Two years after RTE’s first technical activations, the economic sustainability of residential demand response aggregation remained an open question in France. Our analysis reached a qualified conclusion: even on favourable cost assumptions, the contribution per equipped household was negative. But break-even was not far off.
Real commercial deployments, always backed by a utility
Residential demand response was already working abroad. In Ontario, more than 170,000 households had joined the Peaksaver programme run by municipal distributors. In California, after the 2006 heatwave, regulators required utilities to scale up their programmes, with the state regulator targeting around 1,500 MW of curtailable residential load by 2020.
Those successes did not settle the French question. In the US, pure players had emerged in industrial and commercial demand response, but no independent player had broken through in the residential segment. Comverge, one of the leading operators, worked only as a white-label service provider for utilities. An integrated utility captures 100 % of the value across the chain and enjoys a structurally lower customer acquisition cost.
Three parameters drove the economics
The model requires variable costs per equipped household to stay below variable revenues. Three parameters determine the outcome: the net value of flexibility to the French power system, the curtailable capacity available per household, and operating costs.
The curtailment format matters a great deal. Our analysis showed that long formats, beyond four hours a day, captured more than 90 % of theoretical value. Conversely, past 270 hours in a one-hour-a-day format, curtailment stopped being profitable as spot prices fell below €50/MWh.
On favourable assumptions, an EJP-type format, 1 kW per household and no value sharing with the customer, the contribution came out at -€3.1 a year per equipped household. On more academic assumptions, with equipment and acquisition costs aligned to market benchmarks, it fell to -€130 a year.
Three levers to cross the threshold
- Raise the net value of flexibility per household, either through system-wide revaluation or by optimising the capacity made available.
- Cut fixed costs per household, by targeting new-build to extend the depreciation period, or by sharing equipment and installation costs through partnerships.
- Cut operating costs, by sharing connectivity or relying on an ADSL gateway or the Linky meter rather than a GPRS module.
The first lever was decisive. At PJM, moving from a simple capacity credit to a genuine forward market in 2007 lifted the average price from $36 to $116/MW-day, a factor of 3.2, and triggered demand response growth from 2 GW to nearly 10 GW. A rise of around €12 in the value of flexibility, some 60 %, would have been enough to reach a utility’s cost of capital in France.
Competing mechanisms and a decisive policy call
Residential demand response was not alone in the field. It competed with dynamic tariffs, industrial and commercial curtailment, peaking plant, storage and energy efficiency. The Linky roll-out, carrying mobile-peak functionality, could in time substitute for standalone devices.
That left the policy call. The NOME law provided for a capacity mechanism but no structured market, whereas the PJM experience showed that only a genuine forward market had made demand response take off. The rules for entry into the balancing mechanism, and differentiated treatment of curtailment capacity, remained the key variables.
To go further, download our full analysis below or contact our experts.
The downloadable PDF of this study is available in French only.
