Quantifying the Benefits of Demand Response

In terms of physics, having DR participate in wholesale electricity markets is necessary to ensure it matches the needs of flexibility entailed by a wide use of renewables: you need GWs of DR to balance the intermittency of GWs of renewables.

In terms of competition, allowing DR to bid in the market alongside  generation ensures the cheapest solution is selected by the market –  hence expensive generation is avoided by reducing consumption instead,  and thus expensive prices are avoided: DR ensures suppliers reduce their sourcing costs.

These are direct benefits for all suppliers: buying cheaper in the market, they save money.
On the other hand, having DR sold in the wholesale market means it is bought by electricity suppliers: DR comes at a cost.

This study quantifies the benefits and the costs of DR: it shows that benefits are 190% greater than costs: DR entails a huge net benefit to  suppliers, to be ultimately transferred to all consumers.

Note: DR will benefit all suppliers, hence all consumers – not just those participating in DR.

CompassLexecon used their standard pan-European system model to quantify the impact of having 30 GW of DR in 2030.

30 GW is several times more than available today, yet far from the  potential of 160 GW in 2030 according to the report published by the European Commission with the Clean energy package.

Several  strictly conservative assumptions are used, thus leading to  underestimate the benefits of DR – and yet the model finds benefits  almost twice greater than costs.

Given the new situation, with rapidly increasing wholesale prices of electricity linked to scarcity of generation resources, particularly from gas, benefits of using DR at scale in the short term, i.e. during the upcoming winter, have dramatically increased.

Compass Lexecon provided in May 2022 an updated version of their study for this period (2022-23) showing huge impact obtained with only around 5% of peak load participating to DR in the wholesale market.

The need to protect consumers from wholesale market prices at such level arose as a major concern throughout Europe and should definitely lead to a wider use of demand response, first of all by opening wholesale market to DR in all Member States.

The executive summary highlights the key results of this quantification of having DR participate in the wholesale electricity markets: it is available for download here.