The quest for more flexibility in low-carbon power systems: Harnessing demand response in industry and district heating

Abstract

Staying within planetary boundaries requires a fundamental transformation of the energy system. This transformation involves a shift from a fossil-based, centralized system where supply follows demand, to a highly electrified, decentralized one. Electricity demand is increasing, driven by both direct consumption and the production of electricity-based fuels such as hydrogen. Wind and solar power generation is central to delivering low-carbon and affordable electricity. However, the intermittency of these resources introduces challenges in balancing supply and demand, increasing the need for system flexibility. Demand response—the adjustment of electricity consumption based on system conditions—offers one way of enhancing flexibility. Its potential depends on both user-level feasibility and its competitiveness with other flexibility options. This thesis explores the role of demand response from both electricity end-user and system perspectives, focusing on key processes of the EU energy transition: the provision of heat through district heating systems and the decarbonization of energy-intensive industries, with particular emphasis on the iron and steel sector. District heating systems, which can operate as both electricity consumers and producers, are especially suited for demand response as they can carry out coordinated operation of diverse heat generation technologies. European energy-intensive industries, traditionally optimized for steady operation, are increasingly exposed to volatile energy prices and future uncertainty. These factors strengthen the case for demand response, particularly when investing in capital-intensive, electricity-based technologies. Using a combination of process-level modeling and EU-wide power system analysis, this thesis assesses the technical and economic potential of demand response in these sectors. From the user perspective, demand response can deliver significant electricity cost savings, especially in regions with high shares of wind and solar generation. The greatest energy shifting potential is found in district heating systems equipped with thermal storage and in industrial processes with excess capacity and intermediate product storage. From a system perspective, demand response is found to reduce total system costs by decreasing the need for electricity storage and electrolyzer capacity. To enable broad deployment, demand response should be integrated into a merit-order framework that compares flexibility options based on system value. Well-functioning flexibility markets that translate system benefits into economic incentives can encourage wider participation from electricity users. Advancing demand response requires improved integrated modeling approaches, a better long-term electricity price forecast and coordinated strategies aligning electrification, renewable deployment, system flexibility and policy support.