Review and assessment of market, policy and stakeholder participation in energy flexibility of buildings: Energy in Buildings and Communities Technology Collaboration Programme

There is a large potential for improving resilience in energy grids, postpone grid extension or enforcement, increase utilisation of renewable energy sources and reduce CO2 emissions from energy production by harvesting end users’ energy flexibility. Demand-side flexibility is the capacity to change energy usage and local production from normal or current consumption patterns in response to local climate conditions and grid requirements, the latter normally encouraged by changes in the price of energy over time or economic incentives (e.g. contracts with payment for offering demand flexibility). These price changes or incentives can be energy grid and market related. Energy grid operators may provide customers with grid related signals to manage net overload, minimise emissions from energy production or postpone enforcement of the grid.

Price signals from the market can come from the wholesale market, e.g. day-ahead or intra-day markets. Suppliers or other commercial parties (such as aggregators that collect small quantities of end-user flexibility and give those aggregated volumes a value on wholesale markets or as ancillary service) may provide customers with price signals, e.g. when wholesale prices are very low or extremely high. The success of energy flexibility among consumers is likely to be defined by a combination of the willingness of consumers to respond to signals actively, and the availability of smart devices, smart systems and smart buildings to allow automated controls.

This document reports the findings from our collaborative, international comparisons of the state-of-the-art of energy flexibility within different countries around the world. Our focus has been on policy and regulation, price-incentive structures, business models and key factors influencing customers’ willingness and possibilities for taking part in energy demand flexibility.

In terms of policy and regulation (Chapter 2), our international review shows great variety between countries, in terms of the extent and type of policy measures implemented. Countries with the most ambitious policies are the most advanced in deploying energy flexibility in commercial and residential buildings, which confirms that policies make a difference. However, the diffusion of energy flexibility for smaller consumers is still limited. Relatively few aggregators exist, which points to the need for more policies aimed at creating a market for flexibility. At the same time, there has been some diffusion of energy communities in a few countries, which points to the importance of considering alternative organizational approaches to activating the energy flexibility potential rather than only aggregators and market-based/commercial solutions. Finally, implicit demand response is relatively widespread in countries with dynamic pricing and Time-of-Use (ToU) pricing for small consumers (including households). This indicates that the potential of implicit demand response should not be ignored in policymaking.

Price incentives (Chapter 3) for energy flexibility are available to electricity customers in all reviewed countries, often in the shape of real-time pricing (retail). However, the penetration of price incentives varies considerably between countries, with some having a considerable number of small customers being using dynamic and/or ToU schemes, and other countries with only a small number of customers using such schemes. Our review indicates that in countries with a high penetration of price incentives, this has influenced the load profile of small consumers. The implementation of flexible pricing schemes is very limited within the gas markets, and non-existing within district heating systems.

Our literature review and own studies into the broader variety of factors influencing energy flexibility are described in Chapter 4. The literature review demonstrates that simulation-based studies dominate the literature on demand side management, with fewer studies based on experimental trials and full-scale rollout. This might result in methodological biases towards less valid and more ’idealistic’ findings than 'real world'
experiments. Also, the review shows that previous studies have had a dominant focus on economic and price incentives, which might reflect a more general tendency within the energy flexibility field to prioritize market-based and commercial solutions, which could be problematic as other types of approaches (such as citizen energy communities) driven by other motivations than financial gains could be overlooked in research, design and policy-making. A survey carried out in US, Belgium and Austria shows that the willingness to adjust household activities, and whereby the timing of energy consumption, varies between countries. Important factors are differences in incentives and rate structures, the time of the day and perceptions of and previous experiences with DSM. Chapter 4 concludes by observing that stakeholders have different capabilities for taking part in energy flexibility schemes, and they are affected in different ways. To some extent, their capabilities and how they are affected reflect their composition of ‘flexibility capital’, including financial resources. It is important to design energy flexibility programs that are inclusive and do not increase inequalities in societies. Neglecting these concerns might result in a lack of social acceptance, or even resistance to, energy flexibility schemes and the transition of energy systems.

In terms of business models (Chapter 5), creating sustainable and scalable business models is essential for promoting energy flexibility in buildings. Many actors or stakeholders are involved in the energy system, and business models often include several stakeholders. However, DSOs seem to play a particular key role as they serve as the primary interface for facilitating energy flexibility through their direct – and ‘physically wired’ – connection to customers. Another key actor seems to be aggregators. Our review of business models shows that most of these models target residential buildings (especially single-family homes), commercial buildings and mixed-use buildings. Many value propositions were identified, such as energy bill savings, new equipment/technology acquisition, financial incentives, etc. Most of the stakeholder categories shared propositions related to societal or community contributions. This shows that not only financial benefits are in focus, but also broader societal gains (e.g. CO 2 reduction or sustainability branding for companies). Dominating types of systems/equipment targeted by business models are HVAC (mainly heat pumps and air conditioners), followed by PV panels and electric batteries. The reviewed business models primarily focus on load shedding and load shifting. In terms of revenue sources, 30% of the cases involved a combination of subscription fees, equipment purchases, research funds and professional service fees. This shows that revenues often depend on a multiplicity of sources.