The Network Code on Demand Response

The need for more flexibility for the electricity system is becoming increasingly urgent as a growing share of renewable energy sources (RES) is integrated into the power system and more dispatchable generation is phased out. At the same time, the integration of decentralised resources, including on the demand side, still has a lot of untapped potential. Its integration into electricity markets, however, requires further improvements, as ACER’s report on unlocking flexibility for a clean, secure and competitive energy future has recently emphasised.

Flexibility on the demand side at all voltage levels is increasingly important to reduce peak demand but also to improve the efficiency of balancing and local services, such as congestion management and voltage control. Thereby, besides transmission system operators (TSOs), distribution system operators (DSOs) are required to become more active and coordinate on related processes. In this regard, the to-be-adopted Network Code on Demand Response (NC DR) aims to support the above objectives by providing an overarching EU-wide regulatory framework on distributed flexibility for the first time.

Key facts from the brief on Network Code on Demand Response

The EU Network Code on Demand Response (NC DR), as recommended by ACER for adoption in March 2025, would mark a significant regulatory update formalising the main principles and requirements around the integration of distributed energy resources, including generation, demand response and storage. For consistency, further network codes and guidelines were adjusted as well.

The proposed NC DR makes TSO-DSO coordination a regulatory requirement and an operational necessity. TSOs and DSOs are required to jointly define observability areas, exchange data, and ensure the activation and monitoring of distributed flexibility resources for both system-level and local services. This intended transition from voluntary coordination to mandated cooperation underscores the growing complexity and interdependence of the electricity system.

At the same time, DSOs take on an expanded strategic role within the energy system. They must prepare detailed Distribution Network Development Plans, assess local demand response capabilities, prequalify distributed resources for local services, and engage in real-time coordination with TSOs for congestion management. These responsibilities signal a fundamental evolution in the position of DSOs – from passive infrastructure operators to active system managers.

The proposed NC DR puts a strong focus on market-based procurement of local services such as congestion management and voltage control. While the regulation makes this the default approach, national derogations are still allowed. As a result, implementation will vary across Member States, introducing complexity for service providers operating in multiple countries. Still, standardisation efforts, e.g. in terms of service prequalification, are expected to improve procurement consistency and increase opportunities for participation.

The proposed NC DR introduces important innovations in asset operation and connection frameworks. In addition, it elevates flexible connection agreements by requiring system operators to treat them on par with firm connections when planning and activating local services. These provisions raise new questions around grid planning priorities and potential trade-offs between flexibility and infrastructure investment.

A major advancement under the proposed NC DR is the regulatory integration of aggregation models into the balancing and local service markets. Proposed amendments to the Electricity Balancing Guideline (EBGL) establish detailed requirements for such models, including how responsibilities are allocated between aggregators, balance responsible parties, and other market actors. The regulation also introduces mechanisms for financial transfers and optional compensation to manage imbalances and cost recovery in a harmonised way.

The proposed NC DR places a strong emphasis on transparency and data interoperability. System operators will be required to make relevant market and procurement information available via a single national access point. They must also develop transparent, technology-neutral baseline methodologies based on service providers’ input. While these provisions support innovation and new business models – especially for independent aggregators – they also impose significant implementation challenges and will require considerable effort in setting up the digital infrastructure, governance, and ensuring regulatory alignment.

Deep-dive further into the brief