Demand response activity in Europe has shown positive growth during the past year, but remains restricted by regulatory barriers that make it either illegal or impossible in the majority of states.
In its latest mapping of demand response in Europe, the Smart Energy Demand Coalition (SEDC) found that demand response is commercially active in six countries – Belgium, Great Britain, Finland, France, Ireland and Switzerland.
However, in all other countries there are regulatory barriers of some degree. Four of the countries, Austria, the Netherlands, Norway and Sweden, have a partial opening. Another four countries, Denmark, Germany, Poland and Slovakia, have shown preliminary development. But in Italy and Spain the markets are closed, and although thorough regulatory review hasn’t been undertaken of Portugal and the other countries of Eastern Europe, no development activity was visible on initial review.
Energy Efficiency Directive
The development of demand response in Europe is due to the European Commission’s Energy Efficiency Directive. Specifically Article 15.8 requires national regulators and transmission system operators (TSOs) to allow consumer access to markets through demand response programs, to enable the participation of service providers such as aggregators and to enable and encourage program development.
Criteria to enable demand response
To enable demand response participation in the markets, including the wholesale, balancing, and other system services markets, the SEDC has developed what it considers as four necessary criteria. [Engerati- The Need for a Demand Response Action Plan For Europe]
1. Involve consumers
The SEDC finds that enabling consumer participation in demand response may be the most problematic for regulators. Either demand is not accepted within the national markets as a resource, or the market roles and responsibilities do not allow for direct access of consumers to service providers and therefore a clear path to market. Countries in the process of overcoming this barrier are Switzerland, France, Belgium and Austria.
2. Create products
Program descriptions are generally historical, with balancing market participation requirements designed around the needs of generators. However, when the TSO and the regulator set out to improve program descriptions, the efforts are generally successful. Here dialogue and close cooperation with demand response providers has been a critical element in moving the markets forward, for example in Finland, France, Austria and Belgium.
3. Develop measurement and verification requirements
In many member states the regulation concerning measurement and verification does not yet exist. In other words, there are no standardized and transparent requirements for how energy consumption reductions should be measured and therefore also how they should be valued. However, the issues around this tend to be resolved as the market matures and opens. A significant improvement is already visible between 2013 and 2014.
4. Ensure fair payment
Payment and risk shows the least improvement between 2013 and 2014. Though penalties for non-performance are generally adequate, adequate payment for demand response is more problematic. Standards of transparency and reporting must be created and enforced, both within the wholesale and balancing markets to ensure a level playing field and access of new entrants.
Demand side targets
Noting the growth of intermittent generation and the appearance of new demand side sources, such as server farms, heat pumps, cooling units and air conditioners, the SEDC argues that to fully realize the potential of demand side programs, they must be implemented during this phase of electricity market development, so they can be built as an integral part of the new system.
To this end the SEDC calls for clear and objective demand side targets at both European and member state levels. These should include logical step-by-step strategies for market development of consumer demand side services, measured and verified against well-defined key performance indicators.
“Only a planned and coordinated effort can hope to overcome the systematic historical barriers to demand response,” the SEDC concludes, calling for the Commission’s leadership in this process.