Latest revision as of 10:08, 1 June 2024

The energy transition requires deep penetration of intermittent renewable power and electrification of energy end uses in transport, heating, and industry. This creates an increased challenge to balance demand and supply on the electricity system. With the closure of fossil-fired generation, which are currently the main source of flexibility in power systems, it is necessary to develop alternatives. Whereas demand has always been considered unpredictable and uncontrollable, demand-side flexibility (DSF) is now recognized as a necessary source of flexibility for future energy systems. However, there remains uncertainty about how best to tap that DSF. This paper explains the two main sources of DSF (implicit and explicit) and particularly the role of Virtual Power Plants (VPP) that provide flexibility by aggregating and selling ‘explicit’ DSF into a variety of electricity markets. It also explains -and proposes a resolution of- the debate in Europe over whether VPP (referred to as ‘independent aggregators’ in EU legislation) should pay compensation to retail suppliers whose retail sales are reduced as a result of the VPP’s activation of DSF.’