How can we enable higher flexibility in energy markets?

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How can we enable higher flexibility in energy markets?

  • Posted by: webmaster
  • Category: Uncategorized

As Europe moves towards the energy transition, the energy system is becoming increasingly less centralized. A market which relies on central power plants to supply electricity to customers is being replaced by one which is made up of distributed resources. Distributed resources mean more renewable energy sources on our grids, and this in turn demands that markets need more flexibility.

While an increase in renewable energy sources such as solar and wind is a major positive for our environment, their generation power does fluctuate. The wind doesn’t always blow and the sun doesn’t always shine for example. Demand Response (DR) is one viable way to improve grid flexibility, by better adjusting demand patterns of consumers to supply patterns of renewable energy sources.

Demand response is not a new concept, it is already in use in large industrial applications. However effectively using demand response strategies at small to medium consumer and prosumer scale is at a much less developed stage. Unleashing this potential held at the small to medium scale will become increasingly important as more renewable, decentralized sources of energy production become accessible. DELTA’s early research is looking at a number of ways that more flexibility can be added to our energy markets through intelligent demand response.


Using innovative, digital solutions will play a huge role in ensuring our markets are fit for energy production from renewable sources. This has been recognized by the European Commission. One issue the market currently faces in regards to demand response is high transaction costs. Automating transactions through digital solutions allows more small and medium scale prosumers and consumers to be involved in energy markets, adding flexibility.

A major driver in realising the benefits of digitalization for small to medium scale prosumers and consumers in demand response activities is the availability of smart devices. Smart devices are devices which can communicate their energy consumption status to an external source or even alter their consumption status via an external signal. Household devices include dishwashers, tumble dryers or fridges and freezers. However, it is expected that the market growth of smart household appliances will be relatively slow over the next 5-10 years. Air conditioning units or heat pumps with a smart capability hold more promise, especially when integrated with building automation systems and storage systems.

Software advances

For this type of hardware to function effectively and improve demand response flexibility, the software which backs it up must include additional features and functionalities to improve participation at a small to medium scale level. Areas of development include:

  • Solutions to handle small and medium loads,
  • User clustering,
  • Better management of prosumers,
  • Grid stability assessment,
  • Load forecasting,
  • Individual price forecasting tools,
  • Interoperability,
  • Virtual power plant services

One particular area where software advances can show huge benefit is to do with blockchain and smart contracts. Transaction costs in terms of contract monitoring at the small to medium scale are considerable. Incorporating smart contract functionalities into the above software advances will seek to cut down this transaction cost, while also providing a security and traceability which blockchain technology offers.

What needs to be done next?

December 2018 saw a big step taken in defining what Europe’s future energy and electricity market with political agreement on the Electricity Regulation and Electricity Directive. While this progress is to be welcomed, there still exists disparity on how demand response practices are approached in various European markets. Some EU nations have active and open demand response markets while some are either partially or fully closed.

For technical innovations to progress and assist in opening up the market to small and medium scale prosumers, fundamental regulatory framework elements of market design need to be addressed.

  • The roles of market participants need to be more clearly defined, particularly for independent aggregators. Some markets only allow independent participation with the approval of energy providers, complicating participation and increasing transaction cost.
  • Rethinking technical requirements and standards is an important step in intensifying demand response participation. Demand response products are often created for large generation units, this is unsuitable for current shifts towards decentralized markets.
  • In line with the benefits of smart devices, the roll-out of smart meters is equally important. Smart meters can assist in real-time monitoring, remote control of smart devices, measurement and verification. All of these benefits are central to integrating small and medium loads into flexibility markets.
  • The requirements for measurement and verification must be clear and defined in order to accurately quantify the effect of a demand response event. Having a simple methodology for measuring and verifying aggregated loads will go a long way in reducing transaction costs.
  • Incentivizing demand response can be the adoption of appropriate tariff structures and including price signals specific to renewable energy integration. Flexible grid tariffs are an important addition and can offer insight into grid status and the need for balancing demand and response.

This is not to say that work is not being done at a regulatory level. Conditions in many countries are improving with a noticeable desire from industry and policy makers to improve demand response activities. However, the benefits of unleashing demand response potential at a small to medium scale could reap massive benefits for grid security, flexibility and the integration of renewable energy sources.

The contents of this article are as a result of research undertaken by e7, one of DELTA’s partners. This June e7 will be presenting their paper entitled, “New business models enabling higher flexibility on energy markets” at the European Council for an Energy Efficient Economy Summer Study.



Author: webmaster
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