DNV GL experts recommend the EU takes a wider view that allows member states to choose between different compensation models according to their market needs
A new study carried out by independent experts from DNV GL demonstrates that the European Commission’s draft Electricity Directive risks reducing the economic efficiency of demand response and distorting the energy retail market by taking an overly restrictive view on compensation.
Demand response is a key ingredient in maintaining a reliable and sustainable energy supply in coming years. It allows consumers to adjust their electricity use according to current demand and generation, giving power systems with high levels of renewable sources more flexibility to continuously meet demand.
The EU draft directive aims to stimulate the adoption of demand response by defining a framework for a new player in the electricity value chain: the aggregator, who combines customer loads and generated electricity for trading on the energy market.
The study commissioned by EURELCTRIC analyses the directive’s proposed model for independent aggregators. In its current form, the directive rules out financial compensation to energy stakeholders for economic disadvantages caused by freeriding actions of aggregators.
The analysis shows that this model could limit the economic effectiveness of demand response. Moreover, the study assesses the strengths and weaknesses of alternative compensation models, and finds that many alternatives have significant benefits over the EU’s “no compensation only” proposal.
“The EU is right to encourage the establishment of independent aggregators to enable more people to benefit from demand response” said Andreas Schröter, Executive Vice President Central Europe and Mediterranean at DNV GL. “Yet by disadvantaging players affected by aggregator-triggered demand response actions, the draft directive effectively makes it possible for aggregators to get a free ride at the expense of others. This could mean consumers are faced with higher tariffs for demand response, limiting its attractiveness and uptake.”