The direction of travel is clear for European markets – demand side flexibility will be an essential requirement of the future energy system.
In some markets (e.g. Germany, France, Denmark), the first signs are there. In other markets (e.g. the UK), future penetration of renewables and increasing distribution network congestion will see increased requirements for flexibility – we see the demand side as well positioned to provide this flexibility. And drawing upon Delta-ee’s ongoing research in heat and distributed energy, one of our conclusions is that electric heating will be a key part - or even the key part - of this on-coming flexible demand revolution.
This view was backed up by
the research for our new report on Smart Heat Pumps (from the Delta-ee Heat Pump Research Service
). I also saw evidence of the growing recognition of the role of heat pumps during some of the interesting discussions at our Heat Pump Roundtable in Paris last week (a convergence of utilities, heat pump manufacturers and other industry players, which i'll tell you about in a later blog...).
We see a huge amount of activity using heat pumps - and electric heating - as a flexible demand resource. Examples include:
What is a Smart Ready Heat Pump – And Why Are They Required?
- There are a huge number of demonstration projects across Europe testing how much flexible demand can come from electric heating (including heat pumps), and how much value this can create for customers, utilities and others.
- There are many more “smart-ready” heat pumps on the market from manufacturers than 12 months ago (e.g. including from NIBE, IVT, Neura and several others);
- Some utilities have already launched smart electric heat offerings, or are testing business models (e.g. Fortum, EDF);
- A host of new players are finding business opportunities for themselves in the emerging smart market – for example HEMS companies (e.g. There Corporation), and independent aggregators (e.g. Voltalis).
We believe that value will be offered for flexible demand in the future. If heat pumps can exploit this value, and use it to create a better customer proposition, a part of this value will be shared with the customer. And it is when the value is shared with the customer, that the flexible demand revolution will really translate into sales growth for heat pumps.
We have identified three key characteristics which differentiate ‘smart-ready’ heat pumps from ordinary heat pumps. Our competitor analysis reveals that a very small number of manufacturers fully meet all of these criteria – though many are taking steps in this direction:
Where’s The Money?
- Connectivity: The ability to remotely monitor and control the operation of the heat pump is a minimum requirement for any smart heat pump.
- 2-way Communication: The heat pump should be able to accept dynamic signals from external sources (for example, weather forecasts, variable price signals, direct control requests)
- Sophisticated Control Algorithms: The control system should be able to optimise performance through proactively preparing to meet demand AND providing flexibility.
In our latest research on smart heat pumps, we identify five key value sources for flexible demand. While it is difficult to exploit many of these value sources today, we see developments in market and regulatory structures which will ultimately open up more of these value streams:
- System operators paying for balancing services from flexible demand resources such as heat pumps
- Distribution Network Operators avoiding the costs of grid upgrades by shifting the operating times of e.g. heat pumps away from peak times
- Energy retailers creating value by shifting HP demand to periods with lower electricity costs
- Energy retailers minimising their imbalance costs by using smart heat pumps to reduce the errors between actual demand and expected demand.
- End customers benefiting through e.g. time of use tariffs enabling running cost savings, or even eventually ‘heat pump for free’ business models.
The way in which value is shared across the different stakeholders in the electricity value chain – and critically how much is shared with the customer - will determine the size and exact timing of the flexible demand opportunity.
In my next blog on this topic I’ll be looking at some of the learnings from selected demonstration projects testing the use of heat pumps as flexible demand……..