Our new report from Cornwall Insight shows that heat pump owners could save significant sums of money by switching to time-of-use tariffs and flexing their heat demand.
Nesta has been exploring the potential role heat pumps could play in shifting electricity demand from peak times.
Our HeatFlex trial has tested the real-life implementation of remotely controlling heat pumps to avoid peak demand times. We tested whether a significant reduction in electricity demand can be achieved without compromising comfort or customer experience.
The HeatFlex trial specifically avoided introducing a financial incentive linked to the amount of turn-down participants achieved. This was because we wanted to run a randomised control trial focused on testing the way we were controlling heat pumps.
Energy suppliers are starting to introduce new tariffs into the market aimed at incentivising and rewarding energy flexibility generally, and heat flexibility specifically. These include fixed ‘time of use’ tariffs which charge different prices at different times, and do so consistently for a contractual period. Other tariffs vary more frequently and less predictably in response to market and system conditions, sometimes charging a different price every 30 minutes - these tariffs are sometimes called ‘agile’ or ‘pass through’ tariffs.
In our heat pump user survey, only 6% of respondents told us they were currently on one of these time-of-use tariffs. We wanted to understand what the potential rewards might be for heat pump owners, now and in the future, from shifting to these innovative tariffs and flexing their demand.
Nesta commissioned energy consultancy Cornwall Insight to undertake an exploratory piece of research using a simplified model to test the financial returns of heat pump flexibility. The consultancy modelled various scenarios where a heat pump household switched to a time-of-use tariff and avoided peak demand times. Cornwall Insight also explored what additional benefits installing other low-carbon technologies like solar panels or a battery could bring.
What's in the report?
Cornwall’s modelling found average savings of £640-£750 per year by operating a heat pump flexibly on time-of-use tariffs, compared with a single-rate tariff where the heat pump is operated on a standard heat pump profile of ‘flat demand’. Fixed-rate time-of-use tariffs delivered slightly lower savings of £650 per year, compared with £750 on the less predictable ‘pass through’ tariff.
Average annual cost of electricity for with-flexibility scenarios against the 'standard heat pump profile' comparators
Source: Cornwall Insights
The model assumes that the heat pump responds to the different prices at different times, and avoids using electricity when it costs more. It also assumes that some ‘pre-heating’ is done during cheaper periods to maintain comfort during more expensive times. This increases the amount of electricity consumed overall by the heat pump in the model.
Introducing other low-carbon technologies also improves the savings households could make - with an average of £810 per year in savings for a flexible heat pump alongside batteries and solar. However, in a scenario where batteries and solar were installed but the heat pump was not used flexibly, the savings were even higher at around £1,000 per year. This is because of higher consumption caused by pre-heating the home to maintain comfort during ‘turn down’ periods. This suggests that having batteries and solar reduces the need to flex heat pump demand directly.
This model is somewhat simplified, and the research is not intended to be definitive. However, the findings strongly suggest that most heat pump owners could be significantly better off if they were to switch to time-of-use tariffs and successfully flex their heat demand.
Nesta will continue to explore the potential role of smart tariffs in reducing heat pump running costs in our future work.
