Oct 18

Policy brief – Understanding residential energy demand flexibility

newTRENDs has investigated the potential and implications of renewable energy in the residential sector, among other focus studies. This policy brief reports our findings on the future prospects of renewable energy use, exploring residential energy demand and the potential of shifting it to accommodate more renewable electricity generation.

Key takeaways

  • The potential for shifting electricity through residential buildings is substantial and could be easily accessed without significant investments.
  • Major factors determining the amount of shiftable electricity include the number of installed electrified heating systems, the number of installed storage applications, the frequency and volatility in variable price change, and the level of installed PV capacity.
  • Proposed policy changes include enhancing smart energy management systems for low-income households through subsidies, avoiding price caps for electricity prices, and designing alternative policy instruments to protect vulnerable consumers.
  • Potential side effects of these policies include grid congestion, which could be addressed by introducing local price signals or other time-based incentives.

Why focus on renewable energy in residential sectors?

To integrate more renewable electricity generation into the system, we need a more flexible demand side. The EU Commission highlights the importance of increasing flexibility in the energy system as the share of renewables within the electricity system is predicted to increase to 69% by 2030. Currently, there is no (sufficient) monetary incentive for individuals in the residential sector to shift their demand to times when renewable generation is high (and when prices are low!).

Key legislation in renewable energy

The Fit for 55 legislation passed in March 2023, reinforces the EU Renewable Energy Directive, setting a minimum renewable target of 42.5% for 2030, an increase from the current 32% target. As stated in the REPowerEU Communication, the European Union aimed to rapidly end dependence on Russian fossil fuels, tackle the energy crisis, and accelerate the clean energy transition to achieve a more resilient energy system.

What have we discovered?

newTRENDs identified major influential factors that determine the amount of shiftable electricity:

  • The number of installed electrified heating systems;
  • The amount of installed storage applications (both thermal and electrical), including the thermal inertia of buildings;
  • The frequency and volatility in variable price change to incentivise load shifting;
  • The amount of installed PV capacity.

Visualising the potential impact of electrified heating systems on electricity load

Using France’s electricity demand as an example, newTRENDs simulated the potential effect of electrified heating systems on the overall electricity load in residential buildings. The simulation demonstrates the significant potential of the building sector to actively shift load.

What are the needed policy changes?

  • newTRENDs recommends enhancing smart energy management systems for low-income households through subsidies.
  • Variable electricity tariffs are the first important step to incentivise demand, but more needs to be done.
  • The potential savings of smart-operated heat pumps can be significant in the future, especially with rising electricity prices.
  • To prevent energy poverty, measures should be put into place to support these households and tailormade to suit their needs.

Policy revisions we suggest include:

  • Avoiding price caps for electricity prices to increase the incentive to shift and reduce demand.
  • Designing alternative policy instruments to protect vulnerable consumers.
  • Introduce legislation forcing heat pump producers to make them controllable through an external signal.

What are the potential implications?

One potential side effect of all users reacting to the same price profile could be grid congestion, which might occur when all users react to the same price profile. Therefore, local price signals or other time-based incentives could be needed to shift the demand based on the local capacity on the grid side and renewable generation available close by, leading to a more decentralised system.