On return from work, one checks the smart meter to see when it’s best to charge the electric car, switch on the dishwasher or activate the battery storage to save the potential extra electricity produced by the rooftop solar panels. The flexibility in electricity use gets rewarded by a lower energy bill.
At the same time, this willingness to modify consumption ensures the grid can cope with increasing share of weather-depending renewable electricity, either during abundant or lowered power generation. It also means parting ways with electricity from fossil fuels, reducing emissions and getting closer to EU’s climate targets.
Sounds too good to be true? It’s already happening: in 2019, EU legislation paved the way for a revamp of the electricity market. In this modernised market, the role of Demand Response – the flexibility of household electricity use in response to the needs of the grid – enables active participation of small consumers, while increasing security of supply and making the grid more resilient.
But a single household is not a significant resource on the electricity market – this is where the so-called independent aggregators come in, pooling together many households that become a player on the market.
A new JRC report looks at how EU countries have implemented this legislation (Directive 2019/944 on common rules for the internal market for electricity). The analysis focuses on the introduction of independent aggregators of Demand Response for small end-users and identifies enablers and barriers for it in each Member State.
Implementation on the ground
The findings show that engagement in explicit Demand Response has increased over the past five years, and in 2021, it became available to small end-users in 22 Member States. Independent aggregators were recognised in the national legislation of 19 Member States. However, even though the options and the pathways are available legally, the existence of independent aggregation of residential consumers was confirmed only in seven Member States: France and Finland have the longest experience with this business model, whereas Romania and Bulgaria have only just started.
The gap appears due to a number of reasons, including whether households are equipped with smart meters, but also the compensation that consumers receive as a reward for participation and whether it is perceived as “fair” for them, while remaining profitable for the aggregator. Users’ awareness and willingness to participate play a role, whereas in the energy market the aggregators often face a difficult competition.
Different barriers are critical to the establishment of independent aggregators: lack of an appropriate regulatory framework (secondary legislation), no functional market (fair and transparent compensation mechanisms), unfulfilled technical preconditions (advanced roll-out of smart meters) and an unconvincing business case (strong participation of end-users in DR and/or permission for value stacking). If either of these four barriers is too high, then independent aggregators have little incentive to participate in the market.
Conversely, however, evidence shows that if the business case is strong enough, the independent aggregators are willing to engage with the hurdles from the other barriers.
Despite of the barriers, once best practices emerge and are shared between Member States, the smarter grid and the public will benefit from valorising the full potential of flexibility.
As households become more electrified, adding more electric vehicles and becoming even more active with generation and storage of electricity, their margin for flexibility will increase. In a difficult energy market and on a strained infrastructure, this flexibility becomes more and more valuable and can be monetised. The EU legislation is ahead of the market development and insures the framework for this future development.
Due to greater share of renewables in the energy mix, power generation pattern is irregular because it depends on the weather. Even on optimal days, the hours when, for example, the sun shines the strongest and the photovoltaic panels generate electricity at full capacity, do not coincide with the hours of peak consumption.
In such conditions, network operators meet increased challenges to reliably deliver the required power at the moment when it is needed, over an aging grid that was not designed to accommodate these realities.
Households can make their contribution to reducing the pressure on the grid by making their consumption more flexible and agreeing to modify their consumption based on the momentary needs of the system, thus participating in Demand Response.
Explicit Demand Response for small end-users and independent aggregators
Directive (EU) 2019/944 on common rules for the internal market for electricity
- Publication date
- 8 November 2022
- Joint Research Centre