What is demand-side response?

WHAT IS DEMAND-SIDE RESPONSE?
In the future, there will be a need for consumers to help balance the electricity system by consuming when it is smart. It is smart to consume electricity, when generation levels are high – and smart not to consume, when generation levels are low.

By 2030, the Danish electricity system must have transitioned to 100% power from renewable energy sources. In Denmark, the primary renewable sources of electricity are wind and solar resources. This means that we will be able to generate electricity, when the weather permits – in other words, the ability to increase and decrease supply at will disappears as we integrate more green power into the electricity system. 

This triggers a need for solutions designed to reduce pressure on the system when electricity supply does not meet electricity demand. Since electricity cannot be profitably stored with today’s technology, the demand side will need to become flexible. Electricity consumers simply move any demand, that is less important at any given time, to a time with more electricity generation – which also happens to be when electricity is expected to be the cheapest and most environmentally sustainable. This also means that flexible consumers may choose not to use electricity at times when generation is low and the price presumably high. Thus, flexible consumers reduce their electricity bills while simultaneously contributing to the green transition. 

HOURLY SETTLEMENT IS A MUST
The introduction of flexible or hourly settlement in Denmark is the first step towards flexible demand (known as demand-side response), because flexible settlement allows consumers to react to prices in the electricity market. This means that, going forward, consumers will need to be aware of when they use electricity and not just how much they use. 

Energinet has launched various pilot projects, collaborating with both consumers and market participants across the entire value chain, to ensure that the electricity market’s framework can accommodate this change in the electricity system. Basically, the purpose is to create a market that makes demand-side response possible and reduces transaction costs to a minimum. At the same time, this work allows new market participants to test products and business models, making demand-side response not only possible, but also manageable. For more information, please see Pilot and market projects and Energinet and demand-side response.

WHAT DOES THIS MEAN FOR CONSUMERS?
This trend is already seen today among major consumers. This is because major consumers have large demand capacities and thus more to gain at present. It is expected, however, that this trend will spread down to the household level over time. Typically, the average household does not, however, have a demand capacity large enough to make bids in the market. Consequently, a number of projects focus on implementing an aggregator role in the market which can pool small demand units and then make bids on behalf of and manage these as aggregated portfolios. Read more about aggregators here. 

In addition, technology developers have emerged who aim to offer services or technologies that ensure that demand-side response does not affect consumers' time and comfort, but instead represents an easy way to exploit flexibility and contribute to the green transition.

IMPLICIT AND EXPLICIT DEMAND-SIDE RESPONSE
Demand-side response sold directly in the markets is called explicit demand. This includes, among other things, any demand that we can monitor and forecast when working to maintain balance in the electricity system. 

Implicit demand-side response is rewarded similar to explicit demand with savings on the electricity bill, but explicit demand-side response is also rewarded via trade in demand response services in the electricity markets. 

CAN CONSUMERS SELL THEIR ELECTRICITY DEMAND?! 
Yes! In essence, this means selling the timing of your electricity demand.

You basically have two options when it comes to flexible demand:

1. You can use electricity smartly; this means that you make a conscious decision to use electricity when there is plenty of it and lower your demand when there is less. In terms of the electricity system, this is implicit demand-side response.
2. You can sell flexibility (or response) services, and thereby help the system in case of imbalances. This is done by selling your ability to either increase or decrease your demand or generation for a given period against payment. This is one of the mechanisms used to balance the electricity system and is known as explicit demand-side response.

Traditionally, balance has been maintained by increasing or decreasing the electricity supply, but in a future electricity system based on 100% renewable sources, generation will depend on the weather. This makes it necessary to be able to "tweak" demand. Naturally, consumers should be able to profit from this, just as generation traditionally has been. 

If you sell your ability to adjust your demand in the balance market, you can be activated to the extent of the bid made for any given period – by either increasing or decreasing your demand. The point is to use supply or demand to adjust the volume of electricity in the system – there is sufficient electricity, if we use it correctly.

Using this method, consumers reduce their electricity bills while also contributing to the facilitation of the green transition, reducing their carbon footprints and profiting from selling the timing of their electricity demand