Germany’s Demand Response Market - A Major Opportunity

EnerNOC views Germany as its linchpin of their European demand response strategy.
Published: Wed 16 Apr 2014

Over the next two years, Germany’s demand response development will be EnerNOC’s biggest opportunity. This is according to David Brewster, president and co-founder of EnerNOC.

A balancing act

The German market is more about balancing services than it is about shaving kilowatts during peak electricity demands. The country’s grid is calling for more balancing resources during times when renewables dominate output.

EnerNOC picked up on this need after the company carried out an analysis of Germany’s volume of reserves. In comparison with Pennsylvania-New Jersey-Maryland Interconnection (PJM) - the most active and largest demand response market and one of the world’s biggest grid transmission organizations) - and discovered that while Germany has half the peak load of Pennsylvania-New Jersey-Maryland Interconnection , Germany’s volume of reserves procured by the four German transmission system operators are comparable to the size of the ancillary market in PJM.

According to Mr Brewster, there are three levels of ancillary services in Germany: primary, secondary and tertiary. Primary is closest to the practice of frequency regulation in the US, which requires dispatch times of just a few seconds. EnerNOC’s focus is on the other two markets: secondary, which is similar to operating reserves and needs a five-minute response time, and tertiary, which requires a 15 minute response time.

The secondary and tertiary markets each need about 2,500 megawatts in each direction of positive and negative demand response. Germany is unique in that it needs demand response providers to drop load (positive demand response) to balance the grid, as well as to increase their load when there is more renewable power than the grid can accommodate. In total, about 10 gigawatts of load are required.

Market challenges

While the market potential is there, it is still early days, explains Mr Brewster, “It’s a major evolution just [to allow] demand response to participate in all of these services.”Currently, demand response is participating in the markets as part of “innovation projects,” but it has not been codified in the market by the energy industry laws. Mr Brewster says that with the newly elected German government now only becoming active, his firm will be working towards the inclusion of demand response in legislation.

Another issue is that demand response participation is not made easy in Germany. Commercial and industrial customers have to receive permission from the electric supplier to take part in demand response. This is because suppliers are responsible for balancing their supply and demand within their portfolio. Some European markets such as Belgium have made participation easier but Germany has yet to do this.

Also, customers providing negative demand response could exceed their contracted demand levels, triggering grid usage fees that are similar to demand charges that businesses face in many parts of the US. Aggregators like EnerNOC would like to see customers exempted from those fees while they’re providing grid balancing services.

Another major issue is that demand response will compete with natural gas power plants in the ancillary services market. This may have a negative effect on their profit margins. This may cause some resistance towards demand response.

While most of the immediate focus is being placed on Germany, EnerNOC plans to harness the potential of demand response in the European region. EnerNOC bought its way into the German market earlier this year with the acquisition of Entelios, one of the European demand response leaders. EnerNOC is also moving aggressively into Ireland and the UK.

Editor's Note: Hungry for more demand response trials, roll outs and success stories? Check out our Demand Response In Focus series and join the debate.