Power-to-heat on the reserve capacity market—Policy implications considering economic constraints and competing heat production

Abstract

Studies have shown that surplus power from variable renewable electricity generation can be consumed in electric boilers or compressor heat pumps, i.e., Power-to-Heat (P2H), for heat production. This potentially provides power balancing for the electric grid and can also decarbonize and/or reduce biofuel demand in the district heating (DH) sector. This sector-coupling of thermal and electrical systems is, however, limited by production planning complexity, grid fees, tariffs, and risk-averse actors. The conditions for P2H production vary between DH-systems due to non-homogeneity in the configuration of production units in different systems. This study investigates the economic feasibility of placing bids for P2H electricity consumption on the reserve capacity market in three different DH systems. It is assumed that P2H electricity consumption is controlled by a hypothetical balance operator. To increase production flexibility, the DH systems are equipped with heat storage where P2H-produced heat is stored. The results show that P2H on the reserve capacity market can increase revenue for DH operators, but DH systems with co-generation of heat and electricity risk reducing income from power production. Furthermore, stored heat needs to compete with cost-efficient base-load production to avoid the large storage required. The power balancing potential of P2H in DH systems is generally limited by the installed P2H capacity as well as the rest of the constituents and the production strategy of the DH system. To overcome these limitations, policies are needed that reward power balancing services and provide investment support for P2H capacity and heat storage.