Author: Benji Siem, IOSG Ventures

Thanks to Kai Siefert (@KaiSiefert) and Yiping for his feedback and help with this article!

Introduction

I began this research with a simple observation: the electricity system is being asked to do something it was never designed for. As renewable penetration accelerates, electrification expands, and AI-driven data center demand surges, the traditional model of building more generation and transmission to meet peak load is breaking down. Infrastructure timelines are too slow, interconnection queues are too long, and capital intensity is too high.

In this context, flexibility, defined as the ability to dynamically adjust demand and supply in real time, has shifted from a supporting function to a core pillar of grid reliability. What once relied primarily on large industrial loads and peaker plants is now evolving into a complex, multi-layered marketplace where distributed energy resources, software platforms, and aggregators coordinate millions of assets to balance the system. I believe we are at a structural inflection point.

The winners in this transition will not be those who control generation, but those who build the connective and orchestration layers that unlock flexibility at scale. Emerging crypto-native coordination models and token-based incentive systems may further accelerate this shift by enabling decentralized participation, transparent settlement, and global liquidity for flexibility services. As I explore throughout this paper, flexibility is no longer just a technical capability; it is an emerging economic infrastructure where revenue stacking across capacity, ancillary, demand response, and local markets is creating new value pools and reshaping how energy is traded, managed, and monetized.

Thesis

  1. The electricity flexibility market is at an inflection point. Rising renewable penetration, data center demand growth, and regulatory mandates are creating a structural supply-demand imbalance for grid flexibility services.
    1. The demand for electricity to power large AI and app developments rapidly exceeds the amount of available electricity in the grid to support it. This is driven by:
      1. Increase in global data centre electricity consumption, which is set to more than double to around 945 TWh by 2030. This is slightly more than Japan’s total electricity consumption today. AI is the most important driver of this growth, alongside growing demand for other digital services. Similarly, the lack of flexibility could also be a limiting factor for the growth of AI
  2. The electricity market requires operational efficiency and flexibility to mitigate risks, as infrastructure lags behind and construction is built. This increases the demand and necessity of these services.
    1. Electricity grids are already under strain in many places: it is estimated that unless these capacity risks are addressed, around 20% of planned data centre projects could be at risk of delays.
    2. Power generation projects in the US that are currently delayed because grid operators struggle with grid congestions (a queue of ~10,300). Thats 2,300 GW or or twice the entire existing generation capacity of the US.
  3. The middle layer of aggregation and connection infrastructure will be the biggest winners in the space, as it bridges essential infrastructure between supply (consumers with spare unused capacity) and demand (strained grid operators)
    1. Software-centric platforms that aggregate and optimize distributed energy resources (DERs) will capture disproportionate value as the market scales from ~$98.2 billion (2025) to approximately ~$293.6 billion (2034), expanding at a CAGR of 12.94% from 2025 to 2034.

Flexibility Market Overview

What is flexibility in energy markets?

In power systems, flexibility = the ability of the system to quickly adjust generation and/or demand in response to signals (price, grid congestion, frequency, etc.) to keep supply and demand balanced and avoid blackouts

Historically, this came almost entirely from flexible generators (gas peakers, hydro). As renewables and electrification scale, system operators now also buy flexibility from: