• Decarbonization
  • Distribution Network Operators
  • Utility-Customer Relationships
  • Utility Innovation
  • Electricity Generation

Decarbonizing Heat Requires DNOs to Take Action

Alex Jakeman
Nov 04, 2021

Guidehouse Insights

This blog was coauthored by Mark Livingstone and Artur Lenkowski.

UK electricity distribution network operators (DNOs) face a 36% increase in peak demand from heat decarbonization. Where and how we live is an impact on peak demand that is one to watch, as the carbon footprint of residential buildings accounts for approximately 19% of total UK carbon emissions. The reports Ten Point Plan for a Green Industrial Revolution and Heat and Buildings Strategy signal the UK government's recognition that replacing fossil fuel heating sources with electric heat pumps will be fundamental to reaching these targets. 

This mass deployment of heat pumps across the UK will have a significant impact on peak electricity demand. Some DNOs have highlighted that the deployment of approximately 600,000 heat pumps over a 5-year period could increase electricity peak demand by approximately 36%, resulting in the need to significantly upgrade lines and substations.

Flexibility Delivers Value for Customers

Stakeholders across the energy industry recognize these substantial costs and are exploring how to decarbonize heat at the lowest cost to consumers. Ovo Energy and Imperial College London have highlighted that by deploying smart electric heating solutions, customers could potentially save £3.9 billion ($5.3 billion) in total systems costs across Great Britain.

Smart electric heating provides benefits to customers for operating their heating assets in a flexible manner that reduces the impact on peak electricity demand. Until now, DNOs have focused their efforts on incentivizing and unlocking flexibility from the commercial and industrial sector. The UK’s DNOs have led the way throughout Europe in successfully freeing up hundreds of megawatts of capacity through existing approaches. However, no viable solutions exist that enables DNOs to unlock flexibility from residential low carbon heat at scale in a reliable, cost-effective, and equitable way. 

Unlocking Flexibility Presents New Challenges

The fundamental requirement for maintaining warmth within homes presents challenges when aiming to reliably enable more system flexibility from low carbon heat. Customers require simple, seamless, and fair solutions that reduce disruption and discomfort.

Over the past few years, DNOs have launched a number of innovation projects such as Freedom Group, Peak Heat, Re-Heat, and CommuniHeat to understand the impact of various low carbon heating technologies on network load. However, further work is required to fully understand and unlock flexibility from low carbon heat.

DNOs Must Collaborate with Industry Stakeholders

To successfully deliver scalable solutions that unlock flexibility from low carbon heating, DNOs need to collaborate with customers, energy suppliers, aggregators, and electricity system operators. Dedicated innovation projects are needed to allow energy providers to:

  • Understand how much flexibility can be unlocked from low carbon heating.
  • Design solutions that enable them to unlock this flexibility in a seamless, simple, and equitable manner that enables all customers to access benefits.

Ofgem’s Network Innovation Competition (and its anticipated Strategic Innovation Fund) provides a unique opportunity to understand and trial solutions that would otherwise not be trialed due to the risk and uncertainty involved. Trialing solutions at scale with a broad representation of customer and property types will be vital to facilitating a successful mass market scale-up.

Several Ofgem-funded innovation projects (such as Flexible Plug & Play, Low Voltage Network Templates, and CLASS) have demonstrated significant benefits for customers once rolled out following successful trials. Without new innovation projects that focus on novel solutions, DNOs and Ofgem risk leaving large amounts of heat flexibility unlocked, which would result in greater peak demand and higher costs to consumers. DNOs should proactively seek out innovative organizations that can support the design and delivery of first-of-a-kind innovation projects to facilitate heat decarbonization at the lowest costs to customers.