A responsive demand side is critical to the success of the integrated European electricity market (IEM) and, more particularly, to the cost-effective transition to a decarbonised electricity market. The intermittent nature of renewable technologies such as wind and PV makes ensuring a continuous energy balance more challenging and responsive demand can play a significant role in meeting this challenge, reducing the need for more expensive flexibility services from alternatives such as conventional generation and grid-scale electricity storage.

While larger industrial and commercial loads already provide flexibility services in some Member States, the contribution across Europe is patchy, and the scope remains limited primarily to isolated peak shaving services. If this is to be rectified and demand participation in the wholesale and balancing markets increased, barriers in a number of Member States will need to be addressed. Furthermore, if the full potential of the demand side is to be realised, the flexibility of smaller industrial and commercial loads, and specifically the residential sector, will need to be “aggregated” by entities capable of acting on consumers’ demand to deliver energy services at a scale that is useful to system operators and/or Balance Responsible Parties (BRPs). In theory, incumbent suppliers would develop the innovative combinations of commodities and services needed to access the untapped flexibility embedded in consumer demand for energy services and in practice some may do so, but experience tells us that most will respond only when pressed by new competitive entry, if at all. For competition to allow these services to develop, there is a need to “unbundle” flexibility from supply and clarify the relationship between energy services entities or aggregators and incumbent energy suppliers or retailers.

Happily, a unique opportunity exists to overcome some of these barriers and generally to promote competitive innovation in delivering consumer energy services and monetising the value of demand-side flexibility. A suite of Network Codes is currently being developed to codify the operation of the IEM and one of those Codes, the Network Code on Electricity Balancing (NCEB), is particularly relevant to the promotion of innovation in tapping the value of demand flexibility. However, while calling for the inclusion of the demand side and aggregation in balancing activities, the wording of the Code could be strengthened to ensure that specific barriers to their participation are removed across Europe.

This note outlines some of the issues that need to be addressed if the potential value of demand-side flexibility is to be realised and how the NCEB could support that development. As the focus of the Code is on energy balancing post market closure, issues related to the promotion of demand response and aggregation in other market timescales are not considered. However, the measures necessary to promote the use of demand response and aggregation for balancing purposes will also assist their participation in the electricity wholesale and capacity markets, as well as be a means of addressing network constraints.