Written by Marcelo Torres, Policy Officer
In its most recent analysis the European Commission stresses that Demand Response could cut European peak demand for electricity by 10%, or 60 GW. This is equal to the total installed generation capacity of two mid-size Member States or about one-third of all EU gas-fired power generation. The Commission estimated that realizing even a part of this would generate tens of billions of euros in energy savings by 2020, before concluding that Demand Response is a simple, cost-efficient answer to Europe’s high energy bills, overburdened grids and determination to decarbonise. This communication is of great importance because of its timing. It came out while a heated debate over high electricity bills is taking place across Europe. This is not the first time that the monetary benefits of Demand Response programs are being highlighted. A research conducted by Capgemini, VaasaETT and Enerdata in 2008 explored the development of Demand Response throughout the EU-15 and estimated €25 billion annual savings in electricity bills for customers by 2020.
One day after the publication of this document, on the 6th of November 2013, policy makers and stakeholders met in Brussels for the ‘Demand Response Symposium’ organised by the SEDC and RAP to discuss how Demand Response can help Europe to meet its decarbonisation objectives for 2030. During the workshop, Alberto Pototschnig, the Director of the European Agency for the Cooperation of Energy Regulators (ACER), provided a holistic view of the range of services that demand-side can offer to the system. His Continuum of Demand-Side Options consisted of four parts:
“The cost-benefit analysis that the third packages requires for the smart meter roll-out is most likely to give a positive net benefit if we have Demand Response capabilities taken into consideration."
(Alberto Pototschnig Presentation – Demand Response Symposium 2013)
Energy Efficiency: Provides direct and indirect benefits in all three energy policy dimensions: Achieving environmental targets, strengthening the security of supply and improving competitiveness (since there’s nothing cheaper than not to consume electricity).
Demand-Side Management (DSM): A medium term endeavor. The focus here is to shave peaks by changing the pattern of consumers’ consumption primarily via time-of-use tariffs, but also through market-based instruments.
Demand participation in Day-Ahead and Intraday markets: Consumers participate in the day-ahead and intra-day market as generators do. If the prices rise, consumers can decide not to consume as much and this helps the market in achieving equilibrium. Today, in the Scandinavian countries consumers can opt for tariffs, which are directly linked to the hourly spot prices. However, there is still a lot to be done in order to deploy this to a significant extent.
Demand Response: A close to real time response of the demand in ancillary or balancing markets.
As the Director of ACER stressed: “Demand Response is probably the most valuable contribution that the consumers can give, because at this point there are few technologies that can provide this service. It’s a very valuable and very scarce service. The cost-benefit analysis that the third package requires for the roll-out of smart meters is most likely to give a positive net benefit if we have demand response capabilities taken into consideration”.
Although Pototschnig’s breakdown of the demand-side options is thought provoking, the most established definition of Demand Response seems to be more comprehensive. In the Commission’s working document, Demand Response is described as voluntary changes by end-consumers of their usual electricity use patterns - in response to market signals (such as time-variable electricity prices or incentive payments) or following the acceptance of consumers' bids (on their own or through aggregation) to sell their will to change their demand for electricity at a given point in time.
Europe will not have to reinvent the wheel to unlock the benefits associated with Demand Response. Demand Response programs have been successfully applied in a series of countries across the world. In 2012 in the USA 29.5 GW of demand side resources were enrolled in such programs. Businesses and homeowners earned over 2 billion Euros in direct revenues over and above bill savings and avoided investment in infrastructure- much of this was within the balancing and capacity markets. Canada, Australia, South Korea and Japan also have significant levels of participation. This source of revenue could also be made available in Europe and would release money into the local economies.
According to research conducted by VaasaETT, the monetary savings achieved by residential and industrial consumers simply through shifting parts of consumption to low-cost periods during Demand Response pilots have in some cases exceeded 10% of electricity bills. If savings from avoided investment to match peak demand by adequate generation capacity and lower transmission and distribution capacity needs are taken into consideration, then the overall benefit increases remarkably. A recent study identifies material gains (materially reducing the requirements for additional generation and transmission capacities) from Demand Response of approximately €4bn per year.
Demand Response programs have begun to emerge across the EU in recent years. Regulatory developments are creating a momentum, which needs to be sustained to deliver a wider choice of Demand Response options and greater potential benefits for consumers. The gradual rollout of smart metering systems, the development of network codes for the internal electricity market (particularly those on demand connection, system operation and balancing, as well as the related guidelines on tariffs) and full transposition of the Electricity Directive (2009/72/EC) and the Energy Efficiency Directive (2012/27/EU) create the right conditions for policy-makers, regulators, network operators and energy businesses to consider how to trigger more demand side participation in the market in the near term.
It is estimated that less than 10% of the Demand Response potential is used today in EU. The benefits associated with Demand Response will soon become visible in Europe if the Commission, the Member States, Transmission System Operators and stakeholders show determination to fully realize its potential.
European Commission (2013) Staff Working Document: Incorporating demand side flexibility, in particular demand response, in electricity markets. Accompanying the document: Communication from the Commission: Delivering the internal electricity market and making the most of public intervention.
 Capgemini, VaasaETT & Enerdata (2008). Demand Response: a decisive breakthrough for Europe. How Europe could save Gigawatts, Billions of Euros and Millions of tons of CO2
 SEDC (2013) Demand Response Action Plan
 Joule Assets (2012).
 VaasaETT (2011). Empower Demand I
 Dena (2013) Netzstudie II: Benefits of an integrated European energy market. The study identified a cumulated saving potential of 10 Billion € for Germany.
 European Commission (2013) Staff Working Document: Incorporing demand side flexibility, in particular demand response, in electricity markets. Accompanying the document: Communication from the Commission: Delivering the internal electricity market and making the most of public intervention.