Demand-side flexibility as a driver of greener electricity and more efficient grid use
Demand-side flexibility as a driver of greener electricity and more efficient grid use
Electrification is set to greatly boost electricity demand in the future. New applications such as heating systems, electric vehicle charging, and electrification in manufacturing are expected to more than double Denmark’s overall electricity consumption in the next decade.
The rollout of renewable energy helps decarbonisation efforts, but the electricity supply will become more weather-dependent and inflexible as a result. From 2018 to 2024, the number of hours with negative prices in Denmark has increased by 450%. This trend has continued in 2025, where we have already seen 200 hours of negative prices in May; it reflects an increasing mismatch between supply and demand and is hurting renewable energy producers. In other words, electricity is produced when users do not need it – and this drives down prices.
At the same time, the increased amount of electricity strains the electricity grid. Annual investment needs in the distribution and transmission grids are expected to rise from around DKK 7 billion to around DKK 18-20 billion per year over the coming decade.
What is demand-side flexibility and why it matters
Today, electricity demand is still relatively inflexible, meaning that a significant share of consumption varies systematically during the day, regardless of prices. For the consumer, the relevant price is the sum of the electricity price, taxes and tariffs. Tariffs reflect the costs of transporting electricity through the grid and can be used to signal grid capacity constraints[1]. A flexible demand responds and moves consumption to hours with lower costs, either when wholesale prices or tariffs are lower, and sometimes both.
Demand-side flexibility involves consumers shifting their electricity use to lower-priced hours, like charging electric cars in the evening or running appliances during off-peak times. This lowers costs, supports renewable energy, and can incentivise further renewable investments, although it may strain the grid if not managed properly. Flexibility can also be contract-based, where consumers agree to adjust or interrupt electricity consumption to prevent grid overload. This usually involves shifting use from high-load to low-load hours, requiring compensation since consumers cannot always use electricity when preferred.
In the future, new technology will increase demand-side flexibility, as batteries separate the time of electricity purchase from its final use and as digitalisation and automation lower the barriers for consumers to act on price signals.
Against this backdrop, Copenhagen Economics was asked by CIP Foundation to analyse the benefits of a more flexible electricity demand. Using our in-house power market model, we analysed three scenarios for electricity demand behaviour in 2035, ranging from no change in behaviour (‘business as usual’) to widespread use of automated and digitalised technologies connected to EV charging, heat pumps, and household batteries.
The main conclusions of our study are
Demand-side flexibility benefits both consumers and renewable energy producers. It reduces greenhouse gas emissions and postpones investments in electricity grids. The scale of these benefits is uncertain and will rely on technological progress as well as on behavioural changes from consumers, companies and grid operators.
Shifting consumption from peak hours when prices are high to off-peak hours when prices are lower carries significant benefits in electricity markets, because the cost of production varies widely across the day. If flexibility can be activated strategically to reduce peak demand in certain hours, investment in expanded capacity can be postponed.
We find that increased demand-side flexibility contributes with the following:
The study was commissioned by CIP Foundation and is available in Danish.
[1] Interruptibility contracts are another way to price electricity transportation through the grid in hours of low versus high pressure.
In brief
Greater flexibility in electricity consumption could deliver gains of up to DKK 1.6 billion a year for consumers and producers by 2035, and defer 7 to 12 per cent of grid investment over the coming decade.
DKK 0.6-1.6 bn.Combined annual gain for consumers and producers in 2035, depending on which of the three scenarios applies.
DKK 1.4 bn.How far Nordic productivity levels sit above the EU, broadly on a par with the US despite the slowdown in growth.
230,000 tonnesPotential annual reduction in Danish CO2 emissions, worth around DKK 0.2 billion a year in socioeconomic terms.
7-12%Share of grid investment that could be deferred over the coming decade, worth up to DKK 2.2 billion a year across 2026 to 2035, against a total investment need of DKK 19 billion.
DKK 5-8 bn.Fall in Nordic emissions since 1990, against 38 per cent in the EU and 30 per cent in the US.
Commissioned by CIP Fonden. Published May 2025. Projections to 2035, with grid savings modelled across 2026 to 2035. Denmark.
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About this analysis
Copenhagen Economics mapped the gains available to consumers, producers, the grid, and the climate in 2035 if smaller electricity users consume more flexibly across the hours of the day. The analysis covers households alongside commercial and small industrial users, taking in traditional household consumption, electric vehicles, heat pumps, and the direct electrification of production in smaller firms. Effects are quantified with CE’s power market model across three scenarios: Business as usual, in which 2035 resembles 2025; Fleksibelt forbrug, assuming some behavioural change and technological development; and Fuldt fleksibelt forbrug, assuming broad deployment of known technologies alongside automation and digitalisation. The work draws on public data from the Danish Energy Agency, interviews conducted for the project, and the literature on consumption flexibility, with input from CIP Fonden’s expert group and Advisory Board.
The analysis looks ten years ahead, and the authors state the results are therefore subject to uncertainty, resting on a long series of assumptions about the availability and uptake of flexibility technologies in 2035. It makes no recommendations on regulation or on how future markets for congestion and system services should be designed. Five areas are explicitly excluded: implications for capacity adequacy and knock-on effects on liquidity and pricing in the system services market; the consequences for system services of more decentralised production and behind-the-meter optimisation; the value consumers could capture by selling congestion and system services; the costs of investment in technology, systems, and markets across market participants; and the scale of the interaction between the electricity market and the wider economy.