Incentivising demand-side flexibility with heat pumps – what are the benefits to residential consumers?
The transition from fossil fuels to renewable energy is driving a paradigm shift in the energy system. Instead of generation ramping up and down to meet demand, the system now needs a flexible demand-side which can respond to peaks and troughs in generation and alleviate grid congestion. Heat pumps are part of the solution and are technically capable of providing demand-side flexibility. However, regulatory and market challenges mean that the full value of flexibility from heat pumps is not being captured – especially in the residential market. This study presents a quantitative assessment of the (financial) value to residential consumers of flexible operation of heat pumps in selected European markets. It assesses the energy cost savings achievable from implicit flexibility (heat pump optimisation in response to variable tariffs) under different conditions, how sensitive the results are to changes in the market and regulatory environment, and how savings could be maximised. Results show that heat pump optimisation can provide significant running cost savings today, and savings could grow even more in future in line with the increasing volatility of electricity prices. However, this potential can only be fulfilled if market and regulatory barriers are removed: consumer price signals do not always incentivise flexible operation; tariffs to enable flexibility do not exist in many markets; and energy price structures such has high fixed fees limit the savings gained from HP optimisation. Ensuring this value is accessible to consumers not only benefits the energy system, but can also accelerate the decarbonisation of heat by strengthening the economic case for switching from fossil boilers to heat pumps. In markets where the case for switching to heat pumps remains marginal, the additional running cost savings through flexibility can make or break the HP proposition.