Quantifying the economic value of electric heating to buildings when coupled with District heating

Introduction and Background

Sector coupling is a concept that is well understood, in which the electrical, thermal, and/or mobility sectors are coupled with one another. For instance, renewable electricity from the grid, originating from intermittent sources such as solar or wind, can be used to run an electric heater or a heat pump (e.g., for space heating and domestic hot water supply), thereby coupling the electrical and thermal sectors. However, this possibility is limited to periods when the sun is shining or the wind is blowing, which does not necessarily coincide with peak heating demand. Flexibility in the use of these renewable sources is therefore not provided by sector coupling alone. When energy storage is introduced into the equation, the heat pump can be operated when the sun is shining or the wind is blowing (when excess and often cheaper electricity is available), and heat can be charged into a TES. Later, when heating demand reaches its peak, this charged TES can be discharged to cover those peak demands. Both economic and environmental benefits can be thereby achieved, often through the replacement of fossil-based heating that would otherwise be used to meet peak demand. Energy storage is thus identified as the flexibility enabler (see Figure 1), allowing a transition from sector coupling to FSC [1].

Since the European energy shock due to the removal of Russian natural gas, electricity prices have become significantly more volatile. Prices peaked in 2022, triggering a boom in intermittent renewables and heat pumps, and in 2025 daytime prices are routinely negative with large spikes in the evenings. This is a strong signal for storage, but also sector coupling; when prices are low, heat can be generated with heat pumps or resistance boilers, either used directly or stored for later. Identifying an economically viable or optimal solution is a function of electricity price signatures, marginal district heating costs, thermal energy demand signatures, and the capital costs for electric heating and storage equipment. Stockholm Exergi already has heat pumps and resistance boilers in their plants, but there is much more capacity potential within the buildings in the network. The advantage of distributed sector coupling is lower operating temperatures and the utilization of unused space within the property. The key downside is higher capital costs as compared to centralized equipment. As a first step, it is valuable to describe the economic value of distributed sector coupling, which can help establish CAPEX limitations, define the total addressable market, and be used as a foundation for business model innovation.

Project Description

This project aims to define the economic value of distributed sector coupling between district heating and electricity networks. The key analyses will be done through data-driven modelling, identifying base (business-as-usual) cases and several scenarios incorporating the use of electric heating devices in representative buildings.

Research Questions

The specific research questions of interest include:

• How many hours per year is electric heat cheaper than DH (efficiency effects)?

• What is the heat demand that needs to be served during those hours?

• Are there building characteristics that make coupling more or less interesting?

• Are there network characteristics (e.g. underserved regions) that make coupling more interesting?

• Is electric heat a threat or opportunity for DH? E.g. should they change their energy pricing strategy?

• Are there benefits to decentralized vs. centralized sector coupling? (e.g. do lower delivery temperatures help the economy?)

Methodology

The project combines literature review, data collection, modelling, and scenario analysis to evaluate sector coupling in buildings. Models must be developed using existing building energy demand profiles and consumer price models, informed by several years of hourly electricity prices and marginal district heating cost as a function of outdoor temperature. A review of existing studies on urban energy systems, district heating, electric heating devices (central at DH production and also decentralized at buildings-level), and demand flexibility use will establish the theoretical foundation, help develop key performance indicators (KPIs), and inform modelling assumptions. Scenario analyses should compare performance under varying technical and market conditions along the identified KPIs, and may be complemented with sensitivity analyses to identify the most influential parameters. Results should be validated against literature and critically analyzed to identify synergies and trade-offs between electrical and thermal sectors, as well as their sustainability implications. Findings should be synthesized to address the research questions and guide interpretation in the broader context of energy transition as well as sustainability.

A comprehensive MSc thesis report along the KTH and Energy Technology’s guidelines should be delivered at the project's end, closely working with the supervisors and the research team. Writing must be a continuous process parallel to the project work, with reviews at 6-week intervals. The working language is English.

Learning objectives

After the project is performed, the student should be able to/should be:

• Knowledgeable in performing data-driven modelling, with hands-on experience, to identify key trends and characteristics of the analyzed systems and their interactions

• Experienced in conceptualizing and performing scenario analyses within the stated context, to answer specific research questions

• Process, analyze, report and critically and comparatively discuss the obtained results, including uncertainty and/or sensitivity analysis, and compare findings to available literature data on the relevant /comparable contexts

• Generalize the obtained results into the contexts of energy transition and sustainability

• Seek advice effectively and perform the research tasks independently when necessary, and take initiatives as necessary for the progress of the project

• Draw key scientific and design conclusions based on the critical analysis of the obtained results and therein propose relevant future work to improve the presented results and employed methods.

Pre-requisites

• Knowledge and preferably experience in analytical methods/numerical analyses and/or modelling.

• Fundamental knowledge on heat and mass transfer and thermodynamics

• Basic knowledge of cost analyses and techno-economic analyses

Advantages of being engaged in the project

• Meaningful contribution to a real research project that can lead to relevant energy system solutions for the decarbonization of heating

• Close collaboration with Swedish district heating and cooling company Stockholm Exergi AB

• With support of the project team, the potential to publish a conference or even a journal scientific article based on the results obtained and the quality of the work

Main Supervisor and Contact

Examiner:

Co-supervisors:

Saman Nimali Gunasekara, Energy Technology, KTH

Fabian Levihn, Johan Dalgren, Stockholm Exergi AB

References

[1] IEA ES, “Annex 35- Flexible Sector Coupling,” International Energy Agency (IEA)- Energy Conservation through Energy Storage (ECES), 2024. [Online]. Available: https://ieaeces.org/annex-35/. [Accessed 30 November 2023].

[2] IEA ES, “Annex 35- Flexible Sector Coupling,” International Energy Agency (IEA)- Energy Conservation through Energy Storage (ECES), 2024. [Online]. Available: https://ieaeces.org/annex-35/. [Accessed 30 November 2023].