Project Summary
Watt Heat aims to accelerate the decarbonisation of heat and reduce costs by stimulating the market for flexibility through heat storage technologies. The project is investigating the potential of thermal storage to mitigate peak electricity load from heat, capture low energy prices, and provide wider system and DSO flexibility.
The Alpha Phase will specify candidate DSO services, with a focus on enabling equitable customer access to incentives which support investment in thermal storage; understand how these might interact with wider market signals across a range of thermal storage technologies; and develop customer propositions and business models for the Beta phase.
Innovation Justification
The key innovative aspect for this project is the development of DSO service incentives for thermal storage. Given the nascent nature of technologies in this area and limited availability of data, it is challenging for DNOs to invest in BAU on services tailored for a currently small segment of the market. Examination of DSO services in this area will also be complicated by the potential challenges in how current applicable DSO incentives can be accessed by customers, as outlined in Question 1, therefore work is required in examining new ways of incentivising
flexibility.
Key innovative aspects:
· Investigation of the mass interaction of diverse thermal storage technologies in view of multiple market opportunities;
· Understanding the BAU customer propositions and business models that could be employed to enable heat flexibility and ultimately testing the levels of consumer engagement that could be possible; and,
· Consideration of cutting-edge products such as phase-change materials and Tepeo's Zero Emission Boiler (ZEB), alongside more traditional forms such as hot water tanks.
The technology assets for Watt Heat already exist, hence integration and technology readiness levels are IRL6 and TRL6, and the project will focus on developing the commercial readiness of DSO incentives from CRL4 to CRL5 in Alpha and CRL6-7 to through the trial in Beta.
Whilst the technology exists, given low uptake of heat technologies and nascency of thermal storage it is too risky for service providers to invest at scale in thermal storage propositions. If viable propositions can be demonstrated and the investment case validated, this could build further interest from service providers, encouraging further investment.
To date, exploration of the flexibility potential of thermal storage assets has largely focused on the ability for consumers to capture lower energy costs through time-of-use (ToU) tariffs, and revenues from central system services. Ongoing trials also typically focus on individual heat technologies, rather than how technologies will work in combination in any given network area. The interaction between thermal storage and DSO services also remains relatively unexplored.
During Discovery Phase we have understood the perspectives of consumers, building owners/managers across tenure types, and the DNO, and have reviewed the range of currently underway. The Discovery Phase also confirmed that thermal storage solutions could generate useful benefits for DSOs -- mitigating peaks and increasing diversity of heat loads -- but raises the question of how best to facilitate this response through connections and flexibility incentives.
Alignment to SIF
There would be limited value to DSO in investing within the price control to stimulate the market, as customer propositions and business models remain unproven, and customer uptake of heat solutions are likely to remain low in RIIO-ED2. A full demonstration is necessary to investigate customer propositions for thermal storage solutions, and their validity when acting in combination and in response to multiple market signals, to move beyond theoretical value. The SIF Beta fund sizing matches the size and scale compared to other innovation funding sources.
The counterfactual is assumed to be using the heat assets with no thermal storage, and hence a reduced flexibility of electrical demand, in line with how most solutions are installed today. Given there are currently barriers to consumers installing low carbon heating, it is reasonable to expect that flexibility from thermal storage could also serve to increase the rate of uptake in heat solutions.
This proposal addresses Innovation Challenge 4: Accelerating decarbonisation of major energy demands -- by exploring the role of flexibility in integrating low-carbon heat technologies onto the network at scale and enabling more people to invest in low carbon heat options through the cost savings and revenue opportunities it can enable.
Impacts and Benefits
The Discovery Phase has conducted a review of the market for thermal storage solutions in domestic settings and found that, whilst options are emerging, uptake is small. The pre-innovation baseline is assumed to be consumers not installing thermal storage at scale alongside heat pumps, for space heating needs, due to limited incentives and understanding.
Reporting for the uptake of thermal storage alongside heat technologies does not yet exist. In addition, the demand assumptions used by DNOs for planning purposes for heat pump connections do not currently account for the potential reduced demand associated with the use of a thermal store but could be reviewed and tracked should Watt Heat provide evidence to suggest ADMD reductions are reliable.
The benefits case has been explored through the Discovery Phase by modelling the power draw profiles of heat technologies operating to meet heat demand at the hours it is required (usually peak hours) vs. flexible scenarios. Electrical storage was also considered but would not add to the business case for thermal storage assets themselves.
Cost savings per annum on energy bills for consumers through the ability to shift electrical demand to off peak hours and provide some system services to the ESO and potentially DSOs. For a customer on a time of use tariff, £100-200 a year can be saved if operating a heat pump with a range of thermal stores optimising for use out of peak hours whenever possible, and providing some system services. Customers with a Zero Emission Boiler (ZEB) see the highest annual return from flexible operation vs. running 'on demand' -- up to £600 enabled by the fact it can shift the entire power draw from heating to the overnight period and provide greater services to the ESO due to its high storage capability. These returns provide a range of viable pay-back periods across the range of storage technologies.
Reductions in the cost of operating the network through increased uptake and availability of flexibility from thermal storage -- enabling the ESO to leverage additional service volume and reduce costs for balancing, and DSOs to reduce peak capacity thus reducing network reinforcement cost for the DNOs. Increased availability of flexibility may also reduce the cost of flexibility to networks and system operators. The Discovery Phase CBA estimates the benefit of reducing peak demand of heat technologies to be £8.8 bn cumulatively by 2050 (£250m per year by 2050) for customers in UKPN's area.
The energy bill savings through flexibility are likely to improve the business case for homeowners of investing in lower carbon heat technologies. This could enable a more rapid take up of low carbon heat technology, and hence lead to an indirect carbon emissions reduction. Reducing the need for fossil fuels to be used at peak times can also enable further carbon emissions reductions.
New to market products and services that will be explored are DSO connections products and flexibility incentives. The aim of Watt Heat will be to develop new mechanisms that can be taken into BAU and used to provide additional value to users of thermal storage.
Watt Heat also aims to stimulate service providers to offer new thermal storage propositions to customers, enabled by the cost savings and benefits it can provide. This may include investment to back installation of thermal storage solutions, and could be packaged in a range of customer propositions such as heat as a service and guaranteed flat rate heating bills.
Watt Heat may also serve to incentivise and inform supply chain actors in how to adapt or scale heat technology products, leading to a greater range of technologies available.
