Demand-side flexibility: the grid asset hiding in your customers' basements

tl;dr. Every heat pump, EV charger, and home battery in Europe is already a grid asset. Most of them are just not aggregated, not addressable, and not paid. Studies commissioned at EU level put the potential at over 160 GW of flexible power by 2030, several times what system operators are planning around, with household heating as the single largest source. The companies that crack the aggregation layer in the next three years will own a category that does not have a name yet. Here is what the asset actually looks like, where the revenue is, and why most attempts so far have been too narrow to scale.

The cheapest power plant in Europe is the one already plugged into your customers' walls.

That sentence sounds like a conference keynote, so let me make it concrete. A heat pump in a Polish single-family home draws somewhere between two and five kilowatts when running. It heats a building that holds warmth for hours, which means the heat pump does not care, within reason, exactly when it runs. An EV in the driveway needs maybe forty kilowatt hours overnight and does not care which hours. A home battery charges and discharges on command. Each of these devices can shift real electrical load in time without the household noticing. Multiply by hundreds of thousands of homes and you have something that behaves, from the grid's point of view, like a power plant that can ramp up and down on request. Except nobody built it, nobody operates it, and mostly, nobody pays it.

How big the asset actually is

The most comprehensive attempt to size this came from smartEn, the European industry association for demand-side flexibility, together with DNV. Their modelling puts the EU-wide potential at 164 GW of upward flexible power and 130 GW of downward by 2030. For scale, that is four to five times the flexibility capacity that ENTSO-E, the association of European system operators, was projecting in its own 2024 resource adequacy assessment. The system planners are, by their own numbers, planning around a fraction of what the demand side could provide.

The same study found that electrical heating in private households is the single largest source of this flexibility, ahead of smart EV charging. That ordering surprises people, because the public conversation is dominated by home batteries and V2G, but it follows directly from the physics. There are going to be far more heat pumps than home batteries, each one moves serious power, and the building it heats is a free thermal battery that came with the house.

The money side of the same modelling is just as striking. Full activation of this flexibility would save European consumers with flexible assets more than €71 billion a year directly, and the indirect benefits, lower wholesale prices, avoided generation capacity, reduced grid investment, run far higher. Distribution grids alone could avoid between €11 and €29 billion in annual investment. These are model numbers, with all the caveats model numbers deserve, but even if reality delivers a third of them, this is one of the largest unexploited assets in the European economy.

Three layers of revenue, unevenly accessible

So if the asset is this large and this valuable, where does the money actually flow to whoever aggregates it? There are three layers, and they are very differently accessible depending on the country you operate in.

The first and most accessible layer is retail tariff arbitrage. If your customers are on a dynamic tariff, every kilowatt hour you shift from an expensive hour to a cheap one is money saved, and the customer captures it directly on their bill. This requires no certification, no market access, and no permission from anyone. It is also the layer where the customer relationship gets built, because the savings are visible and attributable. This is where Pstryk operates today, and it is the right first layer for any consumer-facing company, because everything above it depends on having devices, trust, and control, and tariff arbitrage is how you earn all three.

The second layer is balancing and ancillary services, selling the fleet's flexibility to the transmission system operator as a certified balancing service provider. The revenue per kilowatt is higher here, but the entry bar is real: certification, telemetry requirements, minimum bid sizes, and operational obligations that a consumer product company has to grow into. I will write separately about how these markets work, because the terminology scares software people off a market that is more tractable than it looks.

The third layer is capacity and congestion services, getting paid for being available rather than for being used, including the local flavor where distribution operators pay for relief in specific constrained areas. This layer is the least developed across most of Europe and the most dependent on regulation catching up, but it is also where the long-term structural money sits, because grid congestion is getting worse faster than copper is going into the ground.

The strategic point is that these layers stack. A fleet built for tariff arbitrage can later be certified for balancing, and a balancing-certified fleet can bid into capacity mechanisms. The companies that fail in this space tend to attack layer two or three directly, without the consumer product and the device fleet that layer one builds, and then discover that an aggregator with no devices is a PowerPoint.

Why the heat pump beats the home battery

I want to defend the claim that the heat pump is structurally the better flexibility asset, because the marketing gravity all points the other way.

A home battery is the perfect flexibility asset on paper. Instant response, precise control, no comfort coupling. The problem is economics and count. Batteries are expensive, payback periods are long without subsidy, and the installed base will stay small relative to heating for years. A heat pump, by contrast, is bought for a reason that has nothing to do with flexibility, heating the house, and the flexibility comes along free. The asset acquires itself. The smartEn and DNV numbers reflect exactly this: household electrical heating tops their flexibility ranking because the fleet is going to be enormous.

The catch, and it is a real one, is that heat pump flexibility is coupled to comfort. Shift a battery and nobody notices. Shift a heat pump too aggressively and somebody's living room is cold, and you have burned trust that took months to build. This is why the control layer matters so much more than the market layer in practice. Anyone can write a bidding algorithm. Keeping ten thousand homes comfortable while their heat pumps dance to a price signal is the hard part, and it is the part that decides who wins.

The integration tax

The unglamorous reason this asset stays locked in basements is that the devices do not speak one language, and nobody wants to pay the integration tax.

A heat pump might expose SG-Ready, a decade-old two-relay interface that gives you four crude states. It might speak EEBus, the structured German standard with real data models and painful implementation. It might offer Modbus registers, documented or not. Or it might offer only the manufacturer's cloud API, with whatever rate limits, latency, and terms of service the manufacturer feels like this quarter. EV chargers are better, OCPP won, but the residential installed base is full of closed firmware. Home batteries are a zoo of proprietary protocols with a thin EEBus and Modbus layer on top of the serious brands.

Every protocol you add costs engineering time, certification effort, and a permanent maintenance burden, and every protocol you skip shrinks your addressable fleet. There is no clever way around this. The integration tax is the moat, which is exactly why it is worth paying. The aggregator with two hundred device integrations is not two times more valuable than the one with a hundred. It is more like four times, because fleet value compounds: a bigger addressable fleet wins more customers, which justifies more integrations, which widens the fleet again.

Why most attempts have been too narrow

The graveyard of demand-side flexibility companies has a pattern in it, and the pattern is narrowness.

Some were single-device plays, an EV-only aggregator or a battery-only VPP, which capped their fleet at the penetration rate of one device category and left the rest of the household's flexibility on the table. Some were market-layer plays, aggregation platforms with no consumer product, which meant they never owned the customer relationship or the device install moment, and ended up renting fleets from whoever did. And some were single-country plays in markets where regulation had not yet opened the second and third revenue layers, which left them grinding on tariff arbitrage margins alone while waiting for rules to change on someone else's schedule.

The shape that works, and the one the integrated players are converging on, is consumer product first, multi-device from early, market access earned over time. The tariff relationship brings the customer, the customer brings the devices, the devices bring the fleet, and the fleet, once large enough, pays for the certification lap that unlocks the higher-value layers. It is slower than pitching a VPP straight to the balancing market. It also actually works.

The next three years

The window that matters is roughly now through 2029, and three clocks are ticking in it.

The regulatory clock: EU market reforms keep pushing member states to open balancing and flexibility markets to aggregated distributed assets, and the late-adopter countries are being dragged along. The hardware clock: heat pump and EV adoption curves are steep enough that the addressable fleet in a market like Poland will be several times larger in 2029 than today, and whoever holds the customer relationships then will have acquired them now. And the incumbency clock: utilities can see all of this too, and the ones that move will buy rather than build, which is its own kind of outcome for the companies that built the fleets.

The asset in the basement is real, it is enormous, and it is still mostly unclaimed. The claim, when it happens, will not be made by whoever has the best bidding algorithm. It will be made by whoever the households trusted enough to hand over control.

If you are building in this space, whether on the consumer side, the device side, or the market side, this is the problem I spend most of my time on at Pstryk and with advisory clients. The conversation usually starts with which layer you are actually in, and whether your strategy matches it. Details on the consulting page.