mapping demand response in europe today - … · mapping demand response in europe today tracking...

Mapping Demand Response in Europe Today

Tracking Compliance with Article 15.8 of

the Energy Efficiency Directive

April 2014

Smart Energy Demand Coalition

Rue du Président 1, Brussels 1050

http://sedc-coalition.eu/

SEDC-Mapping_DR_In_Europe-2014 0411


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Mapping'Demand'Response'In'Europe'Today!


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The'views'expressed'in'this'document'represent'the'views'of'the'SEDC'as'an'organization,'but'not'necessarily'

the'point'of'view'of'any'specific'SEDC'member.!

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Mapping!Demand!Response!in!Europe!Today!Tracking!Compliance!with!Article!15.8!of!the!Energy!Efficiency!Directive!

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Executive!summary'!!Demand!Response! is!a! consumer:centred!program.! It!offers!a!direct! source!of! revenue! to!households!and! businesses! as! well! as! unique! benefits! to! the! markets.! In! 2013! in! the! USA,! businesses! and!homeowners! earned! over! $2.2! billion1!in! revenues! from! Demand! Response,! over! and! above! avoided!investment! in! grid! infrastructure! and! power! plants.! This! source! of! direct! revenue! can! also! be! made!available! in!Europe!and!would! release!money! into! the! local!economies.! In!practical! terms,! this!means!that!hundreds!of!millions!of! Euros! could!be!directed! toward! local!business! (hospitals,! schools,! hotels,!office!buildings,! industries...)! through!Demand!Response!earnings,! as!of! today.! It!would! create! visible!and!concrete!benefit!to!consumers.!!!!Demand! Response! delivers! these! benefits! through! providing! consumers! :! Residential,! Commercial2!or!Industrial,! with! control! signals! and/or! financial! incentives! to! lower! or! adjust! their! consumption! at!strategic! times.! In! so! doing,! it! increases! systems’! efficiency! and! substantially! reduces! the! need! for!investment! in! peaking! generation! by! shifting! consumption! away! from! peak! hours.! ! It! acts! as! a! cost!effective! GHG! free! balancing! resource! for! wind! and! solar! generation.! Finally,! it! encourages! market!competition!around!consumer!service!offerings.!!Yet,! a! repeated! pattern! of! regulatory! barriers! stretching! across! almost! the! entire! European! Union!remains,!effectively!halting!the!establishment!of! the!programs!and!the!ability!of! third!parties! to!enter!these!markets.!!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !1!Joule!Assets!2014!2!By!the!term!“Commercial”!is!meant!all!buildings!and!businesses!which!are!not!directly!industrial!or!residential;!in!other!words,!municipal!buildings,!SMEs,!businesses!such!as!hotels,!office!spaces,!etc.!!!

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The! European! Commission! has! voiced! its! strong! support! for! Demand! Response! and! in! reply! to! these!barriers,! the! Energy! Efficiency! Directive,! Article! 15.8! outlined! clear! and! specific! requirements! for!Member!States.!The!article!requires!national!regulators!and!TSOs!to!allow!consumer!access!to!markets!through! Demand! Response! programs,! to! enable! the! participation! of! service! providers! such! as!aggregators!and!to!enable!and!encourage!program!development.!!!The!successful!application!of!Article!15.8!by!the!Member!States!will!have!a!direct! impact!on!the!types!and! range!of! services!offered! to! consumers,! the!cost!of!electricity!and! the! integration!of! intermittent!renewables.!The!purpose!of! this!paper! is! therefore!to!map!the!progress!of!Member!States! in!meeting!the! requirements!of!Article!15.8.! ! The!paper! reviews! the! regulatory! structures!of!15! countries:!13!EU!Member! States,! plus! Norway! and! Switzerland.! It! then! provides! overarching! guidelines! and! technical!information!on!how!Demand!Response!can!be!enabled,!in!order!to!further!support!these!efforts.!!Methodology!for!Member!State!analysis:!The!information!on!Member!State!was!gathered!through!desk!research,! and! expert! interviews,! with! TSOs,! DSOs,! retailers,! aggregators,! regulators! and! technology!providers.!National!market! participants! (working!with!Demand!Response)! then! reviewed! the! national!reports.!Therefore,!the!findings!reflect!the!experience!of!the!players!on!the!ground.!!!!!

!!Demand!Response!Map!of!Europe!201352014!!! !

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Main!findings:!The!research!indicated!measurable!progress!between!2013!and!2014!in!response!to!the!Energy!Efficiency!Directive!requirements.!This!clearly!demonstrates!a!gradual!improvement!in!regulatory!frameworks!and!can!be!seen!as!a! first!success! for! the!Directive.!However,! it! is! important! to!note!that!although!progress!is!positive,!only!Belgium,!Great!Britain,!Finland,!France,!Ireland!and!Switzerland!have!reached! a! level! where! Demand! Response! is! a! commercially! viable! product! offering.! Sweden,! the!Netherlands,!Austria!and!Norway!may!remain!‘yellow’,!depending!on!regulatory!developments.!In!other!words,!while!Demand!Response!companies!may!be!established,!regulatory!barriers!may!remain!an!issue!and! hinder! market! growth3.! ! The! remainder! of! European! Member! States! will! stay! orange! or! red! :!meaning!that!aggregated!Demand!Response!is!either!illegal!or!impossible!due!to!regulation.!Here!we!see!a!critical!disconnect!between!political!promises!and!regulatory!reality.!!While!policies!promise!consumer!benefits,!regulation!hinders!their!delivery!to!consumers.!!!A!fundamental!premise!of!fair!competition!is!that!Demand!Response!should!have!equal!opportunities!in!the!markets!to!those!of!generation,!as!required!by!the!Energy!Efficiency!Directive.!The!SEDC!therefore!developed!10!guidelines! for!enabling!Demand!Response!participation,! in! the!wholesale,!balancing!and!other!system!services!markets.!These!have!been!categorised!into!four!criteria:!1)!Involve!consumers!2)!Create! products! 3)! Develop! measurement! and! verification! requirements! 4)! Ensure! fair! payment.!Together!these!form!a!fourFstep!process!to!fully!open!electricity!markets!to!consumer!participation.!!!!Criteria! 1.! Enabling! consumer! participation! in! Demand! Response!may! be! the!most! problematic! for!regulators.!Either!demand!is!not!accepted!within!the!national!markets!as!a!resource!(Demand'Response'

is'illegal)!or!the!market!roles!and!responsibilities!do!not!allow!for!direct!access!of!consumers!to!service!providers!and!therefore!a!clear!path!to!market.!The!more! in:depth!the!analysis,! the!more!this! issue! is!understood!as!a!critical!barrier!throughout!Europe.!In!interview!after!interview,!complaints!were!made!of! inappropriate! or! incomplete! regulation! defining! roles! and! responsibilities! between! market!participants,!in!particular!the!retailer,!BRP,!aggregator!and!consumer.!This!lack!of!appropriate!definition!increases!risk!for!all!parties!and!enables!abuse.!!When!roles!and!responsibilities!fail!to!enable!the!clear!and! direct! access! of! consumers! to! aggregation! service! providers,! free! market! competition! around!Demand!Response!services! is! impossible.!Member!States! in!the!process!of!overcoming!this!barrier!are!Switzerland,!France,!Belgium!and!Austria4.!!!!Criteria! 2.! Program! Descriptions:! The! balancing! market! participation! requirements! were! historically!designed!around!the!needs!of!generators.!However,!today!these!narrow!criteria!are!no!longer!justifiable!as! they! block! low:cost! demand! side! resources! and! artificially! inflate! the! cost! of! balancing.! When! a!regulator! and! TSO! neglect! to! adjust! program! descriptions,! they! generally! assume! their! particular!national!businesses!and!households!are!simply!not! ‘interested’! in!Demand!Response!–!when! in!fact,! it!may!be! the!historical!and! inappropriate!program!requirements!blocking!participation.!However,!when!the! TSO! and! the! regulator! set! out! to! improve! program! descriptions,! in! order! to! allow! a! range! of!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !3!It!should!be!noted!that!although!Austria!is!now!coloured!yellow,!the!market!may!change!to!green,!if!the!significant!regulatory!changes!planned!for!2014!are!implemented!successfully.!!!4!GB!is!marked!green!in!this!area!–!however!they!have!not!so!much!overcome!the!issue!as!ignored!it.!Their!retailers/BRPs!have!no!right!to!block!participation!of!consumers!in!DR,!but!neither!are!they!protected!from!risk!or!paid!for!lost!energy!sales.!In!the!long!term!GB!will!need!to!undergo!the!same!regulatory!review!as!other!Member!States.!!

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resources! to! compete,! the! SEDC’s! findings! are! positive.! ! The! efforts! are! generally! successful5.! ! Here!dialogue! and! close! cooperation! with! demand! response! providers,! such! as! aggregators,! retailers! and!large! consumers,! has! been! a! critical! element! in!moving! the!markets! forward,! for! example! in! Finland,!France,!Austria!and!Belgium.!!!!Criteria! 3.! Measurement! and! Verification:! In! many! Member! States! the! regulation! concerning!measurement! and! verification! does! not! yet! exist.! In! other! words,! there! are! no! standardised! and!transparent! requirements! for!how!energy!consumption! reductions! should!be!measured!and! therefore!also!how!they!should!be!valued.!Each!TSO!may!establish!their!own!criteria!or!have!no!publicly!published!criteria.! In! the!worst! cases,! the! TSO!will! have! one! set! of! criteria,! the! BRP!will! have! another! and! the!retailer!will!maintain!a! third.!This! is!a!market!barrier,!as!a!consumer’s!consumption!reductions!will!be!measured! according! to! three! different! standards.! Another! issue! will! arise! if! the! measurement! and!verification!takes!place!at!the!consumer’s!level!rather!than!for!the!aggregated!pool!of!consumption.!In!the!worst! cases,! the! single! household!will! have! to! fulfil! the! same!pre:qualification! and!measurement!criteria,!as!a!500!MW!power!plant.!However,! these! issues! tend!to!be!resolved!as! the!market!matures!and!opens.!A!significant!improvement!is!already!visible!between!2013!and!2014.!!!Criteria!!4.!!Payment!and!Risk:!!This!area!shows!the!least!improvement!between!2013!and!2014.!!!Though! penalties! for! non:performance! are! generally! adequate, 6 !adequate! payment! for! Demand!Response! is!more!problematic.!Demand!Response!may!be!paid! less!MW!to!MW!than!generation.!This!can!be!due!to!multiple!factors.!For!example,!a!reserves!market!may!provide!an!availability!payment!of!50%! of! the! operational! costs! of! the! resource.! However,! Demand! Response! has! very! low! operational!costs! compared! to! generation.! This! means! that! a! consumer! will! earn! significantly! less! per! MW! of!flexibility!than!a!generator.!Added!to!this!the!fact!that!multiple!markets!in!almost!every!Member!State!are!shut!to!demand!entirely,!that!payments!may!be!negotiated!individually!per!player,!are!not!decided!through!a!market!or!auction!process,!are!not!published!etc.!and!there!emerges!a!picture!of!the!level!of!the! issue.! Standards! of! transparency! and! reporting! must! be! created! and! enforced,! both! within! the!wholesale!and!balancing!markets!to!ensure!a!level!playing!field!and!access!of!new!entrants.!!!Conclusions:!Though!the!measurable!improvement!between!2013!and!2014!is!encouraging,!the!overall!result!of!the!SEDC!review!reveals!multiple!remaining!barriers!to!the!establishments!of!consumer!centred!Demand!Response!services.!If!one!considers!the!entire!EU!and!all!28!Member!States,!the!majority!does!not! enable! Demand! Response.! In! other! words,! in! the! majority! of! Member! States! today,! Demand!Response!is!either!illegal!or!impossible!due!to!regulation.!!!The! electricity! markets! were! deregulated! specifically! to! enable! improved! consumer! services! through!market! competition.! Yet! today,!Member!State! regulation! continues! to! stand! in! the!way!of! these!very!services,!breaking!the!promise!made!to!European!citizens!when!deregulation!took!place.!!!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !5!This!process!tends!to!require!trial!and!error.!The!regulator!and!TSO!need!to!better!understand!what!will!and!will!not!be!possible.!The!learning!cycle!can!be!shortened!considerably!if!an!open!and!positive!relationship!is!established!with!consumers!and!aggregation!service!providers.!A!further!description!of!program!requirements!is!provided!in!Chapter!2.!!6!An!exception!appears!to!be!the!UK!where!consumer!involvement!in!the!Capacity!Market!may!be!blocked!due!to!penalty!design.!!

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Timing! is! crucial;! Demand! Side! Programs! form! part! of! a! private! public! partnership.! Intermittent!generation! is! increasing! and! new! back:up! generation! and! grid! investments! are! being! planned! and!implemented.!New!demand! side! sources!are!also!appearing:! server! farms,!heat!pumps,! cooling!units,!and!air!conditioners.!To!fully!realise!the!potential!of!demand!side!programs,!they!must!be!implemented!during! this! phase! of! the! European! electricity! market! development,! so! that! they! can! be! built! as! an!integral! part! of! the! new! system.!Not! only! are! European! consumers! and!businesses! being! shut! out! of!Smart!Grid!benefits!and!losing!money,!but!as!unnecessary!investments!are!made,!part!of!the!potential!value!of!demand!side!programs,!both!to!European!consumers!and!to!the!electricity!industry,!will!be!lost.!!!!Taking! into!account! the!potential!benefits!of!Demand!Response!and! the! regulatory!barriers! in!place! :!clear! and! objective! demand! side! targets! will! be! required! at! a! European! and!Member! State! level! to!ensure! real! progress.! These! should! include! logical! step:by:step! strategies! for!market! development! of!consumer! demand! side! services,! measured! and! verified! against! well:defined! key! performance!indicators.! Only! a! planned! and! coordinated! effort! can! hope! to! overcome! the! systematic! historical!barriers!to!Demand!Response.!The!Commission’s!leadership!in!this!process!will!be!essential.!!!!

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The!Ten!Rules!for!Successful!Demand!Response:!!

!!!Rule!1:!The'participation'of'aggregated'load'should'be'legal,'encouraged'and'enabled'in'any'electricity'market'where'generation'participates'

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Rule!2:!Consumers'should'have'the'right'to'contract'with'any'demand'response'service'provider'of'their'

choosing,'without'interference''

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Rule!3:!National'regulators'and'system'operators'should'oversee'the'creation'of'streamlined,'simple'

contractual'and'payment'arrangements'between'retailers,'BRPs'and'aggregators.'These'should'reflect'

the'respective'costs'and'risks'of'all'participants.'

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Rule!4:!The'aggregated'pool'of'load'must'be'treated'as'a'single'unit'and'the'aggregator'be'allowed'to'

stand'in'the'place'of'the'consumer'

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Rule!5:!Create'unbundled'standard'products'that'allow'a'range'of'resources'to'participate,'including'demand'side'resources!!!!Rule!6:'Establish'appropriate'and'fair'measurement'and'communication'protocols'

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Rule!7:!Ensure'Demand'Response'services'are'compensated'at'the'full'market'value'of'the'service'

provided'

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Rule!8:!Create'market'structures'which'reward'and'maximize'flexibility'and'capacity'in'a'manner'that'

provides'investment'stability'

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Rule!9:!Penalties'for'nonJcompliance'should'be'fair'and'should'not'favour'one'resource'over'the'other'

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Rule!10:''Create'and'enforce'requirements'for'market'transparency'within'the'wholesale'and'balancing'

market' '

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Table!of!Contents!!!

Executive!summary!.................................................................................................................!2!

List!of!Abbreviations!.............................................................................................................!11!

Introduction!.........................................................................................................................!12!

Chapter!1.!!Demand!Response!Reliability!and!Status!in!Europe!.............................................!13!1.1!The!Benefits!of!Aggregation!................................................................................................................!15!1.2!Demand!Response,!Aggregation!and!Reliability!..................................................................................!16!1.3!Environmental!and!Financial!Benefits!of!Demand!Response!..............................................................!17!1.4!European!Regulatory!Framework!for!Demand!Response!...................................................................!17!1.5!Conclusions!and!Purpose!of!the!Paper!................................................................................................!18!

Chapter!2.!!Regulatory!Requirements!for!Enabling!Demand!Response!..................................!19!2.1!Criteria!One!:!Involve!the!Consumer!...................................................................................................!19!2.2!Criteria!Two!:!Create!Products!.............................................................................................................!23!2.3!Criteria!Three!:!Develop!Measurement!and!Verification!Requirements!.............................................!25!2.4!Criteria!Four!:!Payment!and!Risk!.........................................................................................................!26!

Chapter!3.!Member!State!Analysis!According!to!Energy!Efficiency!Directive!..........................!29!3.1!Key!to!Colour!Coding!of!Member!States!and!Main!Results!.................................................................!29!3.2! Member!State!Analysis!According!to!Requirements!of!the!Energy!Efficiency!Directive!..................!31!Austria!.......................................................................................................................................................!31!Belgium!......................................................................................................................................................!32!Denmark!....................................................................................................................................................!34!Finland!.......................................................................................................................................................!36!France!........................................................................................................................................................!38!Germany!....................................................................................................................................................!41!Great!Britain!..............................................................................................................................................!44!Ireland!........................................................................................................................................................!48!Italy!............................................................................................................................................................!50!Netherlands!...............................................................................................................................................!51!Norway!......................................................................................................................................................!54!Poland!........................................................................................................................................................!55!Spain!..........................................................................................................................................................!57!Sweden!......................................................................................................................................................!58!Switzerland!................................................................................................................................................!60!3.3!!!Main!Market!Research!Findings!........................................................................................................!63!

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Conclusions!..........................................................................................................................!66!Annex!I!:!Sources!and!References!.............................................................................................................!69!Annex!II!:!Questionnaire!............................................................................................................................!73!Annex!III!:!Contractual!Relationships!.........................................................................................................!75!Annex!IV!:!Types!of!Demand!Response!Programs!.....................................................................................!79!Annex!V!:!Measurement,!Verification!and!Baseline!Configurations!..........................................................!80!Annex!VI!:Roles!and!Responsibilities!and!Consumer!Rights!......................................................................!89!

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Figures!&!Tables!!

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Figure!1:!7/17/2012:!A!20.000!MW!Demand!Response!resource!providing!emergency!capacity!in!the!PJM!market.!!..............................................................................................................................................!14!Figure!2:!Price!based!Demand!Response,!8/17/2009:!Via!phasing,!75!MW!of!expensive!generation!avoided!!!!!..................................................................................................................................................!14!Figure!3:!PJM!2011!Final!Emergency!Load!Management!(ILR/DR)!and!Economic!Demand!Response!summary.!!Reduced!MW!vs.!Committed!MW!per!zone!!...........................................................................!16!Table!1:!Results!of!SEDC!Member!State!analysis!.......................................................................................!63!Figure!4:!Demand!Response!Map!of!Europe!2013:2014!!..........................................................................!66!!! !

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List!of!Abbreviations!!!ACER! ! Agency!for!the!Cooperation!of!Energy!Regulators!AD! ! Active!Demand!APG! ! Austrian!Power!Grid!BG! ! Balancing!Group(s)!BRP! ! Balancing!Responsible!Party!BSP! ! Balancing!Service!Provider!C&I! ! Commercial!and!Industrial!CHP! ! Combined!Heating!and!Power!DNO! ! Distribution!Network!Operator!!!!!!DR! ! Demand!Response!DSO! ! Distribution!System!Operator!DSU! ! Demand!Side!Unit!EDSR! ! Emergency!Demand!Side!Reserve!EED! ! Energy!Efficiency!Directive!ENTSO:E! European!Network!of!Transmission!System!Operators!for!Electricity!FCR! ! Frequency!Containment!Reserve!FERC! ! Federal!Energy!Regulatory!Commission!FRR! ! Frequency!Restoration!Reserve!GHG! ! Green!House!Gases!GW! ! Gigawatt!GWh!! ! Gigawatt!hour!ICT! ! Information!and!Communication!Technologies!!kW! ! Kilowatt!kWh! ! Kilowatt!hour!M&V! ! Measurement!and!Verification!M&V! ! Measurement!and!Verification!!mHz! ! MiliHertz!MW! ! Megawatt!MWh! ! Megawatt!hour!NYISO! ! New!York!Independent!System!Operator!PAC.! ! Pay!as!Cleared!PJM! ! Pennsylvania,!Jersey,!Maryland!Market!PLR! ! Peak!Load!Reserve!Prosumer! Portmanteau!formed!by!contracting!the!word!producer!with!the!word!consumer!Reg! ! Regulator!RR! ! Replacement!Reserves!SCADA! ! Supervisory!Control!and!Data!acquisition!SEDC! ! Smart!Energy!Demand!Coalition!SEM! ! Single!Energy!Market!SME! ! Small!and!Medium!Enterprises!STOR! ! Short!Term!Operating!Reserve!TSO! ! Transmission!System!Operator!TW! ! Terawatt!TWh! ! Terawatt!hour! !

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Introduction!!The!European!energy!system!will!undergo!a!profound!transformation!in!the!coming!decades.!The!large:scale!integration!of!intermittent!renewable!energy!sources!coupled!with!the!development!of!the!smart!grid!will!necessitate!the!utilization!of!demand!side!resources!–!through!Demand!Response!programs!:!to!balance! the! grid! and! act! as! an! intelligent! partner! to! generation,! in! accordance! with! national! system!constraints.!!!!Establishing! appropriate! framework! conditions! in! the! form! of! regulation! and! market! structures! that!enable!the!demand!side!to!participate!effectively!in!the!electricity!market!is!essential!for!achieving!the!future! low:carbon!energy! system!as!well! as! creating!direct! and!measurable! consumer!benefits.!Much!progress! should! be!made,! particularly! with! the! forthcoming! implementation! of! the! Energy! Efficiency!Directive,! which! requires! access! of! Demand! Response! to! markets,! and! the! growing! number! of!aggregators! active! in! the!European!market!providing!Demand!Response! services! to! guarantee! system!security! and! help! ensure! operational! stability.! Nonetheless,! Europe’s! market! and! regulatory!infrastructure! still! contains! barriers! that! will! require! adjustments! as! well! as! more! fundamental!remodelling.!!!!There! is! a!measurable! gap! between!political! promises! of! consumer! improved! services! and!demand!response! F! and! market! reality.! The! first! step! to! narrowing! this! gap! is! information! –! to! answer! the!questions! “Where!are! the!barriers?”!and!“How!can! these!be!overcome?”!The! SEDC! has!mapped! and!measured! the! regulatory! structures!of!15! countries! in!order! to!provide!accurate! information!on! their!efforts! to! improve!access!of! consumers! to!Demand!Response.! It! then!provides!overarching!guidelines!and!technical!information!on!how!Demand!Response!can!be!enabled!to!further!support!these!efforts.!!The!purpose!of!this!paper!is!therefore!first!to!outline!and!delineate!success!requirements!for!creating!a!viable! Demand! Response! market! in! Europe! based! on! the! stipulations! within! the! Energy! Efficiency!Directive.! ! These! success! requirements!have!been! reduced! to!4!basic! criteria!and!10!Rules.!These!are!described!and!explained! in!Chapter!2.!The!second!purpose!of! this!paper! is! to!map! the!progress!of!13!Member!States!in!meeting!the!requirements!of!the!Energy!Efficiency!Directive!to!enable!and!encourage!Demand!Response.!The!individual!Member!State!reports!and!at:a:glance!maps!and!main!conclusions!are!provided! in!Chapter!3.!Extensive!Annexes!provide!technical! information! in!order!to!support!regulators!and! policy! makers,! including! measurement! and! verification! requirements! and! appropriate! roles! and!responsibilities!for!market!participants.!!! !

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Chapter!1.!!Demand!Response!Reliability!and!Status!in!Europe!!!Why$care?$!!

• Consumer!Revenue:!In!2013!in!the!USA,!businesses!and!homeowners!earned!over!$2.2!billions7!in!direct!revenues!from!Demand!Response!over!and!above!bill!savings!and!avoided!investment!:!much!of!this!was!within!the!balancing!and!capacity!markets.!This!source!of!revenue!could!also!be!made!available!in!Europe!and!would!release!money!into!the!local!economies.!!!!!!

• System! benefits:! Demand! Response! offers! a! number! of! benefits! to! the! electricity! system,!including!increased!efficiency!of!asset!utilization,!supporting!greater!penetration!of!renewables!on! the! grid,! easing! capacity! issues! on! distribution! networks! to! facilitate! further! uptake! of!distributed! generation! on! congested! local! networks,! reducing! the! required! generator! margin!and! costs! of! calling! on! traditional! reserve! :! including! the! associated! environmental! benefits.!!These!system!benefits!could!be!made!available!in!Europe.!!!!

• Increased! Efficiency:! Demand! Response! creates! a! reliable,! repeatable! and! clean! source! of!flexibility.! For! example! in! the!USA! 29.5! GW!of! demand! side! resources! are! under! control! and!available! to! market! participants,! lowering! the! number! of! peaking! plants! and! increasing!efficiency.!Canada,!Australia,!South!Korea!and!Japan!also!have!significant!levels!of!participation.!!This!resource!could!also!become!available!within!European!markets.!

!Demand!Response!can!be!defined!as!follows:!‘Demand!Response!or!demand!side!response!are!programs!and! activities! designed! to! encourage! consumers! to! change! their! electricity! usage! patterns,! including!timing! and! level! of! electricity! demand,! covering! all! load! shape! and! customer! objectives.! Demand!Response! includes! time:of:use! and! dynamic! rates! or! pricing,! reliability! programs! such! as! direct! load!control!of!devices!and!instantaneous!interruptible!load,!and!other!market!options!for!demand!changes,!such!as!demand!side!bidding’.8!!Demand!Response! (DR)! includes! loads,! storages,!as!well!as!distributed! (behind:the:meter)!generation;!the!latter! includes!emergency!(back:up)!generation!and/!or!cogeneration!(CHPs).! It!normally!enables!a!reduction!in!load,!but!in!fact,!can!act!as!a!flexible!resource!either!decreasing!or!increasing!consumption,!as!may!be!needed!for!certain!balancing!services!or! for!the!deployment!of! intermittent!resources.!This!enables!customers!to!consume!more!electricity!when!large!amounts!of!wind!generation!are!available!for!example,!and!wholesale!prices!are!low.!!!!It! can! provide! both! emergency! services,! as! depicted! in! Figure! 2! or! consumers! can! decide! to! lower!consumption!in!response!to!high!market!prices!as!depicted!in!Figure!3.!An!emergency!service!will!usually!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !7!Joule!Assets!2014!8!IEA!(2010).!‘Integration!of!Demand!Side!Management,!distributed!generation,!renewable!energy!sources!and!energy!storages.!!State!of!the!art!report’.!

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be!triggered!by!a!TSO!in!a!balancing!or!capacity!market.!The!consumer!response!to!high!prices!can!be!done!on!the!wholesale,!day!ahead!or! intra:day!markets.!For!both!of! these!services,! the!markets!must!allow!for!aggregation!and!ensure!market!participation!requirements!enable!consumer!services,!and!they!must!also!ensure!that!the!full!market!value!of!these!services!are!paid.!!!!!

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Figure!1:!7/17/2012:!A!20.000!MW!Demand!Response!resource!providing!emergency!!capacity!in!the!PJM!market.!!Source:!FERC!

!

!

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Figure!2:!Price!based!Demand!Response,!8/17/2009:!Via!phasing,!75!MW!of!expensive!!generation!avoided.!!Source:!FERC!

!

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The! type! of! demand! side! flexibility! represented! by! Demand! Response! increases! in! both! value! and!importance! as! larger! shares! of! renewable! energy! sources! are! integrated! into! the! generation! mix.!Residential,!commercial!or!industrial!facilities!can!provide!Demand!Response,!and!it!can!be!delivered!to!the!system!operator!individually!or!through!the!aggregation!of!individual!loads.!For!further!information!please!see!Annex!IV.!!!!

1.1!The!Benefits!of!Aggregation!!Most! consumers! do! not! have! the!means! to! trade! directly! into! the! energy!markets.! They! require! the!services! of! an! aggregator! in! order! to! participate.! Aggregation! service! providers! are! therefore! central!players!in!creating!vibrant!demand!side!participation!and!Demand!Response.!!!!The!main!function!of!aggregation!is!to!identify!and!gather!(“aggregate”)!the!flexibilities!of!consumers!to!“build”! Active! Demand! (AD)! services/capacity.! Aggregators! create! agreements! with! industrial,!commercial,! institutional!and!residential!electricity!consumers!to!aggregate!those!end:users’!capability!to!adjust!energy!and/or!shift!loads!on!short!notice.!!!!This!aggregated!capability:!

: Improves!the!reliability!of!the!services!provided!individually!by!end:consumers;!and!: Helps!utilities,!grid!and!transmission!operators!to!!

o Shave!peak!power!demands,!!o Balance!intermittent!power!generation,!!o Increase!security!of!supply,!and!!o Avoid!unnecessary!operations!of!CO2!intense!power!plants.!!!

!Aggregator! Key! Functions:! Gathers! (“aggregates”)! the! flexibilities! of! consumers! to! “build”! Demand!Response! services:! creates! agreements! with! industrial,! commercial,! institutional! and! residential!electricity!consumers!to!aggregate!their!capability!to!reduce!energy!and/or!shift! loads!on!short!notice.!!They!thereby!create!one!“pool”!of!aggregated!load,!made!up!of!many!smaller!consumer!loads!and!sell!this! as! a! single! resource.! These! loads! can! include! fans,! electric! heating! and! cooling,! water! boilers,!grinders,!smelters,!water!pumps,!freezers!etc.!!!!Aggregators!have!the!following!key!modules:!

: Consumption! and! flexibility! forecasting:! Forecast! flexibility! in! the! short! and! long! term! (this!forecasting!is!tuned!as!feedback!&!consumer!understanding!is!achieved)!

: Market! and! consumer! portfolio! management:! Consumers’! and! other! players’! contractual!relationship,!long!term!operations!(strategy)!and!risk!management!

: Settlement!and!billing:!Assessing!services!delivery!and!performing!billings!: Operational! optimization:! Algorithms! (short! term)! to! interact! with! other! players! selling! and!

activating!demand!flexibility.!Short!term!market!price!forecasting.! !

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1.2!Demand!Response,!Aggregation!and!Reliability!!Aggregation! can! achieve! performance! levels! that! equal! or! exceed! that! of! generators.! The! ability! to!aggregate! individual! customers!means! that! the! system!operator! can!operate! the! aggregated!demand!side!capacity!as!a!single!resource.!This!latter!provides!the!system!operator!with!a!diverse!portfolio.!One!of!the!key!benefits!of!aggregation!is!therefore!the!diversity!of!the!aggregated!portfolio!(the!many!small!loads!making!one! large!resource),!which!ensures!that!the!committed!capacity!will!be!delivered!by!the!aggregator,!even!when!one!particular!consumer!may!not!be!able!to!perform9.!!!!The! performance! levels! of! Demand! Response! have! been! proven! in! existing! markets! in! the! US! in!numerous!regions.! !For!example,! in! ISO:NE,!and!PJM,!and!NYISO,!the!performance!metrics!of!Demand!Response! are! comparable! to! that! of! generation.10!Figure! 4! below! shows! an! example! from! the! PJM!market:!!!

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Figure!3:!PJM!2011!Final!Emergency!Load!Management!(ILR/DR)!and!Economic!Demand!Response!summary.!!Reduced!MW!vs.!Committed!MW!per!zone.!!Source:!FERC!

!!These!numbers! can!be! similar! or! higher! than! the! level! of! reliability! provided!by! generation! resources!within! the! same!markets.!As!will! be!discussed! further! in! Chapter! 2,! aggregation,! appropriate!product!definitions,!communication!requirements,!baseline!measurements!and!clear!fair!penalty!structures!are!key!to!reliability.! !

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !9!The!aggregator!will!also!never!bid!his!full!resource!into!a!market!–!therefore!if!he!has!100!MW!of!load!available!70:80!MW!will!be!bid!into!the!market!–!ensuring!that!the!aggregator!can!fulfil!his!reliability!requirement.!!10!PJM!2011!Final!Emergency!Load!Management!(ILR/DR)!

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1.3!Environmental!and!Financial!Benefits!of!Demand!Response!!!Demand! Response! brings! unique! benefits! to! the! markets.! It! increases! systems! efficiency! and!substantially!reduces!the!need!for!investment!in!peaking!generation!by!shifting!consumption!away!from!peak!hours.!It!acts!as!a!cost!effective!GHG!free!balancing!resource!for!wind!and!solar!generation.!Adding!stability!to!the!system,!it!lowers!the!need!for!coal!and!gas!fired!spinning!reserves!:!power!plants!that!run!offline,! burning! fuel! continuously,! in! order! to! be! ready! to! supply! power! on! short! notices.! And! it! can!decrease!the!need!for!local!network!investments,!as!it!can!shift!consumption!away!from!peak!hours!in!regions! with! tight! network! capacity.! Finally,! it! encourages! market! competition,! by! allowing! the!participation!of!third!party!service!providers!(aggregators)!and!rewarding!service!oriented!retailers.!!!Demand!Response!delivers! these!benefits! through!providing!consumers! :!Residential,!Commercial11!or!Industrial,! with! control! signals! and/or! financial! incentives! to! lower! or! adjust! their! consumption! at!strategic! times.! In! doing! so,! Demand! Response! offers! end! consumers! the! opportunity! to! benefit!directly!from!the!Smart!Grid.!!The!majority!of!revenue!from!Demand!Response!programs!flows!to!end!users!and!stays!within!the!local!communities! and! builds! local! businesses.! It! is! unknown! how! many! billions! in! revenue! European!businesses!and!households!would!gain!directly! in! the! form!of!payments,! for!shifting!consumption!and!indirectly!through!lowered!investment!costs.!However,!the!Demand!Response!market!in!the!USA!is!now!generating! approximately! $2.2! billion! per! year! in! direct! revenues! for! local! businesses,! industry! and!households!as!well!as!enabling!avoided! investment!costs12.!At!approximately!3.500!TWh!per!year,! the!overall!EU!electricity!market!is!nearly!the!same!size!as!the!US!market,!at!about!3.800!TWh!per!year.!As!European! electricity! prices! continue! to! rise,! monetary! incentives! through! participation! in! Demand!Response!programs!will!become!one!of!the!best!possibilities!to!offset!increasing!energy!costs.!!!!!!1.4!European!Regulatory!Framework!for!Demand!Response!!The!European!Commission!has!demonstrated!strong!support!for!Demand!Response.!This!is!reflected!in!the!Third!Energy!Package,!which!requires!network!operators!to!take!the!potential!of!Demand!Response!and!energy!efficiency!into!account!when!planning!system!upgrades.!Article!3.2!also!states!“In!relation!to!security!of!supply,!energy!efficiency/demand:side!management!and!for!the!fulfilment!of!environmental!goals! and! goals! for! energy! from! renewable! sources,! [...]! Member! States! may! introduce! the!implementation!of!long:term!planning,!taking!into!account!the!possibility!of!third!parties!seeking!access!to!the!system.”!This!language!has!now!been!strengthened!further!within!the!Energy!Efficiency!Directive!(EED).!!!The!EED!mandates!consumer!access!to!the!energy!markets,!either!singly!or!through!aggregation.!!EED!Article!15.8!states:!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !11!By!the!term!Commercial!is!meant!all!buildings!and!businesses!which!are!not!directly!industrial!or!residential;!in!other!words,!municipal!buildings,!SMEs,!businesses!such!as!hotels,!office!spaces,!etc.!!!12!Joule!Assets!2013!

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: “Member' States' shall' ensure' that' national' regulatory' authorities' encourage' demand' side'

resources,' such' as' Demand' Response,' to' participate' alongside' supply' in' wholesale' and' retail'

markets”.!: Furthermore!“Member'States'shall'promote'access'to'and'participation'of'Demand'Response'in'

balancing,'reserves'and'other'system'services'markets,'inter'alia'by'requiring'national'regulatory'

authorities' […]' in' close' cooperation' with' demand' service' providers' and' consumers,' to' define'

technical'modalities'for'participation'in'these'markets'on'the'basis'of'the'technical'requirements'

of'these'markets'and'the'capabilities'of'Demand'Response”.!!!The!language!of!the!Directive!is!now!being!applied!to!further!regulatory!initiatives!at!the!European!level.!!The!active!Member!States!include!Finland,!Belgium,!Austria,!the!UK,!Ireland,!Germany!and!France.!!!!The! Agency! for! the! Cooperation! of! Energy! Regulators! (ACER)! states! in! its! Framework! Guidelines! on!Electricity! Balancing! also! supports! the! development! of! Demand! Response,! stating:! “These' terms' and'

conditions,! (...)! including'the'underlying'requirements,! shall,! in!particular,! be! set! in!order! to! facilitate!the! participation! of! Demand! Response,' renewable' and' intermittent' energy' sources' in' the' balancing'

markets...”' These! guidelines! form! the! basis! of! the! work! being! performed! by! ENTSO:E! (European!Network!of!Transmission!System!Operators!for!Electricity)!on!the!Network!Codes.!!!!Therefore!the!requirements!of!Article!15.8!in!the!Energy!Efficiency!Directive!are!being!drafted!into!the!Network! Codes! before! the! Directive! is! fully! implemented! in! Member! States.! This! will! speed! and!strengthen! the! process! of! implementation.! However,! considering! the! substantial! regulatory! barriers!facing!Demand!Response!today!in!Europe,!further!action!will!be!required!on!the!part!of!the!Commission!to!coordinate!and!direct!regulatory!initiatives!at!the!Member!State!level!as!will!be!discussed!further!in!Chapter!2.!!!!!!1.5!Conclusions!and!Purpose!of!the!Paper!!Demand!Response!will! provide! a! critical! tool! to! safeguard! the! successful! energy! transition!of! Europe.!!And!above!all!to!ensure!consumers!benefit!directly!and!in!a!visible!manner!from!this!transition!through!receiving!the! full!value!of! their! flexibility!and!the!demand!side!resource!they!can!bring!to!the!market.!!Over!and!above!this,!Demand!Response!is!growing!across!the!globe!both!in!regulated!and!deregulated!markets,!such!as!Australia,!Japan,!South!Korea,!USA,!Canada,!etc.!!!!The! purpose! of! this! paper! is! first! to! outline! and! delineate! success! requirements! for! creating! a! viable!Demand!Response!market! in! Europe! based! on! the! stipulations!within! the! Energy! Efficiency!Directive.!!These!success!requirements!have!been!reduced!to!4!basic!criteria!and!10!Rules!for!successful!Demand!Response.!These!are!described!and!explained!in!Chapter!2.!The!second!purpose!of!this!paper!is!to!map!the!progress!of!13!Member!States! in!meeting! the!requirements!of! the!Energy!Efficiency!Directive!and!enabling! and! encouraging! Demand! Response.! The! individual! Member! State! reports! and! at:a:glance!maps!and!main!conclusions!are!provided!in!Chapter!3.!Extensive!Annexes!provide!technical!information!in!order! to! support! regulators,! including!measurement!and!verification! requirements! and!appropriate!roles!and!responsibilities!for!market!participants.! !

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Chapter!2.!!Regulatory!Requirements!for!Enabling!Demand!Response!!!!Chapter!2!provides!an!overview!of!main!success!requirements!for!Demand!Response.!These!have!been!developed!in!accordance!to!the!requirements!detailed!in!Art!15.8.!The!fundamental!premise!for!a!level!playing!field!is!that!Demand!Response!should!have!comparable!opportunities!in!the!markets!to!those!of!generation.!Comparable! opportunity! for!demand! side! resources! in! the!electricity!markets! is! essential!for!building!robust!participation!of!demand!side!resources.!!!!Comparable!opportunity!encompasses!three!major!components:!

• Comparable!access!to!markets!• Comparable!compensation!• Fair!and!reasonable!risk!management!

!The! SEDC! has! developed! ten! guidelines! for! enabling!Demand!Response!participation! in! the!markets,!including!the!wholesale,!retail,!balancing,!reserves!and!other!system!services!markets.!These!have!been!categorized! in! four! stages:! 1)! Involve! the! consumer! 2)! Create! products! 3)!Develop!measurement! and!verification!requirements!4)!Ensure!fair!payment.!These!are!described!below!and!together!they!form!a!four:step!process!to!fully!open!electricity!markets!to!consumer!participation.!!!!!!2.1!Criteria!One!:!Involve!the!Consumer!!As!of! today,! consumers!have!no! realistic!means!of!accessing! the!wholesale,! retail,!balancing,! reserves!and! other! system! services! markets! as! few! Demand! Response! service! providers! exist! in! Europe.!!Therefore! only! the! very! largest! industrial! consumers,! with! their! own! bi:lateral! power! purchasing!agreements! can! participate! in! Demand! Response! and! only! on! a! limited! level.! Criteria! 1! “Involve! the!Consumer”,!ensures!the!creation!of!aggregation!service!providers.!It!ensures!healthy!competition!in!the!markets!between!different! aggregators! and! innovative! retailers! all!working! to! involve! consumers! in! a!range! of! Demand! Response! programs.! This! formed! the! first! criteria! by!which! the! SEDC! analysed! the!compliance!of!Member!States!with!the!Energy!Efficiency!Directive.!!'

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Rule! 1:! The! participation! of! aggregated! load! should! be! legal,! encouraged! and! enabled! in! any!electricity!market!where!generation!participates.!The!majority!of!wholesale,!retail,!balancing,!reserves!and!other!system!services!are!shut!to!aggregated!load! in! Europe! today.! In! other! words! it! is! illegal! for! consumers! to! participate! through! selling! their!flexibility.!This! is!biased!and!unfair! treatment!of!one! resource!over!another! resource;! it! is!also!biased!treatment!of!consumers.!The!first!rule!of!successful!Demand!Response!in!Europe!is!therefore!to!accept!aggregated!load!as!a!resource!within!the!markets!–!in!other!words!to!legalise!it.!!!!Rule!2:!Consumers!should!have!the!right!to!contract!with!any!demand!response!service!provider!of!their!choosing,!without!interference.'''

Much! time,! expertise! and! research! has! been! dedicated! to! studying! the! psychology! of! consumer!engagement!in!Demand!Response!and!it! is!not!our!intention!to!repeat!this!exercise!here13.! In!order!to!engage,! consumers! require! a! clearly! defined! offer,! which! is! both! simple! to! use! and! contains! clear!benefits.!And!they!require!a!party!with!expertise!in!selling!and!providing!this!offer.!As!of!today!only!the!largest! industrial! consumers! are! able! to! participate/trade! in! the! markets! directly;! small! industrial,!commercial!and!residential!consumers!require!an!aggregation!service!provider!to!act!as!an!intermediary!and!enabler14.!!!'

Consumers! in! most! European! countries! do! not! control! the! value! of! their! flexibility.! It! is! the!Retailers/BRPs!who! control! the! results! of! people’s! flexibility! or! of! their! behavioural! choices.! This! is! a!direct! threat! to! any! program! that! looks! to! make! consumers! an! active! part! of! the! energy! markets!(Demand!Response,!Electric!Vehicles,!Smart!Home,!etc.).!!The! historical! reason! for! such! a! situation! is! that! in! the! past,! consumption! flexibility! has! not! been! a!commodity,!which! could!be! sold.!However!–! the!Retailer! and!or!Balance!Responsible!Party! (BRP)!was!and! is! responsible! for! maintaining! the! grid! balance.! Therefore! it! was! logical! to! grant! Retailers/BRP!‘ownership’! of! the! results! of! flexibility! –! they! were! not! a! sold! commodity! but! part! of! the! BRPs!responsibilities.!At!the!same!time!–!if!a!consumer!participates!in!Demand!Response,!the!BRP!or!retailer!risks!being!put!out!of!balance,!or!incurring!losses!from!energy!purchases!made!during!balancing.!!!It!is!a!critical!underlying!principle!and!basic!consumer!right,!that!the!consumer!should!control!the!value!their!behavioural!choices!–!not!the!retailer!or!BRP!(or!DSO!or!TSO!or!aggregator).! If! they!save!energy,!they!should!benefit! from!this.! If! they! lower!their!consumption! in!response!to!high!market!prices,!they!should!receive!payment!–!without! interference.!Regulation!should!protect!consumers!from!potentially!abusive!situations!within!the!retailer/consumer!relationship!and!ensure!they!can!participate!in!Demand!Response!with!any!service!provider!of!their!choice.!These!structures!are!lacking!today!in!Europe.!!!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !13!For!further!information!on!consumer!engagement!see!Empower!Demand!1!&!2,!available!at:!www.vaasaett.com!14!Large!consumers!may!register!to!trade!or!buy!energy!on!the!electricity!markets,!nevertheless!no!consumer!is!allowed!in!Europe!to!directly!sell!the!energy!corresponding!to!its!curtailment!directly!on!the!electricity!market!(if!will!be!the!case!in!France!only!by!the!end!of!the!year).!!Monetizing!DR!explicitly!on!electricity!market!is!for!the!time!being!not!possible.!

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Member!States!which!have!enabled!Demand!Response,!make!it!a!priority!to!protect!the!retailer!and!BRP! from!unfair!purchasing!and!balancing! risk!while! ensuring! that! consumers!have!direct! access! to!markets! and! service! providers.! No! market! has! completed! this! process! but! France,! Switzerland! and!Belgium!have!made!significant!progress.!(For!more!information!see!Chapter!3)!!!Rule!3:'National!regulators!and!system!operators!should!oversee!the!creation!of!streamlined,!simple!contractual!and!payment!arrangements!between!retailers,!BRPs!and!aggregators.!These!should!reflect!the!respective!costs!and!risks!of!all!participants.!!Rule!3!is!in!fact!required!for!the!realisation!of!Rule!2.!An!aggregator!is!a!new!entrant!into!the!electricity!market.!As!such!their!contractual!and!legal!relationship!to!other!incumbent!players!is!undefined.!If!not!properly! handled! by! the! regulator! and! TSO,! this! creates! a! serious! legal! hurdle! for! any! aggregation!service!provider!looking!to!enter!a!market.!For!example,!in!Germany!an!aggregator!must!negotiate!five!contracts.!These!include!separate!contracts!with!–!the!BRP/retailer,!TSO,!DSO,!regulator!and!consumer.!!This!legislation!is!based!on!the!principle!that!it!is!the!retailer!and!BRP!who!should!control!the!results!of!the!consumer’s!flexibility!–!not!the!consumer.!The!contractual!requirements!are!therefore!put!in!place!to!guard!the!interests!of!the!retailer!over!what!is!considered!to!be!their!property!or!responsibility.!Each!of!these!players!will!have!their!own,!often!contradictory,!requirements!and!most!will!require!some!form!of! payment.! This! removes! the! aggregator’s! business! case! and! the! consumer’s! ability! to! freely! choose!between!the!best!market!offers.! It!acts!as!a!barrier!to!market!competition!and!third!party!entrants.! In!the!UK!by!contrast!–!an!aggregator!needs!to!have!only!two!contracts!–!one!with!the!consumer!and!one!with!the!TSO!or!other!party!purchasing!the!demand!side!flexibility.!(For!further!information!concerning!contractual!arrangements,!see!Chapter!3!and!Annex!III)!!!At! the! same! time! the! contractual! and! communication! requirements! must! be! clear! and! fair! for! all!concerned! –! both! new! entrants! and! incumbent! players.! This! is! especially! evident! in! the! relationship!between! the! Balance! Response! Party! (BRP)! (often! a! generator! or! retailer)! and! the! aggregator! or!Balancing!Service!Provider!(BSP).!Again!here!the!underlying!principle!must!be!that!the!consumer!should!have!access!to!the!best!Demand!Response!offers!available!and!to!the!service!providers!of!their!choice.!!!!This!requires!three!steps:!!

a. Allow! aggregators! to! work! with! any! consumer! –! independently! and! without!requiring!the!permission!of!the!(regional)!BRP!

b. Keep!the!BRP!in!balance!c. Ensure!fair!payment!is!made!for!electricity!purchased!by!the!BRP!and!Retailer!!

a.!Independent!operation!of!the!aggregator:!!In!order!to!establish!a!viable!Demand!Response!market,!it!is! critical! that! the! aggregator! can! work! independently! of! the! BRP! in! any! area! of! the! country.! In! the!majority!of!Member!States!today,!an!aggregator!must!ask!permission!of!the!regional!BRP!and!if/when!the!incumbent!player!denies!permission,!they!are!able!to!block!both!market!competition!and!the!access!of!consumers!to!Demand!Response!services!is!blocked!and!the!market!is!shut.!!!!

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b.!Keep! the!BRP! in!balance:!When!Demand!Response!activation!occurs! in!a!particular!area!–!this!can!throw!the!BRP!‘out!of!balance’!–!(less!electricity!will!be!used!than!was!calculated!by!the!BRP).!In!normal!circumstances! the!BRP!would! incur! a!penalty.!However! this! is!unfair! to! the!BRP! if! the! imbalance!was!caused!by!a!Demand!Response!event!over!which!the!BRP!had!no!control.!The!TSO!should!ensure!that!the! BRP! is! brought! back! ‘into! balance’.! This! can! be! done! by! the! TSO! at! the! end! of! the!month!when!market!activity!is!calculated!and!reviewed.!It!will!then!be!known!how!many!MW!were!shifted!in!a!given!area!through!Demand!Side!resources!and!the! local!BRP!can!be!brought!back!“into!balance”.!Austria! is!now!establishing!this!system!in!their!balancing!market.!!! c.!Ensure!fair!payment!for!electricity!purchased/services!provided!by!the!Balancing!Responsible!Party!(BRP)! or! retailer:! The!BRP!assumes! responsibility! for!deviations!between!energy! supplied!and!energy!consumed!within! a!balance!area.!The! BRP! or! the! retailer!may! therefore! purchase! electricity! and/or!provide! services! required! to! keep! balance! in! its! own! control! area.! When! demand! side! resources!participate!in!the!balancing!market,!this!electricity!will!be!redirected!to!the!TSO!and!the!consumer!may!save!energy.!The!retailer!and!the!BRP!or!retailer!runs!a!risk!of!suffering!a!financial!loss!if!energy!is!saved.!!This! is!especially! true!as!Demand!Response!markets!become!robust!and!several!GW!are!shifted!on!an!annual! basis.! The! retailer! should! therefore! be! reimbursed! for! the! electricity! purchased! for! balancing!purposes,!which!was!saved!by!a!consumer!during!a!Demand!Response!event.!However,! it! is! important!that!any!settlement!procedures!are! fair,! standardized!and!well!defined!by! the! regulator!and!TSO! in!order!to!protect!the!financial!interest!of!all!parties.!!!!The! SEDC! has! formulated! clear! and! simple! outlines! of! appropriate! roles! and! responsibilities! among!market!players!that!enable!Demand!Response.!For!a!description!of!these!roles!please!see!Annex!III.!!!Rule!4:!The!aggregated!pool!of!load!must!be!treated!as!a!single!unit!and!the!aggregator!be!allowed!to!stand!in!the!place!of!the!consumer.!!Aggregation! is! only! beneficial! to! consumers! if! the! aggregator! is! able! to! stand! in! the! place! of! the!consumer! to! fulfil! registration,! pre:qualification,! measurement! and! communication! requirements.! As!named!above,!in!order!to!engage!consumers,!an!offer!must!be!simple!with!clear,!measurable!benefits.!For! many! small! industrial,! commercial! and! residential! consumers,! complicated! participation!requirements! will! be! impossible! or! difficult! to! fulfil,! as! they! will! not! be! able! to! fulfil! for! example,!registration!and!pre:qualification!requirements!alone.!Therefore!in!order!for!aggregation!to!be!effective,!the!aggregated!pool!of!load!must!be!treated!as!a!single!unit!and!the!aggregator!be!allowed!to!stand!in!the! place! of! the! consumer.! This! means! that! all! registration,! telemetry,! compliance! regulation! etc.! is!carried! about! at! the! level! of! the! aggregator! –! by! the! aggregation! service! provider! and! not! by! the!consumer.!It!also!means!prequalification!shall!take!place!at!the!pooled!level!on!the!aggregated!load!and!not!at!the!consumer!level.!!!!Summary:! As! can! be! understood! from! Section! 2.1! Involve! the! Consumer,! success! requires! that!aggregation!service!providers!are!enabled!to!enter!a!market,!and!also!that!roles!and!responsibilities!are!clarified.!This!can!be!seen!as!one!of!the!most!significant!enablers!of!Demand!Response!and!an!absolute!prerequisite!if!Demand!Response!is!to!become!established!in!Europe.!Therefore,!the!first!priority!of!any!

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Member! State! looking! to! fulfil! the! requirements! of! the! Energy! Efficiency! Directive! 15.8! and! enable!Demand!Response!must!be!to!ensure!third!party!service!providers!and! incumbent!players!can!provide!aggregation!services!to!any!consumer,!within!any!electricity!market!where!generation!participates.!!!!2.2!Criteria!Two!:!Create!Products!!!In! order! for! consumers! to! participate! in! Demand! Response! programs! with! their! flexibility! assets!(demand! side! resources),! there! must! be! products/programs! with! participation! rules! that! fit! their!capabilities! and! also! deliver! a! real! service! to! the! markets.! The! second! criteria! by! which! the! SEDC!reviewed!Member!States!was!to!ascertain!if!participation!requirements!in!the!markets!are!appropriate!for! consumers.! These! should! include! the!product!design!elements!needed! to!allow!both!demand!and!supply! resources! to! compete!on!an!equal! footing!within! the!wholesale,!balancing,! reserves!and!other!system!services!markets.!!!Rule!5:!Create!standard!products!that!allow!a!range!of!resources!to!participate,!including!demand!side!resources.!!!Demand! Response! services! may! suffer! from! market! descriptions! which! take! into! account! only! the!interests! of! supply! side! resources! and! the! technical! requirements! of! the! TSO! (or! DSO! or! Retailer!depending!on!who!is!running!the!program).!In!a!competitive!market,! the!TSO!and!regulator!have!the!responsibility!to!enable!a!range!of!resources!to!compete!on!an!equal!footing!–!not!only!selected!forms!of! generation.! For! example,! a! reserves! market! typically! requires! demand! or! supply! to! be! available!between!½:2!hours.!However!the!participation!requirements!may!state!that!load!must!be!available!for!12! hours15!up! to! 16! hours.! This!will! fit! the! requirements! of! coal:fired! generation,!which!must! run! for!extended! periods! of! time,! but! does! not! reflect! the! actual! market! requirement! and! blocks! consumer!participation,!(as!they!are!unable!to!adjust!consumption!for!16!hours!in!a!row).!!!!Product! requirements!should! therefore! result! in!performance!specifications! representing! the!widest!range!of!resources;!including!demand,!renewable!generation!and!fossil!fuel!generation.!!!!Description! of! Product! Elements:! Each!Member! State!has! individual!market! structures! and! therefore!there!is!not!a!one:size:fits!all!set!of!perfect!market!products.!Below!is!a!standard!list!of!elements,!which!make! up! a! Demand! Response! product! description,! along! with! a! short! explanation! of! best! practice!principles.!!These!were!reviewed!in!the!SEDC!analysis!of!Member!States.!Within!the!analysis,!the!known!actual! requirements! of! the! given! market! (frequency,! spot...)! were! balanced! against! the! program!description! and! participation! requirements.! Another! critical! factor,! which! had! a! direct! impact! on!Member!State!results,!was!a!comparison!of!Member!State!program!participation!requirements!against!the!European!standards.!If!these!were!strict!and!excluded!consumer!participation,!this!was!highlighted.!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !15!For!example,!if!demand!side!resources!wish!to!participate!in!the!secondary!reserve!markets,!the!requirements!in!Germany!are!that!those!participating!resources!need!to!be!available!and!potentially!be!curtailed!up!to!12!hours.!

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These!general!guidelines!reflect!the!capabilities!of!demand!side!resources:!!!

! Full! Activation! Time! (call! time):! The!more! time!consumers!have! to!prepare! for!an!event,! the!higher!the!participation!level!and!the!lower!the!cost.!!!

! Minimum! and! maximum! quantity:! The!minimum! quantity! should! be! as! low! as! possible.! For!example! in! the! spot!market! in! the!Nordics! consumer! can!bid! in! 100!W;! in! several!markets! in!Europe!the!minimum!quantity!is!50!MW.!The!50!MW!limit!is!usually!due!to!the!fact!that!the!TSO!uses!a! telephone! to!call!on! resources!manually.!The!SEDC!would! suggest! that!TSOs! should!be!willing!to!employ!a!more!advanced!level!of!communication!technology.!!This!is!a!critical!market!barrier!to!new!entrants.!Acceptable!minimum!bid!sizes!are!3:5!MW!depending!on!the!size!of!the!market.!!

! Price!of!the!bid:!1)!Prices!should!be!transparent!and!communicated!in!advance.!2)!They!should!also!be!the!same!for!all!market!players,!including!consumers.!3)!Markets!that!are!pay:as:cleared!(PAC)!are!significantly!easier!for!Demand!Side!resources!to!flourish!in!than!Pay:as:Bid!(PAB).!This!is! due! to! the! fact! that! the! lower! cost! solutions!will! earn! extra! income! in! a! PAC!market.! The!aggregation!service!provider!can!then!use! this! income!to!engage!a!wider! range!of!consumers,!building!a!larger!demand!side!resource.!!!

! Divisibility! (minimum!and!max! load!amounts):!There!should!be!no!minimum!load!size!for!any!single!consumer!who! joins!an!aggregated!pool.!This!should!be!set!by!the!service!provider,!not!the!TSO!(or!the!DSO).!!!

! Duration! of! the! event:! As! short! as! possible.! The! longer! a! consumer!must! turn!off! or! down!a!device,! the! lower! the! level! of! participation! and! the! higher! the! cost.! It! makes! sense! to! have!multiple,!short!bidding!periods!rather!than!one!extended!period!in!order!to!allow!demand!and!distributed!renewable!resources!to!participate!at!a!lower!cost.!!!

! Mode!of!Activation:!A!description!of!how!a!device!is!turned!on.!This!should!be!between!the!TSO!(Retailer! or! DSO)! and! aggregation! service! provider! –! not! necessarily! the! individual! consumer.!!Communication!and!activation!of!the!consumer!is!the!aggregator’s!role.!!!

! Measurement!and!communication! requirements:!Should!be!well!defined!and!robust,!but!also!consumer! appropriate.! In! certain! markets! the! same! measurement! and! communication!requirements!are!used!for!a!500!MW!power!plant!and!a!household.!This!is!a!market!barrier!and!unnecessary!for!system!security.!!!

! Penalty! requirement:! Penalties! for! non:compliance! should! be! fair! and! should! not! de! facto!favour! one! resource! over! the! other.! A! consumer! will! not! participate! in! a! market! where,! for!example,! they! will! need! to! pay! back! 101:150%! of! all! their! annual! revenue! for! a! year.! The!business! model! of! Demand! Response! providers! and! consumers! must! be! taken! into! account!when!constructing!penalties.!!!

! Frequency!(total!number)!of!activations:!In!most!markets,!the!fewer!the!activations,!the!higher!the!level!of!demand!side!resources!will!be!and!the!lower!the!cost16.!Again!here!it!is!beneficial!to!have!shorter!bidding!periods,!so!that!the!consumer!does!not!have!to!be!active!continuously!for!an!extended!period!of!time.!!!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !16!The!number!of!activations!will!not!be!as!important!in!a!frequency!market;!here!it!is!the!duration!of!the!activations!which!will!be!critical.!!!

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! Intervals!(time)!between!activations:!The!intervals!should!be!as!long!as!possible!or!the!bidding!period! should!be! short.! (For!example!a!TSO!may! require!a! consumer! to!be!available!every!30!minutes,!but!only!for!a!2!hour!bidding!period).!!!

! Call!Method:!This!is!sometimes!not!necessary!for!generators!and!therefore!may!not!be!included!at!all!in!a!program!description.!However,!consumers!are!going!to!need!to!be!informed!of!when!there!is!an!event.!They!will!not!continuously!participate!in!a!market.!It!is!therefore!important!to!include!a!call!method!in!a!program!description.!!!

!It! is! critical! that!when! product! descriptions! are! created,! the! specifications! of! a! range! of! resources,!including! demand! side! resources! are! taken! into! consideration.! If! this! is!not!done,!consumers!will!be!blocked! from!participation! in! the!balancing,! reserves! and!other! system! services!markets! :! even!when!they!have!the!ability!to!provide!valuable,!clean,!flexibility!services!at!a!competitive!price!to!the!TSO!or!retailer.!!!!Demand!Response!is!the!new!entrant!in!the!electricity!markets.!As!such!it!is!vulnerable!to!the!same!type!of!institutional!bias!faced!by!all!new!entrants.!However,!in!the!case!of!Demand!Response,!regulators!risk!displaying!institutional!bias!against!the!interests!of!the!very!citizens!they!are!mandated!to!represent.!!!!!!2.3!Criteria!Three!:!Develop!Measurement!and!Verification!Requirements!!In! the!United! States! today,! 29!GW!of! load! is! registered! in! some! form!of!Demand!Response!program.!!This!is!possible!due!to!the!fact!that!the!contractual!and!communication!arrangements!between!parties!enable! smooth,! cost! effective! market! coordination! and! also! due! to! well! defined! and! appropriate!measurement! and! verification! protocols.! Criteria! 3! of! the! SEDC!Member! State! analysis! reviewed! the!Measurement!and!Verification!standards!within!a!market.!!!!!Rule!6:!Establish!appropriate!and!fair!measurement!and!communication!protocols!!Below!is!a!description!of!the!measurement!and!verification!protocols!needed!to!ensure!reliable!delivery!of!demand!side!services!in!a!manner!that!will!still!enable!strong!resource!development.!!!Product!Delivery!and!Performance!Measurement:!Performance!measurement,!which!is!typically!termed!Measurement!and!Verification!(M&V),! is!the!process!of!quantifying!and!validating!the!provision!of!the!service! according! to! the! specifications! of! a! product.! The! performance! measurement! process! usually!occurs!at!three!stages:!

• To!qualify!potential!resources!against!product!specifications!as!an!entry!gate!to!participation!• To!verify!resource!conformance!to!the!product!specifications!during!and!after!participation!• To!calculate!the!amount!of!product!delivered!by!the!resource!as!part!of!financial!settlements!

All! resources! should! be! held! to! the! performance! specifications! established! by! the! product.! However,!demand! side! and! generation! side! communication! requirements! will! usually! need! to! be! designed!separately!and!made!appropriate!to!each.!Technical!rules!often!proscribe!the!use!of!metered!values!to!base!performance!and!settlements.!

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Critical! elements! required! to! measure! and! verify! a! Demand! Response! activation! are:! baseline!methodology! metering! configuration,! product! delivery,! communication! requirements,! frequency! of!interval!readings,!accuracy!standards,!timeliness!of!measurement!data!and!communication!protocols.!!!!It!is!important!that,!in!the!case!of!aggregation!(by!3rd!party!aggregators!or!retailers),!the!communication!protocols!imposed!are!between!the!system!operator!and!the!aggregator.!These!protocols!should!not!be!mandated!down!to!the!individual!customers.!!!!The!latter!communications!should!be!at!the!discretion!of!the!aggregator!and!his!customer(s),!so!long!as!the!aggregator! is!able! to!appropriately!aggregate! the!data! from!his!customer(s)!and!pass! that!data! to!the! system! operator! per! specified! protocols.! This! ensures! that! the! system! operator! secures! the! data!without!additional!special!communications!equipment!and!avoids!the!system!operator!the!requirement!of!further!transposing!the!data!between!communications!systems!once!received.!It!also!ensures!that!the!deployment! of! Demand! Response! is! not! overly! cost! burdensome! to! the! individual! customers! whose!participation!and!data!is!aggregated.!!!Information!on!Measurement!and!Verification!is!technically!detailed.!For!further!information!and!more!examples! on! Baselines,! as! well! as! an! explanation! of! the! appropriate! measurement! and! verification!elements!listed!above,'please!see!Annex!V.!!!!2.4!Criteria!Four!:!Payment!and!Risk!!

Payment!and!risk!was!the!fourth!criteria!reviewed!in!each!Member!State.!Here!the!SEDC!analyses!market!payment!from!two!perspectives,!to!ensure!that!consumers!received!the!same!payment!per!MW!of!flexibility!as!generation!and!to!ascertain!if!flexibility!was!paid!in!the!market.!As!of!today,!the!European!energy!markets!are!designed!to!pay!for!energy!(kWh)!not!capacity!or!flexibility!(kW),!and!the!full!value!of!flexible!resources!is!not!reflected!in!market!prices.!This!suppresses!both!flexible!generation!and!demand.!In!the!worst!cases,!the!environmental!benefits!of!wind!and!solar!may!be!significantly!reduced.!!Wind!plants!are!taken!offline!or!their!electricity!is!‘dumped’,!wasting!the!clean!resource!or!wind!and!solar!may!be!backed!up!by!coal:fired!generation,!which!burns!fossil!fuels!continuously,!lowering!or!negating!environmental!benefits.!This!constitutes!a!waste!of!natural!resources!as!well!as!public!funds.!!!

!Demand!Response!provides!a!low!emission,!balancing!resource,!which!can!closely!follow!wind!and!solar!production,!due!to!its!granular!use!of!small!demand!side!loads.!However,!it!must!be!paid!to!do!so!at!the!full!market!value!of!the!service!provided.!Today!lack!of!full!payment!is!the!most!difficult!challenge!facing!the!industry.!!!!!!

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Rule! 7:! Ensure! Demand! Response! services! are! compensated! at! the! full!market! value! of! the! service!provided!!Payment!criteria!should!ensure!that!consumers!are!paid!the!same!amount!per!MW!as!generation.!Today!payments!may!be!decided!according!to!standards,!which!cause!the!consumer!to!be!paid! less!per!MW!than! a! generator17.! This! can! be! due! to!multiple! factors.! For! example! a! Reserves!market! provides! an!availability!payment!of!50%!of!the!operational!costs!of! the!resource.!However,!Demand!Response!has!very!low!operational!costs.!This!means!a!consumer!will!earn!significantly!less!per!MW!of!flexibility!than!a!generator.!!!!!Rule!8:!Create!market!structures!which!reward!and!maximize!flexibility!and!capacity!in!a!manner!that!provides!investment!stability!!A! sign! of!market! ‘health’! is! robust! intraday! trading! and! flexible,! dynamic! product! design.! This! can! be!achieved!through!reserve!markets,!flexibility!or!capacity!markets,!as!discussed!in!Chapter!3.!!!Important!Guidelines!

• The!markets!are!Pay!as!Cleared!(PAC)!to!allow!for!the!best!compensation!of!low!cost!resources.!• The! market! structures! value! and! pay! for! flexibility.! This! will! entail! availability! payments,! a!

guaranteed! number! of! activations! during! the! year! or! some! other! form! of! reliable! form! of!payment.! These! should! create! investment! stability! to! allow! for! the! new! build! of! resources!designed!to!be!available!at!short!notice!and!for!short!periods!of!time.!!!

• Dynamic! Pricing:! Variable! prices! in! the! Retail! markets! should! be! available/visible! to! end:consumers,! including!commercial!and!residential! (currently!most!consumers!pay!a!flat!rate!for!electricity).!This! is! important!for!home!automation!and!variable!pricing!programs!such!as!Time!of!Use,!Critical!Peak!Pricing!etc.!However,!it!should!be!noted!that!even!if!variable!prices!are!not!available! to! consumers,! aggregation! service! providers! could! bypass! this! limitation! by! pooling!and!selling!the!consumer!load!directly!into!the!wholesale!markets.!Thereby!allowing!consumers!to!benefit! from!price! variations! in! the!wholesale!markets!even! if! and!when! they!do!not!have!direct!access!to!those!prices!themselves.!This!is!another!argument!for!allowing!aggregated!load!to! be! sold! into! all! markets! –! including! the! wholesale! electricity! markets! as! a! single! pooled!resource.!!!!

!!Rule!9:!Penalties!for!non5compliance!should!be!fair!and!should!not!favour!one!resource!over!the!other.''!Penalties!are!needed! to!ensure! reliability! and!both! supply! side!and!demand! side! resources! should!be!penalised! for! non:compliance.! That! said,! penalty! calculations! for! each!may! need! to! be! differentiated!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !17!For!example!a!TSO!will!pay!50%!of!the!operational!costs!as!an!availability!fee!in!a!Reserves!Market.!However!Demand!Response!resources!incur!few!operational!costs.!Therefore!while!the!generator!will!be!paid!one!availability!fee!per!MW!the!consumer!will!be!paid!far!less.!This!type!of!institutionalized!bias,!is!repeated!across!Europe!and!can!be!found!in!multiple!markets!(Finland,!France,!the!UK,!...)!!

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depending!on!the!market.!It!is!important!that!regulators!do!not!use!a!one:size:fits:all!model!or!they!may!unintentionally!shut!out!consumer!participation.!!!Rule!10:''Create!and!enforce!requirements!for!market!transparency!!!Demand!Response!may!be!paid!less!per!MW!than!generation.!For!example,!the!Finnish!Reserves!market!provides!an!availability!payment!of!50%!of!the!operational!costs!of!the!resource.!This!is!acceptable!for!a!generation! plant,! however! installed! Demand! Response! has! low! operational! costs.! This! means! a!consumer! may! earn! less! per! MW! of! flexibility! than! a! generator.! It! represents! an! (unintentional)!institutionalized!bias.!Similar!examples!can!be!found!in!the!GB!and!other!markets.!Added!to!this!the!fact!that!multiple!markets!in!almost!every!Member!State!are!shut!to!demand!entirely,!that!payments!may!be!different! per! player,! are! not! decided! through! a! market! or! auction! process,! are! not! published,! are!negotiated! through! bi:lateral! agreements! etc.! and! there! emerges! a! picture! of! the! level! of! the! issue.!Standards! of! equality,! transparency! and! reporting! must! be! created! and! enforced,! both! within! the!wholesale!and!balancing!markets,!to!ensure!a!level!playing!field!and!access!of!new!entrants.!!Payments!criteria,!volumes!and!values!should!be!transparent,!and!based!on!open!and!fair!competition.!!For!similar!services!delivered!to!the!system,!meeting!the!requirements!of!the!market,!compensation!for!Demand!Response!services!should!be!commensurate!with!those!services!delivered!by!generation.!!In! many! European! Member! States! today,! generation! resources! have! access! to! the! markets! at! an!embedded!guaranteed!cost!through!a! longstanding!biFlateral!agreement!with!the!TSO!or!retailer.!This!can!result! in!suppressing!the!price!for!new!entrants,!such!as!aggregators,!providing!Demand!Response!services.!!!!!These!ten!rules!form!the!basis!of!consumer!centric!market!design!to!enable!Demand!Response.!They!ensure!that!retailers!and!aggregators!have!access!to!markets!and!can!empower!a!range!of!consumers!to!earn!from!their!consumption!flexibility!:!they!create!a!level!playing!field!where!supply!and!demand!can!compete.!These!measures!are!attainable!and!well!within!reach.!However,!they!will!require!coordination!between!Member!States,!planning!and!commitment!as!they!represent!a!diametric!shift!in!thinking!from!generation!focused!markets!to!multi:party,!multi:resource!markets.!This!Chapter!has!outlined!these!10!rules! by! which! the! SEDC! has! analysed! the! regulatory! environments! of! the!Member! States! :! and! the!degree! to!which! they! “promote!and!encourage”!Demand!Response.!Chapter!3!provides!a! country:by:country!report,!as!well!as!the!at:a:glance!Demand!Response!Map!of!Europe.!! !

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Chapter!3.!Member!State!Analysis!According!to!Energy!Efficiency!Directive!!!This!chapter!details! the! results!of! the!SEDC!Member!State!analysis!concerning!Demand!Response!and!the! application! of! Art! 15.8! of! the! Energy! Efficiency! Directive.! While! Chapter! 1! outlined! the!environmental! and! social! benefits! of! Demand! Response,! Chapter! 2! provided! an! overview! of! the! 10!regulatory!requirements!needed!to!enable!equal!competition!of!demand!and!supply!side!resources.! In!this!final!chapter,!Chapter!3,!these!principles!are!applied!to!Member!States!in!order!to!map!the!extent!to!which!they!enable!Demand!Response.!Section!3.1!explains!the!color:coding!and!grading!system!used!for! analysis.! ! Section! 3.2! provides! market! reports! on! Austria,! Belgium,! Denmark,! Finland,! France,!Germany,!Great!Britain,!Ireland,!Italy,!the!Netherlands,!Norway,!Poland,!Spain,!Sweden!and!Switzerland.!While! the! last! section,! Section!3.3!provides! conclusions!and! the!at:a:glance!Demand!Response! colour!charts!and!maps.!!!!!!

3.1!Key!to!Colour!Coding!of!Member!States!and!Main!Results!!The! current! regulatory! requirements! and! market! practices! were! researched! in! each! Member! State!according! the! four! criteria! described! in! detail! in! Chapter! 2.! These! include:! 1.! Access! of! consumers! to!markets!and!service!providers,!2.!Appropriate!program!requirements,!3.!Measurement!and!verification!requirements,!4.!Payment!and!risk.!!!!!The!country!was!then!given!a! ‘grade’! :!a!colour!code!and!number!grade!per!criteria.!This!was!done! in!order! to!provide! a!visual! key! and! an! ‘at! a! glance’! analysis! of! each! country’s! progress! in! the! four! key!areas!required!for!enabling!Demand!Response.!!!!!The! information! on! each!Member! State! was! gathered! through! desk! research! and! expert! interviews.!!These!included!TSOs,!DSOs,!retailers,!aggregators,!regulators!and!technology!providers.!Each!report!was!then!reviewed!by!at!least!2:4!market!participants!who!work!with!Demand!Response!within!that!Member!State.!The!findings!therefore!reflect!the!regulatory!structures!and!the!experience!of!the!players!on!the!ground.!The!questionnaires!used!can!be!found!in!Annex!II.!!!!!!!!!!!

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The!key!below!describes!the!criteria!for!this!grading!system:!!!!

!!!!!!!!!Criteria!1:!Consumer!access!to!markets!!

KEY!! Legality!of!Aggregated!DR!and!a!clear!BRPFBSP!relationship!!

5! DR!&!Aggregation!enabled!in!a!range!of!markets!

3! DR!&!Aggregation!legal!in!a!selected!market!F!BRPFBSP!relationship!unclear,!but!market!viable!

1! Legal!in!theory!in!one!or!two!markets,!but!not!commercially!viable,!critical!barriers!remain!such!BRPFBSP!relationship!unclear!

0! DR!or!Aggregation!illegal!or!aggregated!demand!not!accepted!as!a!resource!

!!

!Criteria!2:!!Program!Requirements!!

KEY!! Appropriate!program!Requirements!!

!5!

Program!requirements!adjusted!to!enable!a!range!of!resources!(supply!and!demand)!to!participate!in!multiple!markets!

3! Minor!barriers!to!demand!side!participation!in!market!remain,!however!participation!is!still!possible!!

1! Significant!barriers!remain,!creating!major!competition!issues!for!demand!side!resource!participation!

0! Program!requirements!block!demand!side!participation!!

! !Criteria!3:!Measurement!and!Verification!!

KEY!! Measurement!and!Verification!!

5! Requirements!are!well!defined!and!enable!aggregated!consumers!to!participate!in!Demand!Response!!

3! Requirements!are!under!development!or!have!limited!negative!impact,!but!do!not!act!as!a!significant!barrier!

1! Requirements!act!as!a!significant!barrier!to!aggregated!consumer!participation!!

0! Requirements!are!nonFexistent!or!do!not!enable!demand!side!participation!!

!!

! Criteria!4:!Finance!and!Risk!!

KEY!! Finance!F!Risk!management!!

5! Payment!and!penalties!are!fair!and!adequate!!

3! Payment!structures!are!weak!or!result!in!unequal!pay!per!MW!between!supply!and!demand,!penalty!structures!create!risk!issues!for!service!providers!but!participation!is!still!possible!

1! Payment!structures!seem!inadequate,!penalty!structures!create!high!risk!issues!

0! Payment!structure!inadequate,!penalty!structures!is!a!critical!barrier!

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Once!this!initial!analysis!was!completed,!each!Member!State!was!given!an!overall!“grade”!according!to!the!general!status!of!independent!Demand!Response!in!the!overall!electricity!market.!This!final!grade!consists!of!the!total!sum!of!the!results!in!the!four!sections.!!!!

KEY!! Status!of!DR!in!the!market!(Is!it!commercially!established?)!!

14!:!20! Commercially!active!and!established!in!a!range!of!markets!!

10!:!13! Integration!into!a!range!of!markets!is!taking!place!or!selected!markets!are!open!

5!:!9! Piloting!and!regulatory!review!underway,!but!not!as!yet!viable!for!Demand!Response!

0!:!4! Not!as!yet!viable,!minimal!regulatory/piloting!activity!!

!!!!

3.2 Member!State!Analysis!According!to!Requirements!of!the!Energy!Efficiency!Directive!!The! following! chapter!provides!description!of! the! status!of!Demand!Response! in!each!Member!State,!including! Austria,! Belgium,! Denmark,! France,! Finland,! Germany,! Great! Britain,! Ireland,! Italy,! the!Netherlands,!Norway,!Poland,!Spain,!Sweden!and!Switzerland.!!!!!

Austria! ! ! ! !!The!other!Member!States!in!this!report!have!been!graded!according!to!their!status!as!of!2013.!However,!a!series!of!targeted!amendments!in!the!preconditions!for!the!prequalification!are!to!be!implemented!to!allow!aggregation!of!demand!resources!and!open!the!balancing!market!to!Demand!Response!in!Austria!by!the!summer!of!2014.!As!these!changes!are!significant,!this!assessment!is!based!on!the!regulations,!which!come!into!force!as!of!2014.!!!!!1.!!Consumer!access! ! ! !!The!current!market!rules!and!technical/organisational!rules!do!not!explicitly!consider!the!aggregation!of!demand.!Demand!units!have!been!accepted!so!far!as!components!of!provider!pools.!However,!Austria!is!currently! in! the!process!of! implementing! the!appropriate! framework! for!aggregation! to!be!developed!and! during! 2014! this! issue! should! be! solved.! Steps! taken! so! far! include! enabling! an! aggregator! to!become! a! BRP! by! providing! reasonable! requirements/risk! profiles! which! a! SME! can! fulfil.! ! Therefore!though! the!BSP!will!need! to!contract!with!a!BRP! this! should!not!act!as!a! significant!market!barrier!as!they!will!be!able!to!become!a!BRP!themselves.!!!!!

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2.!!Program!Requirements! ! !!Today! there! is! no! Demand! Response! participation! in! the! spot! markets! in! Austria.! In! regard! to! the!balancing! market,! the! relevant! requirements! do! not! explicitly! take! into! consideration! some!particularities! of! aggregated! Demand! Response.! ! However,! a! series! of! amendments! are! to! be!implemented! in! the! following!years.!From!2014! the!product! requirements! for! the! tertiary! reserve!are!expected!to!change! in!order!to!better:fit!Demand!Response!constraints.!For!example,!the!minimal!bid!size!will!be!reduced!from!10!MW!to!5!MW.!This!shall!be!done!once!fully!automatized!MOLS!(merit:order!list!server)!is!put!into!operation!(foreseen!in!2014).!Furthermore,!the!duration!of!the!activation!will!be!reduced! from! 16! to! 4! hours,! enabling! participation! for! a! range! of! demand! resources.! An! additional!example!of!adaption!of!the!technical!requirements!to!Demand!Response!particularities!is!the!definition!of!technical!entity!–!consultation!process!APG.!It!should!be!noted!that!a!4!hour!duration!requirement,!though!a!significant! improvement!over!16!hours,! is!still!not!optimal.! !Consumers!can!be!fully!engaged!when!the!requirement!is!lowered!to!1:2!hours.!!!!!3.!Measurement!&!Verification!! ! !!Technical! &! organisational! rules! (TOR)! do! not! consider! some! of! the! requirements! for! providers! of!balancing!services!in!detail.!Respective!rules!regarding!verification,!monitoring!and!baseline!will!have!to!be!adapted!accordingly! to!cover!Demand!Response!aggregators.! !These!are! therefore!currently!under!development!and!should!be!completed!before!2015. !!4.!Finance!&!Risk! ! ! !!The!prices!for!capacity!(EUR/MW)!in!Austria!are!relatively!high.!The!cost!of!balancing!power!in!Austria!was!about!150!million!€!in!2012!and!this!is!positive!for!Demand!Response.!Currently,!the!Austrian!TSO!(APG)! is! investigating! into! improved!payments!for!negative!activations!which!can!benefit!demand!side!resources.! ! Penalties! for! non:delivery! are! not! amongst! the! main! causes! for! the! limited! Demand!Response! development! so! far.! In! the! next! 5! to! 10! years,! new! business! models! involving! Demand!Response! are! to! be! expected.! As! a! first! step! Demand! Response! is! expected! to! grow! in! the! tertiary!reserve.!!!!!!!

Belgium! ! ! ! !!Belgium!has!taken!noteworthy!steps!in!order!to!open!its!reserves!market!to!Demand!Response!through!a! series! of! changes! in! the! product! requirements.! The! challenge! for! wider! Demand! Response!participation! is! to! give! aggregators! access! to! the! spot! market! and! ensure! that! they! can! participate!without!the!prior!agreement!of!the!BRPs.!There!are!also!critical!issues!to!resolve!with!the!regional!DSOs.! !

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1.!!Consumer!access!! ! ! !!Traditionally! Demand! Response! was! restricted! to! participate! in! one! reserve! program! sourced! by! the!Belgian!TSO!(Elia).! !From!next!year!onwards!two!programs!will!be!open!for!Demand!Response,!primary!reserve! (R1)!and! tertiary! reserve! (R3)! respectively.! In!2013,!a! total!of!261!MW!of!Demand!Response! is!participating! in! the! reserves! market.! From! 2014,! the! volume! procured! will! be! increased! by! 90! MW.!However,!selling!curtailable!power!is!not!possible!for!independent!aggregators!in!the!spot!market!and!in!the!secondary!reserve!(R2)!or!bid!ladder18!for!energy!bids.!!!!Selling! curtailable! power! on! the! spot!market! requires! signing! agreements!with! the! consumer’s! BRP! or!becoming! the! consumer’s!BRP.!Both! such! requirements! are!practically!unfeasible!or/and! impossible! to!implement.!Furthermore,! the!prequalification!process!required!by!the!DSO! limits!the!available!Demand!Response! potential! and! hinders!Demand!Response! sourcing! efficiency.! This! is! due! to! the! fact! that! the!DSOs! have! difficulty! measuring! the! actual! capacity! issues! and! therefore! tend! to! be! cautious! towards!allowing!Demand!Response! –! if! they! calculate! there!may! possibly! be! over! a! 0.5%!of! risk.! ! This! lack! of!transparency! and! accurate! risk! calculation! may! become! a! significant! barrier! to! Demand! Response!development!if!the!issue!remains!unsolved.!!!!!2.!!Program!requirements! ! !!Aggregated! Demand! Response! does! not! participate! in! the! spot! market! primarily! because! of! the!requirement! to! sign! agreements! with! BRP! or! becoming! a! BRP! as!mentioned! above.! In! regard! to! the!primary!reserve!(R1),!the!Belgian!TSO!has!developed!a!combination!of!asymmetric!and!symmetric!FCR!products!in!order!to!allow!demand!side!participation.!Currently,!Elia!has!contracted!30,5!MW!of!R1!load.!Demand!side!resources!that!participate!in!R1!will!have!to!adjust!their!consumption!only!for!deviations!above!100!mHz.!This!particular!regulation!gives!Demand!Response!access!to!the!primary!reserves,!as!it!leads! to! limited! number! of! activations! per! year,! and! thus! reduces! the! impact! on! the! industrial!processes.! Furthermore,! R1! requires! 30! seconds! for! the! entire! volume! to! be! delivered,! unlike,! for!example,!the!Nordic!markets!that!allow!only!5!seconds!to!reach!the!entire!volume.!This! is!an!example!that! with! the! appropriate! regulations! Demand! Response! can! participate! in! primary! reserve.! R3!(activated! by! remote! control)! is! also! adapted! to! load! constraints.! It! requires! limited! number! of!activations!per!year!and!at! least!24!hours!between!2! interruptions,! this! limitation!ensures! consumers!will!not!become!overburdened!by!multiple!activations.!Additionally,! the! total!duration!of! interruption!over!the!contractual!period!(24h)!is!limited.!!!!However,! some! reserves!open! to!Demand!Response!are! artificially! capped,! in! the! sense! that! the!TSO!sources!only!a!predefined!portion!of!a!certain!reserve!from!demand!side!resources.!For!example,!the!R3!Dynamic!Profile!for!2014!is!capped!at!50!MW!max!for!Demand!Response,!while!the!R3!portion!reserved!for!generation!is!much!larger.! !

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !18!This!is!a!new!program!that!is!currently!being!considered!by!the!TSO!to!allow!extra!generation!or!flexible!demand!to!participate!without!the!need!to!go!through!a!traditional!tender!mechanism!for!reserves.!More!specific!info!is!available!on!http://www.elia.be/en/about:elia/Users:group/ad:hoc:taskforce:balancing/Bid:ladder:platform!!

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3.!!Measurement!&!Verification! ! !!Since!volatility!of!local!energy!production!(e.g.!from!a!locally!installed!wind!turbine)!at!one!site!can't!be!isolated! from! the! available! flexible! power! potential! on! that! same! location,! a! large! amount! of! the!available!Demand!Response!potential!remains!inaccessible!for!aggregation.!This!is!also!the!case!for!the!volatility!of!non:flexible!energy!consumption!within!one!site!that!can't!be!separated!from!the!available!power!flexibility.!!As!such,!there!is!a!need!for!“meter!behind!meter”!provisions!in!the!settlement!process!within!all! reserves! that!demand!can!offer! to!a!TSO! (except!R1).!This! issue! therefore!causes!significant!Demand!Response!barriers!within!the!measurement!and!verification!criteria.!!!!!4.!!Finance!&!Risk! ! ! !!!Payments!are!attractive!in!the!reserves!markets.!In!R1!payment!is!received!only!for!the!capacity,!not!for!activation.! In! R3,! the! auction! process! by! the! TSO! sets! the! capacity! payment,! while! in! one! specific!program!(ICH)!an!additional!payment!is!rewarded!per!activation.!The!penalties!are!aggressive,!but!in!line!with!the!accountability!of!supplying!reserves!to!a!TSO!and!are!acceptable.!!!!!Denmark! ! ! ! !!Aggregated! Demand! Response! is! legal! in! Denmark.! However,! there! is! no! strong! Demand! Response!participation! within! the! markets! or! any! independent! aggregators! operating! only! with! demand! side!resources! today.! Demand! Response! could! have! stronger! participation! with! targeted! revisions! in! the!product!requirements!and!implementation!of!a!regulatory!framework!that!ensures!that!BSPs!can!access!the!markets!independently.!!!!!1.!!Consumer!access! ! ! !!Aggregation!is!legal!in!Denmark,!but!today!there!are!no!independent!aggregators!pooling!demand!side!resources.!As!far!as!the!day:ahead!(Elspot)!and!intra:day!(Elbas)!markets!are!concerned,!consumers!can!in! theory! buy! or! sell! electricity! independently,! but! they! have! to! be! connected! to! a! BRP! for! the!settlement.!The!balancing!market!does!not!have!a!clear!definition!of!the!roles!and!responsibilities!of!the!BSP19!or!BRP!in!relation!to!Demand!Response.!The!lack!of!clear!definition!or!mechanisms!for!mitigating!the! risks! and! costs! to! both! parties! when! a! demand! response! activation! occurs! :! acts! as! a! market!barrier20.! In! regard! to! the! tertiary! reserve,! an! independent! aggregator! or! consumer! (BSP)! has! two!options:!1)!to!become!a!BRP!or!2)!contract!with!the!consumer’s!BRP.!In!the!first!case,!it!is!important!to!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !19!The!BSP!function!can!be!provided!by!a!single!consumer,!an!independent!aggregator!or!retailer!providing!aggregation!services.!!!20!For!further!information!on!this!issue!see!Annex!III.!

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consider!how!feasible!it!is!for!a!new!market!entrant!to!become!a!BRP,!and!in!the!second!case,!the!BRP!has!the! legal! right!not!to!contract!with!the!BSP.!Thereby!hindering!consumer!participation! in!Demand!Response.!Demand!Response!participates!in!the!tertiary!reserves,!but!in!a!non:aggregated!form.!This!participation!is!limited!to!electric!boilers!installed!at!local!district!heating!plants.!Today,!35!units!with!a!total!capacity!of!275!MW!are! installed! in!Denmark.!Part!of! these! (share!not!known)!also!participates! in! the!primary!reserve! under! existing! market! conditions.! This! type! of! Demand! Response! is! possible! due! to! the!cooperation! with! natural! gas! fired! CHPs! and! relatively! large! heat! accumulators,! allowing! for! high!flexibility!in!electricity!consumption!and!production.!!!2.!!Program!requirements! ! !!There!is!no!Demand!Response!in!the!Day:Ahead!(Elspot)!and!the!Intra:day!(Elbas),!but!this!is!not!due!to!product! requirements.!The!main!barrier!here! is! that!participating! in! these!markets!must!happen!via!a!BRP.! ! BRP’s! might! not! be! interested! or! they! might! not! have! the! operational! setup! to! offer! price:dependent!bidding!or!intraday!trading.!!Ancillary!Services:!Denmark!is!divided!in!two!areas!(Western:DK1!&!Eastern:DK2).!!!!i) In! DK1,! the! primary! reserve! is! an! automatically! operated! reserve! for! frequency! containment!

with!very!short!delivery!time!and!too!frequent!activations!for!traditional!Demand!Response!to!cope!with;!except! for!some!MW:scale!electric!boilers.!The!secondary! reserve!requires!upward!and!downward!regulation/symmetrical!bids.!A!requirement!for!symmetrical!bids!acts!as!a!total!market!barrier!to!consumer!participation.!Consumers!can!rarely!generate!and!consume!in!equal!measure.!In!Member!states!where!the!TSO!is!willing!to!enable!demand!response!asymmetrical!bids!are!allowed.!

ii) In!DK2!primary!reserve,!requires!delivery!of!50%!within!5!seconds!and!100%!within!the!next!25!seconds,! thus!most!of! the!Demand!Response!units!are!disqualified.!The! frequency! restoration!reserve! apart! from! having! only! 150! seconds! of! delivery! time,! again! requires! symmetrical!bidding.!!!

iii) Finally,! there! is! Tertiary! Reserve,! the! rules! of! which! apply! for! both! DK1! and! DK2.! The! main!barrier!here! is! the!high!minimum!bid! (10MW).!This! is! related! to! the! fact! that! this! is!manually!operated!reserve.!!!

!!3.!!Measurement!&!Verification! ! !!Participation! in! Frequency:based! Ancillary! Services! requires! local! frequency!measurement! equipment!with!accuracy!and!sensitivity!of!measurement!being!better!than!10!mHz.!Online!metering!is!required!by!the! TSO! to! participate! in! Primary! and! Secondary! Reserve,! which! is! costly! and! time! consuming.! Per!default,!the!local!DNO!is!responsible!for!the!metering!and!for!on:line!measurements.!Installation!prices!of! €3,000! –! 6,000! have! been! quoted.! In! addition,! to! participate! in! the! Tertiary! Reserves! Market,! a!control!centre!operating!24/7!is!required,!which!is!a!cost!barrier!for!a!new!aggregator.!

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4.!Finance!&!Risk! ! ! !!Prices/Payments! are! not! attractive! in! Elspot,! Elbas! or! in! the! Tertiary! Reserve.! Especially! in! Eastern!Denmark! (DK2),! which! is! synchronous! with! Germany,! the! prices! for! RPM! are! low.! The! levels! of! the!penalties!for!non:performance!were!not!mentioned!by!the!interviewees!as!one!of!the!main!barriers!for!Demand!Response!development.!!!!Finland! ! ! ! !!In#2009,!due$to$a$combination$of$low$water$levels$in$Norway,$nuclear(generation(repairs(in(Sweden(and(a(cold% winter,% three% severe% price% spikes% occurred% of% over% 1.000% Euros! per$ MW." In# 2010,! the$Energymarknadsverket. ordered. a. study. on. the. potential. impact. of. lowered. peak. demand. during. the.2009$capacity$events.!It#was#found&that&a&demand&reduction&of&less&than&1%!would&have&lowered&prices&by# 500# Euros."The$ regulator$ has$ now$ordered$ a$ review$of$ the$ potential$ impact$ of$ residential$ demand$response'programs'to'shift'peak'consumption'in'Finland'using'the'current'Smart'Metering#rollout,'which'will$be!completed)by)80%$by$2014.!!As!of!today,!Fingrid!has!contracts!with!the!largest!industrial!consumers!to!provide!emergency!reserves.!Aggregation! and! active! participation! of! demand! response! is! currently! under! development.! Today,!aggregators!operate!in!the!balancing!market!(secondary!and!tertiary!reserves)!and!on!the!spot!market.!!The!contractual!relationship!between!BSPs!and!BRPs!remains!problematic.!!!!!1.!!Consumer!access! ! ! !!The!Spot!Market!(Elspot!and!Elbas)!is!open!to!Demand!Response!and!aggregation.!The!ancillary!services!markets! are! open! to! Demand! Response! and! aggregation! as! well.! Demand! Response! represents! a!significant!percentage!of!the!capacity! involved! in!the!Fast!Disturbance!Reserve!programme!(frequency!control! reserve).! It! is! approximately! 400!MW;21!more! than! a! fourth! of! the! involved! capacity! in! 2012.!Strategic! reserves! (replacement! reserve)! opened! to! Demand! Response! in! 2013.! 40! MW! will! be!contracted! for! the! next! two! years! (in! addition! to! the! 365!MW! already! contracted! on! the! generation!side).!!BSPs! (as!well!as! industrial!energy!consumers)!have!access!to!the!balancing!power!market!by!signing!a!contract!with!Fingrid!(the!Finnish!TSO).!!!!Aggregators!can!register!as!a!BRP!and!must!pay!a!reasonable!€!200/monthly!fee!to!the!TSO.!Moreover!a!bank!deposit! is!also!required,! in!case!of!bankruptcy.!The!aggregator!may!be! in!charge!of! its!balancing!area.!One!of!the!two!aggregators!operating!in!Finland!has!chosen!this!status.!!!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !21!Fingrid,!“Demand!Side!Management”,!Fingrid’s!website,!http://www.fingrid.fi/en/electricity:market/load:and:generation/Demand:Side_Management/Pages/default.aspx!

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Aggregators!can!also!operate!as!service!providers!for!a!retailer.!In!this!case,!the!aggregator!has!to!pool!loads! in!one! retailer's!balancing!group!and!needs!a!bi:lateral!agreement!with! the!consumer’s! retailer.!Thus! far,! the! aggregators! have!been! able! to! protect! the! retailers! from! financial! losses! on! lost! energy!sales,!through!efficient!and!timely!communication.!The!BRPs!also!do!not!pay!for!imbalances!due!to!load!curtailment,!as!there!are!settled!by!the!TSO.!Therefore,!though!the!roles!and!responsibilities!between!BRPs!and!BSPs!require!further!development!in!future,!for!the!moment!they!have!been!adequate.!!!!!2.!!Program!requirements! ! !!Enablers:! ! Elspot,! Ebas! and! frequency! controlled! normal! operation! reserve! programme! requires! 0.1!MW22!minimum!bid.!Frequency!controlled!disturbance!reserve!programme!requires!1!MW!bid.!Barriers:! The! other! programmes! require! 10! MW! min.! bid.! Furthermore,! primary! reserve! requires! 3!seconds!for!the!entire!volume!to!be!delivered,!unlike,!for!example,!the!Belgian!primary!reserve,!which!allows!30!seconds!for!the!full!curtailment.!The!TSO!is!aware!of!this!barrier!and!the!requirement!is!under!review.!!!3.!!Measurement!&!Verification! ! !!The! pool! of! loads! has! to! fulfil! requirements! as! an! aggregate.! This! is! a! critical! enabler! of! Demand!Response!as!it!allows!the!aggregator!to!act!as!mediator!for!the!consumer,!protecting!them!from!onerous!technical! pre:qualification! measures,! which! they! may! not! have! the! ability! or! knowledge! to! fulfil.!!Another!positive!enabler:!there!is!no!minimum!required!size!for!consumer!participation!and!no!technical!requirements!for!the!single!unit.!!!!Nevertheless,! several! practical! questions! remain! around! measurement! and! verification.! Findgrid! is!working!with!market!participants!to!solve!these!issues.!!!4.!!Finance!&!Risk! ! ! !!The$Finnish$market$ lacks$a$ strong$business!case%of%Demand%Response%at% the%moment%due% to%a% lack%of%investment( stability( and( steady( financing."Price& peaks& in& the!day$ ahead$market& alone!do# not# provide#sufficient) investment) stability23!and$ revenue$ stability$ for# the# establishment# of# robust# demand# side$participation."In#the#future#the#main#revenue#stream#for#large#electricity#consumers#will#be#derived#from#their& ability& to& shift& their& consumption& to& the& low$ priced$ hours& caused& by& increasing& amount& of&subsidized(renewable(energy(coming(into(the(grid."Once!Demand'Response'is'established'in'a'region,'it'can$participate( in( the( day( ahead(markets,( however( it(will( not( become(well( established( through( these(markets(:!if#it#is#used#only#to#cut#price#peaks#and#fill#valleys.!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !22!Fingrid,!“Market!places”,!Fingrid’s!website,!http://www.fingrid.fi/en/electricity:market/load:and:generation/Demand:Side_Management/Market_places/Pages/default.aspx!23!This!is!true!in!any!market!–!not!only!Finland.!!Robust!availability!payments!are!critical!for!the!establishment!of!a!demand!response!market.!!!

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Frequency! controlled! normal! operation! reserve! and! Frequency! controlled! disturbance! reserve!programmes!provide!only!availability!payments.!The!Frequency!controlled!disturbance!reserve!(on:off:model)! programme! provides! availability! and! utilisation! payment! (this! programme! is! rarely! activated).!!The!Balancing!power!market!provides!only!utilisation!payment!(‘pay:as:clear’).!Fast!disturbance!reserve!provides! both! availability! (0,5€/MW/h)! and! utilisation! payments! (580€/MWh)24.! Currently,! availability!fees!represent!about!50%!of!the!running!costs!for!BSP;!these!prices!are!expected!to!rise.!!Penalties! are! reasonably! proportionated! and! based! on! the! imbalance! settlement! price,! which!corresponds!to!the!Nordic!balancing!market!price!plus!a!small!penalty!set!by!the!TSO!(concerns!tertiary:!Balancing! Power! Reserves,! Fast! Disturbance! Reserves! and! spot!market:! Elspot! and! Elbas).! SEAM! and!Energia!Kolmio!are!currently!the!only!two!aggregators!operating!in!the!Finnish!market.!!!!!France! ! ! ! !!France!has!a!history!of!Demand!Response!programs!lead!by!EDF!prior!to!market!liberalisation.!EDF!has!run!both!residential!pricing!programs!and!industrial!load!management!programs!for!well!over!a!decade.!!The! French! regulator! is! now! working! to! develop! mechanisms! to! open! up! the! market! to! third! party!entrants! and!additional! tender! regulations,!which!will! enable! the!aggregated!participation!of!demand!side! resources.! Though! the! process! will! take! time,! France! is! now! joining! Great! Britain! as! one! of! the!forward!thinking!and!active!markets!in!Europe.!Access!should!be!broadened!in!mid:2014!and!completed!with!a!capacity!market!in!2016.!These!changes!will! put! France! among! the! frontrunners! in! Demand! Response! in! Europe! assuming! the! current! legal!difficulties! surrounding! the! BRP! and! BSP! relationship! are! solved,! and! the! transitional! rules! being!enforced!in!2014.!!!1.!!Consumer!access!! ! ! !!Today,!Demand!Side!Replacement!Reserves,!Replacement!Reserves!and!Frequency!Restoration!Reserves!(manual)!are!three!programmes!open!to!Demand!Response!and!aggregation.!About!700!MW,!500!MW!and!1000!MW! (in!Demand!Response! and! generation)! are! respectively! contracted! in! these! schemes25.!Frequency!Restoration!Reserves!(manual)!have!been!open!to!Demand!Response!since!2011.!The!French!electricity! market! is! evolving! in! positive! direction! and! important! changes! are! expected! in! 2014.!Frequency!Control!Reserves!and!Frequency!Restoration!Reserves! (automatic)! should!open! to!Demand!Response!and!aggregation!by! July!2014.! !Moreover,!a!pilot!will! take!place!during! the!winter!2013/14,!which!could!lead!to!the!opening!of!the!day!ahead!market!to!Demand!Response!and!aggregation!in!2014.!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !24!Fingrid,!“Business!model”,!Fingrid’s!website,!http://www.fingrid.fi/en/electricity:market/load:and:generation/Demand:Side_Management/Business_model/Pages/default.aspx!25!RTE,!“Documentation!Technique!de!Référence,!Chapitre!4!–!Contribution!des!utilisateurs!aux!performances!du!RPT,!Article!4.1!–!Réglage!Fréquence/Puissance”,!available!at:!!http://www.rte:france.com/uploads/Mediatheque_docs/offres_services/reftech/24:04:09_article_4:1__v3.pdf!

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Finally,! a! capacity!market! open! to! both! generation! and! demand! side! participation! is! due! to! open! in!2016.!BRP’s! involvement! prior! to! load! curtailment.! Today,! the! consumer! or! aggregator! must! obtain! the!authorisation! of! the! BRP! prior! to! monetising! its! flexibility! on! RTE’s! markets.! This! changed! with! the!application! of! a! new! law! from! April! 2013.! The! application! decree! will! have! to! be! followed! by! the!adaptation!of!the!balancing!rules!by!RTE!(the!French!TSO)26.!In!the!meantime,!the!BRP!agreement!may!block!or!hinder!aggregator!access!to!consumers.!Currently,!the!BSP!can!aggregate!load!only!in!one!BRP!area,!and!needs!a!bilateral!agreement!with!the!consumer’s!BRP.!!!!The!aggregator!must!pay!the!BRP!for!the!energy!saved!during!a!Demand!Response!event.!The!regulator!is!therefore!developing!a!method!for!allowing!the!aggregator!to!contract!directly!with!any!consumer!in!the!market.!!The!success!or!failure!of!this!effort!will!to!a!large!extent!determine!the!future!of!Demand!Response!in!France.!!Imbalance! settlement! after! load! curtailment.! Imbalance! settlement! after! load! curtailment! is! facing!many!changes.!Until!now,!BRP’s!perimeter!is!corrected!by!the!TSO!after!the!load!curtailment.!Thus!the!BRP! does! not! face! any! imbalance! due! to! Demand! Response! activity.! The! BRP! does! not! suffer! any!commercial!loss!due!to!Demand!Response!activity!since!the!aggregator!is!paying!the!BRP!for!the!energy!curtailed!during!the!Demand!Response!event.!!!Urged! by! the! French! regulator,! RTE! (the! French! TSO)! is! now! changing! its! balancing! rules! to! favour!aggregation!and!Demand!Response:!

: Prior!agreement!of!the!BRP!of!the!consumer!site!is!no!longer!required;!: For!the!consumers!connected!to!the!transmission!network,!the!consumer’s! load!curve!shall!be!

corrected!by! the! TSO! so! that! the!BRP! is! not! facing! any! imbalance! and! the!energy! curtailed! is!directly! invoiced! by! the! retailer! to! the! consumer.! The! aggregator! offers! to! its! consumer! a!compensation!that!takes!into!account!the!non:consumed!energy!which!has!been!invoiced!by!the!retailer.!

: For!the!consumers!connected!to!the!distribution!network,!the!consumer’s! load!curve!shall!not!be!corrected!by!the!TSO,!so!that!the!BRP!shall!face!positive!imbalances!due!to!the!curtailment!(BRP’s!perimeter!shall!then!become!long!and!BRP!shall!get!paid!for!the!surplus!by!the!TSO).!!!

!A!pilot!will!take!place!on!the!EPEX!Day!ahead!market!to!Demand!Response,!where!the!aggregator!will!have!the!possibility!to!sell!aggregated!demand!on!the!wholesale!market!(without!any!prior!agreement!by!the!BRP!of!the!consumer).!! !

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !26!The!expected!implementation!agenda!is!the!following:!!

: 17!December!(except!if!actors!appeal):!transitional!rules’!adoption,!removing!the!need!for!BRP’s!agreement.!: 1!January!2014!:!transitional!rules!implementation!: January:!publication!of!Brottes!Law!implementing!decree!: 2014:!RTE’s!proposal!for!new!rules!to!the!NRA;!validation!and!implementation!are!expected!by!mid:2014.!

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2.!!Program!requirements! ! !!Barriers:! The!minimum!bid! is! set! at! 50!MW! for! Frequency!Restoration! reserves! (manual),! but!will! be!downsized!to!10!MW!in!April!2014.!Although!this!is!far!from!the!standard!1:5!MW!requirement!achieved!in!most!Demand!Response!friendly!markets!in!Europe,!it!is!a!significant!improvement.!!!!

• The$ aggregation$ of$ offers$ on$ the$ Balancing$Market$ does$ not$ allow$ for$ multiple$ demand$ side$resources'to!replace'each'other'to'form'a'single'block.""!

• Certain! consumers! with! a! curtailment! clause! in! their! supplier! contract! are! blocked! from!participating!in!other!forms!of!Demand!Response!!

• 24/7%availability%requirements% in%the%Frequency%Restoration%Reserve%(manual)(programme."This%is#a#historic#generation#requirement.!

• The$ participation$ of$ Demand$ Response$ capacities$ to$ the$ energy$ market$ is$ limited$ by$ entry$barriers,(such(as(legal(hurdles(in(contracting(with(the(BRP,"setting"up"mechanisms"of"exchanges,"and$ paving' the' way' for' potential# market# abuse# by# dominant# BRP.# However,! the$ new$ legal$framework) (Brottes) law) voted! in# the! beginning& of& 2013)& should& allow& the& participation& of&Demand' Response," without" the" prior" agreement" of!with% the% BRP% (as% from% mid% 2014% at% the!latest).!

!Enablers:! The! increased!number!of!markets! open! to!demand! response! is! a! critical! enabler,!while! the!establishment!of!the!Capacity!Market!should!provide!a!source!of!long:term!investment!stability.!!!!Other! enablers! include:! The! minimum! bid! size! in! the! Replacement! Reserve! (balancing)! has! been!reduced!from!50!MW!to!10!MW27.!Demand!side!tertiary!reserve!requires!10!MW!minimum!bid!as!well.!!RTE’s!products!are!adapted!to!Demand!Response!and!do!not!present!specific!incompatibilities.!!!3.!!Measurement!&!Verification! ! !!Enablers:!The!pooled!load!has!to!fulfil!requirements!as!an!aggregate.!This!is!a!critical!enabler!of!Demand!Response! as! it! allows! the! aggregator! to! act! as! mediator! for! the! consumers,! protecting! them! from!onerous! technical! pre:qualification! measures! (for! the! FRR! manual! ‘fast! reserves’! scheme)! and! from!costly!duplication!of!procedures.!!Barriers:!There!are!specific! requirements!according!to!the!types!of!reserves,!which!can!be!difficult! for!the! demand! side! to! meet.! In! addition,! aggregation! possibilities! are! limited! (not! all! sites! can! be!aggregated!with!other!sites).!! !

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !27!Though!10!MW!is!far!from!the!optimal!3!MW,!it!is!far!better!than!a!50MW!requirement.!

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4.!!Finance!&!Risk! ! ! !!Frequency! Restoration! Reserves! (manual)! and! Replacement! Reserves! (balancing)! programs! provide!availability!payments!which!may! range! from!10!k€! to!40! k€/MW/year.! These!programs!also! integrate!utilisation!payments.!Penalties! are! reasonably!proportionated!and!do!not!put!all! the!business! case!at!risk.!Multiple! aggregators! operate! on! the! French!market,! including:! Energy! Pool,! Voltalis,! Smart! Grid!Energy,!Dalkia...!!The$prices$on$the$balancing$market$reflect'the'energy'value.'They'do'not$reveal$the$full$value$of$flexibility$and$capacity$–!services'provided'through'Demand'Response.!The$capacity$market$should$help$to$address$this%issue,!assuming(it(truly(enables(demand(side(participation."The$capacity$market$is!designed'based'on'a"decentralised#market!structure'with'an'obligation'for'the'retailer'to'buy'capacity'certificates!up#to#the!level$of$ their$portfolio$peak$consumption.!Demand'side'participation'should'be'ensured'with'an'equal"treatment.!Some%specific%design%feature%should%still%be%defined%in%order%to%guarantee%this%principle.!!!!!

Germany! ! ! ! !!The!German!market! regulation!creates! significant!barriers! to!all!demand! response!program!types!and!(new!entrant)! independent!aggregation!service!providers! in!particular.!The! list!of!barriers! include:! the!complex! and! multiple! contractual! requirements! between! the! market! players! and! the! aggregation!service!provider;!the!rules!around!balancing!group!management;!the!pre:qualification!requirements!at!the! consumer! level;! the! measurement! requirements;! the! complex! generation! centric! program!requirement,!and! the!network! fee!penalties! for! those!who!consume!over!a!certain!set! level.!Today,!a!significant!portion!of!demand!side!flexibility!remains!untapped!and!will! remain!so,!until! these!barriers!are! removed.! In! contrast! however,! 3rd! party! aggregation! of! distributed! energy! assets,! e.g.! biomass,!biogas!is!a!viable!business!opportunity.!!!1.!!Consumer!access!! ! ! !!Demand!Response!and!aggregation!are! legally! allowed! in!all! the!German!balancing!markets.!Retailers!are! beginning! to! provide! these! services! successfully! to! consumers,! though! they! are!hampered!by! the!measurement!and!verification!requirements,!generation!centric!program!requirements!etc.!!As!in!most!European!countries,!possibilities!for!DSOs!to!invest!in!Demand!Response!are!very!limited!and!they!currently!do!not!do!so.! !Nevertheless,! this!possibility! is!being!discussed!within!the!DSO! industrial!association.!!!!There!is!currently!no!capacity!mechanism!in!Germany,!but!it!has!been!recommended!in!a!proposal!from!the! Scientific!Advisory! Committee! to! the! Federal! Ministry! of! Economics! and! Technology.! The!

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introduction! of! a! capacity! market! is! part! of! the! current! coalition! government! agreement.! It! will! be!important!that!Demand!Response!and!generation!compete!on!an!equal!footing!in!this!mechanism.!!!Relationship! prior! to! load! curtailment.! ! Independent!aggregation! is! very!difficult! in!Germany,!due! to!regulatory!barriers!that!require!independent!service!providers!to!ask!the!permission!of!multiple!parties,!including!the!BRP!and!their!potential!competition,!–!prior! to!contracting!with!a!consumer.! In! total,!an!aggregator! operating! in! Germany! has! to! sign! five! different! contracts,! these! include! all! the! parties!involved!in!the!electric!system:!

• TSO! (prequalification! (PQ),! supply! of!reserve!energy)!

• DSO! (agreement,! report! of! non:availability,!confirmation!for!PQ)!

• BRP! (agreement! on! schedule! exchange,!BRP:approval!for!PQ)!

• Retailer!(agreement!on!payments)!• Consumer!(agreement!on!participation)!

The! independent! aggregator!may!manage! their! balancing! group.!However,! as!mentioned! above,! they!require!the!written!permission!and!a!commercial!bi:lateral!agreement!with!the!BRP!and!the!retailer,! if!these!parties!do!not!want!an!independent!service!provider!to!contract!with!their!consumers,!they!delay!or!block!the!aggregator.!!!!To!escape!from!these!difficulties,!the!service!provider!has!to!work!for!and!within!a!retailer.!In!this!case!the! aggregator! is! pooling! loads! in! one! retailer's! balancing! group.! Though! it! is! always! positive!when! a!retailer! offers!Demand!Response! services! to! its! customers,! the! arrangement! limits!market! growth! by!lowering!market! competition! in! services! and! lowering! the! range!of! customers!who! can!participate! to!those!within!the!portfolio!of!a!particular!retailer.!!!!!Imbalance!settlement.!The!regulation!is!prohibitively!strict!around!balancing!group!management,!BRPs!are!required!to!keep!any!imbalances!in!their!balancing!group!at!a!minimum,!which!is!a!high!entry!barrier!for!new!entrants.!This!will!block!demand!response!service!providers!(BSP)!from!becoming!a!BRP!as!the!liabilities! may! be! costly.! Austria! has! solved! this! issue! by! ensuring! the! rules! for! becoming! a! BRP!encourage! new! entrants! and! competition,! while! these! changes! have! not! as! yet! been! considered! in!Germany.!!!After!curtailment,!the!aggregator!sends!information!to!the!BRP,!on!the!basis!of!the!bi:lateral!agreement.!!The!balancing!group!settlement!is!processed!in!two!timeframes:!the!aggregator!sells!energy!to!the!TSO,!and!the!BRP!sells!energy!to!the!aggregator!in!order!to!compensate!the!imbalance.!The!aggregator!must!pay!the!BRP!and!the!retailer!for!the!energy!saved!during!a!Demand!Response!event,!on!the!basis!of!their!commercial!agreement.!There!is!no!standard!or!regulatory!oversight!of!such!agreements!and!prices!are!set!by!the!retailer!and!BRP.!!!2.!!Program!requirements! ! !!Despite! limited! regulatory! changes! program! requirements! in! Germany! remain! an! entry! barrier! to!Demand! Response.! In! the! Secondary! and! Tertiary! Reserves! programs! the! participation! requirements!maintain!their!historic!generation:oriented!approach,!creating!entry!barriers!to!demand!side!resources.!!

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The! interruptible! load! program! has! taken! aggregation! into! account,! but! high! requirements! still!make!aggregation!unable!to!bid!in.!Aggregation!is!allowed!within!the!intraday!market!(EPEX).!!Enablers:!A!constant!process!to!review!the!requirement!downwards!has!been!successfully!handled!by!the!German! TSO,! resulting! in!more! accessible! programmes! in! term!of! bid! sizes.! For! example,!Minute!reserves’! minimum! bid! was! downsized! to! 10! MW! in! 2011,! and! 5! MW! as! from! July! 2012! with! the!introduction!of!automatic!activation28.!Minimum!bids!do!not!exceed!5!MW!(except!for!the!interruptible!Load! program! (AbLaV! :! “Verordnung! für! abschaltbare! Lasten”)!where! it! is! still! set! to! a! prohibitive! 50!MW29.!As!a!result,!prices!have!been!decreasing!which!reveals!the!broader!offer!now!available.!Barriers:!Reserve!power!requires!an!availability!period!time!of!4!hours!for!Tertiary!Reserve!and!12!hours!for!Secondary!Reserve!whereas!the!service!is!actually!required!for!1!or!2!hours.!Markets!such!as!Austria,!Belgium,!the!Nordics,!and!the!UK!have!lowered!the!required!availability!period!in!order!to!allow!demand!side!resources!to!compete.!The!12:hour!requirement!acts!as!an!almost!total!blockade!toward!consumer!participation!in!the!Reserves!Market.!!!!Two!programs!are!only!for!generation!only!and!demand!is!not!accepted!as!a!resource:!Re:dispatch!and!“strategic! cold! reserve”.! The! TSO! contracts! bi:laterally! with! power! plants! without! going! through! any!public!auction!or!tendering!process.!Contract!terms!and!prices!are!not!public!or!transparent.!!!!Concerning' negative! secondary! and! tertiary! reserves! where! consumers! are! incentivised! to! consume!more,!DSOs!impose!a!contractual!limit!on!the!volume!of!electricity!that!can!go!through!the!consumer’s!connection.! Penalties! are! high! if! the! consumer! passes! this! limit,! discouraging! him! to! participate! in!Demand!Response!programmes.!!Secondary! reserves! are! tendered! on! a!weekly! basis,! requiring! BSP! to! estimate! available! resources! 10!days!in!advance,!whereas!tertiary!reserves!are!reasonably!tendered!on!a!daily!basis.!!!3.!!Measurement!&!Verification! ! !!Prequalification! takes! place! at! the! pooled! assets! level! and! a! simplified! prequalification! protocol! is!adopted!at!an!asset!level.!Prequalification!for!one!TSO!is!sufficient!for!all!TSOs!within!Germany.!!!!An!unofficial!baseline!definition!is!agreed!with!all!4!TSOs,!though!this!information!does!not!appear!to!be!public!or!equally!available!to!all!Demand!Response!providers.!The!definition!should!become!a!standard!across!Germany!and!published! in!a! transparent!manner.!This!will! require! further!effort!on!the!part!of!the! regulatory! bodies,! in! particular! the! BNetzA.! Such! a! definition! should! take! into! account! market!actors’! needs! as! the! baseline! is! also! defined! in! the! contracts! between! the! retailer! and! the! Demand!Response!service!provider.!Today,!the!retailer’s!definition!can!differ!from!the!TSO’s.!!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !28!Combined!website!of!German!TSOs,!”Minute!reserve”!webpage,!available!at:!https://www.regelleistung.net/ip/action/static/ausschreibungMrl!29!Combined!website!of!German!TSOs,!”Interruptible!loads”!webpage,!available!at:!https://www.regelleistung.net/ip/action/static/ausschreibungAbLa!

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If! appropriate,! this! baseline! could! be! used! between! the! Demand! Response! service! provider! and! the!retailer!of!the!consumer!for!any!Demand!Response!activity!(whether!ancillary!or!not).!The!retailer!has!some! anticipation! of! a! potential! consumption! of! the! customer! and!will! consider! this! as! the! baseline!when!forecasting! the!consumer’s!consumption!or!when!calculating! that!value!of!energy!savings!made!during!a!demand!response!event.!!!Currently!not!only! is! the!baseline!between!Retailer!and!Demand!Response!provider!not! standardized,!but!the!information!required!by!the!different!BRPs!is!not!standardized!between!themselves!or!between!them! and! the! TSO.! This! results! in! costly! duplication! of! data! exchange! operations! which! could! be!simplified!or!even!centralised!by!the!TSO!as!it!is!the!case!in!Switzerland.!!!!!4.!!Finance!&!Risk! ! ! !!Wholesale!market!prices!are!low!in!Germany!due!to!the!fact!that!large!amount!of!subsidised!generation!is!available!within! the! intra:day!markets.!This!has!damaged!the!business!case!of!all! resources!offering!flexible,!capacity!resources,!such!as!Demand!Response!or!gas!fired!power!plants.!!!The!primary! reserve!programme!provides! availability! payments! only.! Secondary! and!Tertiary! reserves!programmes! provide! availability! and! utilisation! payments.! Secondary! and! Minute! reserves! (Tertiary)!appear!as!the!most!interesting!for!now.!Penalties!for!non:delivery!or!underperformance!are!reasonably!proportionated!and/or!do!not!exist!and!do!not!put!the!all!business!case!at!risk.!!!!With!an!announced!plan!to!achieve!35%!of!renewable!electricity!supply!by!2020!and!the!phasing!out!of!nuclear! power! by! 2022,! the! German! energy! system! will! integrate! more! and! more! de:centralised!intermittent! energy! generation! (wind,! solar)! as! well! as! not! intermittent! de:centralised! energy!generation!by!biomass!and!biogas,!and!will!increase!its!needs!in!de:centralised!flexibility.!!!!!Great!Britain! ! ! !!Great!Britain!was!the!first!market!to!open!to!consumer!participation!in!Europe.!The!threatening!national!security!of!supply! issues!should!now!be!adding!a!new!and!urgent! impetus!for!demand!side!resources.!!However,! demand! side! actors! feel! recent! government! decisions! do! not! provide! feasible! near:term!mechanism! by! which! it! can! continue! to! expand! and! address! that! scarcity! issue,! and! this! lack! of!opportunity!is!damaging!to!the!demand!side!industry.!Though!GB!is!still!a!forerunner!in!Europe,!the!next!year! will! likely! decide! whether! this! position! is! maintained.! For! example,! there! are! potential!opportunities! to! rectify! the! above! and! enable! Demand! Response! for! initial! deliveries! in! the! winter!2015/2016!timeframe!as!part!of!the!new!Capacity!Market.!There!are!rules!to!Capacity!Market!that!are!still! to! be! finalized!which!will! determine!whether! this!market! is! viable! for! the! demand! side! (e.g.,! the!penalty!construct).!Similarly,!GB!could!revisit!new!sources!of!subsidies!that!are!currently!shut!to!demand!entirely!–!for!example!the!“Contracts!for!a!Difference”!scheme.!!!!

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There!are!plans!to!establish!a!new!Demand!Response!pilot!Balancing!Reserves!programme,!however!this!will! not! replace! the! lost! opportunity! described! above! or! indeed! repair! the! damage! done! to!Demand!Response!providers!if!the!capacity!market!is!designed!in!a!generation!centric!manner!that!poses!barriers!to!the!participation!of!the!demand!side.!!Despite! these! setbacks,! most! ancillary! services! markets! are! open! to! Demand! Response! in! GB! and!aggregators,! retailers! and! single! consumers!are!active.! This! is! a! critical! element!of! success! for! the!GB!market.!!!1.!!Consumer!access! ! ! !!Ancillary! services! are!open! to!Demand!Response.! The!main!program!concerning!Demand!Response! is!the! Short! Term! Operating! Reserve! (STOR).! Though! STOR! spurred! Demand! Response! development! in!2011—12,!it!no!longer!supports!the!market.!Prices!have!fallen!and!those!demand!side!resources!which!cannot!be!available!24/7!are!no! longer!considered!as!tendering!competitively.!Demand!Response!now!represents! a! limited! part! of! this! reserve.! For! example,! during! the! Season! 7.330,! load! curtailment!represented!only!4%!of!the!overall!STOR!participation.!!Firm! Frequency! Response! &! Frequency! Control! Demand! Management! also! enables! limited! Demand!Response!participation!but!the!requirements!are!significantly!higher.!Ancillary!services!include!services,!which!are!not!open!to!Demand!Response:!mandatory!Frequency!Response,!non:tendered!Fast!Reserve,!“foot!room”!–!or!negative!reserve,!constraint!management!and!inertia.!!Ofgem’s!approach!to!incentivising!network!innovation!supports!demand:side!measures!where!these!are!cost:efficient:!

• ‘Totex’!approach!to!regulation!in!distribution!price!control!5!(2010:15),!innovation!measures!are!treated!in!regulatory!terms!on!a!par!with!capital!investment;!!

• Network! Innovation!Competitions,! especially! Low!Carbon!Network! Fund! (about! £! 500!m!over!five!years)31;!

• In! the! future,! the! Distribution! Price! Control! (2015:23)! to! be! based! on! innovation! &! specific!outputs.!

As!a!result,!five!out!of!the!six!Distribution!Network!Operators!are!currently!running!Demand!Response!trials.! Another! opportunity! for! Demand! Response! consists! in! load! management! in! the! frame! of! the!‘Triad’!system32.!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !30!19/08/13!to!23/09/13!(National!Grid,!2013,!STOR,'Fuel'Type'Analysis,'Fuel'Type'Analysis'–'Season'7.3'(19/08/13'–'23/09/13),!available!at:!http://www.nationalgrid.com/NR/rdonlyres/445313F5:1F90:4289:AB1E:E12D5A2B4942/62970/STOR_Fuel_Type_Analysis_Summary_Season_7_3.pdf)!31!Though!the!Low!Carbon!Network!Fund!has!had!some!difficulty!in!attracting!a!satisfactory!amount!of!commercially!viable!projects,!partially!due!to!the!lack!of!payments!to!consumers!for!providing!demand!side!flexibility.!!!32!The!triad!charging!system!has!been!designed!to!penalise!consumption!during!peaks,!especially!in!highly!stressed!parts!of!the!network.!Because!the!cost!of!owning!and!operating!the!GB!transmission!network!for!a!year!is!recovered!in!the!three!triad!periods,!consumers!and!small!generators!can!save!and!earn!money!from!the!triad!system.!Consumers!who!avoid!consuming!during!those!periods,!whether!by!turning!down!or!by!running!generators,!save!money!for!their!Electricity!Suppliers.!Small!

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!Finally,!a!capacity!market!is!due!to!open,!with!initial!auctions!in!late!2014!or!early!2015!for!delivery!in!winter!of!2018/2019.!The!government!is!currently!establishing!rules!for!participation!and!several!critical!questions!remain.!This!will!decide! if!and!to!what!extent!demand!side!resources!will!be!available! in!GB!within!the!Capacity!Market.33!!!!The!aggregator! is!not!required!to!ask!for!permission!or!to!inform!the!retailer!prior!to!load!curtailment!and!has!direct!access!to!consumers.!They!may!aggregate!load!from!all!over!the!country,!thus!enlarging!their! pool! of! potential! resources.! Concerning! BRP’s! imbalances! caused! by! the! load! curtailment,! the!customer!has!no!obligation!to!maintain!a!consumption!profile!and!the!UK’s!legislation!does!not!address!this!issue.!However,!as!the!market!develops!further!it!will!be!necessary!in!GB,!as!it!is!now!in!France!and!other!markets,!to!define!the!roles!and!responsibilities!of!the!BRP!and!BSP!(aggregator!or!consumer)!in!such!a!manner!that!the!risks!of!all!parties!are!mitigated!and!costs!reasonably!and!fairly!allocated.!!!2.!!Program!requirements! ! !!The!STOR!programme!requirements!are!challenging!for!consumers,!as!they!require!24/7!availability!to!be!paid!at!a!competitive!level.!There!is!a!possibility!to!choose!one!time!window!(morning/evening),!but!it!involves!an!important!lowering!of!revenues.!This!change!in!regulation!is!a!main!reason!demand!now!has!such!a!limited!share!of!the!STOR!market.!!!!The!Fast!reserves!programme!requirements!are!unnecessarily!high.! It! requires!a!50!MW!minimum!bid!size.!Incremental!additions!are!a!minimum!of!10!MW!for!each!bidding!unit.!!!!As!of!2015!Ofgem!has!granted!National!Grid!permission!to!develop!a!new!demand!side!product.!It!will!be! able! to! offer! businesses! a! new! opportunity! to! reduce! their! electricity! use! during! times! of! high!demand! (between!16:00!and!20:00!on!weekday!evenings! in! the!winter)! in! return! for! a!payment.! The!amount!they!would!receive!would!be!determined!through!a!tender!run!by!National!Grid.!This!is!a!good!opportunity!in!theory,!however!as!many!businesses!close!prior!to!20:00!it!is!questionable!how!many!will!participate!and!the!opportunity!is!seen!as!limited.!It!does!not!replace!early!participation!in!the!capacity!market.!!!The! capacity!market! design! includes! several! barriers! for! demand! response.! Penalties! will! be! up! to! 2!times!the!total!earnings!:!this!will!critically!impact!the!ability!of!consumers!and!their!service!providers!to!adequately!manage!risk.!Demand!Response!will!not!be!dispatched!when!there!is!a!capacity!event,!this!will! mean! it! is! difficult! or! impossible! for! many! consumers/aggregators! to! know! when! a! capacity!activation!has! taken!place.!There!will!be!no! limit!on!duration!of! call!or! call! frequency!meaning! that!a!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !generators!who!export!electricity!from!their!sites!during!the!triad!periods!also!save!money!for!the!Electricity!Supplier!who!purchases!their!generation.!33!For!historical!reasons,!most!ancillary!services!have!been!designed!around!what!generators!can!do!rather!than!the!higher!level!technical!requirements.!This!trend!has!continued!in!development!of!the!capacity!mechanism.!Aligning!technical!product!requirements!such!as!speed!of!response,!duration,!etc.!to!the!characteristics!of!demand!side!response!will!help!to!foster!demand!side!contributions!and!allow!the!market!to!exploit!key!demand!side!strengths!such!as!flexibility.!

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consumer!must!be!prepared!to!be!called!any!number!of!times!for!any!length!of!time.!Yet!another!severe!setback! for! Demand! Response! in! the! GB! is! the! recent! decision! by! DECC! to! delay! the! introduction! of!demand!side!resources!into!the!capacity!market!one!to!two!years.!!!3.!!Measurement!&!Verification! ! !!Baseline! methodologies! do! not! work! for! all! types! of! demand! response,! as! it! favours! customer!generation!over! load! curtailment.! The! latter! is! eligible!but!devalued.!Added! to! the!program! structure!issues! described! above,! Fast! Reserves! requires! a! new! IT! system! adapted! to!Demand!Response!which!represents!high!costs!for!aggregators.!!!4.!!Finance!&!Risk! ! ! !!In! 2011/12! National! Grid! spent! £70.4m! in! availability! payments! for! the! STOR! program.! The! average!availability! price! was! £9.13/MW/h! and! the! average! utilisation! price! was! £232.37/MWh34 .! These!numbers!include!long!term!contracts!that!were!put!in!place!several!years!ago!and!might!not!reflect!the!current!market!rates.!!!!As!of! today,! real! time! imbalances!prices!are!not!high!enough! for! retailers! to!build! their!own!Demand!Response!programme.!!!!The!Aggregators!currently!listed!on!National!Grid’s!website!are35:!!Cynergin!Projects!Ltd;!!EDF!Energy;!!Energy!Pool;!!EnerNOC!UK!Ltd;!ESP!Response!Ltd;!!Flexitricity!Ltd;!!!

GDF!SUEZ!Energy;!Limejump!Ltd;!!Matrix! –! Sustainable! Energy!Efficiency;!!Negawatt! Business! Solutions;!Npower!Ltd;!!!

Open!Energi;!REstore;!Tezla!Energy;!UK!KiWi!Power!Ltd;!!UK!Power!Reserve!Ltd.!!

Nevertheless,!some!of!them!are!not!active!aggregators,!whereas!others!have!left!the!market.! !

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !34!National!Grid,!2012,!STOR'Annual'Market'Report'2011/2012,!available!at:!http://www.nationalgrid.com/NR/rdonlyres/E3AA399B:2661:4E9E:9FFE:FE83D368530C/58984/STOR_End_of_Year_Report_2011_12.pdf!35!National!Grid,!2013,!STOR!Fuel!Type!Analysis!:!season!7.3,!p.!!4,!available!at:!http://www.nationalgrid.com/NR/rdonlyres/445313F5:1F90:4289:AB1E:E12D5A2B4942/62970/STOR_Fuel_Type_Analysis_Summary_Season_7_3.pdf!

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Ireland! ! ! ! !!By!phasing!out!its!main!Demand!Response!scheme!in!early!2013,!Eirgrid!is!incentivising!Demand!sites!to!switch! to! the! Spot!market!where! the!main! regulatory!barriers!have!been! removed.! The! first!Demand!Side!Unit!(DSU)!became!operational!in!July!2012,!the!second!in!December!2012.!Nevertheless,!ancillary!services!are!still!closed!to!Demand!Response.!A!multi:stage!consultation!process!on!a!review!of!System!Services!has!been!completed!by!the!TSOs!and!recommendations!are!being!reviewed!by!the!Regulators.!!!1.!!Consumer!access! ! ! !!Ancillary!Services!or! (system!services)!are!not!currently!open! to!Demand!Response.!A!consultation!on!Ancillary! services! is! in! progress.!A! final! Single! Energy!Market! (SEM)36!Committee!decision!on! the!new!System!Services!structures,!products!and!remuneration! is!expected! in!2014.!Otherwise,! there!are! two!Demand!Response!schemes:!Short!Term!Active!Response!(around!30!MW!registered!capacity! in!2011)!and!Powersave!(60!MW!in!201137).!!The!spot!market! is!open! to!Demand!Response.!Programs!operated! through! the!SEM!are!accessible! to!Demand!Response!through!the!fulfilment!of!the!DSU!requirement.!This!status!has!been!deeply!reformed!in!July!2012,!and!60!MW!of!Demand!Response!are!now!involved!in!the!SEM.!In!comparison,!80:120!MW!of!Demand!Response!were! previously! registered!within! the!Winter! Peak!Demand!Reduction! Scheme.!The!scheme!was!phased!out!in!early!2013!and!the!units!involved!are!planned!to!switch!towards!the!SEM!by! using' the! DSU! requirement38.! ! Complementary! capacity! is! bought! on! the! SEM! during! the! winter!season.!!The!aggregator!works!as!a! service:provider! for!demand!sites!gathered! to! fulfil! the!DSU! requirements.!!He!does!not!have!to!ask!for!permission!or!to! inform!the!retailer!or!BRP!prior!to! load!curtailment.!The!aggregator!can!aggregate!load!from!anywhere!the!country.!They!are!treated!as!a!part!of!the!consumer’s!unpredictable!behaviour.!As!the!market!develops!further,! it!will!be!necessary!in!Ireland,!as!it! is!now!in!France! and!other!markets,! to! define! the! roles! and! responsibilities! of! the!BRP! and!BSP! (aggregator! or!consumer)!in!such!a!manner!that!the!risks!and!costs!of!all!parties!are!mitigated,!including!those!of!the!BRP!and!retailer.!!!!Neither!the!BRP!nor!the!aggregator!are!charged!for!the!imbalances!caused!by!the!load!curtailment.!The!Irish!electricity!market!is!centrally!dispatched,!which!means!that!the!imbalances!are!covered!by!the!TSO.!!When! Demand! Side! Units! are! dispatched! by! the! TSO,! the! demand! site! supplier! has! avoided! costs!(imperfections,! capacity! charges,!Mechanism!Operated! Contacts)! for! the! demand! reduction! quantity.!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !36!Which!gathers!Ireland!and!Northern!Ireland.!37!Eirgrid!and!SONI,!2011,!DS3:!!Demand!Side!Management!Workstream,!p.!4,!available!at:!http://www.eirgrid.com/media/DS3%20DSM.pdf!38!Eirgrid!website,!http://www.eirgrid.com/operations/ancillaryservicesothersystemcharges/demandsidemanagementdsm/winterpeakdemandreductionschemewpdrs/,!data!retrieved!data!retrieved!in!December!2013.!

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There! is! no! commercial! loss! for! the! retailer! in! the! case!of! load! curtailment.!As! a! centrally!dispatched!market,!the!Irish!market!does!not!require!the!retailer!to!plan!demand!in!advance.!!!2.!!Program!requirements! ! !!!Enablers:! The! TSOs! have! begun! a! regulatory! review! to! open! the! balancing! market! to! DSUs.! In! its!recommendations! to! regulator,! Eirgrid! proposes! that! the! services! should! be! technology! neutral.! New!products! are! expected! as! well:! Ramping! margins! would! be! designed! to! counter! wind! volatility! and!provide!a!frequency!response!beyond!1!hour!until!8!hours39.!!!3.!!Measurement!&!Verification!!!Measurement!and!verification! requirements!are!still!under!development!as! they!are! in!multiple!other!markets!around!Europe,!including!Finland,!Belgium,!and!France.!!Already!today,!the!pool!of! loads!has!to!fulfil!requirements!as!an!aggregate.!This! is!a!critical!enabler!of!Demand! Response! as! it! allows! the! aggregator! to! act! as!mediator! for! the! consumer,! protecting! them!from!onerous!technical!pre:qualification!measures,!which!they!may!not!have!the!ability!or!knowledge!to!fulfil.! There! is! no!minimum! size! or! technical! requirements! for! single! unit.! !Nevertheless,! the! baseline!methodology! remains! problematic! and! a! group! has! been! created! to! discuss! the! issue! in! cooperation!with!the!TSO.!!!4.!!Finance!&!Risk! ! ! !!Once!they!have!filled!the!Demand!Side!Unit!(DSUs)!requirements,!consumers!or!aggregators!are!classed!as! generators! in! the!market.!DSUs! that! are! available! for! demand! reduction! are! eligible! for! a! capacity!payment!in!the!Single!Electricity!Market!(SEM).!They!bid!in!prices!and!quantities!for!demand!reduction!and! receive! availability! payments40.! DSUs! do! not! receive! an! utilisation! payment.! ! About! €530!million!were!available!in!total!in!the!whole!market!in!2013!for!DSU’s!availability!payments,!in!comparison!with!€!2.1!billion!for!energy!payments41.!!The! STAR! and! Powersave! schemes! only! provide! an! utilisation! payment! and! the! latter! is! rarely! used.!!Ancillary!services!not!accessible!to!Demand!Response.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !39!For!a!description!of!these!products,!see:!Eirgrid!and!SONI,!2012,!DS3:!System!Services!Consultation!!–!New!Products!and!Contractual!Arrangements,!available!at:!http://www.eirgrid.com/media/System_Services_Consultation_Products.pdf,!p.!25:27.!40!The!payments!are!based!on!‘value’!of!capacity!(month,!trading!day!and!trading!period).!Payments!are!given!for!each!½!hour!of!every!day!(assuming!availability)!and!vary!significantly!for!a!given!trading!period!:!from!zero!to!€181.!41!SEMO,!SEM!Market!Overview,!July!2013,!SEM!Operator’s!website:!http://www.sem:o.com/Publications/General/SEMO%20Market%20Overview.pdf!

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Penalties!are!limited!to!the!imbalance!settlement!price.!At!the!moment!two!aggregators!are!registered!with!EirGrid:!Activation!Energy!and!Dalkia.!Four!more!are!in!various!stages!of!the!application!process.!!With!a!rapid!expansion!of!wind!energy!and!a!target!of!40%!renewable!energy!in!electricity!generation!by!2020,!the!system’s!needs!in!flexibility!are!planned!to!increase!in!the!following!year.!!!!!

! !Italy! ! ! !!Demand! side! resources! can! participate! in! the! day:ahead! market,! but! the! interest! has! been! low.!!Industrial! loads!participate!via! two!“interruptible!contracts”!programs!administered!by! the! Italian!TSO!(Terna).!The!framework!for!the!participation!of!demand!side!resources!in!the!Balancing!Market!is!under!development.!Italy!has!a!long!tradition!in!Time!of!Use!programs!for!high!&!medium!voltage!consumers!and!since!2010!for!low!voltage!consumers!too42.!!!1.!!Consumer!access!! ! ! !!Wholesale!market!operators!can!act!as!demand!aggregators!(dispatching!user).!However,!there!are!no!independent! Demand! Response! aggregators! in! Italy! today.! In! regard! to! the! balancing! market,! the!regulatory!framework!for!aggregated!Demand!Response!participation!is!not!yet!in!place.!!!2.!!Program!Requirements! ! !!Spot! Market:! The! bidder! can! decide! to! make! a! bid! with! an! indication! of! price! or! to! bid! at! 0! price!(avoiding!the!risk!of!the!bid!to!be!rejected).!The!interest!in!making!bids!with!an!indication!of!price!in!the!day:ahead!market! is! currently! low.! However,! in! 2012! there!was! an! increase! of! 23%! in! the! bids!with!indication!of!price,!showing!that!consumers!are!willing!to!use!more!suitable!pricing!strategies,!probably!due!to!the!effect!that!the!economic!crisis!is!having!on!the!wholesale!electricity!market.!Interruptible!Contracts:!There!are!two!Interruptible!Contracts’!programs:!one!for!the!mainland!and!one!for! Sicily! and! Sardinia.! The! total! interruptible! power! contracted! under! the! two!mechanisms! reached!4.318!MW!in!June!2012.!The!minimum!bid!limit!is!1!MW.!!!!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !42!In!Italy!mandatory!TOU!tariffs!have!been!introduced!since!July!2010!for!all!LV!customers!in!the!Default!Service!(two!time!bands:!one!for!“peak”!hours!and!the!other!for!“shoulder”!and!“off:peak”!hours).!Actual!time!bands!are!no!more!homogeneous!and!AEEG!is!proposing!to!modify!them!(from!2!to!3!time!bands!or!keep!2!time!bands!but!with!different!aggregation!of!hours)!encountering!the!following!barriers:!

a. Changing!the!number/composition!of!time:bands!implies!significant!costs!and!long!implementation!time!b. AEEG’s!proposals!has!been!opposed!both!by!consumers!associations!and!market!operators!

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As!mentioned!above,! the!requirements! for!participation! in!the!balancing!market!do!not!explicitly! take!into! consideration! some! particularities! of! aggregated! Demand! Response,! but! these! are! under!development.!The!current!requirements!give!access!only!to!generation!units!(e.g.!symmetric!bidding).!!A!capacity!market!administered!by!Terna!is!expected!to!launch!in!2017,!but!it!will!only!be!accessible!by!generation!side!resources.!!!3.!!Measurement!&!Verification! ! !!It! is!worth!mentioning! that! Italy! has!developed!an!extensive! smart!meter! rollout.! Participation! in! the!Balancing! Market! would! require! a! control! centre! operating! 24/7,! which! is! a! cost! barrier! for! a! new!aggregator.!The!rules!regarding!verification!and!definition!of!baseline!for!demand!side!resources!are!not!explicit!yet.!!!4.!!Finance!and!Risk! ! ! !!Interruptible!Contracts:!Auction!administered!by!the!TSO!(descending!price!auctions).!This!program!foresees!a!payment!subject!to!a!mechanism!based!on!the!number!of!interruptions!called!in!the!year!(i.e.!extra!€/MW!for!each!additional!interruption!if!the!number!of!interruptions!is!>10!or!paid!back!if!the!number!of!interruptions!is!<10.!In!the!case!of!Sardinia!and!Sicily!extra!€/MW!for!each!additional!interruption!is!paid!if!the!number!of!interruptions!is!>!20).!!!!!Netherlands!! ! !!Aggregators!are!active!on!the!day!ahead,!intraday!and!balancing!markets.!The!balancing!market!plays!a!central!role!in!the!Dutch!electricity!system.!The!main!driver!for!demand!side!participation!is!imbalance!management! of! BRPs! for! their! own! portfolios.! BRPs! can! act! as! aggregators! or! they! can! hire! an!independent!aggregator!for!this!service.!Portfolio!management!is!attractive,!as!it! is!both!well!paid!and!creates!lower!start:up!costs!than!providing!balancing!products.!!Tennet,! the! Dutch! TSO,! estimates! that! up! to! 1500! MW! of! flexibility! might! be! present! in! the! Dutch!market.! The! total! volume! of! balancing! energy! activated! by! the! TSO! per! year! presently! stands! at! 500!GWh/!year,!95%!of!which!comes!from!the!Frequency!Restoration!Reserve!(automatic).!!!!!!!

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1.!!Consumer!access!! ! ! !!Aggregators! in! the!Dutch!Market!offer!portfolio!optimisation!services! to!BRPs,! through!trading!on! the!day!ahead!and!intraday!markets.!BRPs!optimise!imbalances!through!real!time!dispatch!and!may!act!as!balancing!service!providers.!!Demand!Response! and! aggregation! are! allowed! in! Frequency!Restoration!Reserves! (FRR)! –! automatic!and! manual! (it! includes! Regulating,! Reserve! and! Emergency! Power),! and! in! Replacement! Reserves.!!Replacement!Reserves!are!traded!in!the!intraday!market;!they!are!not!activated!by!the!TSO!Through!the!Regulating/Reserve!Power!schemes!the!TSO!contracts!presently!approximately!250!MW!in!demand:side! flexibility!as!Frequency!Restoration!Reserves,!automatic!or!manual.! In! this!scheme,! large!electricity! consumers! of! over! 60!MW!are! required! to!make! their! flexibility! resources! (generation! and!demand)! available! to! the!TSO43.! !All! other!parties! can!do! so!on!a! voluntary!basis.! Bidders! are! free! to!state!the!conditions!for!activation.!These!include!automatic!activation!or!scheduled!products,!activation!time!and!bid!price.!!Moreover,!Tennet!contracts!annually!complementary!FRR!in!the!Emergency!Power!scheme!(Frequency!Restoration!Reserves,!manual,!directly!activated)!consisting! in!300!MW!of! load!shedding!which!can!be!utilised!in!total!for!40!hours!per!year!and!with!a!maximum!of!8!hours!for!a!single!call44.!!!!BRP’s!involvement!prior!to!load!curtailment:!!BRPs!may!offer!aggregation!services!to!its!customers.!An!independent!aggregator!acts!as!a!service!provider!and!requires!an!agreement!with!the!consumer’s!BRP!and!with!its!supplier.!As!in!other!Member!States,!this!can!create!a!market!entry!barrier.!!!Imbalance!settlement!after!load!curtailment:!Most!of!Demand!Response!events!are!performed!on!the!market!and!will!either!result!in!a!change!of!commercial!schedules!between!BRPs!(BRPs!trading!lack!and!excess!of!loads),!or!ultimately!in!imbalances!to!be!settled!with!the!TSO.!The!imbalance!settlement!price!is!established!every!15!minutes!and!acts!as!a!real!time!market!signal!which!allows!BRPs!to!balance!the!system,! using! the! flexible! resources! in! their! portfolio:! demand! side! response! and! distributed! flexible!generation.! ! This! does!not! require! the!direct! involvement!of! the! TSO!as! the!price! acts! as! a! balancing!signal.!The!remuneration!of!the!independent!aggregator!(if!used)!for!its!services!to!the!BRP,!depends!on!their!commercial!arrangements.!!Within!the!Frequency!Restoration!Reserve!the!TSO!activates!demand!side!resources!offered!from!BSPs.!When!load!curtailment!is!taking!place,!the!TSO!updates!the!BRP’s!balance!status!in!order!to!avoid!any!imbalances!caused!by!the!requested!volumes.!!!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !43!Tennet!(2012),!Implementation!Guide,!available!at:!http://www.tennet.org/english/images/120214%20SO%20SOC%2012:xxx%20Uitvoeringsregels%204%202%20%20UKclean_tcm43:19026.pdf!44!Ioannis!Lampropoulos!et'al.(2012),!Analysis!of!the!market:based!service!provision!for!operating!reserves!in!the!Netherlands,!available!at:!http://www.e:price:project.eu/website/files/EEM%5C'12%20:%20I.%20Lampropoulos%20et%20al.%20[31:03:2012].pdf,!p.3!

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2.!!Program!requirements! ! !!Enablers:!

• In!the!Regulating/Reserve!Power!schemes!the!minimum!bid!size!is!4!MW.!• The!maximum!duration!is!set!in!the!bid.!Demand!Response!is!generally!called!for!15!min!period;!

It!can!be!extended!by!15!min!periods.!• The! Imbalance!pricing!scheme!and!the!real! time! information!on!system! imbalance!by!the!TSO!

enable!self:dispatch;!the!ex!post!notification!enhances!the!possibilities!for!intraday!trading.!!Barriers:!The!required!minimum!capacity!to!take!part!in!Emergency!Power!(contracted!FRR)!is!20!MW45.!!It!requires!from!97%!to!100%!availability!depending!if!it!is!manually!or!automatically!dispatched.!!!3.!!Measurement!&!monitoring !Enablers:!The!pooled!load!has!to!fulfil!requirements!as!an!aggregate.!This!is!a!critical!enabler!of!Demand!Response!as!it!allows!the!aggregator!to!act!as!mediator!for!the!consumer,!protecting!them!from!onerous!technical!pre:qualification!measures,!which!they!may!not!have!the!ability!or!knowledge!to!fulfil.!!!!The!baseline!setting!depends!on!the!contractual!relationship!between!the!end!consumer,!its!BRP!and!its!supplier.! The! absence! of! standardised! requirements! can! act! as! a! barrier.! ! For! TSO! contracted! FRR!(manual)!the!BSP!is!required!to!supply!measurements!directly!to!the!TSO46.!!!4.!!Finance!&!Risk! ! ! !!Payments.! The! Dutch! electricity! market! is! an! energy! only! market,! which! provides! no! availability!payments,!except!for!contracted!FRR.!This!can!affect!investment!security.!

• Presently! the!average! premium!value! to! the!BSP! for!balancing!energy!when!compared! to! the!day!ahead!market!value! is!+!€!70!/MWh!(total!premium!value!thus! is!€!35!million/year;!actual!premium!value!may!occasionally!be!over!€!500/MWh).!!

• Total! yearly! value! for! contracted! availability! of! balancing! services! FRR! (Regulating! and!Emergency!Power)!is!about!€!60!million!/year47.!!

• Contracted! services! of! Emergency! Power! receive! payments! €! 200/MWh! or!marginal! +! 10%! if!higher.!

• Replacement!Reserves!are!not!used!for!balancing!purposes!and!are!self:dispatched,!through!the!intraday!market.!This!programme!uses!a!pay:as:bid!pricing!system.!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !45!Tennet!(2013),!Memorandum!to!Suppliers!Emergency!power,!available!at:!http://www.tennet.eu/nl/fileadmin/downloads/About_Tennet/ENGELS:SO:SOC_13:056_Productinformatie_noodvermogen.pdf!46!Metering!is!a!liberalized!market!in!the!Netherlands,!the!meter!data!is!managed!by!the!meter!data!manager.!The!required!metering!equipment!for!important!connections!(superior!to!3!*!80!A)!is!a!telemetric!meter,!with!(at!least)!15!minutes!resolution.!For!smaller!connections!there!is!no!such!obligation;!allocation!of!realized!volumes!then!will!be!based!on!profiling.!47!between!40!(M€/a)!for!regulating!and!20!(M€/a)!for!emergency!capacity.!Cf.!Ioannis!Lampropoulos!et'al.(2012),!op'cit.,!p.3!

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Penalties.! Verification! of! delivery! of! balancing! energy! occurs! only! for! contracted! products:!Regulating/Reserve! Power.! Non:! or! insufficient! delivery! may! result! in! a! penalty! of! 1/6th! of! the!contractual! fee,!and!ultimately! in!annulling! the!contract.! For!emergency!power! the!BSP!has! to! supply!measurements!per!5!minutes!to!TenneT!if!the!emergency!power!is!deployed.!Penalties!occur!for!non!or!suboptimal!availability.!!There! are! four! aggregators! operating! in! the! Netherlands:! Powerhouse,! Agro! Energy,! Energie! Data!Maatschappij! (Energy' Data' Company)! and! NL! Noodvermogenpool! (NL' Emergency' Power' Pool).! The!aggregators! typically! pool! demand! side! resources! from! greenhouses,! hospitals,! small! industries! with!CHP!and!load!shedding!capabilities.!!!!!Norway! ! ! ! !!Norway!has!taken!important!steps!in!order!to!allow!wider!Demand!Response!participation.!The!market!structure! and! the! product! requirements! have! been! modified! to! better:fit! Demand! Response!particularities.! However,! barriers! remain! when! it! comes! to! aggregation! of! demand! side! resources,!especially!regarding!their!ability!to!participate!independently!in!the!market!as!BSPs.!!!1.!!Consumer!access! ! ! !!Enablers:! Aggregation! of! demand! side! resources! is! legal! in! all! markets! in! Norway.! Aggregators! can!operate!independently!in!the!day:ahead!(Elspot)!and!intra:day!(Elbas)!spot!markets.!!!!Barriers:!To!participate!in!the!balancing!market,!an!aggregator!(BSP!or!consumer)!has!two!options:!a)!to!become!BRP!and!contract!directly!with!the!TSO!or!b)!to!contract!with!a!BRP.!The!regulator!and!TSO!have!not!reviewed!the!rules!and!regulations!for!becoming!a!BRP!from!the!point!of!view!of!a!new!entrant.!The!BRPs! may! not! wish! to! contract! with! the! aggregator! to! avoid! imbalances/energy! losses! caused! by!Demand!Response!activation!or!simply!because!they!view!the!aggregator!as!a!competitor.!As!the!market!develops! further,! it! will! be! necessary! to! define! the! roles! and! responsibilities! of! the! BRP! and! BSP!(aggregator!or!consumer)!in!such!a!manner!that!the!risks!and!costs!of!all!parties!are!mitigated.!!Non:! aggregated! Demand! Response:! Industrial! consumers! have! a! good! level! of! participation! in! the!balancing! market.! ! Approximately! half! of! its! capacity! comes! from! load! curtailment.! However,! the!Norwegian! balancing!market! is! relatively! small! (2000!MW! total! capacity)! and! the! capacity! market! is!needed!only!from!October!until!March.!If!the!capacity!bid!is!selected!in!the!capacity!market,!the!bidder!is! required! to! transfer! the! bid! to! the! Regulating! Power! Market.! The! Norwegian! TSO! also! has! a! few!bilateral! agreements! with! demand! resources,! which! require! these! parties! to! bid! into! the! Regulating!Power!Market.!!!

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2.!!Program!Requirements!! ! !!In! comparison!with! the! situation! in! other! European! countries,! the! program! structures! in!Norway! are!open!to!Demand!Response.!Lately,! the!activation! interval!between!calls!was!adjusted!to!better! fit! the!Demand!side!particularities.!The!delivery!time!in!the!balancing!market! is!15!minutes,!which! is!suitable!for!Demand!Response!units.!The!main!remaining!barrier!in!the!balancing!market!is!the!10!MW!minimum!bid!size.!The!minimum!limit! is!high,!because!this! is!still!a!manually!operated!market!(meaning!the!TSO!activates!participants!by!telephone).!However,!there!is!an!on:going!evaluation!in!regards!to!bid!size!and!product!structure.!!!3.!!Measurement!&!Verification! ! !!The! Norwegian! baseline,!measurement! and! verification! criteria! are! inadequate! for! aggregated! loads.!!This! lowers! the! reliability! of! these! resources! and! acts! as! a! market! barrier! to! service! providers.! In!addition,!there!are!practical!barriers!related!to!physical!limits!of!the!current!infrastructure.!For!example!it! could! be! impossible! for! an! aggregator! to! pool! load! from! different! bidding! zones.! This! limits! the!number!and!range!of!consumer!sites!available.!!!!4.!!Finance!and!Risk! ! ! !!Payments!for!Demand!Response!are!attractive!only! in!the!balancing!market.!The!level!of!the!penalties!for!non:performance!enables!Demand!Response!participation.!!!!!!!

Poland! ! ! ! !!In! 2020,! 22%! of! Poland’s! coal! fired! generation! units! are! due! to! go! offline.! This! may! cause! sporadic!capacity!issues!within!parts!of!the!country.!Most!power!stations!are!grouped!in!the!south,!where!heavy!industrial!activity!and!hence!most!of!the!electricity!demand!used!to!be!located.!Today!however!many!of!these!heavy! industrial!plants!have!been!closed!down,!and!demand!from!large!cities! in!the!central!and!northern! part! of! the! country! has! increased.! There! is! only! limited! baseload! (“systemic”)! power!generation! capacity! in! the! northern! part! of! the! country! located!north! east! of!Warsaw!and! the!North!West!corner!of!the!country.!!Therefore,!particularly!after!2016,!it!is!expected!that!demand!can!form!an!important! flexibility! resource! in! areas! of! the! country! suffering! from! transmission! and/or! generation!capacity!constraints.!!Today,!only!the!Emergency!Power!scheme!allows!demand!response.!!The!balancing!market!shall!open!to!Demand!Response!in!the!near!future.!!The!Polish!Energy!Regulatory!Office! approved! the! TSO! Network! Code,! which! allows! this! new! activity! on! balancing!market! starting!from!1!July!2014.!Polish!retailers!plan!to!use!demand!side!flexibility!in!order!to!avoid!purchases!on!the!

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short:term!day:ahead!market! and! to! correct! for! purchasing! errors! between! the! short! term!and! long:term!markets.!(There!is!currently!limited!intraday!trading!in!Poland).!!!!Aggregation!is!legal!and!the!first!bids!for!Emergency!DSR!have!been!called.!!!!!1.!!Consumer!access! ! ! !!Today,! Emergency! Demand! Side! Reserve! (EDSR)! is! the! one! programme! where! Demand! Response!participates.! The! first! contract!was! signed! in!March! 2013! and! 30!MW! capacity! is! now! contracted! for!summer!and!25!MW!for!winter.!This!scheme!allows!aggregation.!!BRP’s! involvement! prior! to! load! curtailment.! In! the! Emergency! Demand! Side! Reserve! programme,!aggregation! service! providers! have! a! bi:lateral! contract!with! the! TSO.! They! do!not! require! a! contract!with!a!BRP.! In!order! to! take!part! in! the!balancing!market,!BSPs!must!be!BRP.!As! the!market!currently!now!stands,!it!is!unlikely!that!a!retailer!will!contract!with!a!consumer!outside!of!their!own!area.!!!!Imbalance! settlement! after! load! curtailment! is! settled! through! the! balancing! market! and! imbalance!settlement!process.!!!2.!!Program!requirements! ! !!Enablers.! The! minimum! bid! in! the! balancing! market! is! 1! MW.! This! limited! requirement! will! help! to!provide! the!necessary! liquidity! for! the!entry!of!Demand!Response! in! this!market.!Market!participants!describe!other!existing!program!requirements!as!reasonable.!!Barriers.!The!minimum!bid!in!the!EDSR!programme!is!10!MW.!Each!individual!consumer!must!have!the!potential!to!reduce!more!than!10%!of!maximum!load!of!its!site.!!!3.!!Measurement!&!Verification! ! !!Enablers:!In!the!balancing!market,!the!pool!of!loads!has!to!fulfil!requirements!as!an!aggregate.!There!is!no!minimum!size,!but!there!are!high!requirements! in!terms!of!measurement!and!planning!accuracy.! If!these!technical!requirements!are!not!fulfilled,!the!participation!is!suspended.!PSE!is!planning!to!improve!its!IT!system!in!order!to!fit!with!the!requirements!of!aggregation!in!the!EDSR!programme.!!Barriers:! In! the! EDSR! programme,! measurement! and! verification! requirements! take! place! at! the!individual! consumer! level! and! not! the! aggregated! level.! This! puts! unnecessary! legal! and! technical!burdens!on!consumers!looking!to!participate.!!!!

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According! to! local! participants,! the! EDSR! baseline! definition! is! inadequate! for! most! of! industry! and!represents!a!high!risk!for!participants.!!!4.!!Finance!&!Risk! ! ! !!The! EDSR! programme! and! the! balancing!market! only! provide! utilisation! payments! and! no! availability!payments.!Currently!the!price!in!the!EDSR!programme!is!175!Euros!per!MWh!(each!activation!is!4!hours!long)!with!maximum!10!activations!per!year.!One!activation!per!year!is!guaranteed.!In!case!that!the!TSO!notifies!the!participants!for!an!upcoming!curtailment!and!then!calls!it!off,!the!TSO!pays!20%!of!nominal!value!of!reduction!(for!readiness).!This!offer!is!seen!as!low!by!industrial!players.!They!may!earn!only!175!Euros!per!MW!annually!for!participating!in!Demand!Response.!!!Penalties.!In!the!EDSR!programme!the!penalties!are!limited!to!financial!penalties!and!seem!reasonably!proportionated.!In!the!balancing!market,!the!penalties!applied!are!much!more!discouraging:!the!BRP!will!face!the!imbalance!price,!and!can!be!suspended!for!not!following!the!forecasted!consumption.!!!!!Spain!!! ! ! ! !!Aggregation!is!not!legal!in!the!Spanish!electricity!system!and!there!is!only!one!scheme!allowing!Demand!Response.!Proposals!to!open!balancing!services!to!Demand!Response!are!currently!under!consultation!and!could!lead!to!changes!in!2014:15.!!!1.!!Consumer!access !!Currently,!Demand!Response!does!not!have!access!to!any!ancillary!services!except!an!interruptible!load!programme.!This!programme!does!not!allow!aggregation!and!is!limited!to!large!industrial!consumers.!It!represents!an!available!capacity!of!2000!MW!of!demand!reduction!in!peak!hours.!A!new!scheme!due!to!take!place!in!2014!would!be!used!for!emergency!power!and!balancing!purposes!a!well.!!There!are!no!aggregators!operating! in! the!Spanish!market!and!there!are!no!standards!at! the!moment!defining!their!relationships!with!BRP!and!the!TSO.!!!!Participants!in!the!interruptible!load!programme!are!directly!in!contact!with!the!TSO!via!their!IT!system.!!The!retailer’s!imbalance!is!directly!corrected!by!the!TSO!which!takes!into!account!its!reduction!order.!!!!The!BRP’s!commercial! loss!due! to! the! load!curtailment! is!compensated!on! the!basis!of! the!day:ahead!price.!This!mechanism!could!be!used!in!future!to!enable!aggregated!demand!to!participate.!!!!!

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2.!!Program!requirements! ! !!The! interruptible! load! programme! is! the! only! one! for! Demand! Response! and! it! does! not! allow!aggregated!demand! side! resources! to!participate.! The!participants! in! this! programme! should!have!an!average!available!reduction!potential!of!5!MW!(0.8!MW!in!Canarias!and!Baleares! Islands)! in!each!of!6!tariff!periods.!The!programme!requires!that!55%!of!the!energy!is!consumed!during!the!night!hours!and!weekends!(tariff!period!n.6).!The!availability!payments!are!higher!during!this!period.!!The!new!scheme!due!to!take!place!in!2014!could!include!availability!options!for!the!bidders.!!!3.!!Measurement!&!Verification! ! !!Participants! in! the! interruptible! load!program!must!have! in!an! IT! system,!which! links! them!directly! to!Red!Eléctrica!de!España!(the!TSO).!The!baseline!is!set!individually;!the!available!capacity!is!tested!around!twice!a!year.!!!In! the! absence! of! aggregated! Demand! Response,! there! is! no! regulation! concerning! single! unit!requirement!or!baseline!definitions!for!aggregated!loads.!!!4.!!Finance!&!Risk! ! ! !!Currently!there!is!no!possibility!for!aggregation!to!take!part!in!the!Spanish!electricity!market.!!!!Payments!are!attractive!within! the! interruptible! load!programme!for! those! large! industrial!consumers!who! do! have! access.! Total! payment! is! around! €500!million! a! year! in! this! scheme.! Each! provider!will!receive! an! availability! payment! based! on! the! consumption,! with! a! limit! of! €20/MWh! consumed.!!Payments!are!higher!if!the!energy!is!consumed!in!off:peak!hours.!A!proposal!under!review!suggests!the!use!of!an!auction!system!led!by!the!TSO.!Currently,!there!is!no!utilisation!payment.!!Penalties.! If!participants!do!not!fulfil!the!minimum!size!requirements!(5MW!in!average!during!the!year!for!each!tariff!period),!the!penalty!equals!100%!of!the!total!payments!for!the!year.!If!participants!fail!to!fulfil! a! single! reduction! order,! then! the! penalty! would! be! proportional! to! the! failure.! In! case! of! two!failures!in!the!same!year,!the!penalty!is!100%!of!the!total!availability!payments.!!There! are! about! 150!providers!within! the! interruptible! load!programme.! Industrial! energy! consumers!involved! in! this! scheme! are! construction! industries! (steel,! concrete,! glass,! etc.),! or! other! material!factories!(paper,!chemistry,!etc.)!and!desalinisation!plants!(in!the!Canarias!Islands).!!Today!Spain!relies!mostly!on!hydro!and!gas! for! its! flexibility!needs.!As!Spain! is!evolving!towards!more!distributed!energy!generation,!distributed!balancing!resources!will!increase!in!value.! !

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!

Sweden! ! ! ! !!Demand!Response!participation!and!aggregation!of!demand!side!resources!is!legal!in!Sweden.!!However,!wider!Demand!Response!participation! could!be! triggered!with! the!definition!of! appropriate! roles! and!responsibilities!between!players,!which!allow!for!independent!aggregators,!while!protecting!the!risk!of!market!participants.!!!1.!!Consumer!access! ! ! !!Although!aggregation!of!load!curtailment!units!is!legal!within!the!Markets!in!Sweden,!it!is!present!only!in! the! Peak! Load! Reserve,! providing! 531!MW! for! winter! 2013:2014! (Yearly! procurement! –! contracts!after!tender).!Non:aggregated!Demand!Response!is!mainly!participating!in!the!Tertiary!Reserve!or!in!the!Regulating! Power! Market! (RPM),! but! it! is! limited.! In! RPM,! only! a! BRP! can! handle! the! bid.! A! new!aggregator!has! two!options:!1)!To!become!the!consumer’s!BRP!or!2)!To!contract!with! the!consumer’s!BRP.!In!the!first!case,!it!is!important!to!consider!how!feasible!it!is!for!a!new!market!entrant!to!become!a!BRP.!In!the!second!case,!the!BRP!has!the!legal!right!not!to!contract!with!the!aggregator.!The!roles!and!responsibilities!of!the!BRP!and!BSP!(aggregator,!consumer!or!retailer!can!take!this!role)!require!further!definition,!in!order!to!mitigate!the!risks!and!costs!of!all!parties.!!!2.!!Program!Requirements!! ! !!These!resources!may!be!activated!in!both!Nord!Pool!Spot!markets!and!in!Balancing!Market!(RPM).!!!!However,!with!the!current!structure!of!the!Ancillary!Services,!Demand!Response!cannot!cope!with!the!product! requirements! for! Primary! and! Secondary! Reserves.! Demand! Response! could! participate! in!Primary! Reserve! and/or! Secondary! Reserves! with! provisions! that! make! these! Reserves! accessible! to!Demand!Response!(e.g!activation!only!for!deviations!above!100!mHz!–!which! leads!to! limited!times!of!activation,! and! thus! to! less! impact! in! the! industrial/commercial/domestic!processes).! In! regard! to! the!Tertiary!Reserve,!the!main!barrier!is!the!high!minimum!bid!(10!MW!for!SE1,!SE2!and!SE3!and!5!MW!for!SE4)48.!!!!!3.!!Measurement!&!Verification! ! !!!The! balancing! markets! do! not! have! a! well:defined! and! standardized! system! for! measurement! and!verification.!Verification!will!be!a!problem!if!Demand!Response!increases!rapidly,!but!with!the!market’s!current!low!volumes!of!demand!response,! it!can!be!managed!manually.!Measurement!and!verification!for! aggregated! Demand! Response! will! need! further! definition! in! order! to! ensure! Demand! Response!delivers!a!reliable!resource.! !

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !48!Since!1st!November!2011,!the!Swedish!electricity!market!has!been!divided!into!four!distinct!price!areas!(i.e.!S1,!S2,!S3,!S4).!

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4.!!Finance!and!Risk! ! ! !! !The!Swedish!Ancillary!Services!are!dominated!by!hydropower,!due!to!the!fact!that! it! is!a!cost!efficient!and! rapidly! adjustable! resource.! However,! Demand! Response! participation! is! expected! to! grow,! as! a!higher! percentage! of! intermittent! generation! is! introduced! into! the! network.! In! particular,! Demand!Response! participation! is! expected! to! increase! rapidly! in! the! PLR! by! 2020.! After! 2020! a! pure!market!solution! will! substitute! PLR.! Svenska! Kraftnät! is! also! examining! whether! there! is! potential! to! use!Demand!Response!for!disturbance!reserve!in!the!future,!possibly!in!combination!with!wind.!!!!!Switzerland! ! ! ! !!After! certain! regulatory! changes,! which! took! place! in! 2013,! Switzerland! has! become! a! European!frontrunner! when! it! comes! to! aggregated! Demand! Response.! Technical! barriers! have! been! removed!and,! above! all,! SwissGrid! allows! BSPs! to! aggregate! loads! from! anywhere! in! the! country! without! the!agreement!of!the!customers’!BRPs,!setting!imbalances!directly!with!them.!This!regulation!provides!clear!roles!and!responsibility!for!the!BRP!and!BSP,!while!mitigating!the!costs!and!risks!of!both!parties.!It!also!establishes!a!critical!set!of!processes!under!the!TSO’s!supervision!and!could!provide!a!model!for!the!rest!of!Europe.!!(For!further!information!see!Annex!III).!!!1.!!Consumer!access! ! ! !!As!a!result!of!the!regulatory!developments!which!took!place!early!in!2013!and!a!transitional!period!from!May! to! October! 2013,! Demand! Response! and! aggregation! have! access! to! most! of! Swiss! ancillary!services:! including! Primary,! Secondary! and! Tertiary! Control! Power! (positive! and! negative).! Main!regulatory!barriers!have!been!removed!and!aggregators!can!bid!into!these!programs.!Demand!Response!cannot!bid!within!the!day:ahead!and!intraday!spot!market!(EPEX).!!The! aggregator! (Balance! Service! Provider)! does! not! have! any! contracts!with! the! Balance! Responsible!Parties! of! the! areas! where! it! operates.! The! BSP! contracts! directly! with! SwissGrid! (the! Swiss! TSO)! to!access!the!market.!BSPs!can!aggregate!load!from!anywhere!in!the!country.!Neither!the!BRP!nor!the!BSP!are! charged! for! the! imbalance! caused! by! the! load! curtailment.! SwissGrid! corrects! the! BRP’s! balance!group!the!day!after!the!operation,!taking!into!account!the!operations!which!took!place!in!its!area.!!!!The!payment!provided! to! the!aggregator! takes! into!account! the!BRP’s! commercial! loss! caused!by! the!load!curtailment.!It!is!then!covered!by!the!TSO!at!a!standard!price!based!on!the!day!ahead!spot!price!–!thus!protecting!the!interests!of!both!parties.!This!regulatory!structure!and!clarity!will!be!critical!for!the!long:term!stability!and!growth!of!Demand!Response!in!Europe.!!!!

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2.!!Program!requirements! ! !!Enablers:!Aggregation!was!illegal!prior!to!April!2013,!but!a!regulatory!process!has!taken!place!after!this!date! to! remove!all! the! technical! barriers!within! ancillary! services,!which!were!preventing! aggregators!from!entering!these!programs.!!For!example,!the!minimum!bid!size!does!not!exceed!5MW.!!Barriers:! Whereas! the! Tertiary! control! power! program! is! divided! in! ‘positive’! and! ‘negative’,! the!Secondary! control! power! program! still! requires! symmetric! bids49.! The! Primary! and! Secondary! control!power! programs! require! unlimited! (24/7)! availability.! This! challenge! can! be! met! by! some! industrial!participants!who!may!have!loads!such!as!cooling,!heating!etc.!which!can!be!aggregated!and!run!at!any!time! of! day! or! night,! but! it! remains! an! important! barrier! for! commercial! and! domestic! Demand!Response!as!well!as!smaller!industrial!consumers.!!!!3.!!Measurement!&!Verification! ! !!The! consumer/prosumer! (or! VPP)! unit! has! to! fulfil! requirements! as! an! aggregate.! This! simplifies! the!prequalification! requirements,! as! it! allows! the! aggregator! to! stand! in! the! place! of! the! consumer.!!Prequalification!at!the!aggregate!level!is!therefore!an!important!enabler!of!Demand!Response.!There!is!no!minimum!size,!no!technical!requirements!for!a!single!unit.!Virtual!generation!unit!appears!as!single!feed:in/out!node!for!the!TSO.!The!baseline!is!defined!broadly!as!the!measured!value!of!the!load!before!being!influenced!by!the!aggregator.!!Its!measurement!is!then!set!at!the!pre:qualifications!stage.!!!4.!!Finance!&!Risk! ! ! !!Availability!payments!are!only!provided!within!the!Primary!power!control!program;!currently!prices!are!not! attractive! for! Demand! Response.! Secondary! and! Tertiary! control! power! –! paid! out! with! both!availability! and!utilisation!payments! :! provides! the!business! case! for! aggregation!and!both! receive!an!equal!share! in!the!aggregators’!applications.!The!Swiss!electricity!market!uses!the! ‘pay:as:bid’!system.!This! might! change! in! the! future! due! to! standardisation! at! the! European! level! following! ENTSO:E’s!requirements,!which!are!‘pay!as!cleared’50.!!!!There! are! two! regimes! of!penalties.! 1)! If! the! BSP! fails! to! deliver! the! agreed! curtailment,! the! penalty!corresponds!to!the!imbalance!price!of!electricity.!2)!If!the!BSP!has!not!reserved!the!power!as!planned!in!the! bid! and! is! directly! responsible! for! it,! the! penalty! is! 10! times! the! price! established! in! the! bid.! If!indirectly!responsible,!(network!constraints,!works!on!power!lines)!the!penalty!is!three!times!the!price.!This!second!type!of!penalty!is!rarely!used.!!However,! it! should! be! mentioned! that! when! the! BSP! is! not! able! to! honour! a! contract,! it! has! the!possibility!to!pass!it!to!another!BSP,!through!a!bi:lateral!lateral!agreement.!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !49!i.e.!requires!to!be!able!to!adjust!upward!or!curtail!load;!and!adjust!backwards!or!increase!consumption.!50!The!SEDC!supports!‘pay!as!cleared’!as!this!can!reward!efficient!low!cost!resources,!encouraging!them!to!enter!a!market!while!eventually!driving!down!the!costs.!!!

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At!least!two!aggregators!are!registered!with!SwissGrid:!Swisscom!Energy!Solution!and!Ompex.!Due!to!spring!critical!water!scarcity,!Demand!Response!might!be!an!important!source!of!flexibility!in!the!future! in! order! to! compensate! for! a! lowered! level! of! hydropower.! The! phasing! out! of! Swiss! nuclear!plants!:!planned!for!2034!–!may!bring!more!intermittent!energy!in!the!Swiss!electricity!system.!This!may!lead!to!further!needs!in!ancillary!services!for!Demand!Response.!! !

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Consumer)access Programs Verification Finance/risk Overall

Austria 3 3 3 3 12Belgium 5 5 3 5 18Denmark 1 0 3 3 7Finland 5 3 3 3 14France 5 5 3 5 18GB 5 3 3 3 14Germany 1 3 1 3 8Ireland 3 3 5 5 16Italy) 1 1 0 1 3Netherlands 3 3 3 1 10Norway 1 3 3 5 12Poland 1 3 3 0 7Spain 0 1 0 1 2Sweden 1 3 5 3 12Switzerland 5 3 5 5 18

Overall 40 42 43 46 171Max.)Score 75 75 75 75 300

2014

3.3!!!Main!Market!Research!Findings!!!!The!research!indicates!measurable!progress!can!be!expected!between!2013!and!2014!due!to!approved!regulatory!reforms!within!certain!Member!States.!This!clearly!demonstrates!a!gradual! improvement! in!regulatory! frameworks.! Belgium,! Great! Britain,! Finland,! France,! and! Ireland,! as! well! as! Switzerland,!should!establish!Demand!Response!as!commercially!viable!product!offering!within!2014,!assuming!they!fulfil/maintain!their!stated!goals.!Sweden,!the!Netherlands,!Austria!and!Norway!may!remain!yellow.!In!other!words,!while!Demand!Response!companies!may!be!established,!regulatory!barriers!may!continue!to!hinder!their!growth51.!!!!The!remainder!of!Europe!Member!States!will!remain!orange!or!red!:!meaning!that!aggregated!Demand!Response! is!either! illegal!or! impossible!due! to!Member!State! regulation.!Again,!here!we! see!a! critical!disconnection! between! political! promises! and! regulatory! reality.! While! policies! promise! consumer!benefits!and!services,!regulation!has!not!been!adjusted!to!meet!these!objectives.!!!!!The!following!charts!provide!an!at:a:glance!overview!of!the!Member!States!analysis.!!!

! !!Table!1:!Results!of!SEDC!Member!State!analysis!!!Criteria! 1.! Enabling! consumer! participation! in! Demand! Response!may! be! the!most! problematic! for!regulators.!Either!demand!is!not!accepted!within!the!national!markets!as!a!resource!(Demand'Response'

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !51!It!should!be!noted!that!although!Austria!is!now!coloured!yellow,!the!market!may!change!to!green!if!the!significant!regulatory!changes!planned!for!2014!are!implemented!successfully.!!!

Consumer)access Programs Verification Finance/Risk Overall

Austria 0 1 1 3 5Belgium 3 5 1 5 14Denmark 1 0 1 3 5Finland 3 1 3 3 10France 3 3 3 3 12GB 5 3 3 3 14Germany 1 1 1 3 6Ireland 3 3 3 3 12Italy) 1 1 0 1 3Netherlands 3 3 3 1 10Norway 1 3 1 5 10Poland 1 3 1 0 5Spain 0 1 0 1 2Sweden 1 3 3 3 10Switzerland 5 3 5 5 18

Overall)Score 31 34 29 42 136Max.)Score 75 75 75 75 300

2013

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is'illegal)!or!the!market!roles!and!responsibilities!do!not!allow!for!direct!access!of!consumers!to!service!providers!and!therefore!a!clear!path!to!market.!The!more! in:depth!the!analysis,! the!more!this! issue! is!understood!as!a!critical!barrier!throughout!Europe.!In!interview!after!interview,!complaints!were!made!of! inappropriate! or! incomplete! regulation! defining! roles! and! responsibilities! between! market!participants,!in!particular!the!retailer,!BRP,!aggregator!and!consumer.!This!lack!of!appropriate!definition!increases!risk!for!all!parties!and!enables!abuse.!!When!roles!and!responsibilities!fail!to!enable!the!clear!and! direct! access! of! consumers! to! aggregation! service! providers,! free! market! competition! around!Demand!Response!services! is! impossible.!Member!States! in!the!process!of!overcoming!this!barrier!are!Switzerland,!France,!Belgium!and!Austria52.!!!!Criteria! 2.! Program! Descriptions:! The! balancing! market! participation! requirements! were! historically!designed!around!the!needs!of!generators.!However,!today!these!narrow!criteria!are!no!longer!justifiable!as! they! block! low:cost! demand! side! resources! and! artificially! inflate! the! cost! of! balancing.! When! a!regulator! and! TSO! neglect! to! adjust! program! descriptions,! they! generally! assume! their! particular!national!businesses!and!households!are!simply!not! ‘interested’! in!Demand!Response!–!when! in!fact,! it!may!be! the!historical!and! inappropriate!program!requirements!blocking!participation.!However,!when!the! TSO! and! the! regulator! set! out! to! improve! program! descriptions,! in! order! to! allow! a! range! of!resources! to! compete,! the! SEDC’s! findings! are! positive.! ! The! efforts! are! generally! successful53.! ! Here!dialogue! and! close! cooperation! with! demand! response! providers,! such! as! aggregators,! retailers! and!large! consumers,! has! been! a! critical! element! in!moving! the!markets! forward,! for! example! in! Finland,!France,!Austria!and!Belgium.!!!!Criteria! 3.! Measurement! and! verification:! In! many! Member! States! the! regulation! concerning!measurement! and! verification! does! not! yet! exist.! In! other! words,! there! are! no! standardised! and!transparent! requirements! for!how!energy!consumption! reductions! should!be!measured!and! therefore!also!how!they!should!be!valued.!Each!TSO!may!establish!their!own!criteria!or!have!no!publicly!published!criteria.! In! the!worst! cases,! the! TSO!will! have! one! set! of! criteria,! the! BRP!will! have! another! and! the!retailer!will!maintain!a! third.!This! is!a!market!barrier,!as!a!consumer’s!consumption!reductions!will!be!measured! according! to! three! different! standards.! Another! issue! will! arise! if! the! measurement! and!verification!takes!place!at!the!consumer’s!level!rather!than!for!the!aggregated!pool!of!consumption.!In!the!worst! cases,! the! single! household!will! have! to! fulfil! the! same!pre:qualification! and!measurement!criteria,!as!a!500!MW!power!plant.!However,! these! issues! tend!to!be!resolved!as! the!market!matures!and!opens.!A!significant!improvement!is!already!visible!between!2013!and!2014.!!!Criteria!4.!Payment!and!Risk:!!This!area!shows!the!least!improvement!between!2013!and!2014.!!!Though! penalties! for! non:performance! are! generally! adequate, 54 !adequate! payment! for! Demand!Response! is!more!problematic.!Demand!Response!may!be!paid! less!MW!to!MW!than!generation.!This!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !52!GB!is!marked!green!in!this!area!–!however!they!have!not!so!much!overcome!the!issue!as!ignored!it.!Their!retailers/BRPs!have!no!right!to!block!participation!of!consumers!in!DR,!but!neither!are!they!protected!from!risk!or!paid!for!lost!energy!sales.!In!the!long!term!GB!will!need!to!undergo!the!same!regulatory!review!as!other!Member!States.!!53!This!process!tends!to!require!trial!and!error.!The!regulator!and!TSO!need!to!better!understand!what!will!and!will!not!be!possible.!The!learning!cycle!can!be!shortened!considerably!if!an!open!and!positive!relationship!is!established!with!consumers!and!aggregation!service!providers.!A!further!description!of!program!requirements!is!provided!in!Chapter!2.!!54!An!exception!appears!to!be!the!UK!where!consumer!involvement!in!the!Capacity!Market!may!be!blocked!due!to!penalty!design.!!

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can!be!due!to!multiple!factors.!For!example,!a!reserves!market!may!provide!an!availability!payment!of!50%! of! the! operational! costs! of! the! resource.! However,! Demand! Response! has! very! low! operational!costs! compared! to! generation.! This! means! that! a! consumer! will! earn! significantly! less! per! MW! of!flexibility!than!a!generator.!Added!to!this!the!fact!that!multiple!markets!in!almost!every!Member!State!are!shut!to!demand!entirely,!that!payments!may!be!negotiated!individually!per!player,!are!not!decided!through!a!market!or!auction!process,!are!not!published!etc.!and!there!emerges!a!picture!of!the!level!of!the! issue.! Standards! of! transparency! and! reporting! must! be! created! and! enforced,! both! within! the!wholesale!and!balancing!markets!to!ensure!a!level!playing!field!and!access!of!new!entrants.!!!! !

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Conclusions!!!!Demand! Response! delivers! benefits! through! providing! consumers! :! Residential,! Commercial 55 !or!Industrial,! with! control! signals! and/or! financial! incentives! to! lower! or! adjust! their! consumption! at!strategic! times.! In! doing! so,! Demand! Response! offers! end! consumers! the! opportunity! to! benefit!directly!from!the!Smart!Grid!and!market!liberalization.!!The!majority!of!revenue!from!Demand!Response!programs!flows!to!end!users!and!stays!within!the!local!communities! and! builds! local! businesses.! It! is! unknown! how! many! billions! in! revenue! European!businesses!and!households!would!gain!directly! in! the! form!of!payments,! for!shifting!consumption!and!indirectly!through!lowered!investment!costs.!However,!the!Demand!Response!market!in!the!USA!is!now!generating! approximately!$2.2! billion! per! year! in! direct! revenues! for! local! businesses,! industries! and!households!as!well!as!enabling!avoided!investment!costs.!!!!!

!!

Figure!4:!Demand!Response!Map!of!Europe!201352014'

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !55!By!the!term!Commercial!is!meant!all!buildings!and!businesses!which!are!not!directly!industrial!or!residential;!in!other!words,!municipal!buildings,!SMEs,!businesses!such!as!hotels,!office!spaces,!etc.!!!

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The!Third!Energy!Package!supported!the!implementation!of!Demand!Response.!The!Energy!Efficiency!Directive!strengthens!this!mandate.!However,!much!progress!remains!to!be!made.!Four!years!after!the!adoption!of!the!Third!Energy!Package!the!rights!of!consumers!to!participate!in!Demand!Response!are!routinely!ignored,!despite!significant!progress!in!markets!such!as!the!UK,!Austria,!Belgium!and!France.!!!

!Far! from!achieving! equal! opportunity! for! both!demand! and! supply! side! resources,!Demand!Response!and/or! aggregation! remain! illegal! in! the!majority! of! European!Member! States! and! in! the!majority! of!system! services! and! wholesale! markets.! Basic! contractual! requirements! are! missing;! basic! technical!descriptions!are!neglected,!balancing!market!descriptions!arbitrarily! favour! generation,!no!matter! the!potential! of! national! consumer! flexibility! or! system! requirements.! The! end! result! is! that! all! but! the!largest!industrial!consumers!are!barred!from!market!access,!despite!the!positive!commercial!viability!of!aggregated!Demand!Response!programs.!!!!The!SEDC!would!call!on!the!Commission!to!oversee!the!coordination!of!regulatory!initiatives!and!the!creation! of! Demand! Response! targets! at! the! Member! State! level.! The! Energy! Efficiency! Directive!mandates! in! Article! 15.8! “Member' States' shall' ensure' that' national' regulatory' authorities' encourage'

demand' side' resources,' such' as' Demand' Response,' to' participate' alongside' supply' in' wholesale' and'

retail'markets”'yet!this! is! far! from!the!case!today;!the!barriers!to!Demand!Response!and!to!consumer!participation! in! the! markets! are! severe.! The! greater! the! coordination! between! Member! States,! the!greater!the!economies!of!scale!and!the!more!robust!Demand!Response!services!become;!lowering!the!cost!of!intermittent!generation,!improving!the!efficiency!of!the!grid!and!lowering!the!cost!of!balancing!and!peaking! reserves! –!while! providing! an! important!new! source!of! revenue! for! local! businesses! and!households.!!!!As!discussed!in!this!paper,!the!SEDC!has!developed!ten!rules!that!form!the!basis!of!consumer!centric!market!design!to!enable!Demand!Response.!They!ensure!that!retailers!and!aggregators!have!access!to!markets!and!can!empower!a!range!of!consumers!to!earn!from!their!consumption!flexibility!:!they!create!a! level! playing! field! where! supply! and! demand! can! compete.! Enabling! Demand! Response! in! Europe!requires! four! steps!–!1)!allowing! for! service!providers! to!work/exist! in! the!markets,!2)!ensuring! those!markets! include!products! appropriate! for!both! supply!and!demand! side! resources,! 3)! establishing! the!appropriate!measurement! and! communication! protocols! to! safeguard! reliability! and! 4)! ensuring! fair,!transparent! payment! for! services! provided.! These! measures! are! attainable! and! well! within! reach.!However! they!will! require! coordination! between!Member! States,! planning,! and! commitment! as! they!represent!a!diametric!shift! in! thinking! from!generation!focused!markets! to!multi:party,!multi:resource!markets.!!!!Timing! is!crucial.!Demand!Side!Programs!form!part!of!a!private!public!partnership.!Wind!generation!is!increasing!and!new!back:up!generation!and!grid!investments!are!being!planned!and!implemented.!New!demand! sources!are!also!appearing:! server! farms,!heat!pumps,! cooling!units,! and!air! conditioners.! To!fully!realize!the!potential!of!demand!response!and!other!demand!side!programs,!the!Demand!Response!programs!must!be!implemented!during!this!phase!of!the!European!electricity!market!development,!so!that! they! can! be! built! as! an! integral! part! of! the! new! system.! Not! only! are! European! consumers! and!businesses!being!shut!out!of!Smart!Grid!benefits!and!losing!money,!but!as!unnecessary!investments!are!

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made! –! i.e.,! peaking! plants! built! –! part! of! the! potential! value! of! demand! side! programs,! both! to!European!consumers!and!to!the!electricity!industry,!will!be!lost.!!!!Taking! into!account! the!potential!benefits!of!Demand!Response!and! the! regulatory!barriers! in!place! :!clear! and! objective! demand! side! targets! will! be! required! at! a! European! and!Member! State! level! to!ensure! real! progress.! These! should! include! logical! step:by:step! strategies! for!market! development! of!consumer! demand! side! services,! measured! and! verified! against! well:defined! key! performance!indicators.! Only! a! planned! and! coordinated! effort! can! hope! to! overcome! the! systematic! historical!barriers!to!Demand!Response.!The!Commission’s!leadership!in!this!process!will!be!essential.!!!!! !

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Annex!I!:!Sources!and!References!!

• Austrian!Power!Grid’s!website,!Conditions!for!participation!in!tenders!for!control!energy,!http://www.apg.at/en/market/balancing/conditions:for:participation,!Data!retrieved!in!October!2013!

• Austrian!Power!Grid’s!website,!Primary!Control,!http://www.apg.at/en/market/balancing/primary:control,!Data!retrieved!in!October!2013!!

• Austrian!Power!Grid’s!website,!Secondary!Control,!http://www.apg.at/en/market/balancing/secondary:control,!Data!retrieved!in!October!2013!

• Austrian!Power!Grid’s!website,!Tertiary!Control,!http://www.apg.at/en/market/balancing/tertiary:control,!Data!retrieved!in!October!2013!!

• Autorité!de!la!Concurrence!(2013),!Avis!n°!13:A:25!du!20!décembre!2013!concernant!l’effacement!de!consommation!dans!le!secteur!de!l’électricité,!available!at:!http://www.autoritedelaconcurrence.fr/pdf/avis/13a25.pdf!

• Bundesnetzagetur!and!Bundeskartellamt,!2012,!Monitoring!Report!2012,!available!at:!http://www.bundesnetzagentur.de/SharedDocs/Downloads/EN/BNetzA/PressSection/ReportsPublications/2012/MonitoringReport2012.pdf?__blob=publicationFile&v=4!

• CER!(2012),!Changes!to!the!Winter!Peak!Demand!Reduction!Scheme!and!Powersave!Scheme!2012/13,!available!at:!http://www.cer.ie/docs/000552/cer12163.pdf!

• CRE!(2013),!Principes!structurant!le!projet!de!proposition!de!décret!relatif!à!la!valorisation!des!effacements!de!consommation!d’électricité!sur!les!marchés!de!l’électricité!et!le!mécanisme!d’ajustement,!available!at:!http://www.cre.fr/documents/consultations:publiques/principes:structurant:le:projet:de:proposition:de:decret:relatif:a:la:valorisation:des:effacements:de:consommation:d:electricite:sur:les:marches:de:l:electricite:et:le:mecanisme:d:ajustement.!

• CRE!website,!Services!système!et!mécanisme!d’ajustement,!http://www.cre.fr/reseaux/reseaux:publics:d:electricite/services:systeme:et:mecanisme:d:ajustement,!data!retrieved!in!July!2013.!

• E:Control!(2013).!The!Austrian!Electricity!Market!• Eirgrid!and!SONI!(2011),!DS3:!Demand!Side!Management!Workstream,!p.!4,!available!at:!

http://www.eirgrid.com/media/DS3%20DSM.pdf!• Eirgrid!and!SONI!(2012),!DS3:!System!Services!Consultation!!–!New!Products!and!Contractual!

Arrangements,!available!at:!http://www.eirgrid.com/media/System_Services_Consultation_Products.pdf,!p.!25:27!

• Eirgrid!website,!Winter!Peak!Demand!Reduction!Scheme!(WPDRS),!http://www.eirgrid.com/operations/ancillaryservicesothersystemcharges/demandsidemanagementdsm/winterpeakdemandreductionschemewpdrs/,!data!retrieved!in!December!2013.!

• Elia’s!website,!Ancillary!Services,!http://www.elia.be/en/products:and:services/ancillary:services,!Data!retrieved!in!November!2013!

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• Elia’s!website,!Sheddable!customers,!http://www.elia.be/en/products:and:services/ancillary:services/sheddable:customers!Data!retrieved!in!November!2013!

• Energinet.dk!(2007).!Regulation!A:!Principles!for!the!electricity!market,!available!at:!http://www.energinet.dk/SiteCollectionDocuments/Engelske%20dokumenter/El/Regulation%20A%20Principles%20for%20the%20electricity%20market.pdf!

• Energinet.dk!(2007).!Regulation!B:!Terms!of!electricity!market!access,!available!at:!http://www.energinet.dk/SiteCollectionDocuments/Engelske%20dokumenter/El/Regulation%20B%20Terms%20of%20electricity%20market%20access.pdf!

• Energinet.dk!(2008).!Regulation!C2:!The!balancing!market!and!balance!settlement,!available!at:!!• Energinet.dk!(2008).!Regulation!C2:!the!balancing!market!and!balance!settlement,!available!at:!

https://www.energinet.dk/EN/El/Systemydelser:for:el/Sider/Systemydelserforel.aspx!• Energinet.dk!(2011).!Energinet.dk’s!ancillary!services!strategy,!available!at:!

http://www.energinet.dk/SiteCollectionDocuments/Engelske%20dokumenter/El/77566:11%20v1%20Energinet%20dk%27s%20ancillary%20services%20strategy.pdf!

• Energinet.dk!(2012).!Ancillary!services!to!be!delivered!in!Denmark,!available!at:!• Energinet.dk!(2012).!Ancillary!services!to!be!delivered!in!Denmark!:!Tender!conditions.!Valid!

from!3!October!2012,!available!at:!https://www.energinet.dk/EN/El/Systemydelser:for:el/Sider/Systemydelserforel.aspx!

• Energinet.dk!(2013).!Amendment!to!Energinet.dk’s!ancillary!services!strategy,!available!at:!http://www.energinet.dk/SiteCollectionDocuments/Engelske%20dokumenter/El/14:02812:79%20Amendment%20to%20Energinet.dk%27s%20ancillary%20services%20strategy%202011:2015.pdf!

• Energinet.dl!(2011).!Energinet.dk's!ancillary!services!strategy!2011:2015,!available!at:!https://www.energinet.dk/EN/El/Systemydelser:for:el/Sider/Systemydelserforel.aspx!

• EPEX!(2013),!EPEX!Spot!Operational!Rules,!available!at:!http://www.epexspot.com/en/extras/download:center!

• F.!M.!Andersen,!S.!G.!Jensen,!H.!V.!Larsen,!P.!Meibom,!H.!Ravn,!K.!Skytte,!M.!Togeby,!Risø!National!Laboratory!Ea!Energy!Analyses!(2006).!Analyses!of!Demand!Response!in!Denmark!!

• Febeliec,!Elia,!EnergyVille!(2013).!Demand!Response!Survey,!(summary!results).!• Fingrid!website,!Electricity!market,!http://www.fingrid.fi/en/electricity:market/load:and:

generation/Demand:Side_Management/Business_model/Pages/default.aspx,!data!retrieved!in!September!2013.!

• Fingrid!website,!Maintenance!of!consumption!and!production!balance!or!frequency,!http://www.fingrid.fi/en/powersystem/Power%20system%20management/Maintaining%20of%20balance%20between%20electricity%20consumption%20and%20production/Pages/default.aspx,!retrieved!in!September!2013.!

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• Fingrid!website,!Market!place,!http://www.fingrid.fi/en/electricity:market/load:and:generation/Demand:Side_Management/Market_places/Pages/default.aspx,!data!retrieved!in!September!2013.!

• http://www.apg.at/en/market/balancing/secondary:control,!Data!retrieved!in!October!2013!!• Intelligent!Energy!Europe!(2010).!Market!Access!for!Smaller!Size!Intelligent!Electricity!

Generation!(MASSIG)!• Ioannis!Lampropoulos!et'al.(2012),'Analysis!of!the!market:based!service!provision!for!operating!

reserves!in!the!Netherlands,!available!at:!http://www.e:price:project.eu/website/files/EEM%5C'12%20:%20I.%20Lampropoulos%20et%20al.%20[31:03:2012].pdf!

• National!Grid!(2012),!STOR!Annual!Market!Report!2011/2012,!available!at:!http://www.nationalgrid.com/NR/rdonlyres/E3AA399B:2661:4E9E:9FFE:FE83D368530C/58984/STOR_End_of_Year_Report_2011_12.pdf!

• National!Grid!(2013),!Firm!Fast!Reserve!Post!Assessment!Tender!Report!–!January!2013,!available!at:!http://www.nationalgrid.com/NR/rdonlyres/7B432E0C:9662:4F76:A1B6:D7C38A59AFD1/58553/01_Market_Report_January_2013.pdf!

• National!Grid!(2013),!Short!Term!Operating!Reserve,!Explanation!and!tender!Guidance!Document,!available!at:!www2.nationalgrid.com/WorkArea/DownloadAsset.aspx?id=25317!!

• National!Grid!(2013),!STOR,!Fuel!Type!Analysis,!Fuel!Type!Analysis!–!Season!7.3!(19/08/13!–!23/09/13),!available!at:!http://www.nationalgrid.com/NR/rdonlyres/445313F5:1F90:4289:AB1E:E12D5A2B4942/62970/STOR_Fuel_Type_Analysis_Summary_Season_7_3.pdf!

• National!Grid!Website,!Fast!reserves,!http://www.nationalgrid.com/uk/Electricity/Balancing/services/reserveservices/fastreserve/,!data!retrieved!in!July!2013.!

• National!Grid!website,!Reserve!services,!http://www.nationalgrid.com/uk/Electricity/Balancing/services/balanceserv/reserve_serv/demandmgmt/,!data!retrieved!in!July!2013.!

• Regelleistung!(combined!website!of!German!TSOs),!Interruptible!loads,!https://www.regelleistung.net/ip/action/static/ausschreibungAbLa,!data!retrieved!in!October!2013.!

• Regelleistung!(combined!website!of!German!TSOs),!Minute!reserve,!https://www.regelleistung.net/ip/action/static/ausschreibungMrl,!data!retrieved!in!October!2013.!

• RTE!(2009),!Documentation!Technique!de!Référence,!Chapitre!4!–!Contribution!des!utilisateurs!aux!performances!du!RPT,!Article!4.1!–!Réglage!Fréquence/Puissance,!available!at:!http://www.rte:france.com/uploads/Mediatheque_docs/offres_services/reftech/24:04:09_article_4:1__v3.pdf!

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• SEMO,!Eirgrid,!SONI!(2013),!DSU!in!the!SEM,!available!at:"www.sem:o.com/Publications/General/DSU%20in%20the%20SEM.ppt!!

• Statnett’s!website,!About!the!Reserves!Market,!http://www.statnett.no/en/Market:and:operations/reserve:markets/,!Data!retrieved!in!December!2013!

• Statnett’s!website,!Data!from!the!power!system!:Key!figures!1974:2012,!http://www.statnett.no/en/Marketandoperations/Data:from:the:powersystem/Key:figures:1974:20121/,!Data!retrieved!in!December!2013!

• Svenska!Kraftnät!(2007).!The!Swedish!Electricity!Market!and!the!Role!of!Svenska!Kraftnät,available!at:!http://www.svk.se/global/13_energy_market/pdf/elmarknaden_eng_2007_webb.pdf!

• Svenska!Kraftnat!(2013).!Management!of!Swedish!Peak!Load!Reserve!• Swedish!energy!Agency!(2013).!Energy!in!Sweden!2012,!available!at:!

http://www.energimyndigheten.se/Global/Engelska/Facts%20and%20figures/Energy_in_sweden_2012.pdf!

• Swissgrid!(2013),!Annual!Report!2012,!available!at:!https://www.swissgrid.ch/dam/swissgrid/company/publications/en/Swissgrid_GB12_en.pdf!

• Tender!conditions!IEA!(2010).!‘Integration!of!Demand!Side!Management,!distributed!generation,!renewable!energy!sources!and!energy!storages.!!State!of!the!art!report’!

• Tennet!(2013),!Memorandum!to!Suppliers!Emergency!power,!available!at:!http://www.tennet.eu/nl/fileadmin/downloads/About_Tennet/ENGELS:SO:SOC_13:056_Productinformatie_noodvermogen.pdf!

• Tennet!(2012),!Implementation!Guide,!available!at:!http://www.tennet.org/english/images/120214%20SO%20SOC%2012:xxx%20Uitvoeringsregels%204%202%20%20UKclean_tcm43:19026.pdf!

• Tennet!(2010),!The!Imbalance!Pricing!System!as!at!01:01:2001,!revised!per!26:10:2005,!available!at:!!http://www.tennet.eu/nl/about:tennet/news:press:publications/publications/technical:publications/the:imbalance:pricing:system.html!

• VSE:AES!(2013),!Attachement!de!pools!de!réglage!au!marché!suisse!des!services!système,!available!at!:!http://www.strom.ch/uploads/media/AES_RP:PR_CH_2013_F_01.pdf!

!

! !

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Annex!II!:!Questionnaire!!

SEDC!Research!F!Barriers!and!opportunities!for!Demand!Response!at!the!national!level!

!I.!!General!

1. In!which!markets56!is!Demand!Response!allowed!to!participate?!!2. To!what!extent!is!Demand!Response!participating!in!the!different!markets?!3. Are!there!any!figures!available!regarding!the!participation!of!Demand!Response!in!the!different!

markets?!!II.!!Aggregation!

1. In!which!markets!is!aggregation!legal?!2. Which!are!the!main!aggregators!operating?!3. What!prevents!aggregators!to!enter!the!market!(If!aggregation!is!not!legal!in!one!or!more!

markets)?!4. Is!there!any!regulatory!process!aiming!at!opening!markets!to!Demand!Response/aggregation?!

!III.!!Contractual!relationship!between!Aggregator!–BRP!

1. Can!the!aggregator!participate!independently!in!the!markets?!2. With!which!parties!is!the!aggregator!obliged!to!contract?!3. In!which!cases!and!how!these!contractual!relationships!hinder!the!aggregator’s!business!

development?!!4. Can!an!aggregator!sell!its!consumer’s!flexibility!to!a!different!BRP!from!the!one!that!the!

consumer!has!already!a!contract?!5. Through!which!mechanism!is!the!BRP!kept!in!balance!in!a!case!of!an!imbalance!caused!by!the!

aggregators?!How!is!the!BRP’s!commercial!loss!:!caused!by!the!load!curtailment!–!compensated?!

!IV.!!Program!structure!

1. What!are!the!minimum!bid!sizes!for!the!different!markets?!2. Are!the!bid!qualification!requirements!a!barrier!for!Demand!Response!participation?!

(E.g.!minimum!bid!size,!notification!and!delivery!time,!symmetric!bid,!unlimited!availability,!etc.)!!V.!!Monitoring!and!measurement!

1. Do!the!pool!of!loads!has!to!fulfil!requirements!as!an!aggregate!(with!no!minimum!size,!no!technical!requirements!for!single!unit)?!

2. How!is!the!baseline!defined?!How!is!it!set!between!the!aggregator!and!the!TSO?!3. Are!there!any!other!technical!barriers!related!to!pre:qualification,!measurement,!verification!or!

monitoring?!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !56!Market!programs!or!products!

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VI.!!Finance,!penalties!&!business!case!1. What!kind!of!payments!(availability,!utilisation)!are!in!place!in!the!different!markets!for!Demand!

Response?!2. Is!the!compensation!for!Demand!Response!in!the!different!markets!attractive?!!3. What!are!the!penalties!in!case!of!non:delivery/under:performance?!Do!they!discourage!

potential!participants?!!4. Who!are!the!aggregators!present!on!the!market?!5. How!would!you!describe!the!business!case!for!Demand!Response!today!and!how!do!you!see!

Demand!Response!developing!in!the!future!(5:10!years)?!!

VII.!!Other!Barriers/Comments!Please!feel!free!to!add!other!barriers!or!any!other!comments!you!wish.!

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Annex!III!:!Contractual!Relationships!!!!

The!requirements,!place!and!potential!of!Demand!Response!in!organized!electricity!markets!

!Demand!Programs!–!contractual!relationships!!In!today’s!European!energy!markets!Demand!Response!aggregators!are!faced!with!many!stakeholders!to!whom!a! contractual! relationship! needs! to! be! established! before! the! flexibility! potential! of! any! single!participating!site!(whether!it!be!an!industrial,!commercial,! institutional!or!residential!customer)!can!be!commercialized!into!the!markets!(e.g.!as!balancing!power).!Find!below!the!examples!of!Germany,!France!and!UK.!!

!!Demand!Response!in!today’s!market!design!(example!Germany).!!Source:!Entelios!!

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!!Demand!Response!in!today’s!market!design!(under!experimentation,!example!France)!Source:!Energy!Pool!!

!

!Demand!Response!in!today's!market!design!(example!UK).!!Source:!Enernoc!'

In!order!to!establish!a!market!design!this!is!scalable,!transparent!and!avoids!any!market!abuse!by!well:established! or! dominant! players! (e.g.! the! Balancing! Responsible! Parties! (BRPs),! responsible! for! the!settlement! of! balancing! groups! deviations)! adequate! sets! of! rules,! standardized! processes! and! legal!security!are!needed.!! !

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In!order!to!establish!a!scalable!Demand!Response!market!across!European!member!states,!the!following!aspects!need!to!be!solved:!

! Define! explicitly! the! role! of! a! Demand! Response! provider! /! aggregator;! such! role! can! be!performed!by:!– An!energy!retailer,!or!– An!independent!Demand!Response!aggregator,!or!– A!grid!operator!or!a!Balancing!Responsible!Party!(BRP)!

! Establish!standard!reimbursement!for!BRP!– Establish! a! standard! reimbursement! for! BRP! whose! energy! was! redirected! without! their!

knowing,!e.g.!EEX,!or!a!regulated!fee!! Financial!support!in!the!development!phase!of!Demand!Response!/!Aggregators!

– Dedicated!mechanisms!with!capacity/flexibility!payments!! Establish!an!“obligation!to!play!along”!

– All!stakeholders!have!to!play!along!with!the!Demand!Response!provider!– Establish!reaction!times,!service!levels!– Establish!penalties!in!case!of!non:compliance!

! Establish!standard!(template)!agreements!– All! stakeholders! need! to! operate! on! the! basis! of! standard! agreements,! processes,! data!

formats!and!protocols,!payments,!incentives,!and!penalties!! Define!standard!processes!

– Define!stakeholders,!use!cases,!time!lines,!and!data!exchanges!– Define!service!levels,!reaction!times!and!quality!mechanisms!– Define!incentives!and!penalties!for!non:compliance!– Use!the!established!national!market!communication!standards,!e.g.!!MaBiS57!

! Define!(a)!common!data!formats!and!communication!protocols!– Identify!stakeholders!– Define!content!and!format!of!data!– Use!the!established!national!market!communication!mechanisms,!e.g.!EDIFACT58!

! Define!technical!standards!– Metering!– Communication!protocols!– Service!levels!– Reliability!and!security!levels!– Establish!a!baseline!and!Demand!Response!metering!methodology!

! Incentives!for!scaling,!e.g.!– Establish! market! sub:segments! for! Demand! Response,! e.g.! ! “minute! reserve! by! Demand!

Response”,!“secondary!reserve!by!Demand!Response”!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!! !57!Market!rules!for!the!processing!and!settlement!of!balancing!group!deviations!of!electricity!(in!Germany!called!MaBiS).!See!also!the!requirements!of!the!Electricity!Grid!Access!Regulation!(StromNZV)!on!the!establishment,!handling!and!accounting!of!balancing!groups!in!close!cooperation!with!the!operators!of!the!electrical!power!networks!in!the!specific!control!areas.!58!Electronic!Data!Interchange!for!Administration,!Commerce!and!Transport!(EDIFACT).!The!EDIFACT!standard!provides:!a!set!of!syntax!rules!to!structure!data,!an!interactive!exchange!protocol!(I:EDI),!standard!messages!which!allow!multi:country!and!multi:industry!exchange.!!

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– Quotas! for! Demand! Response:! “a! minimum! percentage! x%! of! reserve! energy! must! be!provided!by!Demand!Response”!

– Pay! the! energy! reimbursements! for!BRP!out! of! the! general! grid! fees! (not! by! the!Demand!Response!provider)!

– Allow!for!aggregation!and!develop!programs!compatible!with!Demand!Response!strengths!&! weaknesses! and! including! a! distinction! between! implicit! Demand! Response! (service!primarily!offered!to!the!BRP)!and!explicit!(service!to!the!TSO!or!system)!

! Penalties!for!nonFparticipation!– Plant!operators!who!do!not!participate!significantly!in!a!Demand!Response!program!cannot!

apply! for! national! subsidy! schemes,! tax:exemptions,! or! other! levees.! ! ! E.g.! in! Germany:!Renewable! Energies! Act! levy! (“EEG:Umlagenbefreiung”)! or! grid! system! usage! charge!exemption!(“Netzentgeltbefreiung”).!

– Grid!operators!who!do!not!operate!significant!Demand!Response!programs!cannot!benefit!from!incentive!programs!/!schemes!or!do!not!receive!full!reimbursements.!!E.g.!in!Germany”!a!change!in!the!incentive!regulation!(“Anreizregulierung”).!

! Prioritize!and!coordinate!multiFparticipation!– Several! players,! better! all! players,! must! be! incentivized! to! introduce! Demand! Response!

programs!– However,! the!participation!of!a!plant! in! several!Demand!Response!programs,!needs! to!be!

incentivized,!prioritized,!and!coordinated!! Remove!historical!hurdles!

– If!a!provider!produces!negative!reserve!energy!by!increasing!their!net!power!consumption,!the!peak!in!loads!must!not!lead!to!an!increase!of!grid!fees!

!!!Demand!Response!–!overview!of!parties!trying!to!control!demandFside!assets!!In! today’s!energy!only!markets!there!are!basically! five!parties!trying!to!control! the!same!demand:side!resource:!first!of!all!the!resource!owner!(“plant!operator”),!the!DSO,!the!TSO,!the!Balancing!Responsible!Party!(BRP)!and!(potentially!in!the!future)!through!Flexibility!/!Capacity!Markets.!!Based!on!above! it!becomes!pretty!obvious! that!a!kind!of!prioritization!and!coordination!between! the!parties! involved! is!necessary.!Such!a!coordination!role!can!be!taken!up!by!an!aggregator,!whether!the!aggregator’s!role!is!executed!by!the!DSO,!TSO,!BRP!and/or!an!independent!3rd!party!aggregator!(a!new!role! not! established! yet! in! the! existing! market! frameworks).! Further,! standards! are! necessary! to! be!defined! with! regards! to! roles,! agreements! (contracts),! processes,! data! formats,! protocols,! technical!standards,!fees,!and!(incentive)!payments.!!!! !

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Annex!IV!:!Types!of!Demand!Response!Programs!!As!stated!above,! there!are!several!parties!having! interest!and!have!use!of! the!demand:side! flexibility.!!However,! each! party! being! interested! has! a! different! interest! /! purpose! how! to! utilize! the! available!demand:side! flexibility! (loads,! storage,! behind:the:meter! generation).! See! the! graph! below,! which! is!

applicable! around!Europe.!!

!Party!interest!in!Demand!Response.!Source:!Entelios'!!!Concrete!examples!of!how!to!use!demand:side!resource!flexibility!

!Uses!of!Demand!Response!to!different!members!of!the!electricity!value!chain.!!Source:!Entelios'

! !

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Annex!V!:!Measurement,!Verification!and!Baseline!Configurations!!Below!is!a!description!of!the!measurement!and!verification!protocols!needed!to!ensure!reliable!delivery!of!demand!side!services!in!a!manner!that!will!still!enable!strong!resource!development.!!!!!Product!Delivery:!!Performance!Measurement!!Performance! measurement,! which! is! typically! termed! Measurement! and! Verification! (M&V),! is! the!process! of! quantifying! and! validating! the! provision! of! the! service! according! to! the! specifications! of!product.!The!performance!measurement!process!usually!occurs!at!three!stages:!

• To!qualify!potential!resources!against!product!specifications!as!an!entry!gate!to!participation!• To!verify!resource!conformance!to!the!product!specifications!during!and!after!participation!• To!calculate!the!amount!of!product!delivered!by!the!resource!as!part!of!financial!settlements!

!All! resources!should!be!held!to!the!performance!specifications!established!by!the!product.!However!–!demand! side! and! generation! side! communication! requirements! will! usually! need! to! be! designed!separately!and!made!appropriate!to!each.!Technical!rules!often!proscribe!the!use!of!metered!values!to!base!performance!and!settlements.!!!Measurement!Another!important!aspect!of!performance!measurement!is!the!customer!site!metering!configuration!for!determining!both!the!historical!baseline!of!the!facility,!and!the!actual!consumption!of!the!facility!during!the!time!of!delivery!of!the!Demand!Response!product;!i.e.,!the!Demand!Response!event.!Separate!from!the! consideration! of! communication! requirements! addressed! below,! the! metering! configuration!accounts! for! the! specific!Demand!Response! approaches,! or!measures,! that! the! facility! employs!when!delivering.! ! For! example,! a! very! simple! case! might! be! that! of! a! facility! that! chooses! to! reduce! its!consumption!of! power!when!an!event! is! called,! and! such! case!may! involve!only! the!measurement!of!power!consumption!at!the!facility!meter!with!the! local!distribution!company.!But! in!another!case,! the!facility! may! employ! multiple! measures,! for! example,! a! behind! the! meter! generator,! and! it! may! be!appropriate! and! necessary! to! meter! both! the! facility! meter! with! the! distribution! company! and! the!output!of!the!generator,!and!appropriately!combine!the!results!of!both.!!!Product!Delivery:!Communication!Requirements!!An! essential! element! in! establishing! a! level! playing! field! rests! on! clear! rules! around! communication!requirements.! It! is! important! that! the! communication! requirements! recognize! that! if! not! prudent! in!understanding!exactly!what!the!system!operator!needs!for!the!specific!product,!onerous!communication!requirements! can!pose!a! cost!barrier! to!Demand!Response!participation.! For!example,! technical! rules!often! require! real:time!SCADA!communication!with!dedicated! redundant! telecommunications! to!each!and! every! consumer! providing! balancing! services,! since! they! have! traditionally! been! associated! with!

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large! central! generators.! This! is! cost:prohibitive!and! impractical! for! smaller,!non:generating! resources!that!could!nonetheless!still!meet!the!performance!specifications!of!the!product.!For!example,! in!order! to!communicate!performance!data!effectively! from!the!customer!to! the!system!operator,!there!are!several!issues!that!need!to!be!addressed!within!the!scope!of!telemetry:!frequency!of!interval! readings,! accuracy! of! the! information,! timeliness! of! reporting! those! intervals! to! the! system!operator,!and!the!communication!protocols!for!reporting!that!data!to!the!system!operator.!However!the!meter! technology! need! not! always! be! “smart”! especially! in! the! case! of! smaller! consumers.! Interval!meters!can!also!be!used,!depending!on!the!program!type.!!!!!Frequency!of!interval!readings!!The! frequency! of! interval! readings! depends! primarily! on! the! type! of! product! being! delivered.! ! For!example,!regulation!services!may!require!reporting! intervals!between!2!seconds!to!1:minute! intervals,!and!the!response!requirements!to!system!conditions!may!be!sub:second.!As!a!result,!these!applications!may!require!direct!communication!between!the!customer!site!and!the!grid!operator.!Spinning!reserve!markets! may! require! 1:5! minute! intervals,! while! for! most! other! programs,! reporting! intervals! of! 15!minutes! to! 1:hour! intervals! are! appropriate.!More! importantly,! for! all! but! the! regulation! services,!direct!communication!between!the!customer!site!and!the!grid!operator! is!not!a!requirement,!rather!the! consumer! should! have! the! opportunity! to! communicate! directly! with! the! Demand! Response!service!provider.!!!!!Accuracy!!Generally,! in! most! Demand! Response! programs! in! the! US! and! other! markets,! the! accuracy! of! the!reported!metered!data!to!the!system!operator!must! fall!within!+/:!2%!of!the!metered!readings!of!the!customer’s!settlement!data!with!the!local!distribution!utility.!The!requirement!for!any!greater!accuracy!should!be!carefully!considered!in!light!of!the!fact!that!any!inaccuracies!are!likely!to!be!unbiased,!and!in!light!of! the! fact! that!collection!of!meter!data,!aggregation!of! that!data,!verification!of! the!accuracy!of!that! data,! and! submittal! of! the! data! to! the! system! operator! is! a! major! cost! driver! and! a! major!consideration!in!what!type!of!facilities!may!be!able!to!participate!in!the!market!or!program.!However,!data! collection! and! aggregation,! verification! and! submittal! of! data! shall! always! be! aligned! with!requirements! of! the!market! and! its! participants.! This! needs! to! be! incorporated! in! the!market! design!from!the!beginning.!!!Timeliness!!!Generally,! interval!data!submittals!to!the!system!operator!are!not!required!to!be!in!near!time,!or!near!real! time.!Most!programs!and!markets! in! the!US!only! require!monthly!uploads!of!data! to! the! system!operator.! Again,! the! requirements! should! be! based! on! the! specific! needs! of! the! system! operator,!keeping!in!mind!that!any!requirements!for!near!real:time!submittal!of!data!places!additional!burdens!on!the!customers!and!the!3rd!party!aggregators,!and!adds!significantly!to!the!cost!of!delivery!of!the!Demand!Response!product.! This! is! especially! true! if! one!of! the! goals!of! the!market!or!program! is! to! grow! the!Demand!Response!participation,!as! the!costs!per!customer! for!delivering! real! time!data!may!preclude!the!participation!of!small!C&I,!and!residential!customers.!

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Protocols!Communication! protocols! will! depend! on! the! system! operator! and! the! specific! communications!protocols! that! are! utilized! by! that! entity.! ! Ideally! standardized! communication! protocols! should! be!supported!if!they!are!available,!however!aggregators!and!service!providers!should!not!have!to!wait!for!these! standards! to! appear.! In! order! for! Demand! Response! to! be! effectively! integrated! into! system!operations,!the!communication!protocols!must!be!consistent!between!different!types!of!resources!that!report!into!the!system!operator.!Generally,!in!all!markets!today,!those!protocols!make!use!of!the!latest!in! communication! technologies! and! the! cost! effectiveness! of! those! technologies,! and! it! is! simply!impractical!to!impose!specific!protocols!universal!to!all!system!operators.!!!Baseline!Methodology!An!essential! part! of! establishing! a! level! playing! field! for! demand! side! resources! includes! the!use!of! a!historical!baseline!which!determines! the!consumption! that!would!have!occurred!“but! for”! the!actions!taken! by! the! customer! in! response! to! dispatch! notification.! There! are! many! different! baseline!methodologies! in! use,! dependent! on! the!market! and! product,! and! there! is! no! “one! size! fits! all”! best!approach.!But! there!are! some!basic!principles! to! the! selection!of! that!methodology.!Baselines! should!balance!accuracy,!simplicity!and! integrity.! !Baselines!have!been!designed,!and!should!be! incorporated,!that!produce! statistically! valid!and!consistent! results,! that!produce! results! that!are!unbiased! in!either!over:predicting! or! under:predicting! actual! performance.! There! are! numerous! reliable! methodologies!and! ICT!solutions!that!are!able!to!establish!reliable!baseline!values!that!are! in!current!use!throughout!the!world,!and!it!is!not!necessary!to!re:invent!the!wheel!when!implementing!Demand!Response!into!a!market!design.!!!!Sample!choices:!!

1. Assess! consumption!over! the!previous! ten!days! and!assume! consumption!during! the! capacity!call!would!have!been!an!average!of!the!five!highest!of!those!days!

2. Assess! consumption!over! the!previous! ten!days! and!assume! consumption!during! the! capacity!call!would!have!been!an!average!of! the! five!highest!of! those!days,! adjusted!upward!by! some!weather!factor!

3. Compare! consumption! in! the! period! of! time! immediately! preceding! the! call,! with! what! the!resource!is!consuming!during!the!call''

For'further'information'and'more'examples'on'Baselines'please'see'Annex'V'

Further!critical!elements! required! to!measure!and!verify!a!Demand!Response!activation!are:!metering!configuration,!product!delivery,!communication!requirements,! frequency!of! interval!readings,!accuracy!standards,!timeliness!of!measurement!data!and!communication!protocols.!!!!!Examples!and!sources!for!baseline!methodologies!!Typical!demand!response!programs!rely!upon! incentivizing!energy!users!based!on!the!extent!to!which!they! reduce! their! energy! consumption! and! therefore! require! a! reliable! system! to! measure! energy!reduction.! For! this! reason! the!measurement! and! verification! of! demand! response! is! the!most! critical!

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component!of!any!program.!The!baseline!is!the!primary!requirement!for!measuring!curtailment!during!a!Demand!Response!event.!A! baseline! is! an! estimate! of! the! electricity! that! would! have! been! consumed! by! a! customer! in! the!absence! of! a! demand! response! event.! Baselines! enable! grid! operators! and! utilities! to! measure!performance! of! Demand! Response! resources.! A! well:designed! baseline! benefits! all! stakeholders! by!aligning! the! incentives,! actions,! and! interests! of! end:user! participants,! aggregators,! utilities,! grid!operators,! and! ratepayers.! Baselines! are! a! challenging! aspect! of! demand! response! programs!because!they!must! represent!what! the! load!would!have!been! if! a! customer!had!not! implemented!curtailment!measures.!In!other!word,!a!baseline!is!a!"counter:factual,"!a!theoretical!measure!of!what!the!customer!did!not!do,!but!would!have!done,!had!there!not!been!a!Demand!Response!event.!!!!The!measurement! and! verification! (M&V)! generally,! and! the! "baseline"!more! specifically,! of! Demand!Response!determines! the!magnitude!of! the! resource!and! thus!plays!an! important! role! in!determining!the!value!it!has!to!the!electric!system.!M&V!also!drives!customer!compensation!for!participation,!and!as!a! consequence,! will! influence! the! number! and! types! of! customers! for! whom! the! Demand! Response!program!appears!attractive.!Good!baseline!design!is!driven!by!adherence!to!three!fundamental!pillars:!accuracy,!simplicity,!and! integrity.!While!no!baseline! is!perfect,!baselines!that!balance!these!principles!are!better!than!those!that!do!not.!!Accuracy!Customers!should!receive!credit!for!no!more!and!no!less!than!the!curtailment!they!actually!provide,!so!a!baseline!method!should!use!available!data!to!create!an!accurate!estimate!of!what!load!would!have!been!in!the!absence!of!a!Demand!Response!event.!!Simplicity!The! baseline! should! be! simple! enough! for! all! stakeholders! to! understand,! calculate,! and! implement,!including!end:use!customers.!!In!addition,!it!should!be!possible!to!determine!the!baseline!in!advance!of!or!during!Demand!Response!events,!so!that!it!can!be!used!to!monitor!curtailment!performance!in!real!time.!!Integrity!A! baseline! method! should! not! include! attributes! that! encourage! or! allow! customers! to! distort! their!baseline!through!irregular!consumption!nor!allow!them!to!game!the!system.!Balancing! these! traits! is! not! simple.! In! some! cases,! a! baseline! resistant! to! manipulation! can! be! so!complex! as! to! be! unworkable! by! program! stakeholders.!On! the! other! hand,! the! simplest! approaches!could!allow!market!participants! to!exploit! the!baseline! in! their! favour.!Therefore,!baselines! should!be!evaluated!to!ensure!they!provide!for!all!three!attributes!of!accuracy,!simplicity,!and!integrity.!!!A!demand!response!event!has!three!phases!of!curtailment.!

! The!ramp!period,!which!begins!with!deployment,!is!when!sites!begin!to!curtail.!! The! sustained! response! period,!which! is! the! time! period! bounded! by! the! reduction! deadline!

and! the! release/recall,! is! the! time! in!which! the!Demand! Response! resources! are! expected! to!have!arrived!and!to!stay!at!their!committed!level!of!curtailment.!

! The!recovery!period,!which!occurs!after!customers!have!been!notified!that!the!event!has!ended,!is!the!period!when!customers!begin!to!resume!normal!operations.!

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!The!stages!of!a!Demand!Response!event.!Source:!Enernoc'!!Basic!Baseline!Baseline! is! the! electrical! load! that! the! customer! would! have! consumed! in! the! absence! of! an! event.!!Actual! meter! data! from! the! period! of! the! event! is! compared! with! this! baseline! to! determine! the!customer's! curtailment.! When! a! customer! enrols! in! a! Demand! Response! program,! engineering!specialists!working!for!a!utility!or!aggregator!help!identify!the!committed!capacity—the!capacity!that!a!customer! will! be! expected! to! provide! during! an! event! based! on! the! nature! of! its! operations! and! its!curtailment!plan.!!Once!a!baseline!is!generated!for!a!customer,!a!second!line!can!be!created!to!show!the!committed! capacity,! or! the! usage! level! that! a! customer! must! remain! at! or! below! during! an! event.!Suppose! that!a!deployment!occurs!at!11:00!am!and!the!customer!begins! to!decrease!energy!usage! in!preparation! for! the! 12:00! pm! reduction! deadline.! Performance! can! be! tracked! by! comparing! the!committed!capacity!to!the!actual!meter!load.!!!!Primer!on!Baseline!Types!There!is!no!perfect!baseline!—!they!are!all!estimates.!Some!baselines!are!more!appropriate!than!others!based! on! program! type,! customer! type,! and/or! program! season.! Factors! such! as! the! conditions! that!trigger! a!Demand!Response! event,! the! frequency! of!Demand!Response! events,! timing! of! notification,!and!duration!of!event! lead! to!discrepancies!between!the!optimal!baseline!characteristics! for!different!program!types!and!customers.!In!its!publication!of!Demand!Response!standards,!North!American!Energy!Standards!Board!(US)!defined!five!categories!of!baseline!methodologies:!

! Baseline! Type! I! –! baseline! is! generated!using!historical! interval!meter! data! and!may! also! use!weather!and/or!historical!load!data!to!generate!a!profile!baseline!that!usually!changes!hour:by:hour!

! Maximum! Base! Load! (also! known! as! Firm! Service! Level! in! PJM)! –! uses! system! load! and!individual!meter!data!from!the!past!Demand!Response!season!to!generate!a!flat,!constant!level!of!electricity!demand!for!the!baseline!that!the!customer!must!remain!at!or!below!

! Meter! Before! –!Meter! After! –! baseline! is! generated! using! only! actual! load! data! from! a! time!period!immediately!preceding!an!event!

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! Baseline! Type! II!–! statistical! sampling!generates!a!baseline! for!a!portfolio!of!customers! in! the!instances!where!interval!meter!for!all!individual!sites!is!not!available!

! Generation! –! baseline! is! set! as! zero! and! measured! against! usage! readings! from! behind:the:meter!emergency!back:up!generators.!This!type!of!baseline!is!only!applicable!for!facilities!with!on:site!generation!and!is!not!discussed!in!this!paper.!

! Baseline! methodologies! differ! in! regards! to! baseline! shape,! type! of! data! used,! timeframe! of!historical! data,! and! program! objective! and! design.! Below! are! several! examples! of! baseline!methodologies!used!in!the!United!States59:!

!ERCOT!

!Description:'

!!There!are!three!major!methodologies.!ERCOT!will!determine!which!is!the!most!appropriate!for!any!particular!load.!!!!The!first!is!a!Statistical!Regression!Model,!which!is!a!function!that!predicts!a!customer’s!load!based!on!a!variety!of!variables,!such!as!weather!and!day.!!!!The!second!is!the!“Middle!8:of:10!Preceding!Like!Days!Model”.!This!method!looks!at!the!10!most!recent!days!that!have!the!same!“day:type”!as!the!event!day.!The!days!of!highest!and!lowest!consumption!are!removed,!leaving!8!days.!A!“day:type”!can!be!one!of!two!classifications:!Weekday!(Monday!through!Friday!excluding!holidays)!or!Weekends/Holidays!(Saturday,!Sunday,!and!ERCOT!holidays).!The!average!consumption!during!each!hour!across!these!8!days!is!considered!the!baseline.!!!!The!third!is!the!“Matching!Day!Pair!Model”.!The!baseline!will!be!the!consumption!during!the!same!hour!on!the!same!day!of!the!previous!year.!!!

Program'Examples:'

!Emergency!Reserves!Service!(4!hour!reserves)!!Responsive!Reserves!(10!minute!reserves)!

!! !

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PJM!!

Description:'

!!The!“Highest!4!of!5”!Method!is!used!for!Economic!Demand!Response!and!can!be!used!for!Emergency!Load!Response!as!well.!Select!the!five!most!recent!non:event!days,!excluding!any!weekends,!holidays,!or!days!when!a!Demand!Response!event!was!called.!Replace!any!excluded!days!with!the!next!valid!day.!For!each!of!the!5!days!in!the!window,!calculate!the!Average!Daily!Event!Period!Usage,!which!is!the!average!of!the!participant’s!hourly!usage!over!the!event!hours!in!the!day,!and!the!Average!Event!Period!Usage!Level,!which!is!the!average!of!the!Average!Daily!Event!Period!Usage!values.!!!!Exclude!any!day!in!the!window!for!which!the!day’s!average!daily!event!period!usage!is!less!than!25%!of!the!average!event!period!usage!level.!Replace!any!excluded!day!with!the!next!valid!day.!Rank!the!final!five!days!used!in!the!window!and!eliminate!the!day!with!the!lowest!Average!Daily!Event!Period!Usage.!!With!the!remaining!four!days,!calculate!the!Average!Event!Period!Usage!level.!!!!Note!that!they!use!the!highest!4!of!the!5!previous!days!if!the!event!is!on!a!weekday,!but!they!use!the!highest!2!of!the!3!previous!days!is!the!event!is!on!a!weekend.!!!!

Program'Examples:'

!Economic!Load!Response!(energy)!!Emergency!Load!Response!(capacity)!

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MISO!!

Description:'

!!For!Economic!Load!Response,!MISO!has!a!similar!methodology!to!PJM,!except!use!the!ten!most!recent!weekdays!or!four!most!recent!weekend!days.!Do!not!remove!any!days.!The!baseline!will!be!the!average!hourly!consumption!across!the!days!in!this!window.!!!!For!resources!using!Behind!the!Meter!Generation,!the!baseline!will!be!the!resource’s!actual!metered!generation!over!the!2:hour!period!before!the!start!of!the!event.!!!!For!Type1!Resources!providing!Reserves!(generally!non:spinning),!the!difference!between!demand!5!minutes!prior!to!event!and!the!average!of!demand!5!minutes!into!the!event!and!10!minutes!into!the!event!will!be!the!amount!of!reserves!provided.!!!!For!Type!II!Resources!providing!Reserves!(generally!spinning),!the!difference!between!demand!10:seconds!before!the!event!and!10!minutes!later!will!be!considered!the!amount!of!reserves!provided.!!Complete!meter!data!will!still!be!analyzed.!!!!

Programs'Examples:'

!Economic!Load!Response!(energy)!!Spinning!and!Non:Spinning!Reserves!(reserves)!

!!!CAISO!

!Description:'

'

CAISO!also!has!a!methodology!similar!to!PJM,!except!use!the!10!most!recent!days,!excluding!different!day:types!(a!day:type!is:!weekday!or!weekend/holiday)!and!days!when!there!was!an!event!or!other!operational!anomaly,!such!as!an!outage.!!!!The!calculated!baseline!will!be!the!10!day!hourly!average.!!However,!the!baseline!may!be!adjusted!

Program'Examples:'

!Economic!Load!Response!(energy)!!Spinning!and!Non:Spinning!Reserves!(reserves)!

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using!the!“Day:Of!Adjustment”.!This!allows!the!baseline!to!be!moved!closer!to!the!actual!consumption!before!the!event.!It!is!calculated!using!the!average!of!the!first!three!of!the!four!hours!prior!to!the!event!divided!by!the!average!load!for!the!same!hours!using!the!last!10!weekdays.!The!Adjustment!may!not!exceed!plus!or!minus!20%!of!the!calculated!baseline.!!

!!!NYISO!!

Description:'

!!Use!the!five!highest!energy!consumption!levels!in!comparable!time!periods!over!the!past!10!days,!beginning!2!days!prior!to!the!days!for!which!the!load!reduction!is!bid.!The!baseline!is!the!average!hourly!consumption!over!this!5:day!window.!!!!Ancillary!services!will!simply!compare!demand!during!the!event!to!the!fixed!metered!demand!during!the!interval!immediately!preceding!event!activation.!!!!

Programs'Examples:'

!Economic!Load!Response!(energy)!!ICAP!(capacity)!!Spinning!and!Non:Spinning!Reserves!(reserves)!

!!!ISO!–!NE!

!Description:'

!!Use!an!average!of!the!5:minute!demand!intervals!over!the!10!preceding!days.!A!“Symmetrical!Adjustment”!will!be!added.!!!

Programs'Examples:'

!Economic!Load!Response!(energy)!!Forward!Capacity!(capacity)!!

! !

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Annex!VI!:!Roles!and!Responsibilities!and!Consumer!Rights!!The! roles! and! responsibilities! of! players! must! be! defined! to! enable! healthy,! safe,! reliable! and!competitive!Demand!Response!development.! It! should!be!noted! that!multiple! roles! can!be!played!by!one!market! participant.! Each!Member! State!will! have! their! own! specific! requirements! but! below! is! a!general!description!of!roles!and!responsibilities!within!a!Demand!Response!market.!!TSO!System!Security!

• The!TSO’s!main!duty!is!to!maintain!system!security!at!the!lowest!possible!cost.!!!• Responsibility!for!maintaining!the!system!balance!is!pushed!to!the!edges!of!the!system,!it!begins!

by!dividing!up!the!grid!system!and!associating!all!assets!with!balancing!groups!• If! all! balancing! groups! are! in! equilibrium! at! all! times,! then! the! whole! balancing! zone! is! in!

equilibrium!• BRPs!are!incentivized!to!maintain!the!balance!of!their!group;!or!they!pay!imbalance!costs!to!the!

TSO!• All! BRP! must! nominate! their! forecasted! energy! flows! day:ahead.! The! TSO! checks! for!

consistency.!• The!resolution!of!the!BG!system!differs!between!Member!States!but!ranges!between!30!to!15!

min.!!!• Back:office!accounting!and!billing!must!be!run!by!the!TSO,!centrally,!in!due!course!of!its!normal!

balance!group!accounting!and!imbalance!settlement!!DSO!regional!security!

• DSOs! are! responsible! for! delivering! reliable! and! sustainable! electricity! to! consumers,! while!granting!a!proper!quality!of!supply!!

• Demand!Response!can!have!significant!impact!on!the!grid!affecting!the!DSOs!activities,!for!this!reason!methodologies!for!how!system!states!will!be!monitored,!calculated!and!audited!should!be!clearly!defined!!!

• Demand! side! flexibility!measures! should! then!be! included! in! service! quality!measures! so! that!outages!do!not!impact!service!quality!indices!

• DSOs!are!metering!operators!and!should!be!called!to!provide!metering!data!to!the!other!players!involved!in!demand!side!flexibility!measures!to!allow!settlement!and!verification!

• DSOs!may! wish! to! use! Demand! Response! in! order! to! avoid! investments! in! regional! network!capacity.!!

!A!need!for!coordination!among!system!actors.!Coordination!is!necessary!between!all!those!interested!in! accessing!Demand! Side! services.! This! coordination! is! particularly! important! between! the! TSO,!DSO!and!Retailer!–!all!of!whom!may!wish!to!access!the!load!of!a!single!consumer!or!are!responsible!for!the!stability! of! the! system.! Without! appropriate! communication! and! safeguards,! the! modification! of!consumer! consumption! may! risk! network! stability! and! or! cause! contradictory! signals! to! be! sent.!!Therefore,! as! the!Demand!Response!market! grows! and!becomes!more! robust,! it!will! be!necessary! to!ensure!coordination!among!involved!players.!!!Within!this!context,!system!operators!may!be!called!to!perform!at!least!two!services:!!

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• effective! provision! of! information! to! the! other! players! in! order! to! enable! Demand! Response!event!!dependent!on!the!location!(topology)!of!the!network!(this!is!necessary!when!the!service!needs!to!be!located!in!a!specific!portion!of!the!network);!!

• validation!of!Demand!Response!event!to!ensure!that!the!load!modifications!do!not!cause!issues!to!security/quality!of!supply!!

!Balancing!Group!(BG)!The! “Balancing! Group”! is! the! fundamental! energy! accounting! concept! to! coordinate! all! market!players.!

• All!electrical!assets!that!are!connected!to!the!grid!must!be!associated!to!one!balancing!group!• BG!is!not!a!geographical!concept!:!this!is!important,!particularly!in!the!case!of!Demand!Response!

where!assets!may!be!spread!over!a!wide!geographical!area!• All!trades!that!take!place!between!market!players!are!accounted!for!as!transfers!between!two!

balancing!groups!• All!BGs!together!cover!all!electrical!assets!in!a!balancing!zone,!without!overlapping!• At! all! times,! the! total! of! all! inflows! and! outflows!must! be! zero,! the! balancing! group!must! be!

“balanced”!!

Balancing!Responsible!Party!(BRP)!• A!balancing!group!is!managed!by!its!Balancing!Responsible!Party!(BRP)!• The! BRP!must! achieve! a! balanced! state! for! the! BG! by! forecasting! and! planning! energy! flows!

from!generation,!consumption,!and!trading!• When!a!balancing!group!goes!“out!of!balance”,!the!TSO!must!call!reserve!energy!and!will!charge!

the!BRP!for!the!imbalance!• All!markets! do! not! have! BRPS:! In! certain! countries! this! function!may! be! assumed! by!market!

operators;!in!centrally!dispatched!markets!the!TSO!is!responsible!for!balancing!the!system.!!

BSP!BG!• The! balancing! service! provider! (BSP)! a.k.a.! “pool! operator”,! or! “aggregator”,! recruits! and!

aggregates!assets!from!in!third!party!balancing!groups!(If!the!BSP!is!a!single!consumer!they!will!contract!directly!with!the!TSO!to!provide!balancing!services.).!

• The!BRPs!of!these!groups!then!become!the!“asset:BRP”.!Some!of!‘their’!assets!may!now!participate! in! balancing! services! outside! of! their! direct! control.! How! the! BRP! can! be!protected!in!this!situation!is!described!below.!!!

• It! is! critical! for! the!development!of!Demand!Response! that! the!BSP!has! free!access! to!offer!Demand!Response!aggregation!services!to!any!consumer!or!distributed!generation!resource!in!any!balancing!group!within!the!overall!balancing!area.!!!

• The!BSP!function!can!be!carried!out!by!an!independent!aggregator,!a!BRP!and!a!retailer!or!even!a!single!large!consumer!contracting!directly!with!the!TSO.!!!!

!Retailer!

• May!provide!aggregation!services!to!their!consumers!and!may!use!Demand!Response!to!lower!their!purchasing!risk.!!!

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• The!retailer!often!also!acts!as!a!Balance!Responsible!Party!(BRP).!• Has!the!duty!of!ensuring!consumers!have!a!reliable!source!of!electricity!• In!Europe!many!retailers!also!own!generation!assets.!!!• Buys! electricity! in! the! forward,! day:ahead! and! intra:day! markets! in! order! to! supply! this!

electricity!to!consumers.!• May!lose!this!cost!if!a!consumer!saves!electricity!and!the!retailer!is!not!informed!in!advance.!In!a!

Demand! Response! event! this! can! mean! that! the! retailer! will! want! compensation! for! energy!savings!made!during!the!Demand!Response!event.!!!

• The! retailer,! charges! consumers! for! the! cost! of! electricity! as!well! as! their! purchasing! risk! and!profit!margins.! These! elements! of! the! electricity! price! can!be! impacted!by!Demand!Response!market!–!in!either!a!positive!or!negative!manner.!!!

!!

Asset!1,!Asset!2,!…!• Assets! can!be!either!generation!assets! (CHPs,!biomass,!biogas,!emergency!backup!generators,!

wind,!solar)!or!storage!or!individual!loads!(machines)!depending!on!the!market!• Electrical!assets!reside!in!balancing!groups!typically!managed!by!energy!suppliers!• It!is!managed!by!asset:BRP!(a.k.a.!!“impacted!BRP”)!

!Anonymous!BG!

• We!use!an! “anonymous”!balancing! group!as! the! culprit!who!goes! imbalanced!and! causes! the!activation!of!reserve!energy!

• The!anonymous!BG!is!managed!by!BG:BRP!! !

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The!Smart!Energy!Demand!Coalition!(SEDC)!!The!SEDC! is!an!industry!group,!which!represents!the!requirements!of!programs!involving!smart!energy!demand! in! order! to! further! the! development! of! the! Smart! Grid! and! ensure! improved! end:consumer!benefits.!!!The! SEDC! vision! is! to! promote! the! active! participation! by! the! demand! side! in! European! electricity!markets!–!ensure!consumer!benefits,!increase!security!of!supply!and!reduce!carbon!emissions.!!The! SEDC! focus! is! to! promote! Demand! Side! programs! such! as,! Demand! Response,! energy! usage!feedback!and! information,! smart!home,! in:home!and! in:building!automation,!electric! vehicle! charging!management,! and! other! programs! related! to!making! demand! a! smart,! interactive! part! of! the! energy!value.!!!!!For!a!full!list!of!SEDC!Members!please!go!to!www.sedcFcoalition.eu!