Demand Side Response Aggregator (DSR Aggregator)
Demand Side Response Aggregator (DSR Aggregator) is a third party company specializing in electricity demand side participation.
In practice, DSR Aggregator contracts with the individual demand sites (industrial, commercial or residential consumers) and aggregate them together to operate as a single DSR provider to:
- Balance Responsible Party (BRP) or to
The individual demand sites can use a combination of increasing on-site generation and/or process shutdown or reduction to deliver the active power demand reduction service. The DSR Aggregator receives a percentage of the value created by the avoided consumption to reduce peak demands, balance intermittent generation, provide a balancing service or increase security of supply.
There are multiple references to DSR Aggregators in the European energy market legislation.
Pursuant to Article 2(19) of the Network Code on Demand Connection (DCC) demand aggregation represents a set of demand facilities or closed distribution systems which can operate as a single facility or closed distribution system for the purposes of offering one or more demand response services. In turn, Article 2(45) of the Energy Efficiency Directive (EED) defines an aggregator as a demand service provider that combines multiple short-duration consumer loads for sale or auction in organised energy markets.
Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU in Article 2 (18) and (19) defines ‘aggregation’ and 'independent aggregator’ as, respectively:
- a function performed by a natural or legal person who combines multiple customer loads or generated electricity for sale, purchase or auction in any electricity market;
- a market participant engaged in aggregation who is not affiliated to the customer's supplier.
Proposal for a Directive of the European Parliament and of the Council on the internal market for electricity (recast) on common rules for the internal market in electricity (recast), 30.11.2016, COM(2016) 864 final 2016/0380 (COD)
Contract with an aggregator
1. Member States shall ensure that, where a final customer wishes to conclude a contract with an aggregator, such engagement shall not require the consent of the final customer's supplier.
2. Member States shall ensure that a final customer wishing to terminate the contract with an aggregator, while respecting contractual conditions, is entitled to such termination within three weeks.
3. Member States shall ensure that final customers terminating a fixed term contract with an aggregator before its maturity are not charged any termination fee that exceeds the direct economic loss to the aggregator, including the cost of any bundled
investments or services already provided to the final customer as part of the contract.
4. Member States shall ensure that final customers are entitled to receive all relevant demand response data or data on supplied and sold electricity at least once per year.
5. Member States shall ensure that the rights referred to in paragraphs 1, 2, 3 and 4 are granted to final customers in a non-discriminatory manner as regards cost, effort or time.
1. Member States shall ensure that national regulatory authorities encourage final customers, including those offering demand response through aggregators, to participate alongside generators in a non-discriminatory manner in all organised markets.
2. Member States shall ensure that transmission system operators and distribution system operators when procuring ancillary services, treat demand response providers, including independent aggregators, in a non-discriminatory manner, on the basis of their technical capabilities.
3. Member States shall ensure that their regulatory framework encourages the participation of aggregators in the retail market and that it contains at least the following elements:
(a) the right for each aggregator to enter the market without consent from other market participants;
(b) transparent rules clearly assigning roles and responsibilities to all market participants;
(c) transparent rules and procedures for data exchange between market participants that ensure easy access to data on equal and non-discriminatory terms while fully protecting commercial data;
(d) aggregators shall not be required to pay compensation to suppliers or generators;
(e) a conflict resolution mechanism between market participants.
4. In order to ensure that balancing costs and benefits induced by aggregators are fairly assigned to market participants, Member States may exceptionally allow compensation payments between aggregators and balance responsible parties. Such compensation payments must be limited to situations where one market participant induces imbalances to another market participant resulting in a financial cost.
Such exceptional compensation payments shall be subject to approval by the national regulatory authorities and monitored by the Agency.
5. Member States shall ensure access to and foster participation of demand response, including through independent aggregators in all organised markets. Member States shall ensure that national regulatory authorities or, where their national legal system so requires, transmission system operators and distribution system operators in close cooperation with demand service providers and final customers define technical modalities for participation of demand response in these markets on the basis of the technical requirements of these markets and the capabilities of demand response. Such specifications shall include the participation of aggregators.
According to Article 2(14) of the Proposal for a Directive of the European Parliament and of the Council on the internal market for electricity (recast) on common rules for the internal market in electricity, being part of the European Commission's Winter Energy Package of 30 November 2016:
- aggregators must not be required to pay compensation to suppliers or generators (Article 17(3)(d)),
- in order to ensure that balancing costs and benefits induced by aggregators are fairly assigned to market participants, compensation payments between aggregators and balance responsible parties may be exceptionally allowed by the EU Member States (Article 17(4)).
Such compensation payments must, however, be limited to situations where "one market participant induces imbalances to another market participant resulting in a financial cost". Such exceptional compensation payments must also be subject to approval of the national regulatory authorities and be monitored by the ACER.
The said Proposal of 30 November 2016 also identifies an 'independent aggregator', which has been defined as "an aggregator that is not affiliated to a supplier or any other market participant" (Article 2(15)). The above rules proposed by the European Commission in Articles 17(3)(d) and 17(4) have been, however, questioned by the EFET, EURELECTRIC and Europex, which in the document "Ensuring a level-playing field in the development of Demand Response, Reaction of EFET, EURELECTRIC and Europex to the Clean Energy Package" of 16 May 2017 (p. 3, 4) argue that exempting aggregators from paying suppliers or generators for energy sourced but not consumed (art. 17(3(d) is unjustified.
"When an ‘independent DR aggregator’ sells energy on the market, this energy has been sourced by supplier of the involved consumers. This energy is not consumed by the activated customer; this then results in freeing up of energy that is implicitly diverted by the independent DR aggregator and potentially consumed elsewhere in the system. We support the idea that there should not be undue compensations imposed on ‘independent DR aggregators’ beyond the costs of the sourced energy. However, a fair market based remuneration of this sourced energy - by which the ‘independent DR aggregator’ pays the supplier for its sourcing costs - should be required instead of being explicitly excluded. Omitting this adds distortions to free price formation and risks undermining the overall efficiency of the market. As stated in the EC own impact assessment “the exclusion of any compensation mechanism introduces a possibility of demand aggregators being free riders in the markets and therefore creating inefficiencies. This is not in line with the EU target model and generally not in line with creating a level playing field for competition.“ If this issue is not tackled, other participants in the market will bear the costs of DR activation, with a risk of seeing end-consumer bills increase," the organisations said.
The aforementioned organisations also opposed the proposal for the exemption of DSR Aggregators from market disciplines regarding imbalance settlement (as foreseen by Article 17(4) of the Proposal for a Directive). In that regard the organisations point that: "the current market model is based on the central principle of balance responsibility, an obligation for anyone connected to the grid to respect its schedules or to be exposed to the financial consequences for deviating from them. This principle would be violated if one category of market participants were exempted from being charged by the TSO the cost of its energy imbalances. The activity of ‘independent DR aggregators’ should not induce distortions for BRPs, which can for instance be ensured if an imbalance adjustment is applied on impacted BRPs. Also policy makers should beware that creating an enabling framework where specific businesses are immune from balancing responsibility could incentivise the opportunistic establishment of DR activities only according to the requirements of the CEP (explicit DR through an independent aggregator) to the detriment of other DR approaches such as implicit DR or explicit DR in one’s own name. Such a development would, as long as the standard discipline of the market would not apply to independent DR aggregators, lead to an ever-increasing share of the overall consumption that would not be subject to balance responsibility in the planning stage. This would have negative economic repercussions among market participants in the wholesale/retail markets and lead to larger real-time imbalances in the power system as schedules provided to the TSOs would lose precision. For all these reasons, and as a fundamental rule, ‘independent DR aggregators’ should thus be financially responsible for their own imbalances."
EFET, EURELECTRIC and Europex in the said document of 16 May 2017 made, finally, an interesting observation that demand response aggregation is only at a nascent stage in many EU Member States, because in several European markets, current electricity prices provide limited incentive for consumers to participate in demand response programmes as the energy component represents on average only 25 to 35% of retail consumers’ bill, which in many Member States is heavily burdened with increasing taxes and levies. European Energy Regulators ACER and CEER recognise the benefits of introducing independent aggregation and propose that the EU Member States enable independent aggregation, "unless a national implementation assessment suggests an alternative that better serves system efficiency and can be implemented effectively" (ACER and CEER document of 22 May 2017: "European Energy Regulators’ White Paper # 3, Facilitating flexibility, Relevant to European Commission’s Clean Energy Proposals", p. 1, 2). Such an assessment might be supported by an analysis of the state of competition in the EU Member States retail markets. This reflects a focus on the facilitation of aggregation (the activity), rather than aggregator type (the agent).
According to the said ACER and CEER document of 22 May 2017, in implementing models of independent aggregation, the EU Member States should ensure that:
- market access by independent aggregators is not foreclosed by suppliers to the detriment of consumers,
- arrangements provide for payments for resold energy (‘compensation’). This payment for resold energy could be facilitated through a central financial settlement or be based on contractual relationships between the customers and suppliers, but would not require any contractual relationship between the supplier and the independent aggregator.
In turn, the European Parliament’s Committee on Industry, Research and Energy (ITRE) in its Report of 27 February 2018 proposed the aforementioned European Commission’s Proposal of 30 November 2016 should be supplemented with the provisions that:
- aggregators must fully inform customers of the terms and conditions of the contracts offered to them,
- suppliers must not discriminate between customers on the basis of whether they have a contract with an aggregator.
Moreover, while according to the European Commission’s text a final customer wishing to terminate the contract with an aggregator was entitled to such termination within three weeks (while respecting contractual conditions), the ITRE proposed instead that a final customer wishing to terminate the contract with an aggregator may do so in accordance with the rules for the supplier switching (with the burden of proof of the direct economic loss on the aggregator).
Another discrepancy between the European Commission and the ITRE Committee pertains to the final customers’ right to all relevant demand response data or data on supplied and sold electricity. According to the European Commission final customers should have such a right at least once per year while the ITRE proposed to increase this frequency to at least once per month. Moreover, ITRE considers that, additionally, settlement data should be available to final customers upon request. The ITRE’s version also contains an explicit provision that final customers should’t be charged any additional fees for the said data.
After this extensive regulatory debate the final text of the Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity established the contentious provisions in the wording as in the box below.
Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU
(18) ‘aggregation’ means a function performed by a natural or legal person who combines multiple customer loads or generated electricity for sale, purchase or auction in any electricity market
(19) ‘independent aggregator’ means a market participant engaged in aggregation who is not affiliated to the customer's supplier
1.Member States shall ensure that all customers are free to purchase and sell electricity services, including aggregation, other than supply, independently from their electricity supply contract and from an electricity undertaking of their choice.
2.Member States shall ensure that, where a final customer wishes to conclude an aggregation contract, the final customer is entitled to do so without the consent of the final customer's electricity undertakings. Member States shall ensure that market participants engaged in aggregation fully inform customers of the terms and conditions of the contracts that they offer to them.
3.Member States shall ensure that final customers are entitled to receive all relevant demand response data or data on supplied and sold electricity free of charge at least once every billing period if requested by the customer.
4.Member States shall ensure that the rights referred to in paragraphs 2 and 3 are granted to final customers in a non-discriminatory manner as regards cost, effort or time. In particular, Member States shall ensure that customers are not subject to discriminatory technical and administrative requirements, procedures or charges by their supplier on the basis of whether they have a contract with a market participant engaged in aggregation.
Demand response through aggregation
1.Member States shall allow and foster participation of demand response through aggregation. Member States shall allow final customers, including those offering demand response through aggregation, to participate alongside producers in a non-discriminatory manner in all electricity markets.
2.Member States shall ensure that transmission system operators and distribution system operators, when procuring ancillary services, treat market participants engaged in the aggregation of demand response in a non-discriminatory manner alongside producers on the basis of their technical capabilities.
3.Member States shall ensure that their relevant regulatory framework contains at least the following elements:
(a) the right for each market participant engaged in aggregation, including independent aggregators, to enter electricity markets without the consent of other market participants;
(b) non-discriminatory and transparent rules that clearly assign roles and responsibilities to all electricity undertakings and customers;
(c) non-discriminatory and transparent rules and procedures for the exchange of data between market participants engaged in aggregation and other electricity undertakings that ensure easy access to data on equal and non-discriminatory terms while fully protecting commercially sensitive information and customers' personal data;
(d) an obligation on market participants engaged in aggregation to be financially responsible for the imbalances that they cause in the electricity system; to that extent they shall be balance responsible parties or shall delegate their balancing responsibility in accordance with Article 5 of Regulation (EU) 2019/943;
(e) provision for final customers who have a contract with independent aggregators not to be subject to undue payments, penalties or other undue contractual restrictions by their suppliers;
(f) a conflict resolution mechanism between market participants engaged in aggregation and other market participants, including responsibility for imbalances.
4.Member States may require electricity undertakings or participating final customers to pay financial compensation to other market participants or to the market participants' balance responsible parties, if those market participants or balance responsible parties are directly affected by demand response activation. Such financial compensation shall not create a barrier to market entry for market participants engaged in aggregation or a barrier to flexibility. In such cases, the financial compensation shall be strictly limited to covering the resulting costs incurred by the suppliers of participating customers or the suppliers' balance responsible parties during the activation of demand response. The method for calculating compensation may take account of the benefits brought about by the independent aggregators to other market participants and, where it does so, the aggregators or participating customers may be required to contribute to such compensation but only where and to the extent that the benefits to all suppliers, customers and their balance responsible parties do not exceed the direct costs incurred. The calculation method shall be subject to approval by the regulatory authority or by another competent national authority.
5.Member States shall ensure that regulatory authorities or, where their national legal system so requires, transmission system operators and distribution system operators, acting in close cooperation with market participants and final customers, establish the technical requirements for participation of demand response in all electricity markets on the basis of the technical characteristics of those markets and the capabilities of demand response. Such requirements shall cover participation involving aggregated loads.
Title V of Commission Regulation (EU) 2017/2195 (EBGL) stipulates that when it comes to electricity balancing for demand response aggregators the allocated volume consists of the volume of energy physically activated by the participating customers' load, based on a defined measurement and baseline methodology (the rule referred to in Recital 15 of Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity).
DCC Article 34(2) and (3)
2. Where the requirements of this Regulation are applicable to demand units used by a demand facility or a closed distribution system to provide demand response services to relevant system operators and relevant TSOs, the demand facility owner or the CDSO may totally or partially delegate to third parties tasks such as communicating with the relevant system operator or relevant TSO and gathering the documentation from the demand facility owner, the DSO or the CDSO evidencing compliance.
Third parties shall be treated as single users with the right to compile relevant documentation and demonstrate compliance of their aggregated demand facilities or aggregated closed distribution systems with the provisions of this Regulation. Demand facilities and closed distribution systems providing demand response services to relevant system operators and relevant TSOs may act collectively through third parties.
3. Where obligations are fulfilled through third parties, third parties shall only be required to inform the relevant system operator of changes to the total services being offered, taking account of location specific services.
DCC Article 35(1)
The relevant system operator shall assess the compliance of a transmission-connected demand facility, a transmission-connected distribution facility, a distribution system, or a demand unit, with the requirements of this Regulation throughout the lifetime of the transmission-connected demand facility, the transmission-connected distribution facility, the distribution system, or the demand unit. The demand facility owner, the DSO or the CDSO shall be informed of the outcome of this assessment.
The compliance of a demand unit used by a demand facility or a closed distribution system to provide demand response services to relevant TSOs, shall be jointly assessed by the relevant TSO and the relevant system operator, and if applicable in coordination with the third party involved in demand aggregation.