Demand response is the intentional modification of normal consumption patterns by end-use customers in response to incentives from grid operators. It is designed to lower electricity use at times of high wholesale market prices or when system reliability is threatened. Demand response requires consumers to either actively respond to signals from the operator or, in what may be a more appealing option, to make use of automated solutions to enter into contracts with service providers.
Demand response can be either incentive-based, where consumers are offered payments to reduce their power consumption at times of peak demand or when the system is under stress, or it can operate on a time-price principle. This option, which simply involves consumers shifting their consumption to low-cost periods, has a lot of untapped potential for industrial consumers of electricity, as many of these have the flexibility to shift significant consumption loads to off-peak hours.
A number of provisions dealing with demand side participation are stipulated in various EU policy documents, specifically the Electricity Directive (2009/72/EC) and the Energy Efficiency Directive (2012/27/EU). In an effort to increase public engagement with demand response (current estimates suggest that only 10% of demand response potential is being tapped1), the Energy Efficiency Directive is calling on Member States to remove incentives in transmission and distribution tariffs that might hamper demand response participation. Member States should also ensure that national energy regulatory authorities encourage the participation of demand side resources, such as demand response, alongside supply in wholesale and retail markets. Furthermore, Member States should ensure that network operators are incentivised to improve efficiency in infrastructure design and operation and that tariffs are put in place that allow suppliers to improve consumer participation in demand response. 2
There are, however, some barriers that need to be overcome before we can expect to see the wide-scale uptake of demand response solutions. According to a recent report from the Joint Research Centre (JRC), the European Commission’s in-house science service, regulatory and market barriers seem to be the main obstacles to the development of commercially viable aggregation applications, e.g. establishing clear rules for the technical validation of flexible demand-response transactions.3 Another challenge to be overcome is gaining consumer trust and encouraging consumer participation, as consumer resistance to participating in projects is still significant. In this regard, demand response projects are benefiting from the deployment of smart meters, which are key enablers for demand response initiatives. Consequently, an increasing number of demand response projects are moving from research and development to consumer engagement tests.4 Programmes to lower energy consumption by providing feedback to customers on their consumption patterns are also paving the way for the wider uptake of demand response solutions. The potential benefits to consumers are significant and include energy savings of up to 10-15%, which should help bring the public on board.
To facilitate greater consumer participation, demand side products and programmes are being created within the wholesale market, and an increasing number of aggregators are becoming active. On the supply side, operators and retailers are providing access to services that enable demand side management and micro-generation. The wider uptake of demand response solutions will be further helped by the fact that EU Member States are obliged to transpose the provisions of the Energy Efficiency Directive (EED) into national law by 5 June 2014, and to report on this to the Commission. The European Commission is providing support to the Member States in a number of ways: a seminar has been held with Member States on how to implement Article 15 of the EED (on energy transformation, transmission and distribution), and work is ongoing on a state-of-play report outlining where Member States are in terms of incentive systems.
In its Staff Working Document on incorporating demand side flexibility, the European Commission outlines some actions required to boost the market for demand response. These include creating transparent, market-based incentives for demand response that reward participation through dynamic pricing, while at the same time respecting data privacy laws. The Commission also recommends that the market be opened up to exploit the potential of demand response, treating demand side resources fairly with respect to supply. Finally, the technology needs to be brought into the market through the increased roll-out of smart meters, allowing consumers to become more engaged and to understand the value of demand response.
The time is ripe for an increased demand response role in balancing the markets. Domestically-installed generating devices, particularly solar panels, are becoming more prevalent, giving households increased opportunities to produce their own electricity and to adjust their demand in relation to their own production, and also to supply electricity into the wholesale market. Household appliances are also becoming smarter, and can power-up or switch on in response to signals from the grid, which will encourage greater consumer involvement. With energy prices continuing to rise, the public’s engagement with demand response will increase, as consumers are attracted by the financial and efficiency benefits that demand response solutions can offer.
For more information:
1SWD(2013) 442 final.
3Smart Grid projects in Europe: Lessons learned and current developments, JRC, 2012.
4JRC Reference Report, Smart Grid projects in Europe: Lessons learned and current developments, p. 27.