With global electricity demand rising and set to add around 1 000 TWh each year until 2035, new ways of managing the balance between supply and demand are needed. Demand flexibility – the ability to adjust the timing or amount of electricity use in response to system needs – is central to help achieve this balance. Advances in digitalisation, including the growing use of AI tools, are further enhancing the ability to deploy flexibility effectively.

This policy brief, part of the 3DEN Initiative, presents a concise framework for understanding demand flexibility and its value across the energy system, highlighting that it can:

• Enhance power system efficiency. Flexibility and efficiency reinforce each other, as flexibility enables more efficient grid operation, while efficient buildings and smart equipment expand the scope for cost-effective demand shifting. By improving the use of existing generation and network assets, demand flexibility can raise system efficiency by up to 30% and deliver greater value.

• Strengthen energy security. Demand flexibility reinforces electricity security and system resilience by reducing peak demand and lowering reliance on fuel imports. Recent events in California, Western Australia, and France demonstrate this capability, where customers reacted quickly to support system operators, rapidly reducing consumption and helping avoid system crises such as blackouts.

• Enhance affordability. Shifting electricity consumption to lower-cost hours can offer financial benefits for consumers directly through smart tariffs. For instance, households can typically save 5-15% on electricity costs using dynamic tariffs. Meanwhile, it can also deliver capacity to the grid at a cost up to three times lower than building new capacity, helping keep electricity costs lower for everyone.

• Reduce emissions. By facilitating the integration of variable renewables and reducing reliance on fossil fuels during peak periods, demand flexibility can lower the carbon intensity of the power system by shifting consumption away from peak hours, when emissions are generally higher, sometimes by as much as 70% compared to off-peak times.

These benefits are increasingly important as energy systems evolve. Three trends are driving the need for increased demand flexibility:

• Rising electricity consumption and changing patterns are creating new peaks and straining power systems. Global electricity demand increased by more than 4% in 2024 and is set to continue rising as economies grow and sectors electrify. Peak demand is outpacing average demand in many regions. In Korea, for example, it has grown six times faster over the past decade, widening the gap between peak and off-peak periods. This trend increases grid stress and reduces system efficiency by driving up losses during peaks.

• Bottlenecks in the grid are creating system pressures and wasting opportunities to fully exploit new clean energy capacity. Grid constraints resulting from rising peak demand are increasing system costs, delaying industrial growth and limiting renewable connections. In 2024, grid congestion cost almost USD 8 billion in the United States and USD 4.5 billion in the European Union. Curtailment of surplus renewables reached over 10 TWh in the European Union in 2024, enough to power around three million homes for a year.

• Volatility in electricity markets is increasing costs and creating investment uncertainty. The growth in renewable capacity has lowered wholesale energy prices and improved sustainability, but operational complexity has increased certain costs. For instance, balancing costs have risen by up to eight times in some power markets in the last five years. Negative prices at times have been recorded in Australia, the United States and numerous European countries, creating revenue uncertainty for investors.

Despite demonstrated benefits, the uptake of demand flexibility remains constrained by interrelated barriers. While pilot projects have shown the value of demand flexibility, wider deployment is hindered by weak incentives and regulatory frameworks that continue to favour new infrastructure over smarter system operation. Realising its potential also often requires upfront and ongoing investment in enabling infrastructure, digital capabilities, and cybersecurity, with low digital readiness posing an additional challenge. At the same time, limited public awareness and unequal access to enabling technologies risk excluding some groups, undermining fairness and trust.

Targeted, socially inclusive policies can scale demand flexibility and unlock its full potential. When appropriately valued alongside supply, flexibility can become a cornerstone of secure and efficient power systems, supported by clear investment signals and regulatory and planning frameworks that integrate and remunerate enabling investments.