I don't think the authorities have noticed a flaw in their demand reduction scheme.
Customers are financially rewarded for reducing consumption compared with their normal usage.
What this will do is encourage people to increase usage at peak times, so they see a bigger fall on days when it is activated. People will deliberately put their washing machine on and charge their car during the evening surge just to make the occasional saving.
The energy companies know how much electricity Mrs Bloggs uses between a set period of time on average because they have that detailed useage from her smart meter.