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Demand response in Europe: No time to lose

How European utilities can drive demand-response programs by engaging with customers

The evolution of distributed generation is reshaping the power grid across Europe. According to Accenture’s Digitally Enabled Grid research, solar PV has already reached grid parity across Australia, many US states and several European member states. Additional estimates show that small- and large-scale solar could reach global grid parity by 2020.

Greater reliance on renewables such as wind and solar mean forecasting supply and demand is more challenging than ever. The importance of achieving grid stability and “keeping the lights on” is increasingly reflected in utilities’ business models. To that end, utilities around Europe are exploring ways to achieve flexibility and manage consumption through demand- response programs—initiatives meant to create changes in regular end-consumer electricity use in response to price changes, or to incentivize reduced consumption during peak times.

But the heterogeneous nature of national energy markets in Europe means there is no one-size-fits-all solution. For example, Germany now has more than a quarter of its energy produced through renewables,1 whereas France—with 58 reactor blocks—has a very different energy landscape to address. The specific circumstances of each market dictate the approach taken to implementing demand-response programs. In Germany, the focus is on commercial and industrial customers. In other countries, such as the United Kingdom and France, domestic customers are viewed as the most productive segment to pursue.

However, irrespective of the specific demands of each market, all utilities face some significant common challenges in implementing effective demand-response programs. These challenges fall into two distinct categories: engaging customers and developing the appropriate IT systems.

Demand-response programs require a completely new approach to customers.

The business model for utilities has traditionally revolved around a straightforward sales approach, with little need to understand or communicate with the end customer. Demand response requires far deeper insight and engagement in order to foster the trusted relationships that can persuade customers—domestic and commercial—of the benefits of ceding some degree of control over their energy consumption.

The technology challenge for utilities comes not from the need to invest in new hardware, but in the highly sophisticated advanced algorithms that steer, control and manage loads for consumer and industrial needs. The scarcity of appropriately skilled data scientists means utilities face stiff competition to attract talent in this area.

These are both challenges utilities must address now. Otherwise, they risk losing out to competitors—some of which are coming from unexpected sources. For example, as auto manufacturers increasingly develop e-mobility services, they are investigating how they can help transmission system operators (TSOs) manage energy consumption flexibility through their fleets of electric vehicles. On the customer side, businesses with extensive consumer insights and advanced analytical and data management capabilities—such as insurers—are eyeing the energy industry as a major opportunity to profitably deploy their know-how.

Utilities cannot afford to wait on developing and implementing effective demand-response programs. They need to create and adopt new ways of working, be prepared to “fail fast,” learn from pilot programs and foster an approach of constant innovation. It’s a major departure from the dominant, long-term engineering mindset that currently characterizes most utilities. If they fail to adapt, others will move in. Standing still is not an option.

1German cabinet approves reform to renewable energy law, April 8, 2014, Reuters News, (c) 2014 Reuters Limited, via Factiva.

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