Demand Response

Countries and regions making notable progress to advance demand response include: 

• Australia. Under the new Technical Regulator Guideline, South Australia is mandating certain air conditioners installed after 1 July 2023 to be demand response ready.   
• The European Union approved an action plan in October 2022 for digitalising the energy system, which includes establishing requirements and procedures to facilitate data access for demand response. 
• Korea launched a new pilot programme for Auto DR in December 2022, where intelligent appliances automatically respond to demand reduction requests instead of consumers’ manual entries, resulting in a 24% improvement in electricity savings. 
  

Globally, the pace of demand response growth is far behind the 500 GW of capacity called for in 2030 in the Net Zero Scenario, under which the need for electricity system flexibility – defined as the hour‐to‐hour change in output required from dispatchable resources – more than doubles to 2030. In the Net Zero Scenario, demand response and battery storage combined are projected to meet around a quarter of flexibility needs globally by 2030, increasing to meet half of flexibility needs by 2050.  

Several markets have been increasing demand response capacity since 2020, with some countries launching their first auctions or diversifying their portfolio of demand-side resources.  

Relevant and recent market updates include the following: 

• The French market for demand-side flexibility was around 2.4 GW in 2022, and is expected to increase by 12% in 2023, with selected bids in January 2023 for a contract value of 2.7 GW for 2023  
• In February 2023, the United Kingdom secured ~405 MW of demand-side resource capacity in its one-year-ahead auction – a 23% decrease from 2022. The four-year-ahead auction slightly decreased from 2022 levels, with ~925 MW of demand-side resource capacity awarded.  
• As of November 2022, Korea’s demand response markets had roughly 4.9 GW of registered capacity, particularly important to reduce peak demand in summer and winter. Consumption of 43 GWh was avoided in December 2022 alone under the voluntary demand response programme. The Energy Pause Programme is also proving to be successful, with its electricity reduction increasing more than 4-fold in 2022 from the previous year. 
• In 2022, demand response in Japan saw 2.3 GW of successful bids, accounting for approximately 60% of the total bid capacity for Power Source I market, an increase of nearly 80% over 2020. In the Additional Supply Capacity market, demand response contributed 90 million kW during the winter of 2022 when Japan faced extreme power shortages. 
• In 2021, the United States registered 29 GW of peak demand savings potential across all its demand response programmes. Over 10 million residential, commercial, and industrial customers were enrolled, resulting in total energy savings of 1 154 GWh this year. 
  

Distributed energy resources and connected devices, if coupled with smart meters and digital management systems, have the potential to bolster demand response, reduce peak demand and support net zero pathways by enabling the aggregation and remote control of smaller dispersed resources.  

In the Net Zero Scenario, in 2030 around 250 GW of demand response capacity is in buildings, and another 50 GW comes from electric vehicles. This capacity is made available to the market thanks to the deployment of enabling digital technologies across key end-uses, complemented by the expansion of electricity storage. 

Some countries, such as France, Italy, the Netherlands and the Unites States are experimenting with electric vehicle-to-grid (V2G) charging, which would allow vehicles to input electricity into the grid.  

In 2022, the United Kingdom launched a programme on energy smart appliances to test interoperable demand response, including through smart metres and energy management systems.  

Virtual power plants (VPPs), which digitally link, aggregate and centrally control distributed energy resources for their optimal use, are also expanding, but they remain uneven across geographies and have yet to reach the fully commercial stage.  

New public and private VPP projects have been launched:  

• In Australia, Tesla has been expanding its VPP from South Australia to four additional Australian states and following a similar expansion in the United States, namely in California and Texas. 
• Stem Inc. is developing a VPP in Chile, considered to be the first in Latin America. 

A number of stakeholders around the world are either testing new approaches or expanding residential demand response programmes. 

• In India, Tata Power in February 2023 launched a demand response programme targeting 55 000 residential consumers and 6 000 large commercial and industrial consumers for an overall peak reduction of 75 MW (to be scaled up to 200 MW by Summer 2025). 
• In January 2023 in Japan, Itochu announced a pilot project to test the use of residential energy storage systems for demand response.  
• In the United States, more than 9 000 consumers are enrolled in the free platform, GridRewards, to reduce demand by 20 MW, with each receiving an average of USD 80 during the Summer peak season in the State of New York. Vistra in Texas is now enabling any customer with a smart thermostat to participate in demand response.  
  

The recent energy crisis demonstrated the central role played by policy response in Europe and across the world. While more effort is still needed to support demand-side flexibility and align with the Net Zero Scenario, a number of measures were implemented across geographies to expand coverage and scope.  

• Australia launched the new Wholesale Demand Response Mechanism, allowing consumers to sell demand response, and introduced Five-Minute Settlement in the National Electricity Market to provide more efficient price signals, encouraging investment in batteries. 
• Brazil approved a mechanism to allow large consumers to participate in the provision of demand response.   
• Korea is expanding participation in the residential demand response Energy Pause Programme, raising the threshold for consumers to participate from below 70 kW to all households up to 200 kW. 
• Singapore launched a new regulatory sandbox to support participation in demand response programmes by streamlining procedures, reducing penalties and providing clearer activation timeframes.  
• The European Union approved an action plan for the digitalisation of the energy system, which includes establishing requirements to facilitate data access for demand response, as well as to support the adoption of smart appliances. In parallel, the EU electricity market design proposed reform is under discussion with an aim to introduce measures to support low-carbon flexibility solutions in the market, including demand response.  
• In the United States, California approved the 2022 Load Management Standards, which aim to support demand side flexibility by requiring the largest utilities and aggregators to offer at least one hourly electricity rate to customers.  
  

International initiatives are central to accelerating the implementation of innovative technologies to support demand-side flexibility, favoring the exchange of best practices.   

Relevant initiatives to collaborate more closely include:    

• The IEA Digital Demand Driven Electricity Networks (3DEN) Initiative promotes analysis and engagement to accelerate progress on power system digitalisation and the effective use of distributed energy resources for demand-side flexibility.  
• IEA Technology Collaboration Programs (TCPs) are providing evidence, policy guidance and support for high-level government action on the design, social acceptance and usability of clean energy technologies (Users TCP), on smarter, cleaner electricity grids (ISGAN), and on energy-using equipment and systems (4E TCP). 
• Mission Innovation Green Powered Future Mission launched a roadmap of innovation priorities, including on system flexibility and market design, to effectively integrate up to 100% variable renewables by 2030. The Mission also launched two flagship projects: the launch of five demonstrations in five continents with up to 80% variable renewable energy (VRE) by 2024, and a Multilateral research programme to tackle 20 of the identified Innovation Priorities by 2023. 
  

• Matt Chester, Chester Energy and Policy, Contributor 
• Kim Sung Kyu, Senior Manager, Demand Response Market Team, New Electricity Business Department, Korea Power Exchange, Reviewer  
• Steven Beletich, Operating Agent, Electronic Devices and Networks Annex, E4 Techonolgy Collaboration Programme, Reviewer