Post: IEA examines the value of demand flexibility

IEA examines the value of demand flexibility

Demand flexibility improves asset utilization, reduces peak stress, and supports efficient clean energy integration, according to the International Energy Agency.

With global electricity demand rising and set to add around 1000TWh each year until 2035, new ways of managing the balance between supply and demand are needed.The International Energy Agency’s policy brief, published on 23 December, concludes that when properly enabled, demand flexibility becomes a core pillar of secure, affordable and efficient power systems, maximising the value of both existing assets and future investments. .

What is demand flexibility?

Demand flexibility means adjusting the timing or level of electricity use in response to grid needs, such as reducing demand during peaks or increasing it when low-carbon generation is abundant. This can be enabled by smart meters, digital controls, time-of-use tariffs and connected appliances and devices.

What’s driving the need for flexibility?

The IEA outlines three major pressures reshaping electricity systems:

• rising electricity consumption and changing patterns are creating new peaks and straining power systems. Global electricity demand increased by more than 4% in 2024 and is set to continue rising as economies grow and sectors electrify. Peak demand is outpacing average demand in many regions. In Korea, for example, it has grown six times faster over the past decade, widening the gap between peak and off-peak periods. This trend increases grid stress and reduces system efficiency by driving up losses during peaks
• bottlenecks in the grid are creating system pressures and wasting opportunities to fully exploit new clean energy capacity. Grid constraints resulting from rising peak demand are increasing system costs, delaying industrial growth and limiting renewable connections. In 2024, grid congestion cost almost USD 8 billion in the United States and USD 4.5 billion in the European Union. Curtailment of surplus renewables reached over 10 TWh in the European Union in 2024, enough to power around three million homes for a year
• volatility in electricity markets is increasing costs and creating investment uncertainty. The growth in renewable capacity has lowered wholesale energy prices and improved sustainability, but operational complexity has increased certain costs. For instance, balancing costs have risen by up to eight times in some power markets in the last five years. Negative prices at times have been recorded in Australia, the United States and numerous European countries, creating revenue uncertainty for investors

Benefits of demand flexibility

• enhance power system efficiency: flexibility and efficiency reinforce each other, as flexibility enables more efficient grid operation, while efficient buildings and smart equipment expand the scope for cost-effective demand shifting. By improving the use of existing generation and network assets, demand flexibility can raise system efficiency by up to 30% and deliver greater value
• strengthen energy security: demand flexibility reinforces electricity security and system resilience by reducing peak demand and lowering reliance on fuel imports. Recent events in California, Western Australia, and France demonstrate this capability, where customers reacted quickly to support system operators, rapidly reducing consumption and helping avoid system crises such as blackouts
• enhance affordability: shifting electricity consumption to lower-cost hours can offer financial benefits for consumers directly through smart tariffs. For instance, households can typically save 5%-15% on electricity costs using dynamic tariffs. Meanwhile, it can also deliver capacity to the grid at a cost up to three times lower than building new capacity, helping keep electricity costs lower for everyone
• reduce emissions: by facilitating the integration of variable renewables and reducing reliance on fossil fuels during peak periods, demand flexibility can lower the carbon intensity of the power system by shifting consumption away from peak hours, when emissions are generally higher, sometimes by as much as 70% compared to off-peak times

Barriers and solutions

Despite clear benefits, the IEA notes that demand flexibility isn’t yet widespread because of:

• weak incentives or regulatory frameworks favouring new generation over smarter demand management
• investment hurdles in digital infrastructure, cybersecurity and enabling technologies
• awareness and access gaps, where some consumers or regions lag in access to tools that enable flexibility

The IEA emphasises a fundamental shift in how energy systems should be managed, arguing that demand flexibility must be valued alongside energy supply across all aspects of planning, markets, and regulation. This represents a departure from traditional approaches that have historically focused almost exclusively on the supply side of the electricity equation, treating demand as largely fixed and inflexible. The IEA recognises that demand-side resources can provide comparable value to supply-side investments and therefore deserve equivalent consideration in policy frameworks and market structures. But achieving this requires integrating flexibility comprehensively into grid planning processes and market mechanisms.

This integration means that when system operators and planners assess future capacity needs and infrastructure investments, they must systematically evaluate demand flexibility options alongside conventional generation and transmission alternatives. Market mechanisms need to evolve to recognise and compensate flexibility services appropriately, ensuring that demand-side resources can compete on equal footing with supply-side options. This integration should extend throughout the planning horizon, from long-term infrastructure decisions to real-time operational markets, creating consistent recognition of flexibility’s value across all timeframes.

Creating clear price signals forms another essential pillar of this approach. Consumers and businesses need transparent, understandable economic incentives that reflect the actual value their flexibility provides to the system. The clarity and consistency of these signals directly influence how effectively consumers can respond and how much flexibility the system can ultimately unlock. Without well-designed price signals, the potential for demand flexibility remains largely untapped, as participants lack the information necessary to align their consumption with system needs.

Supporting the necessary digital infrastructure represents a critical enabler for realising demand flexibility at scale. Modern demand flexibility relies on digital technologies including smart meters, communication networks, control systems, and data platforms that enable real-time monitoring and response. Ensuring equitable access to these technologies prevents the emergence of a two-tiered system where only certain consumers or regions can participate in and benefit from flexibility programs. This requires deliberate investment in infrastructure deployment, particularly in underserved communities, and attention to ensuring that the benefits of digitalisation are broadly distributed rather than concentrated among early adopters or affluent participants.

Developing socially inclusive programs to ensure fairness completes the framework for effective demand flexibility deployment. Inclusive program design must address these equity concerns proactively, ensuring that low-income households, renters, small businesses, and other potentially vulnerable groups can participate meaningfully in flexibility initiatives. This includes removing barriers such as upfront technology costs, addressing split incentives between landlords and tenants, and designing programs that work for people with varying levels of technical sophistication or time availability.

Conclusion

Demand flexibility is not a niche idea but a critical enabler for modern electricity systems facing rising demand, deeper renewables integration and tighter cost and emissions goals. From households to grid operators, embracing flexible consumption can sharpen efficiency, enhance resilience, cut costs and accelerate the transition to a cleaner energy future.

At GridBeyond, we believe that the future of energy should empower businesses, communities, and the planet. We exist because a resilient, decarbonised, and economically sustainable energy system is only possible when every asset, from renewables to industrial load, plays its part. Our mission is to accelerate the transition to net zero by enabling organisations to unlock the full value of their energy and contribute meaningfully to a cleaner, smarter, more balanced grid. We achieve this by bridging the gap between energy assets and real-time markets.

Our technology turns latent flexibility into tangible value, orchestrating renewable generation, battery storage, EV infrastructure, and industrial processes into a unified ecosystem of controllable, optimised resources.

Through AI-driven forecasting, optimisation, and automated control, we help consumers seamlessly participate in energy markets: maximising revenues, reducing costs, improving operational efficiency, and supporting grid stability. Our consultative approach ensures clients not only adopt advanced technology but also fully understand and capture the opportunities within the evolving energy landscape.

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