Demand-Side Flexibility for Energy Transitions: Policy Recommendations for Developing Demand Response

Demand response (DR) is a set of demand-side activities that provide an array of grid balancing services, including equilibrating demand and grid losses with supply. Because DR can facilitate the integration of renewable energy sources, marked by intermittency, there is also widespread consensus that DR can reduce the carbon-intensity and cost of power systems. Yet, the deployment of DR is stymied, in large part, by market and regulatory barriers as well as technological uncertainties, particularly technological developments, such as electrical energy storage, which can either complement or compete with DR.

DR must be developed competitively, since it involves a continuum of options and actors, and its deployment may generate a variety of risks, e.g. investment and regulatory risks, as well as short and long-term power-system risks. The perceived benefits of DR also vary depending on the stakeholders’ standpoint. Adopting a risk governance approach to DR deployment is recommended to better gauge the risks and benefits, and thereby to evaluate the extent to which demand response is a viable alternative to investment in conventional peak capacity and grid reinforcement, and to unlock barriers to its competitive development in an evolving power system.

This Policy Brief synthesises the key outstanding issues regarding the use of DR, focusing on the context of energy transitions in Western Europe.