Millions of heat pumps, residential storage systems and electric vehicles can provide valuable flexibility to tomorrow’s power system. They can absorb wind and solar electricity to delay consumption, reducing the load on the local grid. Agora Energiewende (German Energy Transformation Initiative) examined which price signals could help to achieve this.
Heat pumps over gas heating, electric motors over internal combustion engines: Electricity makes up an increasing share of our energy supply. At the same time, we are becoming increasingly dependent on volatile energy sources, such as the sun and wind. Under these circumstances, a stable power system requires flexibility.
This does not just concern dispatchable power plants and shiftable loads in industry, such as refrigeration units or compressed air systems, but also many standard household appliances. According to a recent study conducted by Agora Energiewende entitled Utilizing Household Flexibility (“Haushaltsnahe Flexibilitäten nutzen”), e-cars, heat pumps and residential storage systems will be able to delay around ten percent of the required annual electricity demand by 2035. That’s up to 100 TWh!
This flexibility on the consumer side will save our economy around 4.8 billion euros by reducing the need for peak load power plants, substations, cables and large-scale storage systems. EV-chargers make up the largest share in flexible capacity by far.
Home Energy Management Systems (HEMS) are already control many of these flexible loads, but for now, they mainly optimize the consumption of self-generated solar power. But in order to respond to the electricity supply or the grid load, these systems need to receive an external price signal when consumption is cheapest, providing an incentive to shift it.
The Agora study looked at what such a pricing system could look like and what impact it would have. The Research Center for Energy Economics (FfE) has created a detailed simulation of how the different utility rate models would impact generation and electricity flow in the distribution grids.
The focus of the simulation on distribution grids revealed a surprising connection. Maintaining today’s rigid tariff structure for electricity and grid charges would result in the lowest costs for low voltage grid expansion by far. According to the study, the “lowFlex” scenario – in which flexible consumers are demand-driven – would “only” cost 7 billion euros.
However, if electricity tariffs were dynamic and driven by electricity exchange prices while grid charges remained constant or limited to a few set time windows, the cost of deployment would skyrocket to more than 17 billion euros. The reason is simple: The grid would need to be extremely strong to power millions of electric cars and heat pumps being turned as soon as the wind picks up and electricity prices fall. In this scenario, one in four local grid transformers would need to be retrofitted.
So what are flexible tariffs good for, then? The research team also ran simulations on flexible tariffs and found that if heat pumps and EV-chargers are not tied to electricity market prices, they will need a lot more flexible power plants and large-scale batteries. This would be many times more expensive than grid expansion. The Agora scenario showed that the bulk of the costs would be incurred by fueling power plants, rather than by investments. This shows that generation and consumption must be synchronized to keep the total cost of the power system affordable.
According to Agora, the cheapest overall scenario would be a combination of dynamic electricity tariffs and dynamic grid charges, which would create a combined price signal based on the electricity market situation and grid capacity utilization. With this kind of flexibility, “only” one in seven local grid transformers would need to be replaced by 2035. Dynamic grid charges could be introduced in the near future, the research team believes. Many prerequisites are already in place.
For example, grid operators will be required to establish capacity forecasts for their grids by 2029, which is needed for sensible dynamic controlling. Smart meters for dynamic tariff billing will also be introduced soon. Most flexible consumers are already equipped with, and can be controlled by, HEMS.
What’s more, optimizing the overall system could also bring down electricity prices for customers who don’t have an electric car or a heat pump – even though those flexible consumers will benefit more. In a system with dynamic electricity prices and dynamic grid charges, a four-person household with a flexible heat pump could save up to 600 euros. But this is just one scenario for 2035, which depends on various assumptions. After all, a lot of things in the energy transition have turned out differently than expected.