Regulatory Benchmark for Demand Response

651
Report on regulatory aspects of the
Demand Response within
Electricity Markets
Working Group
C5.19
March 2016

REPORT ON REGULATORY
ASPECTS OF THE DEMAND
RESPONSE WITHIN
ELECTRICITY MARKETS
CIGRE WG C5.19
Members
Hiroshi Asano (JP), Regine Belhomme (FR), Marie‐Therese Campbell (UK),
Alex Cruickshank (AU), Kristof de Vos (BE), Denise Foster (US), Lance Hoch (AU),
Siju Joseph (SA), Adam Keech (US), Juan la Grange (SA), Anant Venkateswaran (US),
Clotilde Levillain, Convenor (FR), Tanguy Janssen, Secretary (FR)
Copyright © 2016
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ISBN : 978-2-85873-354-5

Report on regulatory aspects of the Demand Response within Electricity Markets
Page 3
Report on regulatory aspects of
the Demand Response within
Electricity Markets
Table of Contents
EXECUTIVE SUMMARY........................................................................................................ 5
LIST OF ACRONYMS AND CENTRAL DEFINITIONS............................................................. 7
Glossary..................................................................................................................................................... 7
Acronyms.................................................................................................................................................. 10
CHAPTER 1- INTRODUCTION............................................................................................ 12
A. Rationale for working on regulatory aspects of Demand Response................................ 12
B. A short definition of Demand Response ................................................................................. 12
C. What drives DR and what enables it ..................................................................................... 14
D. The Method: Building a benchmark......................................................................................... 15
E. Structure of the technical brochure.......................................................................................... 16
CHAPTER 2 - PRELIMINARY ANALYSIS OF LOCAL CONTEXTS......................................... 17
A. Key characteristics of the surveyed power systems............................................................. 17
B. Preliminary analysis of some enablers of DR........................................................................ 21
CHAPTER 3 - DR PRODUCTS, CONTROL AND CERTIFICATION........................................ 24
A. DR through time-varying price signals.................................................................................... 25
B. Overview of Explicitly Exchanged Products.......................................................................... 27
C. Measurement & Verification and Penalties........................................................................... 31
CHAPTER 4 - MARKET DESIGN, ROLES, RESPONSIBILITIES AND INTERACTIONS ............ 33
A. Analysis framework.................................................................................................................... 33
B. Buyers of products based on DR and the economic interface ........................................... 34
C. Economic framework from the consumption sites to the product based on DR............... 35
D. Enabling the aggregation of consumption sites.................................................................... 41
E. Link with network operators concerning technical constraints ............................................ 43
CHAPITRE 5 - DR SUPPORT SCHEMES AND TARGETS ...................................................... 44
A. Data collected on support schemes......................................................................................... 45
B. Analysis of the support schemes .............................................................................................. 45
C. Existence of demand response targets................................................................................... 46
CHAPITRE 6 - REGULATORY BARRIERS TOWARDS DR AND MITIGATION PERSPECTIVES 48
A. Regulatory framework compatibility towards DR................................................................ 48
B. Regulatory barriers for DR and mitigation perspectives.................................................... 53
FACTORS OF SUCCESS AND LESSON LEARNED ............................................................... 56

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BIBLIOGRAPHY/REFERENCES............................................................................................ 58
APPENDIX ......................................................................................................................... 59
A. Case Study about Belgium: contracting aggregated DR as a network services............59
B. Case Study about France: Global perspective on DR and the NEBEF mechanism ........60
C. Case study about PJM (US): Retail Electricity Consumer Opportunities for DR..............63
D. Case study about the UK: DR in in the UK Capacity market..............................................66
E. Details of products based on DR.............................................................................................68
AKNOWLEDGEMENT......................................................................................................... 81

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EXECUTIVE SUMMARY
The power system stakeholders all share the ambition of a more economically efficient system and a lower
environmental impact. To this aim, many solutions can be found not only on the generation and network sides,
but also on the demand side, i.e. involving the electricity end-consumer. Among them, Demand Response (DR)
solutions refers to the ability of consumption sites (e.g. residential or industrial) to respond in a coordinated
manner to market and power system conditions on a short term perspective. This ability, often called a
flexibility and which should be distinguished from energy efficiency, can then be used either for the supply-
demand equilibrium or for network management providing it allows to reach for a better optimum in term of
social welfare.
Previous studies made the observation that several DR technical solutions already exists. Furthermore, among
these technologically mature solutions, some are very promising in the sense that the estimated social surplus
they can bring can be higher than their estimated costs depending on the local context. Thus, for a given set of
local drivers for DR, referring to the need for the services provided by DR and the cost of alternative solutions,
several DR opportunities already appear profitable from a social surplus perspective.
However, power system regulations inherited from the past may not be adapted to products based on DR since
power systems have been organized around the idea that production sites would be the main source of
flexibility ensuring the system reliability and optimal dispatch. As a consequence, DR may not appear
profitable to investors (public or private) for various reasons including the fact that the market design in a
liberalized system or the regulated activities in a more integrated organization do not value properly the
services that a DR opportunity could provide.
Therefore, an adapted power system regulation is a key element to reach for an optimal DR development.
Such adapted regulations should cover a large panel of DR enablers allowing to implement, offer and
exchange the services provided by products based on DR (e.g. capacity or energy products). In fact, several
countries around the world have started to implement DR oriented policy addressing these enablers to
overcome existing barriers to DR development.
To support power system stakeholders’ actions and public decision toward DR, a benchmark performed in this
study aims at identifying the factors of success and the lesson learned from these current experiences on DR
regulation. This benchmark is built on a detailed survey over 15 power systems over the five continents,
covering a diversity of liberalized and integrated systems, with zonal or nodal pricing and more or less central
or decentralized dispatch, is based on the situation as in 2014 or early 2015.
The preliminary analysis of the country electricity mix confirms that different drivers may lead to different
optimal levels of DR development. For instance some country face very high load peaks during winter or
summer, some countries deal with more or less dispatchable energy sources including different level of
renewable sources. More generally, the drivers include the cost of electricity supply, the long term dynamic of
the demand as well as of the generation mix (e.g. the observation that the electricity security of supply is at
risk), the need for short term flexibility compared to the flexibility of the existing generation mix (e.g. the share
of flexible hydropower) and the general policy toward demand-side management.
Given these DR opportunities and drivers, the study then focuses on the enablers necessary to unleash DR
development and identifies the following factors of success and lesson learned among the regulations
implemented in the country surveyed.
First of all, an adapted regulation lies probably more in combining several possibilities to give value to DR
that complete each other than in selecting a single option that would be best than all others. This principle is
for instance observed in the fact that while giving implicit value to DR though a time varying price signal (such
as Time of Use pricing) is widely used in almost all systems, there are more and more opportunities to give

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explicit value through exchange of products based on DR in the liberalized countries. This may reveal that while
time varying price signals may be adapted in many cases, some services are better served by an explicit
product that require an adapted market design. In particular, the survey shows that among the services DR
could provide, several new dedicated products have been created to exchange DR opportunities providing
system services to ensure short term reliability. Similarly, both upward and downward modulation of the
consumption of a site can benefit to the power system stakeholders and should be valued as such. Besides, the
market design or system organization should be able to value not only the activation of a flexibility but also its
availability. Indeed, several DR opportunities have a rather low fix cost and rather high variable cost
compared with alternative existing solutions. They can be optimally used only if their availability is correctly
valued. Therefore, the countries offering, for instance, capacity mechanisms or markets, or giving value to
reserves for short term reliability have a better chance to benefit from such DR opportunities.
Then, concerning liberalized markets or more generally the market-based organizations, it is important to
ensure that there is no entry barriers to DR participation, i.e. that DR is allowed to compete fairly with
products based on generation capacities for the market to drive optimal investment and operational decisions.
Obviously, the first condition is that the market design should allow the participation of consumption sites.
Beyond this simple statement, the roles should be clearly defined and the regulation should ensure a fair
competitive environment between actors that could contribute to DR development. In particular, the analysis of
the market design or integrated system organization around the products shows that in addition to the bilateral
relation between the supplier and the consumer, some countries such as France and the US (for instance in PJM)
have adapted their rules so that a third party, acting as DR operator can develop DR solutions in a competitive
environment where they do not require the supplier’s agreement. This is expected to drive both commercial and
technical innovation to reach for new DR opportunities.
There are also enablers which absence can constitute a barrier to DR development. For instance, Measurement
and Verification can be to some extent included into a larger certification process driven by a regulatory
framework offering confidence in the product based on DR effectiveness which should ease the exchange of
these products. Similarly, allowing the aggregation of several consumption sites when participating explicitly
to the markets or to a regulated DR program is expected to ease the participation of small consumption sites
and the exchange of more reliable products. This enabler has been implemented in Europe and in the US.
Finally, 10 out of the 15 countries surveyed have implemented one or more dedicated DR support schemes
showing that favoring DR has been deemed necessary to support its development toward its full potential. They
include in most country a financial support to R&D with in some cases dedicated features in the market design,
normalization support, public awareness programs, or direct financial support.
In many countries, the evolutions of the regulation enabling DR development were at some point triggered by a
strong political will, sometimes at the occasions of wider energy transition plans. As the drivers for DR gets
strong, the regulation may be required to evolve at a fast pace to remove the barriers to DR development.
In the implementation process, even if these regulatory evolutions should be tailored to each local context, it is
always best to learn from the experiences of others. To this aim, the knowledge extracted from the survey
offers a picture of DR regulation as in 2014 in a diversified panel of context. In addition to the analysis based
on the survey, some case-studies about DR regulation in specific areas have been summarized in the appendix.
Further work should focus on the link between DR and distributed energy resources and on the constant
evolution of the DR related regulation that may have to be adapted to the new consumption patterns (e.g.
electric vehicles) and to next generation of DR and storage technologies.

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LIST OF ACRONYMS AND CENTRAL DEFINITIONS
Glossary
Term Definition proposed for this survey
Adequacy Ability of an electric power system to supply the aggregate electric
power and energy required by the customers, under steady-state
conditions, with system component ratings not exceeded, bus
voltages and system frequency maintained within tolerances, taking
into account planned and unplanned system component outages1.
In this survey, adequacy covers both generation adequacy and
network adequacy.
Ancillary services Services necessary for the operation of an electric power system
provided by the system operator and/or by power system users
System ancillary services may include the participation in frequency
regulation, reactive power regulation, active power reservation,
etc2.
Balance Responsible Party Entity responsible, over an assigned perimeter, for the equivalence
between injection and subtraction of electricity from the grid. It
subsequently compensates financially the System Operator (SO) for
negative imbalances observed in real time, or receives financial
compensation from the SO in case of positive imbalances. It contracts
with consumers and producers to carry out this function, and does not
therefore need any physical assets3.
Balancing All actions and processes, on all timelines, through which a System
Operator ensures, in a continuous way, to maintain the system
frequency within a predefined stability range4.
Baseline consumption Consumption curve of a customer or a group of customers if no
control actions are executed. It has to be estimated and is used to
calculate the load modification obtained from the control action5.
Capacity market or
mechanism
Solution to deliver long-term system adequacy by valuing reliable
and firm capacity and thereby providing signals for necessary
existing capacity to stay online or new capacity to be developed6.
Capacity market refer to a market-based solution.
Critical peak pricing (CPP) CPP is a hybrid version of TOU (Time of Use) and RTP (Real Time
Pricing). The basic rate structure is TOU. The normal peak price is
1
See  Electropedia from the International Electrotechnical Commission. This a larger definition than the one suggested by the
NERC which distinguish adequacy on a long term perspective from reliability on a short term perspective.
2
See Electropedia from the International Electrotechnical Commission
3
See CIGRE WG C6‐09 Brochure (No. 475) on Demand Side Integration
4
See Final Draft Network Codes on Electricity Balancing from the 23 December 2013.
5
Based on CIGRE C6‐09 definition
6
See Eurelectric, “a reference model for European capacity markets”

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replaced with a higher CPP event price triggered by specific
conditions such as reliability levels or high supply prices. The specific
number of periods with CPP, the number of hours per event and per
season or year is normally defined in the rate.(CIGRE C6-09).
Curtailment Service
Provider (CSP)
Depending on the country or region a CSP may be an entity
providing reductions in demand or more generally an entity
providing demand response services, in such a case it may also be
called Demand Response Provider (DSP).
Demand Response or
Demand Side Response
Action resulting from management of the electricity demand
responding in a coordinated fashion to electric power system or
market conditions7. Demand Response is a potential source of
flexibility for power systems.
In this report both expressions Demand Response and Demand Side
Response are used with the same meaning
Demand Response
Operator or DR Operator
As defined in Chapter IV, this role can be performed by the
consumer itself or involve a different actor with an aggregation
function or the concept of service provider in some areas. The DR
Operator can act for instance as
 Technical operator participating to the operation of the
technical solution resulting in the demand response of a
consumption site
 technical aggregator participating to the operation of the
technical solution allowing a coordinated response combining
several consumption sites
 Commercial operator offering a product based on DR to a
market
 Commercial aggregator offering to a market a product
based on DR combining several consumption sites
Demand Side Management Process that is intended to influence the quantity or patterns of use
of electric energy consumed by end-use customers8. In this survey,
this term is used with a broad meaning covering various actions on
the demand side of a power system, either long term energy
efficiency actions or short term ability to respond to market or
system conditions.
Demand Side Resource End-use resources on the customer side of the meter. This may include
distributed generation, storage, dispatchable load and other on-site
resources capable of impacting demand for network supplied
electric service9.
Dynamic pricing The price level that customers pay to the supplier and notification
time may dynamically vary within some constraints. Critical Peak
7
See Electropedia from the International Electrotechnical Commission and the Demand Side Resource definition used by the
CIGRE WG C6‐09.
8
See Electropedia from the International Electrotechnical Commission.
9
See defintion used by the CIGRE WG C6‐09.

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Pricing and Real Time Pricing are included (CIGRE C6-09).
Implicit valuation of DR Giving value to a DR action or availability of action through varying
price signals received by the consumer for instance for its energy
bill.
Incentive based DR Incentive-based demand response programs pay participating
customers to reduce their loads at times requested by the program
sponsor, triggered either by a grid reliability problem or high
electricity prices10.
Interval metering Process by which a meter (designated as an interval meter)
measures and records consumption data at regular time intervals, for
instance every 10 min.
Load Serving Entity (LSE) Load serving entities (LSEs) provide electric service and electric
energy to end-users. LSEs include the retailers that sell electricity to
end users11.
Load shedding Process of deliberately disconnecting preselected loads from a
power system in response to an abnormal condition in order to
maintain the integrity of the remainder of the system. For instance
this disconnection may be used to balance supply and demand in
emergency situation.12
Load shifting It involves shifting load from one time period to another time period,
for instance from on-peak to off peak periods.
NEBEF Mechanism to value electricity load reductions in the wholesale
energy markets in France (see appendix B)
Net benefit test A Net benefit test has been defined in PJM following FERC order
745 to determine the level of compensation cleared DR receives in
the PJM’s wholesale energy market whether that demand response
creates a savings to the system greater than the cost of paying that
demand response the full LMP value for its reduction 13.
Nodal price or Locational
Marginal Price (LMP) or
Locational Based Marginal
Price (LBMP)
The nodal price or Locational Marginal Price (LMP) is the marginal
cost of the next increment of energy at a specific location (node) on
the electric power network, taking into account both supply
(generation/import) bids and demand (load/export) offers and the
physical aspects of the transmission system including transmission and
other operational constraints14.
Peak shaving (or peak
clipping)
Reduction of the peak load.
10
See U.S. Department of Energy, “Benefits of Demand Response and Recommendations”
11
Definition based on ERCOT definition and PJM glossary.
12
See Electropedia from the International Electrotechnical Commission and CIGRE WG C6‐09 Brochure (No. 475) on Demand
Side Integration
13
See a description of FERC Order 745 by PJM for a mathematical definition of the test.
14
See definition by California ISO and PJM Glossary

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Price-based Demand
Response
Price-based demand response such as real-time pricing (RTP),
critical-peak pricing (CPP) and time-of-use (TOU) tariffs, give
customers time-varying rates that reflect the value and cost of
electricity in different time periods. Armed with this information,
customers tend to use less electricity at times when electricity prices
are high15.
Reliability (of an electric
power system)
Probability that an electric power system can perform a required
function under given conditions for a given time interval.
Reliability quantifies the ability of an electric power system to
supply adequate electric service on a nearly continuous basis with
few interruptions over an extended period of time.16
Electric system reliability can be addressed by considering two basic
and functional attributes: adequacy and security17.
Real-Time-Pricing (RTP) A retail rate in which the price of electricity typically fluctuates
hourly reflecting changes in the market price (CIGRE C6-09)
Security (of an electric
power system)
Ability of an electric power system to operate in such a way that
credible events do not give rise to loss of load, stresses of system
components beyond their ratings, bus voltages or system frequency
outside tolerances, instability, voltage collapse, or cascading.18
Time of Use (TOU) pricing Method of pricing electricity using different prices at different times
of the day and seasons of the year.19
Valley filling Encompasses increasing load in off-peak period.
Acronyms
BEMS Building Energy Management System
BRP Balance Responsible Party
CCGT Combined Cycle Gas Turbine
CHP Combined Heat and Power
CIPU Contract for the Injection of Production Units
Cogen Cogeneration
CM Capacity Market or Mechanism
CSP Curtailment Service Provider
DNO Distribution Network Operator
DR Demand Response
DSO Distribution System Operator
DSR Demand Side Response
DSM Demand Side Management
EDC Electricity Distrbution Company
EE Energy Efficiency
EU European Union
15
See U.S. Department of Energy, “Benefits of Demand Response and Recommendations”
16
17
See ENTSO‐E Metadata Repository (EMR) Glossary
18
19
See CIGRE WG C6‐09 Brochure (No. 475) on Demand Side Integration

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GHG Greenhouse gas
ISO Independent System Operator
LSE Load Serving Entity
M&V Measurement and Verification
OCGT Open Cycle Gas Turbine
R&D Research and Development
PV Photovoltaic
PX Power exchange
SO System Operator
TNO Transmission Network Operator
TSO Transmission System Operator

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CHAPTER 1- INTRODUCTION
A. Rationale for working on regulatory aspects of Demand Response
CIGRE Working groups C5-11 and C6-09 have shown how Demand Side Management (DSM) in general,
including Demand Response (DR), can provide services to a power system, for example to support the
integration of new intermittent renewable generation capacities. Working Group C6-09 concluded that:
“Rather than the demand side of the supply equation being passive, the foundations are being put into place for the
demand side to be integrated into the overall network strategy and take advantage of demand side resources that
can be relied on to respond in a coordinated fashion to electric power system or market conditions.
These developments are having impacts on all parts of the electricity power system and thus need to be
considered further by all of the Study Groups that exist within CIGRE.”20

Working Group C6-09 also noted that in order to achieve the potential benefits, the development of new DSM
solutions and their integration into existing markets and mechanisms is essential and this has become a priority
for several public policies, particularly in the context of the transition to low carbon energy systems.
These previous works showed that a new wave of demand participation could make the power system more
efficient and reliable, improve asset utilization, and provide bill savings for customers. Indeed, DR can provide
reliable alternative to costly energy generation or even to costly investment in new generation capacities. These
works also underlines that the full potential of these technical and commercial opportunities can only be
unleashed if the proper regulatory enablers are implemented, ensuring that no unjustified regulatory barriers
remain.
Thus, the next step addressed in this technical brochure is to investigate existing DR regulations. More precisely,
it focuses on the regulatory aspects that enable DR solutions, focusing on DR mechanisms involving a voluntary
(free or merchant based) participation of the consumer to the power system operation with or without the
support of third parties endorsing the role of DR operators as defined in Chapter 4. Indeed, in this context, an
evolution of the regulatory framework can support DR development from at least two perspectives:
 The current regulation could be adapted to take into account the specificities of new solutions.
 A transitional regulatory support may be decided to help overcome technical or economic barriers
during the development of these solutions.
B. A short definition of Demand Response
Actions on the demand side of a power system, either long term energy efficiency actions or the short term
ability to respond to market or system conditions, have been referred to with various names (e.g. Demand Side
Management, Load Management, Demand Side integration, Demand Response or Energy Efficiency21) covering
all or part of the solutions.
This is further complicated by the changing nature of energy supply with advances in distributed generation
(e.g. solar PV) and community attitudes to centralised supply of energy. Future enhancements, particularly
home or community-based storage will further complicate the description of the range of distributed
interactions with the grid and market.
20
TB475 “Demand Side Integration” – report of Working Group C6-09 p108
21
See for instance an analysis of how these terms have been used in Chuang, A. S., & Gellings, C. W. (2008). Demand‐side
integration in a restructured electric power industry. CIGRE General Session, Paris.

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With current technologies, controllable devices and interval metering, households and businesses can vary their
loads on the grid and even export into the grid. The response at the site may be in coordination with the
current actors in the market (including the market operator) or independent of the market itself22.
In this document, in accordance with the International Electrotechnical Commission, the whole set of actions will
be called Demand Side Management (DSM), while Demand Response (DR) refers to a subset defined by the
ability of a consumption site to respond in a coordinated manner to market and power system conditions
on a short term perspective.
With this definition, DR actions can result for instance from load reduction, load increase (stimulation) and load
shifting from one point in time to a different one as described in the following figures.
Therefore DR is based on the ability to respond to market conditions and that the action is coordinated with the
current actors in the market, particularly the market operator. This ensures that the responder and the market
gain maximum value from the variability at the site as well as minimising the risk that the actions of the
individual do not actually increase rather than decrease costs.
In other words, a DR capability can refer to the ability of a consumption site to contribute to optimize the use of
a power system’s resources to ensure either the generation-consumption adequacy and reliability or the
network adequacy or reliability (managing grid constraints related to active and reactive power as well as
stability issues).
22
We discuss the drivers for these actions later, but cost is a key driver.
Time
Consumption/planned consumption
1
Load shifting
Time
1
Load increase
Time
1
Load reduction

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C. What drives DR and what enables it
In order to structure the analysis all along the following sections of this report, it is important to distinguish the
elements that cause an uptake of DR, the “drivers” from the ones that allow it to occur, the “enablers”. Thus, this
section introduces and defines these potential drivers and enablers.
1. DRIVERS
DR is driven by a number of factors:
 Cost of electricity supply. A major driver is the desire for a customer or a market actor to find a
cheaper source of supply for energy. For an individual, this can be simply to reduce overall costs, while
for a market actor it is the desire to be more competitive in the market. To the extent that not using
energy (sometimes termed “Negawatts”) provides increased utility to the customers (price of the
negawatt compared to the loss of benefit) then that benefit can be claimed by the customer and
potentially sold to the market.
 Supply demand imbalance that may lead to shortage and load shedding risk. Where there is a shortage
of supply, the value of DR is increased and customers will be incentivised to provide it. In this case a
centralised form of “social auction” may occur or some parties may be directed to provide the DR. This
can simply be a peak load situation where the provision of the last tranche of supply is not economic
and can only be met by shedding load.
 Need to provide flexibility or control variability. Where market supply sources are inflexible, the use of
demand side response can be used to accommodate variations in supply. For example, systems with a
high proportion of thermal generating plant may be less flexible. Alternatively, demand side response
can be used to mitigate highly variable supply sources by providing a rapid response to variations,
particularly lowering of supply.
 Political/Social factors. Political or social factors, such as the desire for waste reduction and reducing
greenhouse gas emission can lead to a campaign to reduce or optimise energy use. Although this is
often observed for energy efficiency, DR can also answers these objectives and benefit from a common
will to address them.
2. ENABLERS
In the context of this paper, we define “enabler” as any act, capability or resource allowing a DR program to
succeed when DR opportunities and the related fundamental drivers exist.
Regulatory aspects and evolutions can address several kinds of enablers which can be categorized as follows.
Structure of the electricity sector and market design.
The electricity sector structure can be vertically integrated or liberalized around wholesale markets, retail
markets or both kinds. In the first case as well as for the regulated activities in a liberalized power systems, the
development of DR programs are obviously dependent on regulatory impulsions or at least regulatory
approbation from the legitimate authorities. Concerning liberalized power system, this study shows that the
electricity sector in general and the markets in particular can be structured and designed to enable DR
development toward its full potential as introduced with the following key enablers.
For instance, a market design should ensure that markets deliver appropriate price signals and incentives to
develop and use DR, that these markets are open to DR participation, if necessary with the addition of new
products more adapted to new DR-capabilities and that the allocation of roles and responsibilities favor
market entry and innovation within a level playing field where fair competition is ensured between actors.

Page 15
In this analysis of the regulatory aspects of DR, this category of enablers constitutes the main material of the
following chapters.
Technological solutions.
A regulation can support the development or deployment of various technological solutions which enable DR.
From an R&D and innovation perspective, public support can speed up the cost-reduction of new technological
solutions allowing to act on the consumption-sites. From another angle, new metering solutions, allowing for
instance remote measurement and better information of the consumer, can be promoted at a regulatory level23.
Besides, the technical ability to control (or certify as defined later in Chapter 3) can foster DR development by
ensuring that the DR-products reliability can be tested and, thus, trusted.
Customers and public attitude.
Regulatory orientations can address the education of customers, their interest in taking action to address their
energy costs and competing issues for their attention which can impact how willing they are to engage in DR.
Indeed, informed customers are more likely to respond to DR activities (or instigate them). Moreover, if a
community groundswell of support for DR exists (e.g. California during the market failure there) there is likely to
be a greater uptake of DR
D. The Method: Building a benchmark
In practice, several new regulatory solutions have been emerging in various countries during the last few years
to develop DR within industrial activities, services and households.
To identify and better understand these regulations, the working group surveyed 15 markets in Europe, Asia,
North America, South America, Australia and New Zealand, as summarized in Figure 1.
23
The European Union has mandated Smart Meters for 80% of European customers by 2020. In Australia, Victoria has
achieved 99% smart metering. Italy has also rolled out smart meters.

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Page 16
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Page 17
CHAPTER 2 - PRELIMINARY ANALYSIS OF LOCAL CONTEXTS
Overview:
 Most countries displays fundamental drivers for DR such as the need to deal with peaks of load
consumption in a cost efficient manner and the perspective of replacing conventional generation
emitting greenhouse gases (e.g. coal-based electricity) with new intermittent renewable sources that
may increase the need for flexibility on the demand side.
 Given the diversity of power system organizations, market design in liberalized systems, generation
mix and load structure, it is to be expected that there are different mix of DR opportunities and that
there is no “one fits all” solution to enable DR development. Thus, concerning the experiences that could
be shared between countries, the implementation of regulatory evolutions based on them should in
practice be tailored to each case.
 This preliminary analysis of the local context then shows how regulatory decisions have ensured in some
countries the existence of enablers of DR related to technological solutions and public attitude. These
aspects are completed in Chapter 5 about the support scheme designed to favour DR while, in the other
chapters, the analysis focuses on the enablers related to the electricity industry structure and in
particular the market design. This emphasis on the market design is driven by the fact 11 out of the 15
areas surveyed are liberalized and the identification of innovative market design enabling further DR
development through the markets.
A. Key characteristics of the surveyed power systems
1. ORGANIZATION OF SYSTEM SURVEYED
Table 1 lists the power systems included in the survey and the regions covered by them. It is worth noting that
the USA and Australia are divided into multiple geographical market areas, while other countries tend to have
one market or utility per country. Markets in the USA and Europe tend to be interconnected with each other. In
fact, the target model in Europe strives towards a full internal energy market, and today, a fully integrated
day-ahead market is achieved, based on a market coupling algorithm. Further steps are being undertaken to
achieve further market integration in the intra-day and balancing market.
Country/Market Regions Covered
Liberalised
Retail Market
Capacity
Market
Australia;
National
Electricity Market
Queensland, New South Wales, Victoria,
Australian Capital Territory, South Australia
and Tasmania
Yes No
Australia; South
West Integrated
System
South Western portion of Western
Australia
No Yes
Belgium Federal, Flanders, Wallonia Yes Yes
Brazil Brazil No Yes
Colombia Colombia Yes Yes

Page 18
France France (member of EU) Yes Yes
Ireland SEMO: Ireland & Northern Ireland Yes Yes
Italy Italy (member of the EU) Yes Yes
Japan Japan Yes No
Korea Republic of Korea No Yes
New Zealand New Zealand Yes No
South Africa Republic of South Africa No No
Great Britain England, Wales and Scotland Yes Yes
USA - ERCOT Energy Reliability Council of Texas Yes No
USA - PJM District of Columbia, States of New Jersey,
Pennsylvania, Maryland, Delaware, Ohio,
Virginia, West Virginia and parts of North
Carolina, Tennessee, Kentucky, Indiana,
Illinois and Michigan
Yes (not all
states)
Yes
TABLE 1 : POWER SYSTEM SURVEYED AND LIBERALIZATION
Of these 15 areas surveyed, 11 were liberalized. Thus, even if DR based on a regulatory program are studied
as an option to develop DR, it explains why the analysis performed in this study focuses mainly on DR
development within markets.
To get further into the details concerning liberalized markets, a classical distinction can be made between the
areas being rather centrally cleared such as the nodal pool PJM or the New Zealand power system and other
areas being organized around zonal markets with decentralized dispatch for the energy markets such as in
most European countries. For some DR features, this duality may lead to analyze the cases separately or to
define terms that are valid in both contexts.
2. LOAD STRUCTURE BY POWER SYSTEM
Of the surveyed markets, most were able to provide a break up between the types of customers. The
exception was PJM. Figure 2 contains a breakdown of the energy consumption by market and customer type.

Page 19
FIGURE 2 : ENERGY CONSUMPTION BY CUSTOMER TYPE
The distinction made between household and industrial loads correspond to a difference between large and
small sites. For a given DR volume, the cost of developing DR on small sites may be higher than the one for
larger sites, thus the DR economic potential may be more costly in the first case (all other things being equal).
The areas such as the Australian NEM and Colombia, reporting household consumptions greater than 50% of
their loads, offer a different economic potential than countries with a large share of industrial consumption such
as Japan or Korea. The remainder had sizeable industrial and other (mainly commercial, agriculture and
transportation) loads, which would lead to greater enablement because of the customer type.
Besides, the load structure and shape can constitute a strong driver for DR. In particular, the nature of the
consumption peaks (in term of occurrences, duration, and ability to be anticipated) can drive different kind of
DR-solutions. For instance, there can be summer peak in Texas or Italy and winter peaks such as in France or
Belgium which will lead to aim for DR-capacity able to reduce these weather related consumption peaks.
Beyond these peaking issues, the more frequent inter-temporal arbitrage opportunity for load shifting (for
instance between day and night consumption levels) is another driver to pilot loads with a form of storage
opportunity such as cooling systems or fluid pumps equipped with a reservoir.
3. GENERATION MIX BY POWER SYSTEM
Concerning the generation side, all of the surveyed markets were able to provide installed capacity by types
of fuels, although not all fuels are represented in all markets. Figure 3 contains the installed capacity of each
market.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Figure 2: Energy Consumption by Customer Type
Other
Industrial
Household

Page 20
FIGURE 3: INSTALLED GENERATION CAPACITY BY TYPE
Not all markets had sufficient amounts of gas, thermal or renewable generation to provide disaggregated
data and so the table includes these in aggregate for those markets.
Survey respondent were also asked to provide actual generation by fuel type but not all provided this data.
Figure 4 shows the energy generation by type.
In general the installed capacity and the energy generation are proportionate but the Australian NEM, France
and to some extent ERCOT show clear differences. The Australian NEM is heavily reliant on coal, which is an
inflexible fuel in power stations. Similarly, France is heavily reliant on Nuclear power, and even if these plants
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Figure 3: Installed capacity by type
Nuclear Coal
Gas (incl cogen) Other thermal & other
Hydro Solar/Wind/Biomass & Other Renewables
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Figure 4: Energy generated by type
Nuclear Coal
Gas (incl cogen) Other thermal & other
Hydro Solar/Wind/Biomass & Other Renewables

Page 21
have been designed to be rather flexible, room remains for additional flexibility on the demand side. Indeed,
it is expected that inflexible power generation could foster DR, since some DR-capabilities could be a good
source of load following and ancillary services.
Similarly, as non-dispatchable plants, solar PV and wind, become an increasing part of the installed
generation, the need for flexibility may increase. DR may therefore be required to assist the market operator
to balance loads and to provide ancillary services and reserves.
In practice, most systems have a mix of fuel types installed and interconnectors with neighboring system to
allow the system to be flexible, for instance for load following purpose. Furthermore, in some cases, such as
hydro dominated systems, the majority of plant is flexible and therefore the need for alternate solution for
short term reactivity may be reduced. Nevertheless, depending on the costs of the different solutions and the
evolution of the mix, there can always be competitive DR opportunities.
B. Preliminary analysis of some enablers of DR
Following the categorization introduced in chapter I, this section introduces a first analysis of the enablers in
place as in 2014 based on elements reported in the survey.
This preliminary analysis shows how regulatory decisions have ensured in some countries the existence of
enablers of DR related to technological solutions and public attitude. These aspects are completed in Chapter 5
about the support scheme designed to favour DR while, in the following chapters, the analysis focuses on the
enablers related to the electricity industry structure and in particular the market design. The emphasis on the
market design is driven by the fact 11 out of the 15 areas surveyed are liberalized and the identification of
innovative solutions to enable DR development through the markets.
Technology
Technological innovations (e.g. automation) and new standards are creating new possibilities for DR, providing
tools that enable wholesale level DR programs, utility-controlled programs and customer-controlled home
energy management including DR options. For instance, new communications and DR standards driven by the
standard-making bodies such as automated demand response standards (OpenADR) , Zigbee Alliance and
others are major enablers of demand response according to the 2012 FERC report on Demand Response and
Advanced Metering.
More generally, DR can benefit from enabling technologies such as Smart Grid, Advance Metering
Infrastructure, Smart Devices, Internet of Things, Big Data & Analytics, among others, which can for instance
contribute to perform some of the following tasks:
 Determine if and when DR activation should be initiated.
 Determine the target group or individual customer for the DR activation.
 Dispatch the activation order to one or a group of customers either directly or through an intermediary.
 Receive the dispatch order and provide the control function.
 Acquire enough data to enable the calculation of estimated and actual load reductions as well as
aggregates.
 Provide an accurate baseline and forecast for the future.
 Provide an accurate Evaluation, Measurement & Validation.

Page 22
Each of the above enablers can be an outcome of a regulatory driven initiative such as a Smart Grid project or
Advance Metering Infrastructure deployment or of a market driven one like solar rooftops associated to
batteries, smart thermostat or a combination of the two.
As described in chapter 5 about DR support schemes, public support to R&D and to standardization process can
act as enabler of DR by speeding up cost reduction of technologies enabling DR.
Among the technological enablers, the deployment of new metering technologies has in particular been
discussed extensively in several forums in the context of DR. Even if smart metering is not absolutely necessary
for demand response, it can be a strong enabler of some forms of DR. Besides, the political and regulatory
decision making process as well as the financial investment associated to the rollout can stimulate the
development of new services for end consumers.
In practice, the European Union has mandated Smart Meters for 80% of European customers by the year
2020, if this is estimated to be cost-effective in the given markets. One of the objectives is to provide
residential consumers with an accurate calculation of their consumption on a rather regular basis in order to
encourage awareness of the consumer’s effective consumption, for instance with the use of feedback technology
including in-house displays for the residential sector. In order for these smart meters to enable DR from a
technical point of view, the communication and data handling capabilities must be sufficient for instance to
handle the data flow required for dynamic pricing programs. Italy has so far rolled out Smart Meters and so
has Belgium, but the most sensible effects did not concern DR so far.
In the United States and Australia new metering infrastructures are a precursor for Time-of-Use (ToU) and
Critical Peak Pricing (CPP) tariffs (see Chapter 3 for an overview of the use of these kinds of tariffs).
Concerning the US, it has been used by Okhlahoma Gas and Electric, Baltimore Gas and Electric,
Commonwealth Edison of Chicago, Pepco Holdings (now part of Exelon), Pacific Gas and Electric and Southern
California Gas & Electric among others. In Europe this is not necessarily the case since ToU and CPP have been
used for instance in France for several decades based on a previous generation of technologies.
Brazil is another example of a country where new metering technologies are yet to be rolled out but DR has
already been put in place under the form ofToU and CPP tarrifs .
Customers and public attitude
Low enrollment rates and customer participation remain a key challenge for utility demand response programs
according to most DR experiments. Moreover,while some customers may be motivated by cost savings and
others by the environment, many of the tested customers have failed to demonstrate long-term behavior change
following their participation to a customer awareness program. The persistence of education is still an open
question in the long run.
Given this limit, automating demand response enables customer loads to participate without the need for
customer action beyond enrollment, reducing the need for customer behavior change. For programs requiring
behavior change, advanced customer segmentation analytics that include demographic and attitudinal analytics
are needed to identify motivators and tease out segments that are responsive.
Based on the results of the survey, US, Australia and parts of Europe have indicated working on customers and
public attitude enabling DR.

Page 23
Structure of the electricity sector and market design.
The preliminary analysis of this category of regulatory enablers leads to highlight the following results at this
stage.
Concerning the price signals, the ability to give value to the availability of a DR-capability (for short term
reaction or for long term adequacy), revealing the market value of the insurance provided by “back up”
available capacity can be an important enabler for DR development. Indeed, many kinds of DR opportunities
have a cost structure with a relatively high activation variable cost (compared to generation-based solutions for
instance) but a relatively low fixed cost for the capacity. For such DR opportunities, the price signal associated
to the availability can give more adequate incentives to risk averse investors than a single price signal for the
activation would do. In practice, Table 1 shows that 10 out of the 15 regions covered by the survey have a
form of capacity market or mechanism.
Concerning also on the need to give adequate price signals and focusing on potential environmental benefits of
DR, the existence of mechanisms such as carbon markets could also constitute market based enablers
internalizing the benefits of carbon emission reductions for stakeholder’s decisions. The EU has for instance
implemented a EU-Emission Trading Scheme mechanism which gives a price to greenhouse gases emission from
the electricity generation sector.
Focusing on liberalized systems, the market design shall enable market integration of DR. As a prerequisite, all
existing electricity markets should be open to DR on a non-discriminatory basis, which is not yet the case in all
systems as analyzed in Chapter 6 about the remaining barriers.
In the markets opened to DR, the market design should define clear roles and responsibilities between actors to
enable DR development as described in Chapter 4. For instance, from a market entry point of view, the full
development of the DR potential may require innovative actors to propose new DR-solutions to the consumption
sites. Since these innovations may come from a background which is neither the consumer itself nor its supplier,
the market design shall allow other actors to drive DR development. In order to create such level playing field,
some market design have evolved to ensure there is a fair competition between suppliers and third party
acting as DR operators with the agreement of the consumer.
In addition, some products may have to be designed specifically for DR opportunities to participate to the
wholesale and balancing markets. Indeed, existing standard products were tailored to conventional generation
sources and they may be inadequate for new DR-capabilities. Some example of these new products are given
as illustration in Chapter 3 and in section E of the appendix.

Page 24
CHAPTER 3 - DR PRODUCTS, CONTROL AND CERTIFICATION
Overview:
DR may provide power system reliability/adequacy services (e.g. reserve, energy, capacity, etc.) and may as
well be used to alleviate grid constraints. In practice, the surveys revealed that there are three main ways in
which DR presents in markets around the world to provide grid reliability services - to reduce energy
consumption, to reduce the need for generation capacity, or to provide short-term balancing services.
DR may be procured centrally or via bilateral contracts to reduce the need for generation-based products
committed in a centrally cleared market to supply energy, capacity or ancillary services. The prices revealed in
a centrally cleared market may incent bilateral contracts between retailers and consumers to reduce
consumption and thereby reduce the energy, capacity or ancillary service obligation related to those consumer,
resulting in a financial savings. This method does not afford transparency as to how DR affects the market but
does impact the market as it reduces the quantity of generation resources needed to provide the service.
Similarly rates charged to consumers may be structured to incent its behaviour to modify consumption based on
time of day or based on prices in organized energy markets. In most instances, this method does not afford
transparency as to how DR affects the market unless there is a measurement and verification component to the
structure.
Additionally, in any market structure it is important to ensure what is compensated to be delivered is actually
delivered. Indeed, it is important to certify that the product meets the standards for whatever service it is
providing prior to it being committed to providing the service. For instance, if the products provide reliability
services, grid reliability may be negatively impacted if the DR is not dependable. Certification, measurement
and verification requirements seek to ensure the dependability of the product provided by DR. Penalties may
be assessed if the amount of product delivered does not meet the level committed. While penalties alone will
not ensure reliability, if structured appropriately, they may reinforce the need for DR to perform to meet the
reliability needs of the grid. Besides, this certification and control process is essential to develop trust in new
market products based on DR as it is done for other market product on the generation side.

Page 25
From a system point of view, the services that DR could provide could be categorized as follows:
General objective Services provided by DR
Example of DR action and
products
Generation-consumption
adequacy or reliability
Long term adequacy, reducing the
need for available generation
capacity
Peak shaving, load shifting,
etc.
Capacity Products (e.g.
capacity, reliability or
strategic reserves)
Reducing energy costs on the
energy markets (forward, day-
ahead and intraday).
Peak shaving, load shifting,
valley filling, etc.
Energy products
Short term adequacy or reliability
by providing balancing services.
Providing balancing services
(upward or downward), etc.
Balancing products
(availability and/or activation)
Network adequacy or
reliability (managing grid
constraints related to
active and reactive power
as well as stability issues)
Transmission network management All actions on active or
reactive power are potentially
useful with regard to localised
conditions.
Distribution network management
These services can be provided through implicit response to a market price signal (e.g. through an energy bill)
as described in section A or through explicit exchange of a product as detailed in section B.
In practice, the effects of DR incented by market price signals or tariff rate structures may not be as
predictable as the effects of explicit market products centrally cleared in an organized market or committed to
provide service by the market or transmission system operator.
A. DR through time-varying price signals
Giving implicit value to DR through time-varying price signal sent to the consumers is widely used in most of the
surveyed countries both in liberalized markets and more integrated systems. The price signal is sent most of the
time by the supplier and in some case by the network operator if there is a direct relation with the consumer.
In particular, this vector of DR development can be useful to reach for small consumption sites taking
decentralized responses to the price signal.
Transparent prices known in real time or in advance may incentivize consumer behaviour to react to these prices
at the benefits of all power system stakeholders. Retailers or aggregators may structure contracts with
consumers to share the savings that may be achieved through this signal. When this occurs, this is implicitly
incentivized demand response.

Page 26
In practice, focusing on the retail market, DR can be elicited through a variety of bill-based (tariff based)
pricing arrangements. Commonly used methods include time‐of‐use (TOU) pricing, real‐time pricing (RTP) and
critical peak pricing (CPP). Consumers are incentivised to shift their consumption to different hours when demand
on the system is lower and thereby reduce the need for market operator (in a pool system) or market portfolios
(in a more decentralised liberalised system) to commit more expensive generation supplies to meet additional
demand (TOU pricing), or consumers are incentivised to reduce consumption when the cost associated with
committing additional generation resources increases (RTP or CPP pricing).
Overall, the summary table below shows that while TOU pricing is widely used in the surveyed countries, CPP is
also rather well implemented while RTP is scarcely offered on the retail market.
Power system Retail market
Time of Use
pricing
Critical Peak
pricing
Real Time pricing
Australia-NEM Yes Yes
Yes (in part of
the system)
Yes
Australia-SWIS No
Belgium Yes Yes
Yes (in
transmission
tariffs)
No
Brazil No Yes Yes No
Colombia Yes No No
France Yes Yes Yes No
Italy Yes Yes No No
Japan Yes
Yes (~5%
household
consumers)
No No
Korea No Yes Yes No
New Zealand Yes Yes Yes Yes
South Africa No Yes Yes No
UK – Great
Britain
Yes Yes No No
US-ERCOT Yes Yes Yes Yes
US-PJM Yes Yes Yes Yes
TABLE 2 : IMPLICIT DR THROUGH THE TARIFF STRUCTURE

Page 27
For instance in Brazil there are both Time of Use and Critical Peak Pricing tariff rate options. Anticipated in
2015 a new option for low voltage customers (residential, commercial or industrial) to vary their energy bill
according to the day and time of consumption (in three different levels) in accordance to the schedules of
consumption. The conventional tariff is still available to those customers who do not wish to change their
consumption behavior. The Critical Peak Pricing rate in 2015 will be based on the system operator establishing
the cost for thermal power at each substation to develop the three levels of pricing. Additionally, Brazil offers
customers the opportunity to prepay for the electric power to effectuate more effective use of electricity.
New Zealand offers Time of Use, Critical Peak Pricing, Real Time Pricing, and Incentive Based DR and estimates
that it receives about 100 MW of load reduction through those rate offerings.
The United Kingdom offers Time of Use pricing in two different rate structures: (1) “Economy 7” requires
reducing consumption during 7 hours overnight, and (2) “Economy 10” requires reducing consumption during 3
hours in the afternoon and 7 hours overnight. These rates are not widely used. In 2008 20% of the population
used these rates; whereas, in 2013 approximately 10% of the population used these rates. The large I&C
customers can choose to be exposed to half hourly wholesale prices and manage their consumption accordingly
Belgium offers a Time of Use rate (Day-Night/Weekend tariffs, Exclusive Night). The network component of the
electricity bill is flat, although larger consumers may face a capacity-based component providing an incentive
for peak shaving.
In Australia, the NEM system has a price responsive demand category customers may elect. For larger
consumers, specific contracts can be composed between the supplier and the consumer. However, smaller
consumers on the residential level are bound to technical measuring limitations (no regulated roll-out of smart
metering systems) and regulatory requirements (limited periodical price updates allowed).
In Japan, penetration of residential TOU rates ranges 5-10%. In addition, several CPP pilots were conducted in
national smart community projects in 2011 and 2015.
Through further investigation on the retail market, this analysis could be enriched to identify to what extent
differing categories of consumers face differing regulations or commercial policies.
B. Overview of Explicitly Exchanged Products
Some European countries and the United States – PJM have designed their regulation so that product based on
DR can be exchanged on most of their markets or mechanisms.
Since consumption sites offer very different opportunities from one another (e.g. in term of stock or duration for
instance), there may not be a one-fit-for-all product adapted to all kinds of DR. In fact, it seems that some kinds
of sites may be better valued through some products rather than through others. Thus some countries have
chosen to design new products dedicated to some DR opportunities while in other case, standard products have
been used.
In particular, given that some DR opportunities have a rather low initial/fix cost and a rather high variable cost,
the development of these opportunities depend on the possibility to exchange products based on DR giving
value to the availability rather than the activation of the product.
In addition to the implicit valuation described in the previous paragraphs, DR can also be elicited through a
diverse range of products that provide an agreed fixed rate payment for customer participation that reflects
the savings associated with the consumption reduction or provide a payment based on DR competing with

Page 28
generation supply to provide the service committed in a centrally cleared market. These methods typically are
controllable, requiring certification of the product and measurement and verification that the consumption
reduction commitment was achieved.
Products sold bilaterally are not generally transparent as there is no central reporting in most counties. Thus,
the quantity and the valuation of them is unknown.
The objective of the following paragraphs is to illustrate what form of products are used to exchange products
based on DR related to (1.) ancillary services for frequency control/regulation/balancing, (2.) energy markets
(forward, day-ahead, and intra-day), (3.) capacity markets (for long term adequacy) and (4.) network
management.
Later in the report, chapter 6 about the barriers shall describe to what extent the markets in liberalized systems
are open or not to DR participation.
1. ANCILLARY SERVICES FOR FREQUENCY CONTROL / REGULATION / BALANCING
Ancillary Services products are the most prevalent across the countries surveyed. Among the various services
included (e.g. black start, voltage control, etc.), this section focuses on the operating reserves for frequency
control / regulation / balancing (depending on the terminology ). The aim of these product is to support the
supply demand equilibrium, giving value to the availability and/or the activation of quickly reacting DR-
opportunities. Additionally, so-called reliability or interruptibility products can be contracted by the system
operator to contribute to the system short term adequacy (or security) when other conventional means have
been used.
A long table in appendix E summarizes the products identified through the survey feeding this report.
The main results are that DR has been identified in most country as an opportunity for these ancillary services
and that each country, with its own history and its own drivers has shaped different products.
In many instances, DR competes directly with generation resources to provide the service in most liberalized
countries. However, some of these opportunities can be valued through standard products such as the Frequency
Containment Reserves in France, but many others are valued through specific DR products as some reserve
products in Belgium.
These specific products have been designed to fit for the specificities of some DR opportunities. In particular,
these products take into account that the cost structure of some DR opportunities is rather about the fix cost or
about the variable cost. In other words, some opportunities are more competitive for their availability while
others are more competitive for their activation.
As another example of adaption in France, the minimum size required to sell DR based balancing services is
being lowered from 10 to 1 MW.
Concerning the products which are expensive to activate, some products such as the interruptibility product
bought by the system operator in Italy, Ireland and France among other countries are designed to be used only
as a mean of last resort before starting load shedding activations.
2. ENERGY PRODUCT (FORWARD, DAY-AHEAD, INTRADAY)
Many liberalized countries allow forward, day-ahead or intraday energy products based on DR to compete
with generation supply resources, although not as widely as for the ancillary category described in the previous
section.

Page 29
The product based on DR can directly take the form of a standard product on a centralized market place or on
a market platform in decentralized systems. In this case, the key difference with ancillary products involving
energy is the time horizon, i.e. the fact the activation can be decided several hours ahead or even days ahead.
Alternatively, it can be exchanged bilaterally between actors under more exotic forms.
Concerning Day-ahead centrally cleared energy markets (often with nodal prices), it generally receives the
market clearing price, or a variant of the market clearing price. In some instances, the product is not offered
into the centrally cleared market but rather is provided via contract with the Transmission System Operator. The
US-PJM allows DR to bid into the Day-Ahead energy market. DR is offered by Curtailment Service Providers,
who may be Load Serving Entities or third party aggregators who do not supply the energy requirements of
the end-use customers. End use customers cannot offer DR directly into the PJM market. The minimum quantity
that may be offered is 0.1 MWh. The end use customer sites must be able to provide hourly interval data,
unless they use direct load control to respond. The DR is paid the applicable energy market clearing price
when that price exceeds a threshold determined in advance of a monthly basis by a “net-benefits test.” This
threshold price typically ranges between $25 and $30 US dollars/MWh. The DR resource also will be made
whole for shut-down costs and minimum reduction times. Additionally, to avoid the imposition of Operating
Rerserve Charges, the actual reductions must not exceed the quantity dispatched in Real-time or Day-ahead by
more than 20% (plus or minus).
New Zealand has only a Day-ahead energy market, and it allows DR to participate without identifying a
minimum MWh quantity through aggregators of end use customers - large industrial to small residential
customers.
In all the countries noted above that allow direct participation of DR to compete with generation supply
resources in the energy market, the DR receives the energy market clearing price, or some variant of that price
for rather standard energy blocks.
In Australia NEM and Australia SWIS, retailers enter into bilateral arrangements with end-use customers; those
bilateral arrangements are incented by the energy market clearing price but the DR associated with those
bilateral arrangements is not directly offered into the energy market to compete directly with generation
supply resources. These bilateral agreements can take the form of implicit valuation (as described in section A)
or an explicit remuneration of the consumer for the availability or the activation.
In fact, even in the US-PJM market where DR is permitted to compete directly with generation supply resources
and receive a variant of the market clearing price, DR may be incented as a way for the end use customer to
avoid needing to pay the energy market price associated with energy not consumed. While there is no central
tracking of such behavior, it is known to be prevalent in the US markets
Similarly, in US-ERCOT demand response occurs voluntarily by customers and Load Serving Entities seeking to
avoid having to pay the energy market clearing price or seeking to reduce their capacity obligation by
reducing their consumption on the Coincident Peak Days that are used to calculate the resource adequacy
obligation associated with that load.
Concerning more decentralized wholesale markets (usually with zonal prices), as in Belgium or France, explicit
energy product directly related to a DR-opportunity can be exchanged on the forward, day-ahead or
intraday time horizons.
In Korea, DR in December 2014 became eligible to bid into the Day-ahead energy market. Aggregators
participate in the market on behalf of industrial customers, commercial buildings and residential customers. The
product requires 1MWh increments to participate in the market.

Page 30
In France, the mechanism called NEBEF has been implemented to allow a DR operator to sell energy products
based on DR while ensuring a fair competition between this DR operator and the supplier of the site to make
the best out of the DR opportunities of the site (see a brief description in section B. 2 of the Appendix).
In both centralized and decentralized markets, as described later in Chapter 4.C, a third party being a
supplier or a DR operator can help give value to a DR-opportunity through an explicit products based on DR. In
addition, large customers (usually those connected to the transmission system) directly buy or sell into the
wholesale market and can act on their own.
3. LONG TERM ADEQUACY CAPACITY PRODUCTS
This third category of products have been designed to value the availability rather than the activation which
can be called on a not-as-short notice as some reserves categorized as ancillary services.
Six power systems answered to the survey that products based on DR could be sold or valued through a
capacity market or mechanism: Australia-West, Belgium, France, Great Britain, Korea and US-PJM (See
appendix E for further details)
The observation of these cases leads to conclude that each market design has shaped the products to fit for the
power system needs. For instance, the need for long term capacity is driven by winter peaks of consumption
and the capacity mechanism has been tailored to this driver.
4. NETWORK CONSTRAINTS MANAGEMENT
At least three countries started using explicit products based on DR to handle network constraints at the
transmission level.
In New Zealand, Transpower has a DR pilot program which is expected to be a full program in 2017/18 that
is intended to allow it to defer transmission investment. There is no minimum unit of DR, and the payment is via
a regulated fund. The product is callable by Transpower with several hours’ notice. Direct connect customers
(large industrial customers), retailers, and demand aggregators may participate in this program.
In the UK there are three half hours, called Triads, with highest demand on the transmission system. The
Transmission Use of System Charge (TNUOS) (£/kW), for demand customers depends on their total demand
during Triads periods. This is usually a significant charge for large I&C customers in addition to the energy
component of their bill. These customers can contract with their supplier or directly with the TSO to reduce their
demand during triad periods and therefore avoid paying the TNUOS. Depending on the location of the
customer the TNUOS charge can vary from £23/kW in Scotland to £46/kW in South of England, as it reflects
the transmission network constraints.
In Australia – NEM, DR aggregators may offer DR to the market operator to provide network support services.
The market operator tests this capability annually. Failure of the resource to respond when called upon to
reduce consumption may result in withholding of payments according to the contract terms.
In France, products based on DR can compete freely with generation-based product on the balancing market
where the TSO can activate products to handle network issues (the balancing market is used for both demand-
supply equilibrium and network management). DR can also compete on the tendering process used to reserve
some capacity for the balancing market. Similarly, the participation to an experimentation in Brittany designed
to help handle network management in this region has been open to DR.
Besides, given the effectiveness of some solutions based on DR for the transmission network, some
experimentations (including EU-funded research projects) investigate the possibility to use explicit products
based on DR for the distribution network management.

Page 31
C. Measurement & Verification and Penalties
As for generation-based products, measurement and verification of the effective delivery of the products
contracted directly (in bilateral contracts) or indirectly (through organized markets) are necessary when explicit
products based on DR are exchanged. The more or less structured process may involve, for instance, an initial
test phase to ensure that a measurement method is adapted to both the site’s behavior and the product based
on DR exchanged.
All countries appear to have some form of measurement and verification and penalty or non-payment
provisions with their DR product requirement. For most countries, the penalties are defined in the bilateral
contracts. For others, the penalties are defined by the rules of the organized market.Additionally, failure to
perform in the context of an energy market product may require the payment of replacement energy in
addition to a penalty that could be applied.
Measurement & Verification consists on the control of a product based on DR. It can be a structured process
involving both ex-ante control steps and ex-post control steps (evaluation of the DR volume, with specific
methods). This task can be assigned to the DR-product buyer or to a neutral party depending on the market
design and the product concerned.
In practice, this can be the case for products based on DR bought by a regulated entity, such as through a
balancing market, or benefiting from an economic framework such as NEBEF in France (which principles are
introduced in appendix E).
In the French case for DR opportunities participating to the NEBEF mechanism, the certification process handled
by RTE can be summarized as follow:
 Ex ante controls, performed only once and for all, before a DR-product can be offered to the markets
o For all DR operators: « Agreement » of the DR operator, to audit its ability to manage
consumption modulation for the DR (technical documentation and activation tests of DR)
o For all DR operators: check that an adequate M&V method can be applied
o For DR operators whose data are used for the certification: “Qualification” of the data
collecting system, if data used for certification are not metering data from the network
operator (in charge of metering activity in France) (Data from DR operator can effectively be
used for certification if metering data are not sufficient for the M&V method).
 Ex post controls (following a DR-product activation): different Measurement & Verification methods can
be used to estimate different types of DR, involving for instance a baseline consumption calculated
based on declared forecasted consumption, or on meter before/ meter after methods. Other methods
such as baseline consumption based on past consumptions, on the observation of a panel of similar sites,
are under consideration.
 Penalties and financial settlement when relevant.
In practice for this process, there is a menu of M&V methods to be tailored to each consumption site or group of
consumption sites. Besides several new methods are currently under investigations.
In countries where the products are centrally cleared or committed directly by the market operator, the
compliance is measured for compliance by the market operator. Withholding of payments, and in some markets
and additional financial penalty based on the level of unavailability also is assessed.
In Western Australia, the long term system adequacy product, which is a two year forward contract with the
market operator, must be verified by the market operator. Compliance is measured by actual performance

Page 32
compared to the agreed upon level of reduction. If the actual production does not satisfy the agreement, then
a penalty, which is the withholding of payments, is applied. This also is true of the operating reserve market
product in the Australian National Electricity Market.
In Belgium, large customers may commit via a yearly tendering process with the market operator to provide
frequency containment service and frequency restoration service. The availability to provide this service is
monitored by means of comparing nomination of historic consumption profile against minimum consumption
thresholds. Activation is monitored by measuring consumption compared to the nomination, or the consumption in
the previous 15 minutes. The transmission system operator (or distribution system operator if the large customer
providing the DR is on the distribution system) will certify or prequalify the flexibility at the grid connection
point. Belgium is considering establishing an independent institution to validate and control the delivery of this
DR. If the DR is found to have underperformed, penalties are assessed. The penalties work cumulatively, with a
cap on total penalty exposure.
In Italy, the transmission system operator conducts a yearly descending auction to commit DR to provide
instantaneous load interruption service. The interruption must be effectuated within 200 ms. The DR is paid on a
per/year basis to provide 10 interruptions. If more interruptions occur, the DR is paid additional amounts for
each interruption. If the DR provides fewer than 10 interruptions, it must pay for each interruption not taken.
There is a metering operator that evaluates the DR performance against defined baselines. There are a variety
of baseline approaches used for DR in Italy, depending on the market and product, which assess consumption
over a period of time to determine what consumption likely would have been prior to the DR activation.

Page 33
CHAPTER 4 - MARKET DESIGN, ROLES, RESPONSIBILITIES AND INTERACTIONS
Overview
 Regulated tarrifs can inlude in many countries a DR component under the form of time-varying price
signals. This principle of a time-varying price signal is also used by suppliers in liberalized environment
to reveal DR opportunities within their portfolio.
 In addition to (and sometimes in place of) these signals, a liberalized environment can offer additional
ways to give value to DR opportunities and favor innovations tailored to the wide diversity of the
opportunities.
 When a DR-product can be exchanged through a market interface, one option is that the underlying
contracts to the product based on DR include an agreement with the supplier/Balance Responsible
Party of the consumption site. In some liberalized markets, additional market design options have been
developed to ensure a fair competition that may arise between the incumbent supplier of a
consumption site and other actors such as third parties acting as DR operators.
 The market design should allow the aggregation of capacities and ensure adequate Measurement &
Verification which are two key enablers of DR development.
The analysis of the economic frameworks under which products based on DR can be exchanged can help to
draw lessons from the various experiences, either to identify best practices or to better understand why some
solutions have been proposed.
The economic organisation through which a product based on DR is exchanged can be different not only
between countries, but also between products and between consumption sites as well as between different
buyers within a single country.
In this context, an analysis requires first to gather the different cases into groups presenting common economic
features. Therefore, this section aims at:
 Define roles that could be meaningful across different regulations.
 Identify categories of economic organisations through which a product based on DR can be exchanged
(explicitly or through implicit valorisation).
 Analyse these economic frameworks.
A. Analysis framework
This study focuses on the forms of demand response volontarily driven by economic drivers, i.e. which are not
directly a regulatory or legal obligation for the consumption site providing it.
The analysis can be divided in two parts focusing on one side on the buyers and the economic interface (section
B) and on the other side on the transformation of a DR capability to a product based on DR (section C).

In
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Page 34
o aggregat
k can be m
the econo
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ting the nee
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MARKETS
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cluding:
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Page 35
The economic interfaces through which the product based on DR is bought, implicitly or explicitly, are also the
classical channels (with the addition of regulated tariffs in the sense of the exchange described in section C):
 Regulated tariffs
o Retail tariffs
o Grid access tariffs
o Additional tariffs (e.g. for system services that would be regulated)
 Markets
o Bilateral contracts (OTC markets)
o Market platform with multiple buyers
 mandatory or not
 power exchange (PX) or broker
o Market with a single buyer
 Tender
 Market platform receiving offers stored in an order book
2. SUMMARY OF THE OBSERVATIONS
Without detailing the numerous potential buyers in the surveyed power systems, the survey material shows that
most countries (including for instance the European countries and the PJM area in the US) offer a wide range of
market outlets for products based on DR as further investigated in Chapter 3.
It is also interesting to observe that regulated tariffs are often used to stimulate DR-capabilities. This situation is
in some countries inherited from a DR history that started before the liberalization process. In other countries,
DR has to pass through regulated tariff simply because there is no liberalized market for some categories of
consumers.
Besides, a warning has been identified concerning the need to ensure adequate incentives to the buyers. For
instance, network operators should have an adequate incentive between using DR product and using other
means of action to operate their networks and plan their investments in order to be able to reach for the
optimal situation from a social welfare point of view.
Similarly, since various actors may be interested in buying a given DR resource, the most efficient use for the
society should prevail. To this aim, a coordination should be ensured between these buyers. For instance, if
DSOs intend to buy some products based on DR to better operate the distribution network, this process should
be coordinated with other system operators that may make use of it (e.g. TSO in Europe and ISO in the US)
and it should not prevent DR to participate to the other markets if the price signals indicate a greater value can
be made there.
C. Economic framework from the consumption sites to the product based on DR

Page 36
This section starts with a categorization of “roles” involved in the formation of a DR product, and then describes
four organization schemes identified as able to cover most situations encountered through the survey:
 DR through regulated tariffs
 Offer involving the supplier(s) of the consumption site (through private contracts)
 Offer by a DR operator (or the consumer itself) without any relation with the consumption site’s supplier
 Offer by a DR operator (or the consumer itself) including a regulated relation with the consumption
site’s supplier
1. CATEGORIZATION OF ROLES
The description of the economic framework requires introducing the four key following roles.
The electricity consumer of the site offering a DR opportunity to generate a product based on DR. This role
correspond to the user of the electricity delivered on the consumption site.
The supplier role is used to refer to the supplier or retailer of electricity to the consumer. This role includes the
function of Balance Responsible Party (BRP) when the regulation involves balance responsibility. In practice, a
large consumer may act as its own supplier.
The DR operator plays an active role in the creation of the product based on DR. This role can be performed
by the consumer itself or involve a different actor with an aggregation function or the concept of service
provider in some areas. This role can act for instance as
 Technical operator participating to the operation of the technical solution resulting in the demand
response of a consumption site
 technical aggregator participating to the operation of the technical solution allowing a coordinated
response combining several consumption sites
 Commercial operator offering to a market a product based on DR
 Commercial aggregator offering to a market a product based on DR combining several consumption
sites
The Certification party is an additional role in charge of the control or certification processes as described in
section C of Chapter 3. It can be for instance the buyer or a third party depending on the transaction. The
actor endorsing this role can also be in charge of ensuring some data and financial flows between actors.

In
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Page 37
THROUGH REGU
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Page 38
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