Significant electrification of heating is a fundamental requirement for decarbonisation. Electrification of home heating is expected to increase residential electricity demand by 50% in 2035, and to double peak demand by 2050, creating a significant additional cost for the GB electricity system. This project will look to understand how flexibility market signals can encourage electrification of heating, and the adoption of flexible heating practices from domestic consumers and their homes. This project aims to understand what market signals the ESO should develop to encourage electrified heating, flexibility practices and understand where these sit in the wider context of market signals for domestic consumers.
Benefits
This project brings significant benefits to the ESO and potentially to DNOs. These benefits include improved visibility and understanding of market signals for consumers. It will help in the identification of appropriate market signals, enablement of flexibility markets and in the overall conception of a stronger business case for electrification of heat, with significant impact on emissions reductions. The project also enables a reduction of network reinforcement requirements, the optimisation of generation capacity and costs as well as contributing to an improvement in network resilience. Due to the positive impact of all those benefits, this project ultimately enables the reduction of consumer bills.
Learnings
Outcomes
The project has delivered an evidence base on the system and market implications of electrified residential heat, and the role of flexibility in managing these impacts. The main outcomes are:
Electrification of heat will materially increase peak demand and system risk
- Analysis shows that widespread adoption of electric heating could significantly increase winter peak demand and introduce risks such as secondary peaks and demand synchronisation. This reinforces the need for demand-side flexibility as a core tool for system management.
Flexible operation of heat provides value but has clear limits
- Flexible heat can reduce peak demand and improve utilisation of generation. However, its effectiveness is constrained during extreme winter conditions without sufficient building thermal performance and/or thermal storage.
Current market arrangements are not ready for large-scale domestic participation
- Existing market structures, access routes and enabling infrastructure are not yet suited to high volumes of domestic heat assets. Key limitations include control capability, metering, aggregation models, and complexity of participation.
Progress is more likely from improving existing market signals than introducing new ones in the near term
- Evidence from stakeholder engagement indicates that adapting and simplifying existing signals and participation pathways is more practical than developing new, technology-specific mechanisms in the short term.
The most significant system value is likely to arise at distribution level
- The analysis suggests that the benefits of flexible heat are likely to be greater in reducing distribution network constraints and reinforcement needs than at transmission level, highlighting the importance of coordination across network layers.
Future progress depends on enabling participation and coordination across the system
- Unlocking value from flexible heat will require improved access to markets, greater visibility and control of distributed assets, and stronger coordination between NESO, DNOs/DSOs, and market participants.
These outcomes provide a foundation for further work to enable flexible electrified heat to contribute to system balancing and support delivery of the CP30 consumer-led flexibility ambition.
Lessons Learnt
The impact of electrified heat, if aligned to net zero targets and government policy, will impose a substantial demand on the electricity networks and on standby generation necessary for rare, e.g. a severe prolonged winter cold snap, peak demand scenarios. This additional demand will likely have substantially reduced ability to operate in a flexible manner under an extreme winter cold snap event, without the support of high thermal- performance building stock, and thermal storage.
Consideration of different approaches to manage severe winter peaks, for highly electrified heat scenarios, will be required. For example, these may include hybrid heating (e.g. Heat Pump and Fueled Boiler) and thermal networks coupled with long duration thermal storage for ‘hard to thermally improve’ existing building stock.
Stakeholder feedback supported the promotion of other forms of advanced electric heating, including heat batteries and heat boilers with storage, to provide solutions for buildings which are less suited to heat pumps. Some of the non-heat pump solutions, although being less efficient, do provide increased opportunities for flexible operation including higher speed response rates which may enable extended service offerings for NESO’s balancing requirements.
Control and metering of flexible assets is being improved through the development of a range of new standards including PAS 1878 and 1879, however there are currently a range of further improvements required to enable flexible heat to participate in new BM service lines which are currently being expanded for access by flexible domestic consumer assets.
When undertaking network reinforcement cost analysis for projects of this nature, detailed and specific data will be helpful to get an accurate forecast of costings, as opposed to using generalised cost assumptions. This includes for substation and conductor reinforcements, and regarding boundary flow estimations and the assumptions on generation and demand under peak conditions related to this data.
