Blind spots for policy makers

Electrification of the heating sector presents challenges that are widely known but have not yet been overcome. To begin with, homeowners and other small-scale end users have been reluctant to transition away from traditional fossil fuel–based heating technologies, such as gas boilers. In addition, users are not always aware of the benefits of smart electrification strategies, such as lower energy costs for homes or businesses.

Other barriers are the initial investment costs and the reluctance to share energy assets (such as solar facilities or thermal storage) or information (such as behind-the-meter data). Some areas may have a shortage of practitioners with the know-how to guarantee installations’ quality and consistency. Manufacturers may also be reluctant to produce high-quality electricity-related goods that compete with their existing fossil fuel–based products.

In industry, companies are reluctant to change their processes unless there are guarantees that the quality of their finished products will remain unaffected, or unless the economic benefits are large enough to warrant the time, effort and cost of replacing existing equipment and technologies.

The smart electrification of heating and cooling is also being hindered by misconceptions and blind spots. Seven blind spots are identified:

Temperature is the critical variable in designing a smart electrification strategy.

The high efficiency of heat pumps, which can produce three units of heat per unit of input electricity or more, makes them a cost-effective alternative for homes and commercial buildings, even though their upfront investment costs are higher than those of fossil fuel–based alternatives such as gas boilers, except for air-to-air heat pumps in some markets (IRENA, 2022c; IEA, 2022a; Chapter 4). However, current heat pumps ⁵ can provide temperatures of only up to 150°C, which is not sufficiently high for many industrial processes. An effective electrification strategy must therefore include a careful assessment of temperature requirements.

Hybrid heat pumps offer an interim solution to rapidly introduce heat pumps in buildings with existing gas infrastructure.

Combining heat pumps with in-place gas-fired boilers can minimise efficiency drops in heat pumps in colder weather and, more importantly, increase users’ confidence in transitioning to an electrified heating supply. Hybrid heat pumps will supply most of the heat, generating immediate savings in energy costs. Hybrid pumps also reduce the need to increase the peak electricity load on the grid, which might otherwise be required to power heat pumps during severe cold spells, when heat pumps are less efficient. In addition, the ability to switch between two energy carriers adds resilience to the energy system and can reduce costs when using smart controls that factor in energy prices. Over time, the remaining gas use could be replaced with decarbonised fuels, such as renewable biogas.

Thermal energy storage has significant potential to increase the power system’s flexibility.

Thermal energy storage adds flexibility to the power system, leading to greater utilisation of renewable sources and reduction of operational costs. Its many advantages include its lower investment costs than other options, such as batteries, no requirement of additional infrastructure and its ability to provide flexibility over time scales that range from hours to entire seasons. It can thus be well matched to heating and cooling demands, which vary by season. It also can also be scaled easily, making it practical, since it offers flexibility for both individual households and large DHC networks. Whether aggregated across multiple households or used directly in DHC systems, thermal energy storage can provide balancing services, increase the security of supply, integrate a larger share of variable renewable energy sources, and generate additional revenue for homeowners and district heating operators.

Digitalisation is at the core of a smart approach.

Digitalisation leverages smart devices and sensors – along with data on past operations, accurate forecasting and artificial intelligence – to control heating and cooling loads in ways that improve overall operations. It is vital for integrating greater shares of renewable sources, adding flexibility and resilience, lowering both energy supply and heating and cooling costs, creating value and new business models, and avoiding over-investment in building equipment and the electricity grid. At the same time, digitalisation can enable the actors involved to co-operate more effectively. A digitalised heating and cooling system will help policy makers to make better regulations, enable new business and inform end users to support better decisions.

Cooling demand is growing and should be considered in energy planning.

The increase in cooling demand offers another strong argument for widespread heat pump adoption since reversible heat pumps supply cooling at low additional costs. Reversible heat pumps also make thermal networks more efficient and profitable because they can provide services throughout the year. Furthermore, considering peak cooling demands and peak solar energy occur simultaneously, the growing cooling demand can be coupled with solar PV, making it easier to increase solar PV’s penetration. In addition, cooling enables the use of ambient heat and cold sources that might otherwise not be used. However, effective energy planning measures are required to meet the greater cooling demand in the most cost-effective ways.

Building codes offer important incentives for a smart heating strategy in the residential sector.

Building codes can increase the use of smart heating and cooling solutions and help tap the smart electrification potential within the buildings sector, which is still unrealised. A relevant example of how building codes can help shape an electrified and efficient heating supply is found in the United States. California is proposing to ban gas furnaces in homes by 2030. Similar bans in the building codes of other states and countries could dramatically increase the uptake of heat pumps. In addition, building codes could promote new business models such as peer-to-peer green energy trading and the creation of local energy markets.

Energy efficiency and waste heat/cold recovery should be a key part of smart electrification strategies.

Greater energy efficiency and the reuse of waste heat are effective measures for reducing the total electricity load for generating heating/cooling. Energy efficiency lies at the foundation of any decarbonisation pathway for the heating and cooling sector. The reduction of demand via energy efficiency measures limits the need for additional renewable capacity or the reinforcement of the electricity grid. Regarding waste heat/cold, large amounts of energy flows produced by thermal processes are still released to the environment. Despite the adoption of an increasing number of measures to reduce those energy streams, they hold significant potential for use. Waste heat from data centres are examples of how waste heat can be used to meet nearby heating demand.