Incentivising flexible power-to-heat operation in district heating by redesigning electricity grid tariffs

The Danish district heating sector constitutes a large potential for power-to-heat technology utilisation and thereby for increasing energy system flexibility and integration of the heat- and electricity sectors. Though the potential is there, it is uncertain whether the current flat-rate electricity grid tariff structure best incentivises a flexible integration. This study investigates how a redesign of the current flat-rate electricity grid tariffs influences the business-economic incentive for flexible power-to-heat operation in a district heating area, and how tariff schemes can incentivise increased integration of local wind power. The simulation tool energyPRO is used to investigate the influence of three redesigned tariff schemes; a flat-rate tariff reduction, a fixed time-of-use tariff scheme and a dynamic tariff scheme. It is concluded that the redesigned tariff schemes show potential for improving business-economic viability of flexible power-to-heat operation and increased integration of variable renewable electricity. However, measures and careful planning must be undertaken in the design of future tariff schemes to ensure that the necessary income for grid operators remains in place. The study thus suggests a redesign of the current tariff scheme and provides policymakers with tangible results of how a district heating company is affected by changes to the structure of electricity grid tariffs.