Green Deal for heat — smart sector integration is key

Heating in buildings is responsible for almost a third of total EU energy demand

The EU is currently reviewing its 2030 climate targets and has put forward a Green Deal for Europe. It is unsettling to see that the package of measures says nothing about heat, despite its critical importance for meeting Europe’s climate goals. Heating in buildings is responsible for almost a third of total EU energy demand. And most of that heat is met by burning fossil fuels.

The transformative challenge of decarbonising heating should not be underestimated. It will require strategic, ongoing policy and governance support. It requires a well-coordinated approach that cuts across several areas — buildings, individual and district heating systems, the power sector and existing heating fuel supply infrastructure.

Neither energy efficiency nor low-carbon heat technologies alone can achieve decarbonisation. A combination of the two is the most economical and practical approach. While there are uncertainties around the ideal technology mix for the future heating sector, it is clear that energy efficiency and electrification will need to play a significant role. It remains to be seen whether this will involve individual heat pumps or district heating networks powered by renewable electricity fed through large-scale heat pumps.

Recognising the increasing synergies between different sectors, the European Green Deal announced a strategy for smart sector integration by mid-2020. A new report by the Regulatory Assistance Project (RAP) develops four pragmatic principles to achieve clean heat through smart sector integration and a suite of policies to help deliver them.

Put “Efficiency First”: Regardless of the low-carbon heat technology adopted, energy efficiency is critical. It reduces heat demand, thereby lowering total system costs and the investment required to decarbonise heat. Efficiency also enables electrified buildings to act as a flexible grid resource, ensuring that low-carbon and zero-carbon heating systems operate at higher performance. By reducing demand for, and the associated costs of, zero carbon heating, energy efficiency can also support a more socially equitable heat transformation.

Recognise the value of flexible heat load: We can integrate a growing share of renewables and mitigate avoidable increases in peak load by viewing the additional electric loads drawn for heat as a potential flexibility service. Electrified heat has the potential to be very flexible and provide demand response by using the building and district heating networks as a thermal battery.

Understand the emissions effects of changes in load: If a larger share of heat is electrified, the emission intensity of electricity gains increasing importance. The carbon emissions per unit of electricity consumed differ significantly over the course of a day. Electrified heat can take advantage of this by consuming electricity when there is more zero-carbon electricity on the system and avoiding peak hours when emissions are typically the highest.

Design tariffs to reward much-needed flexibility: Electricity tariffs should encourage the use of electricity when it is most beneficial for the power system and for reducing carbon emissions. Electricity pricing is an important approach to encourage flexibility and deliver economic benefits to consumers for their willingness to shift their consumption.

To address the urgent need for heat decarbonisation, these principles should form the foundation of strong EU and national policies, including:

Step up energy efficiency building upgrades through more ambitious targets and policies: This will require an increase in the energy efficiency targets set in the Energy Efficiency Directive and more ambitious policies at the national level.

Phase out carbon-intensive heating systems: Regulatory measures have a track record of success and, given the required pace of decarbonisation, it will be necessary to eliminate inefficient and carbon-intensive heating systems. This can be achieved in EU legislation through the Ecodesign Directive and the Energy Performance of Buildings Directive and at the national level through building codes.

Phase out subsidies for fossil-fuel-based heating systems: Many energy efficiency programmes still support the installation of new fossil-fuel-based heating systems. In light of the lifetime of heating technologies, this practice needs to be discontinued.

Implement well-designed and well-funded financing mechanisms for energy efficiency and low-carbon heat: Particularly households with limited capital will need financial support to invest in and comply with regulations phasing out carbon-intensive heating systems. Member states should scale up existing and implement new financing mechanisms.

Ensure fair distribution of costs between different fuels: Most of the costs of the energy transition are currently allocated to electricity. This will result in misguided incentives, especially as the power system gets cleaner. The upcoming review of the energy taxation legislation in Europe offers an opportunity to ensure a fairer distribution of costs between the different fuels.

Encourage the flexible use of heat through time-varying prices: Consumers who operate their heating system flexibly should be rewarded for the benefits they provide to the power system and their contribution to avoided carbon emissions. This can be achieved through the introduction of time-varying prices.

This is a pivotal time on the road to clean heat. If applied in isolation, none of these recommendations can deliver progress at the scale needed to meet our climate targets. When harmonised, however, we can decarbonise heat and unlock the many associated benefits for the energy system and society as a whole.

The views expressed in this opinion are those of the author and do not necessarily reflect the position of FORESIGHT Climate & Energy

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