Aligning heat pump operation with market signals: A win-win scenario for the electricity market and its actors?

Abstract

Residential heat pumps (HPs) have a promising technical potential for demand response. Real-time pricing (RTP) schemes are currently emerging in many countries to unlock this potential. This study is the first to assess the comprehensive efficacy and appeal of incentivizing flexible HP usage with RTP by integrating the perspectives of the energy market and its actors. To this end, we have coupled an agent-based model of the German electricity market with a bottom-up residential HP dispatch optimization model. Our study identifies potential win-win scenarios for the market and its actors in specific contexts. This is particularly the case when users with local photovoltaic or energy-efficient buildings operate HPs with RTP and have moderate comfort tolerance regarding flexible heating setpoints. In these instances, users can realize savings of 10–30 % of annual costs, while market actors benefit from a modest reduction in the maximum residual load (3–5 GW by 2040) and an increase in market values for wind energy. In other contexts, there may be unintended consequences. This is especially relevant when intense responses to price signals due to a high user comfort tolerance cause overshoots in flexible demand, thus triggering an "avalanche effect." In such cases, new residual load peaks emerge compared to inflexible HP operation. Moreover, users in many building types then no longer benefit from flexible HP usage with RTP, as associated expenses such as aggregator fees paid to offset the avalanche effect at the day-ahead market diminish the electricity cost savings. In light of the potential drawbacks for the electricity market and users, our study highlights the importance of conducting a thorough assessment before implementing RTP for flexible HPs on a large scale.