IN Brief:
- NESO plans to combine the Demand Flexibility Service and Local Constraints Market.
- DFS identified £23.3 million of potential flexibility opportunities between April and July 2026.
- The expanded service will support system-margin and geographically targeted constraint actions.
National Energy System Operator plans to expand the Demand Flexibility Service and progressively absorb the Local Constraints Market into a single national route for consumer-led flexibility.
The change would allow households and businesses to receive payments for altering electricity use when system margins are tight or when congestion makes increased or reduced demand valuable in a specific part of the network. NESO says the combined service will provide a clearer and more scalable market for flexibility providers.
The Local Constraints Market was launched in 2023 to help manage congestion across the transmission boundary between England and Scotland. It has rewarded consumers and businesses for increasing demand when electricity is abundant, reducing the amount paid to generators that would otherwise have to curtail output because the network could not carry it south.
Those constraint-management actions will now be brought into the Demand Flexibility Service, which has developed beyond its original role as a winter contingency mechanism. DFS became a year-round, in-merit service in November 2024 and received further capabilities in April 2026.
The April changes enabled participants to be rewarded for increasing as well as reducing electricity use, introduced zonal procurement, lowered the minimum participation threshold, and added alternative baseline arrangements. The objective was to make flexible demand useful during periods of excess generation as well as during tighter system conditions.
NESO published 73 service requirements across 68 days between the April relaunch and early August. It estimates that those actions generated consumer savings of approximately £391,000 compared with alternative balancing measures, while zonal procurement produced a further £70,000 of estimated savings by locating flexibility more precisely.
The theoretical market was considerably larger than the response contracted. Requirements published between April and July represented a potential flexibility opportunity worth £23.3 million, according to NESO, exposing a substantial gap between system need and available participation.
Consolidating the services is intended to reduce that gap. Providers currently have to understand separate rules, procurement windows, baseline methods, and dispatch arrangements. A single route should simplify access, although the final service still has to remain workable for suppliers, aggregators, batteries, electric vehicles, industrial processes, and smaller commercial loads.
The within-day merit design gives the control room more options closer to real time. Constraint conditions can change as wind and solar output, demand, plant availability, and network outages move, making flexibility procured too far in advance less useful if it is not ultimately located where the congestion occurs.
The commercial context is substantial. NESO forecasts constraint costs of £3.2 billion over the next 12 months, with average monthly costs of £335 million expected during autumn 2026. Demand flexibility cannot replace the transmission reinforcements needed to move larger quantities of electricity between regions, but it can reduce the interim cost of operating around bottlenecks.
Location is therefore as important as volume. A megawatt of additional consumption behind a constrained transmission boundary can reduce renewable curtailment, while the same action elsewhere may provide no constraint benefit. Zonal procurement and the transfer of Local Constraints Market functions into DFS are intended to make the service geographically useful rather than treating every flexible megawatt as interchangeable.
Measurement remains one of the more awkward elements. NESO must estimate what a participant would have consumed without an instruction, then calculate the change attributable to the service. Weak baselines can reward routine behaviour or understate genuine response, particularly where weather-sensitive loads, batteries, and aggregated domestic assets are involved.
The combined service must also manage interactions with other markets. A battery, industrial load, or electric-vehicle portfolio may already be committed to balancing, capacity, distribution flexibility, or wholesale activity. Dispatch and settlement rules need to prevent the same response being sold twice while allowing assets to combine compatible revenue streams.
NESO says the Local Constraints Market has shown that consumer-led flexibility can provide operational value when deployed effectively. Bringing its functions into DFS is intended to create a larger provider pool, strengthen competition, and establish DFS as the enduring route to market for consumer participation.
The transition will test whether one service can remain intelligible while accommodating margin actions, network constraints, increased demand, reduced demand, zonal requirements, and several asset classes. A broader market is useful only when control-room instructions, metering, and settlement remain dependable.
The clearest measure of progress will not be the number of capabilities added to DFS. It will be how much of the £23.3 million identified opportunity becomes correctly located, verifiable response when the electricity system actually needs it.
