Are present energy markets a favourable context for the development of residential demand response?

In several European countries, residential demand response aggregators present themselves as the pioneers of a promising mechanism of flexibility in demand! They claim they have a few thousand customers ie a tiny fraction of the market!

Residential demand response is today a “success” in North America, mainly the USA.

Are the conditions in place to see a rapid development of residential demand response services in Europe, as the North American development? Are residential demand response aggregators truly European scouts?

Simplistically, the economic equilibrium of an demand response aggregator depends on the value of flexibility and, indirectly, of the cost of energy for its revenues, and on the cost of acquiring a customer and on the cost to actually shed the loads when needed.

Today, the value of flexibility is moderate in European countries: the creation of a capacity market may improve the situation without revolutionizing it.

By cons, in the residential market, the cost of customer’s acquisition and shedding cost remain high.

The acquisition cost is even higher than demand response services is an offer that raises questions among consumers, which is not easy to understand, even if reduced to its simple financial interest and which has no awareness in Europe.

The presence of an electric heater allows, from a single point to shed more than half of the power: so much more favourable economically. But the full cost of the control boxes installed in the accommodation and of the full activation system does not allow for profitable residential demand response.

But beware, the market conditions are changing fast: the conclusion that is valid today may not be tomorrow. I said, the value of flexibility increases. The development of M2M and IoT technologies will significantly reduce the activation cost of load shedding.

The future viability and interest of the residential demand response is also to be assessed against other solutions that will contribute to a better load-balancing capacity among households: dynamic tariffs could provide higher remuneration at a lower cost; storage of electricity could also be eventually in the residential, an attractive solution.

But for still some years, the real interest of demand response services is found in larger industrial and commercial consumers.

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