Hybrid Heating Systems: a Logical Step in Decarbonization

Decarbonization of building heating systems is a huge challenge, due in large part to the sheer scale of the endeavor, but also due to technical challenges and at a very basic level, typical purchase patterns for heating system components. Creating retrofit hybrid heating systems greatly reduces the magnitude of these problems, and while decreasing on-site greenhouse gas (GHG) emissions by 90% or more.

What are hybrid heating systems? Hybrid heating systems are heating systems that consist of more than one heating technology. Sometimes hybrid systems share system components, like a distribution system or emitters, but they don’t have to. Ideally, hybrid heating systems are integrated via one control. A typical hybrid heating system would consist of a legacy boiler or furnace that runs on natural gas, heating oil, or propane, and a heat pump of some sort (e.g. mini-split, air-to-air, etc.). Choice of operation of the heat pump or its fossil fuel alternative can be automated; whichever happens to be optimal at any point in time.

Thinking broadly, hybrid systems are seen in a wide variety of contexts and they are used to solve a problem. In silviculture, grafting branches from one type of apple tree onto the stem of another variety can create a productive and long-lasting hybrid. Hybrid cars provide drivers with better fuel economy and the ability to drive long distances conveniently. Sailboats have hybrid propulsion when they are outfitted with motors to help with navigation in harbors and on windless days. Even drying laundry can loosely be considered hybrid when outdoor drying on sunny days is combined with machine drying on rainy days. Hybrid heating systems have similar appeal as the two main components can complement each other, and actually solve several problems at the same time.

Advantages of Hybrid Heating Systems for Decarbonization

There are actually several good reasons to consider hybrid heating systems for decarbonizing buildings.

1. Efficiency – Hybrid systems can operate much more efficiently than single-source fossil fuel systems, provided a heat pump is one of the components. Higher efficiency leads to reduced GHG emissions.
2. Flexibility – Hybrid systems exercise the relative advantages of each heat source, including the ability of a fossil fuel boiler to operate during peak electricity demand periods*, or when the heat pump would be operating at it lowest efficiency.
3. Proactive – Because planning is easier when adding a second heat source, a heat pump can be added to a system at any time of year, which gets around the replacement cycles that center around component failures.
4. Additional weatherization (e.g. insulation, air sealing, etc.), which are highly desirable (even necessary) when heating with a heat pump only, can be accomplished over a longer time frame.
5. Additional system adaptations, such as retrofitting for “low temperature” distribution (i.e. 120F maximum) can be accomplished over a longer time horizon if necessary.
6. Financial benefits – Setting up a hybrid heating system is easier, and less costly than a complete system changeover. Financial incentives for heating retrofits are never unlimited. More GHG emissions can be eliminated by shifting more buildings to hybrid systems, than by shifting half as many buildings to 100% heat pump.

*This is not a huge advantage at this moment, but with increased electrification of heating systems, electricity demand peaks in winter will surpass the level of demand peaks in the summer.

Other Advantages of Hybrid Heating Systems

1. Hybrid systems are redundant. If a boiler or heat pump fails, the building can continue to stay heated.
2. Hybrid systems can heat and cool, so they can replace central a/c and window air conditioners.
3. As long as proper weatherization is in place, hybrid systems can be switched over to single technology/100% heat pump at any time.

More on Flexibility

The ability of a hybrid heating system to be operationally flexible is one of the most important benefits in the race to decarbonize. The reasons why have to do with two things; clean electricity generation and the capacity of the power grid.

Hybrid systems have the ability to reduce peak electricity demand. There is value in having that capability. Much more clean electricity will be generated from solar and wind in the years to come. These are intermittent energy sources. Because of the intermittency, long term battery energy storage systems will be utilized to help provide power when solar and wind aren’t available. Even so, there will be times when supply is limited and demand from electric vehicles and building systems outstrips the supply. So the value of being able to temporarily reduce electricity demand, such as is possible with hybrid systems will grow as more intermittent energy sources feed the grid.

Grid capacity is the other limitation, especially during peak weather events like very cold mornings in winter. As more building heating systems shift from fossil fuels to heat pumps, this will become a bigger issue. Just as described for intermittency issues, buildings with hybrid systems have the ability to temporarily reduce electrical demand by switching to a different energy source, which directly reduces demand on the grid.

More on Financial

Heat pumps operate at very high efficiency, particularly when outside temperatures are not near their winter lows. So building owners (or those paying the energy bills) can save money over combustion-based alternatives that can’t achieve above 100% efficiency.

With regard to asset and installation costs, home and commercial building owners will need some financial assistance to retrofit a system that reduces or eliminates GHG emissions. In what form, and at what level the support takes are worthy of debate but in any case, at any one time, any available support is likely to be limited. Investments in retrofits could be made on hybrid systems, or a smaller number of full changeover heat pump systems where the previous heat source is eliminated. The full changeovers can more than double the initial cost of an add-on heat pump because of the system and weatherization adaptations that are necessary at the start.

Increasing the number hybrid systems will have a greater decarbonization effect than would be the case with fewer transitions to stand alone heat pump systems. This is true at least for the initial period where speed of decarbonization has a high priority.

Summary

Using hybridization of heating system retrofits as a logical step for transitioning buildings with fossil fuel systems will result in the fastest cuts in GHG emissions. Where building owners have the resources to make a full changeover, they should probably do so, as long as they make other changes to reduce demand at the same time. But where external financial incentives are needed, hybrid systems make sense.

New buildings are different. They should be built with no accommodation for fossil fuels, and should be built to minimize the need for heating and cooling through building to passive house standards or similar.

What are the Next Steps?

Clearly hybrid systems can play an important role as a bridge to the future of 100% GHG-free heat. Questions that remain include:

1. what policies and incentives make the most sense to maximize near term GHG reductions?
2. what carrots and sticks make sense in areas like demand charges, energy storage, and variable energy charges?
3. where should subsidies come from and who should benefit?
4. at what level are subsidies or grants needed to achieve GHG reduction goals?
5. what controls are necessary for hybrid systems to operate optimally for GHG reductions?
6. what data should be collected on systems operations to help optimize or balance GHG reductions and end-user costs?
7. should operational data collection be required in return for a grant or other incentive?
8. how are environmental justice and other communities going to be equitably served?
9. how does the workforce need to change to ensure that this will happen?

These and other questions need to be explored, debated and pursued.

February 20, 2020August 24, 2020

Past and Future Stages of Growth in Demand Response

Demand response (DR) exists to provide value to electric utilities and their customers. In any of its manifestations, the effect of DR is to temporarily reduce end-user demand on utility supply resources.

Demand response (DR) currently exists for these purposes:

to limit peak demand during temporary periods of peak heating or cooling
to offset supply disruptions, transmission outages, or other capacity constraints
to adapt energy systems to the intermittency of supply from solar and wind energy

DR experienced strong growth over the past 10 years. DR will grow strongly in this new decade as well, although the factors leading to growth must change. The obstacles that stand in the way of continuing with the established growth phase relate to ability to scale, regulations, and cost efficiency.

DR in the 2010s

Demand response in the 2010s was almost exclusively managed from the supply side. Strong growth in DR was facilitated mainly by Curtailment Service Providers (CSPs) that serve the power capacity markets. Growth was also made possible by advancements in controls technology, energy storage such as customer-sited batteries, and various government and utility incentives. The CSPs serve the capacity markets. Capacity markets ensure that load serving entities (LSEs, e.g. electricity transmission and distribution) commit to providing adequate supply, particularly peak supply, to balance demand throughout the year. As part of the capacity market, DR functions as if it were an LSE, although technically it is not.

On the demand side, the most typical DR placement was, and still is with industrial/manufacturing consumers of electrical power, which represent 50% of the market or more. By its very nature, industry is well suited for DR. Industry uses electricity in its processes, and when those processes aren’t needed 100% of the time, it’s often possible to shift power consuming processes to different times of day, or even different days altogether. Large batteries or other forms of back-up power can also be used if the savings from DR are high enough to cover the costs.

Limitations of the Status Quo

As noted previously, DR capability must be available to curtail load year round in order to be accepted in the capacity market. This is a regulatory requirement. This requirement for year round curtailment capability is only possible when the DR capability is a subset of Capacity Performance (CP). Today, 95% of DR revenue comes from CP. However, being reliant on capacity markets is problematic.

Scale Issues

According to PJM, power capacity accounts for only about 15% of the overall spend for power. If the power market (generation, transmission, and distribution) is a whole pie, the power capacity market is one slice of that pie, and DR is about 5% of that slice of pie, or just one bite of the whole pie. In other words, despite its growth, DR is still a relatively small part of the power market. If it is going to continue to scale, it will need to move beyond the capacity market.

Economic Efficiency

Another issue with DR being relegated to the capacity market is that the capacity market is not a market optimized for economic efficiency. The main objective of CP is to ensure sufficient capacity is available to meet demand at all times. For DR, this leads to a side effect that’s known as the double payment issue. Currently, when owners of the DR asset reduce demand, they not only reduce energy costs, but they also get paid to do so. In other words, the DR asset owner gets rewarded twice for the same action. This double payment effect can lead to gaming of the system for profit. Alternatively, if sought changes in demand were resulting from demand pricing alone, then the double payment issue would be avoided. As a result, economic efficiency would rise.

Regulatory Considerations

The FERC has regulatory oversight over the RTOs. The regional transmission organizations (e.g. PJM, ISO-NE) administer forward capacity markets. In Q4 of 2019, FERC weighed in on PJM and the capacity markets serving it. FERC placed burdens on new DR installations which effectively render them uneconomic (see 169 FERC ¶ 61,239).

Whether the new FERC regulations adhere long term remains an open question. Either way, these regulations demonstrate the uncertainty that is inherent in government regulatory authority. The best way to avoid regulatory involvement is to focus on markets that run themselves without the need for government involvement between parties.

DR in the 2020s and beyond

The value of DR will continue to grow. The electricity market is a relatively small part of the overall energy mix, but it’s growing strongly. In Massachusetts for example, electricity makes up 17% of consumed energy with the other 83% coming from transport 44%, and thermal 39%. The overall trend is toward electrification of both transportation and space heating, so that the present 17% share of energy is going to move up substantially and relatively quickly. Demand Response has the capability to help facilitate this transition.

New Opportunities for Growth

Because of these strong trends, opportunities for growth in DR are best in new market segments, using different strategies and technologies. Take for example the fast growing trend in transportation powered by electricity. Demand for electrically-powered transportation, particularly cars and trucks, is expected to grow strongly for decades to come. The growing demand for electrical power in transportation will place transportation alongside the other large user segments of electrical power: industrial, commercial and housing.

The housing sector, specifically in heating, cooling and domestic hot water (DHW), is another growing area for electricity consumption. The growth is coming from more heat pumps being installed. Technologically speaking, heat pumps have progressed significantly over the past decade. Because they perform very efficiently, and they have the ability to be used for both heating and cooling, they are already growing strongly in supplemental retrofit situations. They are also being used more and more in new construction as well, and may well completely displace oil and gas within a couple of decades.

The market for electricity is dependent on its infrastructure. As the trend toward electrification gains momentum, there will be more demands made on the grid. It’s hard and expensive to build new transmission assets in built-up areas. Both efficiency and DR will make important contributions to meeting these new demands.

Moving Decision-making from Supply Side to Demand Side

Because demands on the electrical grid are becoming greater, especially during peak events, growth in DR is desperately needed. Some of the growth can be supported by the capacity markets. But as capacity markets are small relative to the expected increase in demand, there is a much larger opportunity for growth outside of the capacity markets.

Growth can come from any other part of the supply chain, such as generation, and LSEs (transmission and distribution), wherever there is some value either in lowering peak demand or in shifting demand away from peak hours. Value can be perceived by one or any combination of participants in the supply chain. The value from reducing peak demand can be temporary, such as just a few hours. And it can be either one-off or recurring, such as, for example any day where temperatures exceed 85°F, or fall below 20°F.

Achieving Economic Efficiency with DR

In the coming decade, the financial catalysts for growth need to change. The opportunity for growth will shift from the capacity market to the energy market; the energy market share of the pie is much bigger, and there’s more latent value to be realized. Suppliers can affect demand by varying the price. There’s an opportunity to improve economic efficiency by letting suppliers use market forces to determine peak demand pricing on a day ahead basis.

DR and Retail Energy Markets

Demand Side Management (DSM) offers potential for shifting demand away from peaks. With pricing signals, demand can be proactively reduced or shifted, depending on the goals of the entity making the price.

Keys to successful variable demand pricing includes interval metering, day ahead pricing, and technology that uses price signals to modulate demand. Also important is finding how elastic the demand is for classes of energy consumers. As day ahead demand pricing will be an important component of growth in DR in this decade, and because there is a learning curve to using it, it’s important to start planning and using it as soon as possible.

Be sure to follow if you’re interested in this subject as I will be following up with more on the future of DR growth for utilities in the weeks to come.