A new study conducted by Frost & Sullivan forecasts Europe’s demand response market to propel to $3.5 billion by 2025.
Factors including advances in ICT and availability of infrastructure to implement demand response programmes are expected to drive the market growth.
In addition, an increase in rollout of smart city and IoT-enabled technologies will accelerate adoption of demand response solutions in the residential segment.
Frost & Sullivan says demand response has the potential to help the European Union (EU) achieve close to 40% of its 2020 energy savings and carbon emission reduction targets.
The research firm predicts utilities and demand response aggregators will increase investments in innovative solutions and predictive tools to reduce energy generation costs, grid failures and outages during the forecasts period.
Swagath Navin Manohar, research analyst, energy & environment, said: "The rising installation of smart meters, influx of new energy service companies (ESCOs) and specifically technology-savvy start-ups are expected to play a huge role in impelling the $0.9 billion market toward $3.5 billion by 2025.
"As smart cities are mushrooming all over the region, DR systems with big data, predictive analytics, artificial intelligence (AI) and the Internet of Things (IoT) will inevitably attract greater interest from utilities, aggregators, and other software companies.
"Utilities, aggregators, software solution providers, data analytics firms, and communication vendors are expected to increasingly consolidate to offer best-in-class service to end users.
"Meanwhile, in emerging markets, investments in cost allocations and tariff structures will drive the commercialisation of DR programmes, even beyond 2020."
The residential, electric vehicles and data center application segments are expected to dominate the market. Combined, the three sectors are expected to witness market share increase from 5% in 2017 to 15% by 2025.
The study recommends solution providers target countries with a wide installed base of renewable energy systems (RES), high electricity prices, and favorable policies and regulations.
Other recommendations provided by the research firm include service providers considering:
- IoT-enabled building services: IoT-enabled DR is better aligned with the priorities of customers seeking smart energy solutions. Aggregators and utilities need to collaborate with IoT gateway providers to stay ahead of the competition.
- Data analytics and cloud: DR companies need to adopt transparent software platforms that allow the client to understand DR-enabled cost savings. Energy management software providers could incorporate machine learning algorithms to meet the dynamic requirements of energy management.
- Novel business models: With the energy market shifting to a decentralised structure due to the advent of IoT and RES, utilities need to embrace customer-centric models like flexible payment models, Software-as-a-Service(SaaS), and shared savings. Many utilities are positioning themselves as energy partners rather than electricity providers; notable examples include Actility in Belgium and E.ON and RWE in Germany.
On the other hand, lack of homogenous regulations and consumer awareness is hindering the market growth.