Impact of locational pricing on the roll out of heat pumps in the UK

Abstract

This paper investigates the impact of locational pricing on the roll out of heat pumps in the UK. Qualitative assessment of proposals set out for electricity market reform in the UK identified locational pricing as potentially having an impact on heat pump running costs. Energy system modelling was used to assess the economics of both individual heat pumps and system-wide heat pump roll out under both unified pricing and locational pricing for the UK for 2020 and 2035. PyPSA-GB, a future power system model, was employed to simulate unified and locational wholesale prices and the Octopus Agile tariff was used to calculate indicative retail tariffs applicable to domestic heat pumps. The research highlights that locational pricing can create market conditions which better reflect the true cost of generating and delivering electricity, however, it can also lead to higher heat pump operating costs in regions with projected high heat demand. Key findings reveal that locational pricing could result in significant geographical disparities in heat pump operating costs due to varying electricity prices across different zones. Further work is required to develop policy to alleviate high operating costs and to promote flexible operation of heat pumps.