What is the potential of demand response for security of supply?

A growing share of renewable energy sources, such as wind and solar power, bring greater volatility in energy generation. Combined with the electrification of the Dutch society – replacing fossil-fueled machines for electric alternatives – the energy system will in the near future, struggle to meet electricity demand during certain peak periods. Magnus Energy was commissioned by the Dutch Ministry of Climate and Green Growth to explore the role and the potential of demand response in supporting security of supply.  

Today, February 4, the Ministry of Climate and Green Growth shared the findings with the Dutch parliament.    

What is demand response?  

Demand response is the intentional adjustment of electricity consumption by users in response to external signals, such as price changes or system-wide alerts. The more consumers are exposed to price peaks – for example because wholesale prices are passed through directly, or because energy costs make up a large share of their budget – the stronger their response is likely to be. Another key factor is the extent to which consumer are able (and willing) to adjust their behaviour, for instance when companies can easily alter operations, possibly in an automated way.  

A relatively cheap and sustainable solution  

During moments of scarcity, demand response can be an effective tool to balance electricity demand and supply. Compared to alternatives, such as flexible thermal generation (e.g. gas-fired power plants), energy storage (e.g. batteries), or interconnection (import & export of electricity), demand response is relatively inexpensive. It also avoids extra CO2 emissions.  

Figure 1. Types of flexibility and their security, affordability, and sustainability

This provides a strong rationale for further exploring the potential of demand response.

About the research 

The research draws on previous studies, European and Dutch regulations, and 26 interviews with market participants, trade associations, and policymakers. The findings were validated by a panel of experts representing the six sectors with the highest energy consumption in the Netherlands. The study explores the potential for demand response, the current level of activity, and the barriers preventing its full deployment. It also outlines potential policy solutions to strengthen the use of this instrument.

The potential of demand response varies significantly per sector 

Zooming in on individual sectors reveals major differences in demand‑response potential and current uptake.

Households (19% of consumption) Price sensitivity and flexibility are gradually increasing. The number of households with electric vehicles (EVs) and home batteries is rising, expanding the potential for demand response.

Manufacturing (30% of consumption). Energy‑intensive manufacturing has high technical potential but relatively limited practical uptake. Processes are generally designed for stability, safety and continuity rather than responsiveness to price signals. Investments in enabling technologies – such as on‑site batteries or generation – are costly. In many organisations, energy management is separated from daily operations, meaning those who could adjust energy demand often lack the incentives or expertise to act. 

Data centers (5% of consumption). This sector prioritises service continuity, resulting in a constant demand profile. Demand‑response potential is therefore very limited.  

Mobility (3% of conumption). There is significant theoretical potential due to increasing EV adoption and smart‑charging solutions (optimised timing, vehicle‑to‑grid). However, users prioritise transparency of costs and reliable charging availability, which constrains the practical potential.

Greenhouses (6% of consumption). Greenhouses are already highly responsive to price signals, as energy makes up a substantial part of operating costs. Energy management practices are well developed. Additional potential exists in lighting (e.g. smart LED systems), though this is constrained by technical requirements linked to crop cultivation.

SMEs and non-residential buildings (30% of consumption). This is a diverse group with highly variable potential. For non‑residential buildings such as hospitals, schools, and public institutions, there is considerable untapped potential in the use of combined heat and power (CHP) installations.

Common opportunities and barriers 

Beyond sector‑specific issues, more general opportunities and barriers relate to policy, regulation, contract structures, market design, technical factors, economic conditions, and behavioural aspects.

Examples include:

• the new Dutch Energiewet, which enables new business models for demand response and standardises data exchange;
• technical opportunities from automation;
• physical limitations of switching or scaling down specific assets or processes.

The research outlines potential policy interventions to help unlock this potential.

A significant piece of the energy puzzle 

Demand response has the potential to become a crucial pillar of security of supply in the future energy system. Realising this potential will depend on how effectively barriers are removed and how well policies are implemented at both Dutch and European level.

The Ministry of Climate and Green Growth presented the full report to the Dutch Parliament today.

Download the report (in Dutch) here.