Explicit demand response provides an opportunity for “aggregated” customers to participate in wholesale electricity markets and profit from their demand flexibility without the risks and costs presented by dynamic tariffs. In doing so, these customers can significantly reduce the price of energy purchased by suppliers by offering a competitive alternative to more costly generation, and thereby create benefits for all consumers. 

However, there are many barriers in the different EU Member States to the development of explicit demand response. Among the most significant barriers is the requirement in some Member States for aggregators to directly compensate suppliers for energy not consumed, a requirement that could impede the development of aggregation and prevent consumers from enjoying the benefits of reduced energy prices.

This policy brief identifies two alternatives to avoid this outcome. Both models comply with the amended text of Article 17 of the recast Internal Market Directive and both result in suppliers being compensated for energy bought in anticipation of consumer demand but not actually consumed.