicola — Oh, I didn’t realize and assumed it was for the investment trust just from reading the story. Thanks for the correction.
“fossil fuel power stations optimised explicitly for short-term back-up” have been devised and are used frequently. Gas peakers.
The FTSE 250 CAPE analysis is pretty darn succulent… you know, except for the FTSE 250 being fair value or below for about 6 years to date
@C — my understanding is the current back up stations are mostly old standard stations, including some that had been set to be decommissioned (eg Drax).
I know there is research into more lightweight non base load fast up/down stations. Perhaps some have been implemented as you say, love to see a link for more reading
Completely agree that the current structure of the energy saving sessions are encouraging a reverse incentive.
Every provider should instead be offering an equivalent of Agile Octopus (
https://octopus.energy/agile/ ) – a tariff where the prices are variable on a 30 minute rolling basis depending on grid demand. The prices are available 24 hours in advance, you can see the trends here:
https://www.energy-stats.uk/octopus-agile-london/
I’ve been using the tariff for years and have saved a lot of money from consistently moving high use appliances outside the peak window (4-7pm)- in the demand flexibility service offered this week I was unable to save anything as I had already moved my usage out of the time frames offered!
@TI You can buy something suitable for your dynamic peak load optimisation here
https://www.edina.eu/power/gas-peaking-plant
other suppliers are available 😉 Check out peaking power plant on wikipedia for the philosophy
@Tom-Baker Dr Who
Just checked my ISA portfolio and it is .35% down from its max value. Pension which is run through work is still 10% down from its max though.
@Griff (#26) – Happy days are here again! Hopefully by next week, we’ll be somewhat above the Max 🙂
Regarding your comment about the Work Pension, I’m not surprised. I moved everything out of my work pension last year (by luck just before the market started going down) into a SIPP. Had it stayed in the work pension scheme, I think I would have seen a much worse performance.
You probably know this already, but I’ll mention just in case: the default investment option in most work pension schemes is often the worst option for you and the best for the company managing the scheme (high fees, bad investment choice, etc). So you can reduce the damage by choosing other investment options when they are available.
@27Tom-Baker Dr Who
Cheers for the info, ironically I have moved my pension into different funds twice now, 2001 and about 2008 and did very well out of it, I even thought about moving again about two years ago and discussed on this site that I thought bonds where to high but to be honest I didn’t really know what’s happening and it was a fluke both times I got it right. I Will take the 10 percentish drop on the chin but it has put me back a bit. On the negative side I think I checked my ISA about 20 times A DAY last week I just want to see the magic positive figure again.
Griff.
We also have EVs and solar panels and in addition an economy 7 tariff so use washing machines and charge cars either when sun is shining or at night. The octopus saving sessions don’t save us much (we have not tried to bump up consumption on other days!) but there are some savings as we would avoid using kettle, microwave or oven at what is otherwise prime cooking time (we cook before or after, or using just gas hob). The most irritating feature of the octopus scheme, chiming with your overall comments about automating the process, is that you have to opt into each session separately once notified of it. Why can’t I opt in once for the rest of the year?
@Nebilon Opting in to each session separately is a National Grid requirement as they want to be able to fairly accurately predict demand savings.
I can’t see the system running in this exact form in future as those in the know, and particularly those with big batteries to hand, and make a lot of money from it. I’m making hay while the sun shines.
We are currently participating in a study where our electricity company will remotely turn on certain devices (dish washer, washing machine, tumbler dryer, heat pump) based on the grid situation and surplus availability of renewable energy. In our area that’s mostly produced by wind turbines. We just signal on the device when a load is ready and get notified when the device finishes.
@Christof — That’s really interesting and sounds a great idea! Might I ask which country you’re posting from, assuming not the UK?
We have our supplier controlling our EV charger and I’d happily let them control home batteries and heat pump if it worked for me financially.
We just got results for a Demand Flexibility Service event on Jan 24th and we made £75+ just by moving demand earlier in the day and out of the 90 minute stress slot.
What’s not to like?
I’m from Germany. The study in question is a EU project named InterConnect (interconnectproject.eu). Its goal is to find out how a smart grid could work in a renewable future. In several other countries they are running similar studies turning residential homes into smart homes and try various approaches to reduce energy consumption and align availability and usage of electricity.
Our benefit of participating is a free set of shiny new home appliances. So there’s how this fit into a financial blog. Of course, I’ve spreadsheets for my investments as well as my energy consumption.
@Christof — Thanks for getting back, sounds a win. I may be misunderstanding you but if you have a blog about this and would like to put a link here, please do. (We can read it via Google Translate).
@Gadgetmind — £75? Surely a typo?!
@The Investor
No, not even slightly a typo. I got £40+ on Mon 23rd, £75+ on Tue 24th for 90 min session, and I’m guessing around £38 for the one this AM (30th).
The algorithm has been published, so it’s kind of like knowing what the stock market is going to do when it comes to making a few bob assuming you can move load around. The money I made today was all done by things turning on/off automatically and mostly before I made the morning tea, and I even got paid for the energy I used to make the tea!
If one holds an accumulating ETF on the date of the end of the accounting period you are deemed to receive the Excess Reportable Income 6 months later, presumably if you sold the day before and reinvested in another ETF for the same index but different accounting period then sold again before the end of its accounting period, then repeat ….
I actually recently started working at a company that manages demand response events across the pond, so I’ve been steeping in this for a while.
I tend to agree with your thought that the incentives you described are odd and take too much work. The way this has been going in the US so far is more along the lines of the utility (and DR provider) being allowed to tweak your thermostat settings up or down a few degrees. The US has significant air conditioning loads in the summer, so it works well here. The usual compensation model is a yearly incentive of $50-100, which gives the utility the right to mess with your thermostat some set number of times per season. So it’s _mostly_ a one-time transaction for the end user. They can opt-out of any given event, but do it too much and you lose the incentive.
I gather England doesn’t have much in the way of cooling, but as people move to electric heat pumps that model may begin to apply for heating in the winter.
Longer term, we’re going to see more devices integrated. EV charging, EV discharging (vehicle-to-grid), home batteries, etc. Those are both much bigger, and much more flexible, loads. I’m not sure what the demand response incentives will look like there, but they’ll definitely exist.
All this works because electric grids have very uneven demand. The top 1% of demand-hours in the US cause 9% of the costs to the grid. The top 10% of hours cost 20% (IIRC). So if you can bring down demand during those times it saves a lot of money. It also saves on capital investment in the grid – you have to build out physical plant (generators, transmission lines, substations, etc) to support those peak hours, but the rest of the time you’re underutilizing those assets. Grid assets run at 50% usage a lot of the time – imagine looking at company financials and finding it has *massive* capital costs but only runs those assets at half! Reducing peak loads helps with that problem as well.
US utilities are also going to Time of Use rates. Many already have, and in some cases peak-hour prices are double off-hours prices. That’s just an every day change though, pricing doesn’t change in response to day-to-day conditions (for the most part – there are certain exceptions, primarily in Texas because, well, Texas.)
All of the above becomes even more important as energy currently generated with fossil fuels moves to electricity.