Demand Response in Europe: a regulatory analysis

logo EU (by Francesco Mancini)

The EU has set ambitious targets for both the short and long term with the 2020 climate and Energy package as well as a commitment to reduce greenhouse gas emission by 80-95% by 2050. UE has set ambitious target by 2030 as well both on renewable energy production and greenhouse gas reduction.

DSR could be a crucial solution in order to get the mentioned targets because of its benefits. In fact DSR creates value for the consumers by allowing them to be rewarded for changing their consumption behaviour and therefore providing flexibility to the system operators and helping them to maintain the grid balanced. In addition DSR will also play a key role in the reduction of additional generation and proportionally enhance the role of renewables in the energy supply, thus making it more secure and reducing the risk of price spikes due to political instability in the supplier countries.

Demand response programmes can be price-based, where consumers respond to a retail price structure that differentiates between time periods (e.g. time of use tariffs, real-time pricing or critical peak pricing). Alternatively, demand response schemes can be incentive-based giving customers load-reduction incentives that are separate from, or additional to, their retail electricity rate and which may be fixed or time-varying. Such incentive-based demand response programmes (e.g. direct load control, interruptible service or demand bidding programmes) are usually implemented by large industrial and commercial customers, notably the most energy-intensive ones, often through the use of dedicated control systems that allow the curtailing of load in response to a request by the energy supplier or system operator, or in response to changes in market conditions.

ENTOSO-E identifies five critical issues that need to be addressed to enable DSR to fulfil its potential:
• Clear setting of the roles and responsibilities of relevant parties to facilitate and enable the delivery of DSR and customer engagement
• Development a framework that optimizes the use of DSR across multiple parties (DSR Sharing) facilitated through the role of a future data handling body
• Agreement in Europe on Security of supply needs from the networks and the development of network planning and operation standard to reflect a new network paradigm with DSR
• Market integration of DSR
• Adoption of a common framework for DSR with regional and national settings.

Focusing our attention on the EU regulation point of view, the European legislator is working hard on developing DSR across the Europe, in order to fully support demand response, smart metering systems have to accommodate the common minimum functionalities set out in Commission Recommendation 2012/148/EU such as bi-directionality, dynamic pricing and the possibility to operate on grid management.

Furthermore both the 2012/27/EU energy efficiency directive and the third energy package 2009/72/EC impose that the member states on the transposition procedure provide incentives to make grow the aggregation of demand. European Commission on November 2013 came out with Commission Staff Working Document EC C(2013)7243 in order to sensitize the Member States to DSR.
The document mentions that around 10% of industrial load, which composes 40% of total load, is currently deployed for DSR, so it’s easy to understand the potentiality of this technology.