Commentary The Clean Energy Transition Requires Action on Electricity Demand

The following commentary was written by WEO Energy Analysts Stéphanie Bouckaert, Timothy Goodson and Brent Wanner.

As a fundamental rule, electricity supply and demand must be balanced at all times. Traditionally, this has been achieved by adjusting electricity supply to match demand that varies at different times of the day. But this poses a problem as the share of power generation from variable renewables such as wind and solar PV rises. Demand-side response is one of several measures that can help integrate higher shares of variable renewables, including electricity storage, greater interconnection and more flexible power plants.

When the sun is shining and the wind blowing, electricity generation from these sources may exceed demand, leading to the curtailment of otherwise low-cost and carbon-free electricity. Inversely, when the wind doesn’t blow or on cloudy days, power systems may need to rely on flexible yet expensive and carbon-intensive sources of generation. Both of these outcomes are economically and environmentally undesirable.

Demand-side response can significantly reduce such outcomes by shifting and shaping electricity demand to match the availability of renewables-based electricity generation.

Traditionally demand-side response has been confined to large-scale industrial consumers manually shedding demand in times of system stress. But over 75% of the global potential in demand-side response lies in buildings, with space heating, water heating and air conditioning loads contributing the most. The thermal inertia of buildings and hot-water storage allows electricity demand from heating and cooling equipment to be shifted in time to suit the needs of the grid at low cost without compromising user comfort. Loads from appliances such as refrigerators and washing machines can also become demand-side response resources, facilitated by the growing market share of smart appliances.

Expanding demand-side response – beyond manual shedding of large loads – is a relatively recent phenomenon, with Europe and the United States currently leading growth. In several markets consumers can receive payment for various forms of short-duration “fast frequency response” to keep the grid in balance, larger volumes of “load shifting” to respond to changeable weather, or contracts for guaranteed changes to future consumption patterns.

In addition to balancing loads, demand-side response measures can provide benefits to the grid by mitigating congestion in transmission and distribution systems and delaying or avoiding network upgrades, resulting in important savings. Power systems with greater flexibility are also better able to respond to short-term variations in electricity supply or demand that can be created by sudden changes in output from variable renewables-based generators.

The flexibility provided by demand-side response is therefore both a valuable resource facilitating the integration of a high share of variable renewables, and a symbol of the shift away from the traditional paradigm of supply following demand.