Policy Brief / Energy
Shift, Not Drift: Towards Active Demand Response and Beyond
• European electricity systems are evolving towards a generation mix that is more decentralised, less predictable and less flexible to operate due to the large scale integration of renewables. In this context, additional flexibility is expected to be provided by the demand side. This implies consumers must be shifted from the current ‘passive’ role to providing ‘active’ demand response.
• The objective of the 11th THINK report is to assess how to realise this shift towards active consumers, using a consumer-centred approach. We recognise the need for ‘software’, such as contracts, to engage consumers in addition to the enabling ‘hardware’, such as smart meters and appliances. We propose recommendations for consumer empowerment tools, as well as for market design and regulation that would allow the take-off of active demand response.
• A prerequisite of consumer engagement is to have an adequate range of contracts that match different consumer categories. The Think report demonstrates that consumers are diversified both in their flexibility potential and their preferences on a set of criteria that affects their willingness of participation in demand response. We propose a consumer profiling tool that not only empowers consumers to make informed and appropriate choices, but also facilitates intermediaries to valorise active demand response.
• Our analysis shows that one single market player might not have incentives to offer an adequate range of demand response contracts. Therefore, it is essential to have diversified market players acting as demand response intermediaries. The entry of new market players, such as consumer cooperatives or third parties from non-electricity sectors, needs to be facilitated.
• The THINK report further illustrates that the retail market design needs to be adapted to accommodate active demand response. All consumers should be able to make deliberate choices about their electricity supply, and to valorise their flexibility through active demand response. We propose one such market design referred to as ‘real-time market’.
• Given the decentralised and local character of demand response, national authorities may be best placed to implement the necessary measures as proposed in the report. The EU’s role should be focused on promoting contract pilot studies, disseminating the results of decentralised pilot projects, providing guidance or framework regarding consumer empowerment and protection, and rethinking the design of retail market.