It was an inspiring two days at the Delta-EE European Heat Summit in London last week when close to 100 delegates from across the heating sector were brought together in an exciting programme spanning start-ups to energy giants and topics as diverse as hydrogen networks, smart electric heating controls and heat-as-a-service.

With this year’s Summit, it seems to us at Delta-EE that we have reached a tipping point in the decarbonisation debate. Decarbonising new build across Europe is looking increasingly positive, and though retrofit remains the largest challenge, the Summit demonstrated that there is a wealth of technologies, business models and proposition ideas that – targeted at the right sectors – promise to overcome some of this challenge.

We are at a pivotal time for the heating market in Europe, as the transition from ‘old’ to ‘new’ heat gains traction.

The decarbonisation agenda is finally placing heat at its centre in many markets. The heating market is seeing more disruption than ever before, as new market players compete with the incumbents, new business models and propositions emerge, traditional routes to market are turned on their heads, and technology ecosystems evolve. 

Building on the success of previous events and bringing together key stakeholders in the European heating space, we are holding another Heat Summit this year. The event, taking place in London this September, will focus on several key themes emerging from the transition from ‘old heat’ to ‘new heat’. Read on to find out what we’ll be covering and register for this unmissable event.

Navigating the transition to ‘new heat’

Gas heat pumps struggle to gain traction in the market even though the technology is ready and proven (nearly 15,000 installed in Europe and 800,000 in Asia, for a wide range of applications).  In most European markets, installations number less than 1% of annual heating installations.  

Delta-ee has been investigating the potential opportunities for gas heat pumps in commercial buildings, as part of research for the UK Department of Energy and Climate Change.  We identify potential for at least an order of magnitude growth for gas heat pumps in the UK by 2020, with the best opportunities in sectors such as health care, restaurants, hotels and education.
 

Why are we positive?  Here are three reasons:

1. Gas heat pumps can already make economic sense against the incumbent and notoriously challenging-to-compete-with gas boiler.
2. Gas HPs represent off gas grid opportunities too (e.g. switching from oil boiler to LPG Gas HP).
3. Gas HPs have less impact on our aging electrical grid infrastructure and represent an opportunity to decarbonise without so much grid investment to support it. 

But there are significant barriers to overcome if this potential is to be unlocked.  Based on our research, the top five barriers to gas heat pumps being installed were:

1. Specifiers - arguably the most critical link in the supply chain to get gas heat pumps to market - are a block. “Why would we choose an unknown technology when we can more quickly design a boiler solution which we know works?” quote from specifier
2. Limited sales channels and routes to market for gas heat pumps create challenges for accessing the technology (especially in the UK)
3. Lack of awareness and/or in some cases poor perception of gas HP technology due to lack of information
4. Upfront cost of gas heat pumps relative to incumbent technology (i.e. gas boiler)
5. Policy - this does not currently set a framework which places Gas HPs on an even playing field

We believe that gas heat pumps should receive any incentive offered to other renewable technologies, including electric heat pumps, but that incentives alone are not the key to unlocking the market.  There is a role to play for gas heat pump suppliers and heating suppliers to drive this market themselves.  A focus on information dissemination throughout the value chain, developing the supply chain, and paying particular attention to specifiers will be a strong starting point to building a sustainable market.

Find out more about our previous work with DECC here. For more information on our in depth gas heat pump reports visit our Heat Pump Research Service web page.

I have just returned from the IEA Heat Pump Centre Conference in Montreal, Canada, where I was impressed by the extent of new heat pump R&D and development – some of which is indicative of a new generation of heat pumps which could be commercialised over the next few years. I also gave a presentation on developments in Europe regarding smart heat pumps and the value to the customer which you can access here.  

While the papers presented at the conference illustrated the global extent of advancement of heat pump technologies and markets, I noted clear evidence that Asia in particular is ahead of the curve in terms of driving HP R&D - especially Japan and Korea but with China emerging fast. Developments in these markets are being driven by strong government energy efficiency targets in response to security of supply concerns, spiralling demand and a need for energy conservation.

This is supporting a massive amount of support for heat pump R&D in Japan, China and South Korea in order to deliver ambitious targets regarding efficiency improvements - and in some cases cost reduction. Looking at the way Japanese companies have already significantly influenced the competitive landscape in the European heat pump market in the last few years, and from seeing the research presented at this Conference, it is difficult to see this trend changing – the difference now is that we see a much stronger presence from Korea and China than before. European (and other international) manufacturers should take note of this increasing competition!

Here are some of the topics picked up at the conference which we will be watching closely in future Heat Pump Research Service and wider work…

• Increasing heat pump system efficiency & cutting upfront cost: The Japanese Next Generation Heat Pump project (led by New Energy and Industrial Technology Development Organisation - NEDO), has already made steps in this direction in line with targets of 50% efficiency increase and 75% cost reduction by 2030.
• Pushing the boundaries of heat pumps into new applications in Japan: Another NEDO demonstration project is testing the use of new heat sources such as waste heat from sewage systems in urban areas.
• China playing Japan and Europe at their own game - advancing inverter technology, ground-source heat pumps and domestic hot water heat pumps. Technology in China is moving fast, and efficiencies will catch up. The emergence of Chinese DHW HPs we have discussed in a previous blog.
• The R&D emerging from South Korea is driven largely by its immediate challenge of keeping the lights on: It has already experienced electricity shortages due to the rapidly increasing peak demand and declining capacity reserve margin. Demand response – potentially with heat pumps – is identified as a key mechanism through which to reduce the scale of this challenge. Incidentally, South Korea has joined the UK (in work being carried out by Delta-ee) & others in IEA HPP Annex 42 to share learnings on the use of heat pumps for such load management applications.

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:

• 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).

What is a Smart Ready Heat Pump – And Why Are They Required?

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:

• 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.

Where’s The Money?

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……..