Meaning frequency reserve or balancing markets, operated by Transmission system operators (TSOs). Sometimes also called ancillary (services) markets.
Generally, such reserves involve power plants and consumption assets, which either increase or decrease their electric power, as needed by the power system.
How do you mean, 'needed by the power system'?
Electricity production must be equal to electricity consumption at all times in the electricity grid, otherwise (network frequency starts to deviate and) various system failures can occur.
Traditionally, when there has been more demand, the response has been to fire up more power plants - to supply more electricity.
Needless to say, it costs a lot to build, maintain and operate (and eventually decommission) real power plants. And all that uses up natural resources, and often pollutes the environment.
What is demand response or demand-side management?
A newer, more intelligent approach (enabled via digitalization) is to control the demand, by managing various flexible energy assets like heaters, coolers, batteries, and so on.
That is, when there is more demand for electricity, respond by postponing some of the consumption. This will 'shave the demand peak' - without another real power plant!
So demand response (DR) is a change in the power consumption of an electricity customer, to better match the demand for power with the supply of power.
Really, without a power plant?
Yes. Smaller capacity smart energy assets can be pooled into one larger capacity energy asset - even as large as a power plant.
Such a totality of aggregated smart energy assets, which can be measured and controlled as a single unit, is called a virtual power plant (VPP).
Energy assets in a VPP can be intelligently operated so that wanted conditions are still maintained, such as room temperature or fridge temperature or wanted battery charging outcome.
Can I, as a private consumer, participate in demand response?
In a way you can, adjusting your consumption according to price information. For example, at its simplest, you could have night and day electricity priced separately, and a compatible water heater.
Or you could have a smart meter and an electricity exchange based contract, an app showing you hourly prices, plus a way of responding with your use of some energy assets.
There automation can help. It could be a system managing your assets, e.g. as a service by your energy company. Anyway, note that besides electricity exchanges, further DR related markets exist.
What are those DR related electricity markets?
A TSO's key goal is to keep the power system running. So they operate dedicated marketplaces for procuring needed frequency reserves (and they can buy and sell reserve power from/to abroad).
In Finland there are four separate reserve products - most of which have long-term (annual) and short-term (hourly) markets. (Besides Nordic, exchange related markets.) Fingrid is the Finnish TSO.
Similar concepts apply EU wide, and some of them almost globally. You can look at an introductory video or read more about reserves and balancing power on Fingrid's Website.
How can one make money in those markets?
Once you can control sufficiently large energy assets, and are capable of connecting to, and operating in, one or more of those reserve or balancing markets, you can make bids: 'I can stand by to consume so-and-so-much less (or more) electricity at that time, for this price.' Normally it is companies, not private consumers, that have this kind of capability.
If your bid is accepted in the marketplace, you get paid for being 'in reserve' at that time (and with that capacity). That is regardless of whether the need to consume is then activated or not, BTW.
Can you see that 'extra intelligence' may be useful for companies in figuring out, what capacity to bid, in which market, for which hours? 😉