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Good COP/Bad COP: Balancing fabric efficiency, flow temperatures and heat pumps

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Heat pumps are widely recognised as the key technology to decarbonise building heat demand in Ireland. To receive grants for heat pumps, homeowners in Ireland are required to have a heat demand per unit of floor area, known as a ‘heat loss indicator’ (HLI), below a certain level. The HLI requirement was designed to protect households from high bills if they switched to a heat pump.  

There is a concern that the HLI is limiting heat pump deployment, thereby hindering Ireland’s goal of net zero in 2050. This review of the HLI policy and associated rules was undertaken alongside a discussion of heat pumping technologies and their operation, optimal performance and innovation. While there is still a major role for building fabric energy efficiency upgrades, innovation in heat pumping technologies means they may be able to more easily replace combustion-based technologies than has been previously assumed due to better performance and higher output temperatures.

To achieve more rapid and potentially smoother deployment of heat pumps, current HLI grant requirements should be reevaluated. Initially, the HLI requirements could be loosened, subject to relevant consumer advice and protections. In the longer term, a focus on flow temperatures and in-situ performance may be more appropriate. Building fabric efficiency requirements could be maintained but simplified. Finally, trials and programmes to evaluate heat pump performance in Irish buildings should be expanded and expedited in order to provide accurate and local data on this strategically important technology.

Five key actions for activating household demand-side flexibility

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Securing a clean, efficient and affordable power system is a complex undertaking in the best of times. The current energy crisis, however, has compounded the challenge with a cost-of-living crisis, the need to free Europe from its dependency on Russian fossil gas, and the ever-present spectre of climate change. A seemingly insurmountable task begs all available resources. One of the most powerful — and often undervalued — solutions is household demand-side flexibility.

Empowering and rewarding consumers who are able to shift how and when they use electricity is a vital power system resource. Demand-side flexibility contributes to a reliable and decarbonised power system while reducing costs, a critical outcome for low-income and disadvantaged households.

On 28 September, the Electrification Academy was pleased to welcome Sophie Yule-Bennett to unpack the insight and recommendations from RAP’s 2022 study The joy of flex: Embracing household demand-side flexibility as a power system resource for Europe. She explored:

  • The benefits of demand-side flexibility: sustainability, reliability, equity and affordability.
  • Barriers to flexibility as a resource.
  • Five key actions for activating household demand-side flexibility.

Metrics matter: Efficient renewable heating and cooling in the Renewable Energy Directive

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The Renewable Energy Directive (RED), designed to help meet the EU’s ambitious 2030 and 2050 climate targets, sets targets for growing renewables usage for heating and cooling in the building sector. As currently written, however, the RED encourages inefficient uses of renewables in buildings to meet these goals.

In this paper, we suggest reforms to the RED would ensure a more efficient and balanced approach to renewable heating and cooling in the EU. It shows that the RED’s metric for determining the contribution of renewable heating and cooling tends to favour less efficient technologies. The paper also discusses how the use of electricity for heating and cooling is not accounted for in the RED definition of renewable heating and cooling, nor in the methodology for the renewable contribution of heat pumps.

By adapting the definition of renewable heating and cooling and updating the definition of renewable heat from heat pumps, the RED can provide a more comprehensive overview of the status of decarbonising the sector. We recommend the following policy adjustments:

  • Amend Article 7 (3) of the RED to calculate the useful energy produced instead of fuels consumed to produce it.
  • Mandate Eurostat to develop a consistent method for counting the amount of (renewable) electricity used for different services including heating and cooling, both in general and from heat pumps. To avoid double counting, remove this electricity from the heating and cooling sector when calculating the headline renewable share.
  • Amend Annex VII of the RED to include the electricity used to drive heat pumps so that it accounts for the full contribution of heat pumps.

Revitalising EU-Ukraine cross-border infrastructure for a secure, clean energy future

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The Russian invasion of Ukraine is having a significant impact on the Ukrainian power sector. In recent years, the sector had started moving towards greater integration with the European Union and was making inroads into the shift to renewable energy sources.

The current situation is very challenging; not only is it slowing the nation’s energy transition, but it is also disrupting past achievements. Burgeoning renewable energy sources are being curtailed or shut down at unprecedented rates. This downturn results from the destructive effects of the war, coupled with inflexible generation sources.

One way to rectify this imbalance would be to maximise the current potential for interconnectivity between Ukraine and the EU. This, in turn, would allow the country to work towards three goals simultaneously. The increases in commercial energy flows can contribute to: increasing energy security, providing funds for continuing operation and reconstruction, and allowing for greater integration of renewables, thus achieving decarbonisation objectives faster.

While there are technical and legal requirements which must be fulfilled in order to expand Ukraine’s connectivity with the EU, decision-makers can maximise the value of the process by:

  • Implementing transparent, market-based instruments for cross-border capacity allocation.
  • Ensuring solutions benefit all customers and do not only serve individual vested interests.
  • Laying out a roadmap for long-term structural reform of the Ukrainian energy system. Ideally, it focuses on ensuring energy security and advancing European and Ukrainian decarbonisation goals.

The joy of flex: Embracing household demand-side flexibility as a power system resource for Europe

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To meet its 2050 climate goals, Europe will need to purge its power sector of carbon emissions by the mid-2030s. This means integrating renewable energy resources such as wind and solar at an unprecedented scale and pace. Only one path allows for rapid decarbonisation while maintaining a reliable energy system, minimising system costs and increasing energy democracy. We must ensure that customers have the incentives and tools they need to adjust the flexible portion of their electricity use in ways that are beneficial for the system.

Flexible resources are essential to balance supply and demand and make best use of renewable generation.

In addition to climate impacts, the most recent energy price crisis has underscored the urgent need to release Europe from gas dependency — and therefore from exposure to gas price volatility — by progressing swiftly to a clean, efficient and electrified energy system.

This paper focuses on the greatest untapped source of flexible demand across Europe: household flexibility. Households can increasingly shift how and when they use electricity, without compromising utility or comfort, thanks to new digital technologies and storage. Yet, as the users with the lowest individual electricity use, they often face the greatest barriers. If enabled effectively, through inclusive access to flexible assets, markets and retail offers, there is an opportunity to improve energy services and reduce costs, which is particularly important for low-income and vulnerable households.

For household demand-side flexibility to take its rightful place in the energy transition, swift and concurrent effort is needed on multiple levels of policy and regulation. Underpinning this process is the principle that demand-side flexibility is more than an individual customer right; it’s a vital, cost-effective power system resource that should be valued as such.

Europe needs a cohesive regulatory strategy to create the infrastructure that will enable large-scale, aggregated customer flexibility. As a starting point, this paper presents a five-point action plan for scaling up household flexibility in Europe, with specific recommendations for carrying out each action.

  • Action 1: Create robust tools for measuring and valuing customer flexibility.
  • Action 2: Incentivise flexibility through energy market price signals.
  • Action 3: Ensure a level playing field for demand-side resources.
  • Action 4: Accelerate installation of flexible assets in homes.
  • Action 5: Make flexible actions easy and safe for customers.

By investing now in strategies that wholeheartedly embrace household demand-side flexibility as a power system resource, Europe can avoid paying a much higher price later.

A Song in the Key of E: Emissions, Efficiency, Equity, and Electrification

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A lot of folks out there (including we at RAP) have, for the last four decades, been devising ways to make utilities more economically efficient, their customers more energy-efficient, and the power system cleaner, sustainable, more equitable, and non-emitting. But now they have a problem: the world has changed, and suddenly we need more of that thing that they for so long tried to constrain. Now that the time has finally come to make the leap that has to be made if our climate crisis is to be solved, we’re like the proverbial deer in the headlights — if only for a moment. The prospect of wild load growth in electric demand is a bit hard to swallow at first. It’s both frightening and, well, electrifying.

Efficiency has been the central theme of electric sector reform for nearly a half century. It is the recognition that meeting a society’s energy needs is not simply a matter of “more is better” but rather of “no more than is necessary (and it’d better be as environmentally benign as possible).” This insight meant that we should not use energy when it was cheaper and more valuable to save it. And it meant that the traditional business model of the monopoly electric utility had to change—that profitability could no longer be linked to growth in commodity sales but to the least-cost provision of energy service and achievement of express public policy objectives.

So what’s the problem?

Well, it turns out that we need more, lots more, of a particular kind of energy — electricity from non-emitting resources — if we’re going to decarbonize as much of the economy as we possibly can. We need clean electricity for transportation, heating and cooling, agriculture, and industry. Are the regulatory reforms that we’ve advanced in the past thirty-odd years — in particular, integrated resource planning, revenue decoupling, and systems of performance-based rewards and penalties — appropriate to a vision that calls for a great expansion in our use of electricity and therefore a sea change in how we produce and deliver it?

The answer is yes, and it shouldn’t surprise us. It follows directly from an approach to economic analysis and policy — aimed at maximizing the net societal benefits of energy use — that we’ve relied on for decades. Thirty years ago, given the costs, expectations, and constraints we faced, the analyses pointed us in certain directions. Today, given different costs, expanded expectations, and more urgent constraints, they point us in new directions. In both cases, they told us how to minimize the costs — that is, maximize the benefits — of our desired path.

At a conceptual level, the problem isn’t daunting. It’s time to truly look at the energy system in its entirety, not just the electric system. How do we minimize the total costs of energy production and use, while meeting our climate, economic, and social goals?

It’s simple. The least-cost path is characterized by massive fuel-switching — from fossil fuels to clean, emissions-free sources, primarily electricity. But it’s not that simple. It doesn’t relieve us of the duty to make sure those new loads are as efficient as possible and are managed as efficiently as possible — indeed, it insists upon it, since any waste only increases costs. It isn’t right simply to say “Electrify!” How we electrify matters.

The good news is that our planning tools and regulatory methods are up to the task. We know how to think about the problem, consider alternatives, test uncertain futures. We know how to change course when circumstances dictate. And we know that utilities and market actors respond to the forces that act upon them, which means that we should still care deeply about whether their private financial incentives align with the public interest. We want these players to be successful by doing the right things.

So what does this mean for the utility business model? For the “wires” sides of the business — transmission and distribution — in both vertically integrated and competitively restructured markets, there’s still every reason to remove the “throughput incentive.” Whether load is growing or not, a utility whose revenues and profits are a direct function of kilowatt-hour sales (that is, of kWh deliveries) has a very powerful incentive to encourage usage, even if that usage is inefficient. We shouldn’t think that, simply because the electricity is clean, we have license to be profligate. The recent decision of the Massachusetts Department of Public Utilities to scrap Eversource’s decoupling regime, on the grounds that good ol’ fashioned price-only regulation will encourage the company to promote electrification. Probably it will, but, alas, it won’t give the utility much, if any, reason to care whether the electrification is in the best interests of society.

Revenue decoupling remains a critical element of a regulatory regime that aims for least-cost investment in, and operation of, the grid. It keeps the regulated monopoly focused on efficient operations. But, by itself, it doesn’t guarantee utility enthusiasm for preferred outcomes. Legal and regulatory obligations go a long way to solving that problem, but there’s a place for carrots and sticks too. Performance measures, with achievement rewards and penalties, overlaid on a decoupling mechanism, are powerful drivers of policy objectives.

What about the commodity side of the business? Again, in both vertically integrated and restructured markets, investment has been and will continue to be propelled in significant measure by policy requirements, such as renewable portfolio standards and emissions reductions requirements (e.g., cap-and-invest programs). These have been effective in transforming our resource portfolios and, moreover, have helped drive deep cost reductions in clean energy technologies, so that now the relative costs begin to favor the preferred investments. Important wholesale market reforms are still needed, but the outlook is good.

In those places where utilities remain vertically integrated, the question of how power costs should be recovered is of acute interest, especially where price risk has been shifted to consumers by means of fuel adjustment clauses and power-cost pass-throughs. How these mechanisms, intended to insulate shareholders from the volatility of global energy prices, distort management imperatives to manage power costs and investment for the long-term good of both consumers and shareholders has been well understood for decades. It’s time to revisit these tools, to consider whether and how they can be reformed to better align private incentives with the public good. Utilities and other load-serving entities possess the comparative advantage for bearing price, climate, and other market risks. Some simple fixes to power-cost recovery mechanisms will go a long way to reordering those risks and creating the environment in which clean, reliable electricity flourishes.

By all means, let’s let utilities and other market actors make money providing the energy and energy services we want. And that includes where increased load is societally most efficient—which is to say, the least-cost means of meeting demand for reliable, equitable service and, among other things, our climate goals.

Stay tuned for more blogs in this series. We’ll dig into some of the knottier regulatory challenges that large growth in load raises and try to answer the question: “Just what does a regulatory scheme look like that promises to achieve these ends?”

The time is now: smart charging of electric vehicles (Webinar)

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European policymakers and car manufacturers are increasingly committing to the phaseout of internal combustion engine vehicles. With this shift to electric transport, tariffs and services for so-called smart charging of EVs bring significant value to consumers and the power sector. Now is the time to build a robust regulatory framework to expand the markets for these offerings consistently across the entire continent. 

On 25 May, the Electrification Academy welcomed Jaap Burger and Julia Hildermeier of the Regulatory Assistance Project (RAP) to share the findings of their study The time is now: smart charging of electric vehicles. The authors, who analysed 139 smart charging tariffs and services across Europe, shared: 

  • A brief overview of the benefits of smart charging for users and the power system. 
  • Innovative approaches and best practice examples of dedicated EV tariffs and services. 
  • Recommendations to accelerate the use of smart charging.

For an introduction to smart charging, check out our earlier Electrification Academy webinar with Frank Geerts and Michael Hogan, Smart charging puts the pedal to the metal on emobility. 

 

 

The time is now: smart charging of electric vehicles

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The transition to zero-emission mobility and a decarbonised energy system are best planned in tandem, and electric vehicles will play a key role in both shifts in the coming years. Automakers are already committing to phasing out internal combustion engine vehicles, making Europe’s transport future electric. EVs are more than a cleaner vehicle; they are a powerful resource for consumers and power sector actors. It is critical, therefore, to draw the most value from charging electric vehicles through so-called smart charging. Smart charging means charging a vehicle flexibly to lower costs for EV drivers and grid companies, to accommodate the integration of renewable energy sources and to minimise EVs’ collective impact on the power system.

Now is the perfect time to lay the groundwork for a robust regulatory framework that fosters a market for smart charging tariffs and services. By designing policy measures in a consistent manner across Europe, legislators can help ensure that the EV services market can prosper and capture the benefits smart charging offers. To this end, RAP analysed 139 tariffs and services available across Europe that specifically involve smart charging to highlight best practices and innovative approaches.

To ensure that all Europeans can charge smartly wherever they are on the continent, RAP recommends that policymakers:

  • Make smart charging the default everywhere.
  • Make public charging smart too.
  • Empower consumers to make informed choices.
  • Improve rewards for consumer flexibility.
  • Stack multiple services for smart charging to increase individual and system benefits.
  • Make local grids ‘smart charging ready.’

From laggard to leader: How Poland became Europe’s fastest-growing heat pump market

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With the war in Ukraine compelling everyone to rethink their energy strategies and focus on getting rid of Russian fossil fuel imports, while maintaining what is left from the affordability of energy supply, the go-to tactics are achieving several energy policy goals at the same time. The Polish heat pump sector seems to be doing just that.

It is showing the fastest growth rate for heat pumps in Europe in 2021 with an expansion of the market by 66% overall—more than 90,000 units installed reaching a total of more than 330,000 units. Per capita, more heat pumps were installed last year than in other key emerging heat pump markets, such as Germany and the United Kingdom.

But this has not always been the case. For years Poland prided itself on being one of the most energy independent countries in Europe. Its coal mining sector and coal-fueled power plants provided carbon-intensive, but domestic, energy—both for heating and electricity.

Coal Dependent

Even now, with the recent growth of renewables making quite a dent in Polish coal reliance, the share of coal in electricity production and district heating is around 70%. In individual home heating, it is around 48%. Poles consume as much as 87% of the coal burned by all EU households in their homes for heating. The heating sector is responsible for nearly a quarter of CO2 emissions in Poland.

This reliance, however, has been proving less and less sustainable for a number of reasons — especially in the individual heating sector. First of all, the energy independence narrative no longer holds. Polish coal mines are notoriously labour-inefficient, but a bigger problem is that they become less and less economical to run for sheer geological reasons. The average depth of extraction is now close to 800 metres below ground, which brings immense cost—both economical and human.

Time has seen a steady decline in coal mining output, especially for the coal sorts used by individual boilers are in shorter supply. This has been replaced by imported coal mainly from Russia. Poland is currently buying €0.5-1 billion worth of Russian coal each year to heat its houses.

Even if we put aside the acute air quality problems that burning coal in old individual coal furnaces brings—which we should not as the list of 20 most polluted cities in Europe constantly features at least 10 Polish cities—this should be enough in the current circumstances to warrant a huge public policy shift directed at eliminating coal from individual heating altogether.

The preferable way of doing so would be a massive deployment of heat pumps and energy efficiency programmes whilst continuing to utilise more renewables for electricity generation at the same time. This would check the boxes for so many policy objectives, including increasing energy security, reducing carbon emissions and lowering long-term heating costs.

Long-Term Planning

Given Poland’s reliance on coal for heating, how did the Polish heat pump market achieve such remarkable growth? All signs point towards government policy. Through the ten-year Clean Air Programme that started in 2018, Poland will provide close to €25 billion for replacing old coal heating systems with cleaner alternatives and improve energy efficiency.

In addition to providing subsidies, many regions in Poland have begun to phase out the coal heating systems through regulation. Prior to those bans, heat pump installations rates were modest with limited growth over the years. This shows that policy can make a big difference in steering the market towards clean heating away from polluting fossil fuel heating systems.

Trust Building

The recent success is also a showcase of efficient market development by the heat pump industry association, PORT PC. Building customer and installer trust by developing and introducing industry guidelines, quality standards and certification, as well as conducting extensive training programmes, is now bearing fruit.

Further growth in the heat pump sector in Poland is expected and will need to take place in order to further replace coal heating. This can be achieved by implementing changes to the Clean Air Programme and other similar programmes designed to improve the efficiency of homes and heating systems, like the current tax breaks for investment in buildings insulation as well as the STOP SMOG programme designed to help local governments give targeted support to the poorest households.

Also, the recently announced new programme “My Heat” financed from the sale of EU ETS allowances through the Modernisation Fund and fully directed towards heat pumps, will provide additional sources of funding and hopefully build even more awareness among consumers.

Whilst the Clean Air Programme has so far promoted mostly gas boilers (over 40% of the total), the war in Ukraine has shown that natural gas will be a scarce and costly resource and should be used wisely. Heat electrification, rather than gasification, is surely the way to go.

Challenges Remain

Three challenges remain to be tackled for continued success. Firstly, for heat pumps to be most beneficial in terms of climate protection, electricity generation should continue on the pathway towards (quicker) decarbonisation.

Secondly, heat pumps should be an element of system flexibility, rather than a strain on the peak demand. For this, dynamic tariffs and smart solutions are fairly easy fixes but require regulatory intervention as well as consumer awareness and industry willingness to go the extra mile.

Thirdly, proactive measures should be taken to avoid potential supply chain disruptions and to secure enough of a skilled workforce. Poland is very well positioned in both areas, now being a highly industrialised country with excellent technical education.

Poland’s energy transition is picking up speed, and the growing heat pump market is a prime example of a policy push working with supply pull to deliver excellent results. The prospects are encouraging and there have never been more incentives to continue on this pathway.

This article previously appeared in Foresight.

How far can we go with wind and solar?

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In this era of urgent and ambitious climate goals, most paths to a decarbonised power system feature high shares of variable renewable energy, primarily wind and solar. To avoid high costs, new tools to capture the benefits of these clean resources are needed, to manage the new loads from electrification of heating and transport, and accommodate increasingly distributed system sources. Ensuring reliability will require faster response times and greater flexibility.

The International Energy Agency’s Wind Technology Collaboration Program Task 25 has explored these formidable challenges in their report Design and operation of energy systems with large amounts of variable generation. On 30 March 2022, the Electrification Academy welcomed lead author Hannele Holttinen to share the findings of IEA Wind TCP Task 25. She drew on the extensive information gathered in the report to share:

  • Recent experience and study results from 17 countries on operating and planning systems with large amounts of variable renewable energy sources.
  • How net-zero plans affect power system planning and operation.
  • How to push limits towards near-100% renewables.