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Demand side flexibility

Demand Side Flexibility: Progress and Setbacks

Demand Side Flexibility (DSF) is the ability to adjust electricity usage and consumption patterns in response to various signals, like price signals and changes, incentives, or requests from utility companies. It contributes, inter alia, to maintain grid stability by balancing supply and demand, while it benefits consumers by helping them to use less power when prices are high. This, in turn, contributes to a more resilient and efficient energy system, reduces energy costs, and supports the integration of renewable energy.

Enhanced accessibility of DSF in ancillary services

There have been positive developments in the opening and accessibility of ancillary services to DSF, particularly in Central and Eastern Europe, according to the ‘2023 Market Monitor For Demand Side Flexbility’, published in March 2024 by the SmartEn and LCP Delta. This progress is largely due to efforts to “transpose the EU Clean Energy Package and meet the 2024 deadline to access to the pan-European flexibility markets”; as stated on the report. In fact, joining common EU platforms (and Great Britain) facilitates a smooth participation in ancillary services, but accessibility for independent aggregators and new market participants is still a challenge. TSO’s spending on ancillary services decreased by approximately 33% in 2023, reflecting a decline in wholesale prices, as indicated on the market monitor.  

How is Europe engaging in developing DSO flexibility?

Mostly all countries in Europe are participating in innovation projects, trials and pilots to develop DSO flexibility. However, there is a need for more incentives to further increase accessibility. Likewise, greater coordination between Transmission System Operators (TSOs) and Distribution System Operators (DSOs) is required. The Market Monitor highlights that countries like Great Britain and France are leading the development of DSO flexibility with commercial offerings.

TSO´s spending decreased

In 2023, TSO´s spending on ancillary services open to DSF decreased in all the 30 countries included in their report, primarily due to a drop in wholesale prices. Despite this reduction, Spain led with the highest spending on ancillary services, “reaching €1.59 billion even without a remunerated market for FCR”, according to the SmartEn and LCP Delta. However, accessing this value remains challenging for DSF due to regulatory barriers such as prohibitive regulations for independent aggregation. This highlights the need for regulatory reforms to enhance DSF participation.

Accessibility to wholesale markets

A notable development in this area is the P415 modification in Great Britain, which will allow demand side assets controlled by a Virtual Lead Party (VLP) to participate in the day-ahead and intraday markets independently to the Balancing Responsible Parties (BRPs). A VLP is an entity that aggregates and manages the flexible energy loads of multiple consumers to participate in energy markets. They play a crucial role in demand response by coordinating and optimizing the aggregated flexibility, which may include residential, commercial, and industrial consumers. Although aggregation thourgh VLPs can lead to more efficient market operations and reduced overall system costs, inconsistent regulatory frameworks across regions can pose challenges to the widespread adoption of VLPs. Nonetheless, mechanisms that enable DSF participation on wholesale markets are still in development and much more progress needs to be made to help independent flexibility services providers to enter these markets.  

Balancing Service Providers and ‘Free bids’

A Balancing Service Provider (BSPs) is a market participant that helps balancing in real-time the supply and demand of electricity on the power grid. BSPs provide a range of services designed to help TSOs, such as frequency regulation, reserve services, among others. BSPs can offer their additional capacity as 'free bids,' which are submitted on a voluntary basis and provide TSOs with additional flexibility to manage the grid. These bids are then available for TSOs to activate if needed and quickly address imbalances.

However, managing free bids requires sophisticated market platforms and real-time data-exchange between TSOs and BSPs. Additionally, accurate forecasting and bid submission are crucial for effective participation in the balancing market. Last but not least, BSPs must comply with regulatory requirements when submitting free bids.

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