As Europe ramps up renewable energy deployment and increasingly electrifies the economy, electricity production and demand are expected to double by 2050. A high number of additional generators and consumers will be connected to the power grid at the distribution level. This poses challenges to the existing infrastructure which was not built to handle such increased loads.
In fact, the recently reformed EU rules on electricity market design establish new obligations for governments, regulators and system operators that aim at using existing grid capacity more efficiently. For example, it obliges national regulatory authorities to regularly estimate flexibility needs as well as governments to develop indicative national objectives for non-fossil flexibility. It further requires transmission and distribution system operators to publish maps with available capacities for new, firm and flexible connections, and to enable flexible connection agreements. Furthermore, the European grid action plan tasks the EU’s energy regulator agency ACER to recommend best practices for the promotion of smart grids and network efficiency through tariff design.
Why demand flexibility?
In the past, the National Grid’s strategy for dealing with growing demand was reactive. It focused mainly on managing the supply side of electricity generation by ensuring there was enough electricity to meet demand and adjusting production based on consumption levels.
With the rise of intermittent renewables and increasing electrification, however, electricity production became less flexible and grid capacity got limited. Therefore, extending the grid so that it could handle larger loads would take a lot of time and money, which makes it unaffordable.
Today’s energy system requires a different approach. Rather than treating demand as an unchangeable factor, using demand flexibility gives energy users an incentive to use energy differently flattening out the peaks and troughs of demand.
When executed successfully, demand flexibility facilitates a more reliable, sustainable and efficient energy system. By reducing demand when grid capacity is scarce, it reduces need for grid extensions, as well as new transmission lines or new large power plants. These flexibilities have the ability to adapt their generation and/or consumption at short notice and for a given period, when requested by System Operators during times of peak demand.
Where?
In 2014, France was the first country in Europe to open up all its national market structures to consumers. Countries such as Italy, Belgium, the United Kingdom and Portugal also have different specific mechanisms for demand-side services that enable them to take advantage of such demand-side resources to help cover the flexibility needs that the electricity System Operator may require. In Spain the first auction was held in 2022.
Who can take part?
Originally, only larger consumers could benefit from participating in the system’s flexibility because their energy consumption was much higher as well as their scope of resources for providing such flexibility. However, smaller consumers and even households became part of it as the role of demand aggregator (energy sector agents that combined and managed flexibility from different assets) started to appear.
How to get involved
Demand-side flexibility is provided by controllable loads. The fact that their demand does not have to be met instantly, translates into flexibility. These are the most common examples:
- Load shedding: smart technologies can help consumers interact more actively with the grid and reduce their consumption at a certain point in time to alleviate it or increase production to help maintain its balance.
- Storage: in the shape of batteries, hydraulic pumping and molten salts are ways to improve large-scale energy storage to cope with supply dips or demand peaks. As their load is completely flexible, they can operate in response to generation patterns and be charged if generation exceeds demand and, on the other hand, discharged if generation fails to meet demand.
- Heat pumps or cooling assets: they can also adjust their operation to external signals. Well insulated buildings or boxes can maintain temperatures over several hours meaning that heat pumps and cooling cabinets can be switched off during peak hours and shift their load to off-peak times.
- EVs: with smart charging technology, charging can be adjusted according to external factors, such as price signals, to shift demand to periods with lower prices. This also means that electrical vehicles can “switch” sides and be used as a battery to supply power to the grid.
Criteria for participation
Depending on the country and on specific situations in which the System Operator determines that there are not sufficient resources to maintain adequate reserves for the system, specific criteria may change in terms of capacity, ability to respond and period of participation. But to take part in the demand flexibility services, a consumer must:
- Be able to reduce its capacity, or shift it to a different time of day, usually a minimum of 1MW (separately or in combination with other consumers).
- Have access to real time metering.
- Be able to respond to a request to reduce demand with at least a 15-minute notice, or in some cases even less.
- Be able to cut demand when given notice, usually for at least half an hour and for a maximum period of 3 hours per day.
- Not be involved in any other schemes connected to electricity capacity.
Benefits
The are several benefits from providing flexibility:
- Support the grid, by actively participating in balancing the grid.
- Help energy transition, by backing-up the intermittence of renewables.
- Create supplementary revenues, by generating a new source of income.
In economic terms, flexibility products are usually remunerated depending on the volume of capacity each consumer can deliver:
- Capacity (MW): consumer is rewarded for a capacity that it has commit to making available on a given time slot, activatable on request of the System Operator. In this case, the remuneration is based on a fixed amount (in €/MW).
- Energy (MWh): consumer is rewarded following effective activation by the System Operator for a fixed capacity and duration (in €/MWh).
Demand-side flexibility is at the heart of Europe’s transition to climate neutrality. Using the existing grid capacity more efficiently is crucial to enable the integration of large shares of variable renewable energy and save money.
The necessary tools to increase flexibility are available although in some cases they are not mature and well-integrated enough. Therefore, it is important to consider the development of demand flexibility one of the priorities of the energy policy to help ensure a successful energy transition.
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