Interaction between supply and end-use

In a future power system with a high proportion of distributed and intermittent generation, it will be difficult and costly to ensure short-term security of supply if demand is unable to react to fluctuations on the supply side. At present, most power consumers in the EU, with the exception of the largest consumers such as energy intensive industries, buy their power on fixed tariffs. Fixed tariffs provide no incentives for consumers to alter their patterns of power consumption. This calls for more interaction between the supply and demand sides, which in turn would allow better matching of demand to intermittent supply. The development of cheap and reliable electronic communication technologies has made this a realistic option, so we are left with the general question of how the demand side can become more active in the future power market. Liberalisation of the wholesale power markets has introduced market-based pricing for the marginal electricity supply. Prices are set hourly, or even more frequently, by reference to the balance between the expected demand and supply at the time. If the expected demand exceeds supply, prices increase until demand falls or more generation comes on line. If supply exceeds demand, prices fall. In this way, market prices are used to determine the balance level between generation and consumption. In liquid markets, the power price is a reliable indicator of the state of the electricity system. Price fluctuations reveal the cost of marginal production capacity; very high prices indicate that capacity is limited compared with demand. At present, it is mostly the generation side that adjust their supply in order to create balance between supply and expected demand. If demand, as well as supply, could respond to price signals from the market, the flexibility of the energy system would increase. This would make it easier to increase the proportion of intermittent renewable energy sources in the system. Demand response (DR) is the term used to describe the short-term response in demand to different prices. As examples, electricity consumers can achieve DR by reducing consumption during periods of peak load (and peak prices), shifting consumption to periods when prices are lower, or replacing electricity with other energy resources. This chapter shows that existing liberalised power markets are well set up to handle the new mechanisms for DR that could encourage the introduction of more distributed generation and intermittent renewable. Using the Nordic power market as a case study we show how DR can be categorised and priced, and examine future technical options for increasing flexibility on the demand side. (BA)