Demand Response status in Member States: Mapping through real case experiences

Introduction

Demand Response (DR) is not new, since long before the liberalisation of the energy markets in Europe, Demand Response has been a means to manage the electricity networks particularly in case of shortage risks in national energy systems. The Transmission System Operators were typically contracting large customers that were available to shed their loads in case of need.
Today DR is even more necessary. From the years 2000s the energy systems undergo two main transitions: the first towards market liberalisation and the construction of the Internal Energy Market; the second towards a low carbon economy and a generation system driven mainly by renewable energy sources. However, liberalised energy markets require fluidity, several actors and multiple products to provide benefits to the customers; renewable-rich energy systems require increased flexibility from the network: both are elements that Demand Response can naturally provide and which clearly justify the increased attention given to DR by policy makers. In fact, demand is progressively considered as an additional energy source, at the same level of generation in all energy markets. Economically, the harsh economic context reduces electricity demand releasing the tension between demand and supply, but it also reduces economic investments for the reinforcement of the network and the constant renovation of the generation parks. In this point of view, Demand Response can contribute to defer investments in infrastructure.

In order to support the full deployment of Demand Response potential, DR was included in the legislation since the Directive 2005/89/EC1 on Ensuring the security of electricity supply and infrastructure investment and calling for the adoption of real time demand management technologies (art. 5.2.d); then in the Internal Electricity Market Directive 2009/72/EC as part of the third energy package. More substantial elements were brought by the Energy Efficiency Directive (EED) 2012/27/EU, particularly with its Article 15 on Energy transformation, transmission and distribution and underlined in the 2013 recommendations of the Communication C(2013) 7243 on Delivering the Internal Electricity Market and making the most of public intervention.
Member States are progressively implementing the IEM legislation and also gradually adapting to the entry of DR in the energy markets.

The report is based on
- the workshop "Demand Response status in Member States: mapping through real case experiences" co-organised by DG ENER.C3 and DG.JRC.F7 in Brussels on 15 October 20132. Participants to the workshop were representing national and international actors involved in DR (National Regulatory Authorities, Associations, Aggregators, System Operators) from Austria, Belgium, France, Germany, Italy and Great Britain.
- the Symposium organised by RAP and SEDC in Brussels on 6 November 2013
- further collection of open source information by the authors
The report is organised as follow: after the introduction, the second part is dedicated to the review of case studies, Member States where DR has reached different levels of development and participation in the markets. The third part summarises the findings of the analysis, in line with provisions relevant to DR in Article 15 of the EED. In the last part Recommendations are proposed.

2. Demand Response in European Member States: case studies

Austria

• Lessons learned

  • Despite the liberalisation process was completed rapidly, Austria remains a small market and competition is limited. DR can bring new actors and enhance the liquidity of the market.
  • Although apparently Austria will not face capacity issues in the near term, the infrastructure may be stressed by consumption trends, delocalised generation and increased share of renewables: DR can play a vital role.
  • Transparency and participation are at the basis of the new regulatory framework that will allow evolving from generation-driven electricity markets to actor-neutral products and services markets. The close cooperation of all actors, TSOs, DSOs and all the stakeholders, and particularly with the future (new) market participants, shall enforce a consistent transition.

• Recommendations

  • Encourage new market participants: New participants provide more liquidity to all markets. For that, existing and potential barriers shall be removed and prevented; information shall be provided to all participants and participation of customers and pools shall be supported.
  • On the regulatory front, a common level playing field for all participants should be designed as well as a technical entity in charge. Technical requirements to participate in the markets shall be adapted to all participants including DR. Bidding sizes shall be adapted to DR.
  • The entire process should be carried out transparently and in consultation with all parties involved, including TSOs, DSOs, and market operators.
  • Specific products, considering e.g. revised time slices, lower minimum

Belgium 

• Lessons learned

  • DR represents an essential resource in less flexible energy systems
  • Specific products can be designed to open reserve procurement to DR. In particular, based on fast reaction times, limited number of activation per year, pooling, shedding limit/price formula
  • In a pre-existing system, DR and aggregation can be conveyed in the market by means of a separate bidding platform
  • Transparency and cooperation are essential for the development of new instruments that efficiently capture the maximum of flexibility of the system.

• Recommendations

  • Planning ahead is a strategic need for all actors, including for DR. Preparing to offer DR has financial implications for industrial customers: costs can be faced if a stable framework and a fair reimbursement are foreseen. The regulatory and contractual frameworks should be clear and stable (Febeliec) for all.
  • Products should correspond to a large range of needs, enabling a large range of responses. Products segmentation criteria would include, e.g.: minimum size of product (MW, hours) ; maximum duration and number of activations per year; response time; seasonality (Febeliec, SEDC)
  • Actors - All actors of all size, including aggregators and service providers, should be in a position to participate directly in all the energy markets: day-ahead, Intraday, balancing markets. Markets should become actor-neutrals. However, businesses cases shall be available which do not penalise the parties (Febeliec, SEDC).
  • Remuneration based on energy appears to be more sustainable in the long run. Capacity remuneration mechanisms can bring market distortions in the long term (Febeliec). However capacity-only product (no activation price paid) is preconized by Elia.
  • A Pragmatic solution is preferable (Elia), starting with a pilot phase involving reduced volumes and immediately usable products and progressively adding more resources.

Germany

• Lessons learned from the German case

  • A pre-existing generation centric market design can be adapted to some extent to DR; however, in order to ensure the largest and most successful uptake of Demand Response, a new market structure that includes DR from the beginning shall be designed.
  • It is particularly important to identify barriers to DR before designing a new market structure that includes DR.
  • The clear definition of the roles of the actors involved and the rules that govern their relationships are fundamental in a new market design.

• Recommendations for a durable role for DR in the balancing market

  • Non-discrimination: The balancing market should be non-discriminately open to all Balancing Service Providers, including for offering in third parties' balancing groups (Swiss model). New entrants should be supported, in particular flexible assets such as loads and storage. Their participation should be simplified; a simple agreement between the power consumer and the BSP should be sufficient, without the need for any approval by the BRP or retailers.
  • Settlements. Demand Response operators should not be penalised in case of non-activation. Imbalances in retailers' balancing group due to an activated balancing service should not be penalised by the TSO and if energy costs are incurred they should be compensated preferably on a flat-fee basis; BRP shall be provided with the needed data in order to avoid relying on distorted forecasts.
  • Owners of the flexibility: Flexibility, loads and storage should be owned by the assets' owners, recognising them the right to market all their assets' benefits. They should also have the right to market freely their flexibility independently from any retailer or BSP, as well as on their own or joining a pool operated by a BSP.
  • Pragmatic and phased approach: The transition to opening the balancing market to Demand Response should be pragmatic and phased: simple and efficient processes should be developed, possibly using the existing structures, agreements, processes and products, or adapting them when necessary. Market products adapted to Demand Response or developed specifically should be promoted.
  • Specific products specifically designed for Demand Response could be developed in order to incentivise the participation of demand in the wholesale market: interruptible loads, minute reserve by Demand Response, secondary reserve by Demand Response.
  • In addition, quotas could be established whereby a minimal percentage of the balancing reserve must be provided by Demand Response.
  • The payment for the energy reimbursement of the retailer-BRP could be considered as system charge or a grid fees.
  • Penalisations for non-involvement of DR could be introduced, requiring that grid operators include significant Demand Response in their programmes in order to participate to incentive programmes or receive full reimbursements (e.g. Anreizregulierung).

France

• Lessons learned and recommendations

  • DR can favourably contrast limited liberalisation levels combined with limited flexibility in the generation park.
  • The design of a new market structure and of new DR products should leverage on the existing experience: in the French case, industrial and households involvement already exists. New products should be based on these experiences and involve old actors (TSO) along with new actors (aggregators, energy service companies).
  • Unclear business cases do not allow for the planning of DR involvement on the customers' side
  • In the framework of a new market design, roles and rules as well as business cases for demand response, aggregated demand response and demand side services shall be clearly defined and embedded in the new concept.

United Kingdom

• Lessons learned and recommendations

• UK is characterised by a dynamic competition in the electricity market and also by an ageing generation park. Yet it is one of the European countries were DR was the most developed in all the markets.
• A dynamic competition in the electricity market can provide a robust base for the development of DR
• The revision of the Energy Market design can hamper the further development of DR if DR is not considered at the same level of generation, in particular in the capacity market, but also in the provisions of ancillary services
• At any point both in the design as well as in the review phase of a market structure demand side and generation side resources should be considered on the same level
• Smart meters roll out must be accompanied by an appropriate regulation to effectively empower all actors in the value chain, for the benefit of end-users.
• Technology alone is not sufficient to empower the customers and more generally the actors of DR. The regulatory framework must be adequately adapted
• Funding for adapting distribution networks to accept more DR can be provided by the Low Carbon Network Fund for the adaptation of infrastructure.
• Adapting the energy system to DR may require the coordination of different programmes and funding systems in a multisided approach.

Italy

• Lessons learned and recommendations

  • The diffusion of (distributed) RES and net-metering schemes profoundly modified the energy system, the wholesale market and prices.

  • In order to devise tariff schemes that support the energy efficiency of the system and do not hamper the participation of DR in the markets, dynamic pricing could be an effective way of passing on market signals to final consumers.

  • Smart meters with net metering options can enable the diffusion of DR as well as RES.

  • In a future of more distributed energy sources DSOs could play new roles in the energy system

  • All actors need to be included in the design of a DR supportive schemes

  • Synergies between RES and DR supporting schemes shall be devised from the design phase