Current Outlook of Demand Response in Europe
Demand Response (DR) enables utilities to reduce or shift consumers’ electricity usage during peak periods, which leads to a major relief in the power grid operation. The DR initiatives can help significantly reduce energy prices as the demand shifts during the high tariff hours. Policymakers and market participants across the globe understand the benefits of demand response.
Many European countries such as France, UK, Germany, Italy, Switzerland, and Belgium have opened their market to several DR programs. In some countries of Europe such as Slovenia, Poland, and Spain, DR resources are only allowed to participate in one program. The EU demand response market is still in the development phase, with a disintegrated market covering 28 countries with four to nine electricity markets in every country.
The European Energy Efficiency Directive and Network Codes have initiated explicit demand response programs that incentivize consumers to alter their consumption patterns in exchange for incentives. An aggregator manages them to provide flexibility to energy markets. These programs aim to fulfill Europe’s energy goals and political pledges in 18 countries. The research board Smart Energy Demand Coalition (SEDC) and European Commission have proposed revision of the energy regulations to take a step towards full participation of demand response in Europe.
In European policies, many legislative texts exist, such as in the Electricity Directive 2019/944 and 2019/943, which target the introduction of DR aggregators to sell pools of electric loads to and from small-end users. While multiple demand response programs are active in Europe, there is still a need to address major barriers such as consumer access and market balance requirements. Major barriers include a lack of legislation and no functional market with compensation mechanisms to create a viable regulatory DR framework.
Key European Markets of DR
The DR potential for every country in Europe varies according to the energy consumption rate. Some of the most significant energy potentials are observed in France with 8.1 GW, the UK with 5.8 GW, Germany with 9.6 GW, and Italy with 5.1 GW.
Demand Response in France
Since 2003, France has utilized demand response management to foster liberalization in the energy market. In 2021, significant progress has been made in demand response services, aiming to maintain the balance of the electrical system. The DRA established a grid for energy needs to supply 1 MWH of demand response in wholesale markets. To further enhance the energy sector, the French Authorities have proposed a solution that will adjust to the 2023 energy objectives and further promote demand response in France. In France, the last three capacity auctions and “Appel d’Offre Effacement” have clearly shown that the French power system is ensuring the generation and security of consumer electricity supply.
Energy Pool is a company that offers demand-side response management solutions for end-users, utilities, and system operators in France. The company has been the pioneer in the French energy market and has worked with RTE to provide more than 680 MWh DR capacity to industrial and tertiary sites.
In the past decade, the UK’s electricity system has changed dramatically with the increasing use of renewable energy resources contributing to the electricity demand. The UK is at the peak of the electricity requirements with 9.8 gigawatts. In the demand response programs, low carbon developments like the Hinkley Point nuclear power station and others are included, aiming to serve up to one-third of the UK’s electricity needs.
The electricity sector in the UK has undergone a major transformation since 2020, with $100 billion of capital invested to reform the electricity infrastructure. The UK government planned the installation of 54 million smart gas and electric meters in households and SMEs in 2020 to identify consumers’ energy consumption patterns and enable Time of Use (ToU) tariffs. With demand response programs in place, the UK consumers will be able to save up to $2.3 billion in the upcoming decade.
Ameresco provides DR services for a wide range of sectors, including commercial, industrial, higher education, households, and government. The company has aligned with the UK government to achieve net zero emissions by the end of 2030. Flexitricity is another DR service provider that mainly focuses on renewable energy infrastructure. The company partnered with Gateshead Energy to create behind-the-meter generation assets that provide households with low-cost energy resources and efficiently manage the energy.
Italy has been working on demand response programs for some time and has a national plan to achieve a target of 55% of electricity consumption by using renewable resources by 2030. This has implemented demand response management programs in various mechanisms to actively enhance the efficiency and security of supply. In Europe, Italy has implemented the highest number of demand response (DR) programs, equipping 98% of consumers with smart meters that read energy consumption data every hour. This enables a better understanding of energy consumption patterns.
Terna, the operator of the electricity grid in Italy, has introduced different DR programs to achieve the goal of decarbonization by the year 2025. The operator sold 261 MW of power contracts in the energy market in February 2023. Energy Team is a DR service provider in Italy with advanced management resources to increase economic and sustainable environmental development. The company has served over 500 customers with 3,900 MW of energy provided via a direct agreement. Similarly, the national Transmission System Operator (TSO) has partnered with Terns, SpA, to balance the extensive exploitation of renewable energy resources to guarantee appropriate reserve margins.
The demand response started in Austria between the years 2013 to 2014. In 2020, the Austrian government planned DR programs to achieve carbon neutrality by the next 20 years. The coal-fired power plant, originally planned for closure in 2020, will contribute to achieving the carbon neutrality target without relying on nuclear power. The country has set a goal to provide 100% renewable electricity supply by the end of 2030. To achieve this target, Austria aims to accomplish a net increase of 22 to 27 TWh of renewable electricity, positioning itself as the leader of Europe in renewable energy generation.
Verbund offers demand response-based solutions to commercial and industrial clients in Austria. The company also provides household solutions such as smart meters to visualize energy usage and control lighting and heating. The company has different power plants in Austria, such as run-of-river, pumped storage, and wind power plants. GEN-I is also a DR service provider in Austria, offering services to large-scale businesses and industries. The company develops solutions to promote the use of renewable energy resources, according to Directive 2009/28/EC of the European Parliament.
Demand Response Service Providers Spanning Multiple European Markets
Different DR service providers in Europe use explicit demand response techniques to meet the capacity of consumers.
Enel X is a company that has started DR services in Poland in 2017. In 2018, Enel X received the award for the lead demand response aggregation project in Poland, enabling the provision of 50 MW for industrial and commercial customers.
In 2021, the company delivered 446 MW, and it is expected to increase its provision to 546 MW in both 2022 and 2023. By 2024, the company is projected to contribute approximately 5% of Poland’s capacity. Similarly, GridBeyond is one of the leading demand response providers that offer additional energy flexibility in energy markets creating greater business opportunities for consumers in the UK and Ukraine. The company provides energy services to 70% of the UK’s markets. The company developed the world’s first hybrid battery and demand network, which boosts site resilience.
REstore is another DR service provider serving markets in the UK, France, and Germany. In the recent decade, the company has provided up to 1 GW of DR capacity serving 80 industrial customers, including ArcelorMittal, Praxair, Sappi, and Barclays. It is also working on expanding more in the European market with $7.5 million in the capital.
Many other companies are also working with the same motive to address the need to balance constraints by adjusting energy consumption to mitigate over or under-supply. Organizers conduct numerous events to raise awareness among electricity retailers and consumers about the benefits of demand response.
Europe has seen significant growth in renewable energy production over the past decade, rising from 80 GW to 193 GW. The EU is striving to achieve balanced energy production and consumption by integrating DR programs to manage peak electricity demand.
Despite traditionally low DR participation in Europe, some countries such as Poland, Italy, the UK, and Belgium have taken steps to encourage investment and expand access to electricity services through DR auctions. The total energy consumption in the 28 countries of Europe is estimated at 52.35 GW, emphasizing the ongoing requirement for innovative solutions to effectively manage energy demand.