The flexibility provided by Demand Side Response (DSR) is indispensable for electricity systems with substantial variable energy resources to operate safely and ensure the delivery of reliable and affordable energy to consumers while pushing fossil fuels out of the mix. The UK's experience incentivizing demand side resources into energy markets can provide valuable examples of best practices that could be adopted by Hungary to overcome its own implementation challenges and make progress towards the wider goal of a decarbonized energy system. The main insights are the following:

• Transmission service operator (TSO) leadership and commitment to long-run regulatory certainty plus strong stakeholder collaboration are essential to bring demand-side resources to market. The key to the UK's success is not a sudden top-down push, but the result of a sustained, concerted effort by a wide range of actors.
• Initially, TSOs can encourage DSR to enter the ancillary services market by adjusting prequalification and tender rules based on “technology inclusive” principles and developing specific products tailored to their capabilities. Carefully adjusting the conditions for the provision of standard service can allow DSRs to compete on a level playing field with other flexibility providers in markets open to all market participants.
• The development of local flexibility markets can be greatly facilitated by the provision of a performance-based price regulation regime that encourages innovation by distribution system operators (DSOs). Removing the CAPEX bias is a powerful driver for DSOs to reduce network congestion by harnessing flexibility potential of network users.

This policy brief was prepared as part of the Knowledge Sharing Project between the United Kingdom and Hungary to Enhance Energy Security. It includes two on-line workshops organized by the British Embassy in Budapest and REKK. The second workshop focusing on flexibility, energy storage and demand side response was organized on 16 March, 2023.