A review of current and future costs and benefits of demand response for electricity for the UK

Mr Peter Bradley, University of Surrey

Demand response can play a key role in bringing about a low carbon electricity system and more efficient allocation and use of electricity which will have both economic and environmental benefits.    To ensure demand response, there is a need for infrastructure as well as the right institutional environment to ensure participation.  Electricity market reforms can play a role in ensuring the right institutional arrangements to help encourage demand response and to reduce barriers to demand response.   For regulators to have confidence in regulatory changes required to accommodate demand response for electricity, they must know the economic case for demand response   This is the subject of the current paper.  The paper firstly reviews and clearly outlines the different forms of demand response that exist and then goes on to assess the economic case for demand response through synthesis of five of the most relevant papers/reports assessing potential current and future costs and benefits of demands response in the UK.  Quantification of all costs and benefits relating to various forms of demand response was not possible, but was for the majority.  This study indicates that a positive economic case exists for most types of demand response.  The positive case for demand response however relies upon at least a modest participation rate by energy consumers.  For demand response to play its role towards energy security and a low carbon economy, the right environment needs to be developed to ensure consumer participation, as this determines the demand response related benefits for the UK and energy consumers who ultimately are likely to pay quite a large portion of the costs relating to DR (e.g. smart metering infrastructure etc).