Can Heat Batteries Accelerate Home Electrification?
Examination of How Heat Batteries Could Transform Residential Heating and Boost Utilities Profits
Key Points:
Heat batteries, such as Phase Change Materials (PCMs), convert and store electricity as heat for residential use, enabling electrification of heat.
Heat batteries can offer compactness, silent operation, and longevity, with potential to integrate with future energy systems and reduce peak electricity demand.
Utilities could support heat battery deployment by providing fixed monthly discounts, reflecting savings from off-peak energy procurement and reduced capacity needs.
Heat batteries can help decarbonize residential heat, shifting demand from peak to off-peak hours, posing risks to gas demand but offering grid and cost benefits.
Energy use for heating represents the next frontier in the effort to decarbonize the energy systems. Heat batteries, which store energy as heat, can be a viable solution to electrifying water heating demand. To understand their potential, let’s examine the technology, evaluate their benefits, assess their potential impact on peak demand shaving, and explore how utilities could facilitate their deployment.
What Are Heat Batteries?
Heat batteries are a form of energy storage where electricity is converted into heat, which is then stored inside the batteries. Unlike Lithium-ion batteries, the stored heat cannot be converted back into electricity, but it can be directly used for hot water generation or space heating.
Many forms of heat batteries exist. Of the currently available products on the market, some, such as Steffes, store heat in energy-dense materials like ceramic bricks. These are more suited for space heating. Another class of heat batteries use thermochemical reactions to store and release heat; a prototype being developed by Cellcius is one example.
Another class of products that is already available today uses phase change materials (PCMs). PCMs turn from solid to liquid as heat is absorbed and from liquid to solid as heat is released. It can provide more space-efficient alternative to traditional hot water tanks, with units like Sunamp's Thermino 40e being significantly smaller, which simplifies installation. They offer the practical benefit of on-demand hot water, similar to tankless systems, and maintain functionality during power outages through a heat exchanger mechanism. Additionally, their design does not restrict future integration with heat pumps, allowing for adaptability with emerging energy technologies.
Financially, a PCM unit could already be cheaper than a tankless water heater. A 40-gallon model is being sold in the UK wholesale for £1,597. Adding around 8% sales tax and converting to USD gets to around $2,200. Installation cost could be around $600 – 1,850, bringing the total cost to around $2,800 – 4,050. With the 30% tax credits from the Inflation Reduction Act, the total cost comes to $1,960 - 2,835.
In comparison, replacing an existing tank-style water heater like-for-like would cost around $600 – 2,500, while replacing an existing tankless water heater like-for-like would cost around $1,200 - 3,500. PCMs last more than twice as long and allow you to shift electricity consumption for water heating to off-peak hours, reducing running costs when coupled with a Time-of-Use electricity tariff.
Heat Batteries Could Meaningfully Shave Peak Electricity Demand
Residential electric water heating systems are already installed in more than half of the existing homes in 21 U.S. States, as shown in Figure 1. By making domestic hot water demand flexible, electricity demand can be shifted from periods of peak demand to periods of excess renewable generation. This could reduce investments required to upgrade transmission networks, reinforce distribution networks, and maintain stand-by generation capacity.
Source: 8760 tabulation of EIA 2020 Residential Energy Consumption Survey (2020 RECS) Microdata
Texas, for example, has the largest wind generation capacity and rapidly growing solar generation. 54% of homes in Texas are equipped with electric water heaters. The increasing share of intermittent generation in the electricity system and high penetration of residential electric water heaters make it an ideal spot to examine the potential impact of heat batteries.
The Electric Reliability Council of Texas (ERCOT) operates electric grids connecting around 90% of electricity demand in Texas. ERCOT-wide electricity demand typically peaks (net of solar PV) at the hour ending 5 PM in the summer and 8 AM in the winter. The summer net peak is expected to shift towards the hour ending 7 PM by the end of this decade as installed solar capacity increases, providing more generation at the 5 PM hour and thus reducing net demand for the hour.
Source: 8760 analysis of hourly electricity demand profile for hot water from NREL ResStock database and net system hourly electricity demand forecast from ERCOT
Figure 2 shows that, in the summer, existing residential electric water heaters use about 300 MW of electricity at the 5 PM peak (under 0.5% of the system peak). By storing electricity as heat overnight, heat batteries would reduce electricity demand during summer evening hours (See figure 3). This would save several gas peakers from running during early evening hours.
In the winter, those electric water heaters use about 500 MW of electricity at the 8 AM peak (under 1% of the system peak) as people take their morning showers. Four or five gas peakers could be stopped from running if, like in the summer, heat batteries are charged overnight.
Source: ERCOT
Using electricity generated overnight to provide hot water during peak hours could provide substantial savings. The Energy Information Agency (EIA) projects that ERCOT is likely to observe zero or negative prices in February between 1 AM and 5 AM and between 10 AM and 6 PM during the winter (See Figure 16 of this EIA report). Prices can go negative because projects that are eligible for production tax credits (PTCs) would not receive the PTCs if they do not generate. This means that they are willing to accept negative prices as long as the price is no more negative than the PTC value.
300/500 MW may not seem like much, but also recall that only half of the existing Texan homes have an electric water heating system. Getting to 100% of homes would mean closer to 600/1000 MW; 1 GW is about the capacity of the new Vogtle nuclear unit 3. The good news is that with PCMs (or another future form of heat batteries) getting to 100% can be accommodated with the existing grid without further straining the grid at peak times.
Utilities Could Facilitate PCM Deployment
Offering a time-of-use (ToU) electricity rate is often the default answer to anything storage-related. But Figure 4 shows relatively low uptake rates of ToU tariffs when they are offered, with adoption rates below 10% in most states. The adoption rate could be boosted when ToU tariffs are offered on an opt-out basis (default to ToU, but customers can opt out). However, that does not mean customers will necessarily engage with the ToU pricing. Some studies show that the impact of ToU tariffs on peak demand reductions also declines over time.
Source: 8760 analysis of Form EIA-861 for 2022
Instead, utilities could offer a fixed monthly discount to customers who replace their existing electric water heaters with a system based on a heat battery connected to the utility. The discount would reflect:
Lower energy costs: The utility can instruct the battery to charge only during low or negative price hours, reducing energy procurement costs;
Lower capacity costs: The utility does not need as much stand-by capacity (or peak contracts) as peak demand is reduced; and
Avoided distribution upgrade costs (for vertically integrated utilities): The utility can defer distribution upgrades.
A fixed monthly discount is simple and intuitive. Customers know exactly how much they will be saving by deploying the heat battery. Customers do not have to take active behavioral changes as their utilities will be the ones optimizing the heat battery charging. The certainty and convenience of the scheme should make it easier for utilities to advertise the scheme and increase the adoption rate.
Even better, the discount could be designed to further reduce the upfront costs of heat batteries. Utilities could provide savings in the first year as a lump-sum payment at the time of battery installation, before reverting to a monthly discount from year two onwards.
Benefits for vertically integrated utilities
The scheme has an added benefit for vertically integrated utilities (VIs) which are common throughout the US, and own electricity generation, distribution, and transmission. VIs will likely have to invest in new software and systems to send instructions to the heat batteries. The software and systems, if approved, could be added to the capital base. Under economic regulations, a VI is only allowed to make profits on its capital base at the market cost of capital. It should be less challenging for VIs to secure regulatory approval for such an investment as they can point to the fixed monthly discount as a clear and demonstrable customer benefit.
PCMs also open up opportunities for VIs to build more solar and wind to serve this class of load. Heat battery load is flexible and will not require as much gas backup. VIs could focus on building wind and solar to increase their rate base. A new solar project is likely to be more accepted by stakeholders than a new gas peaker in this environment, provided that interconnection to the grid is available.
Gas Demand Is Posed to Go Down
The many advantages of heat batteries over existing gas-fired systems would accelerate electrification of gas demand. The lowest hanging fruits are those volumes consumed in homes with a stand-alone gas water heater (i.e., hot water is not supplied through a central boiler) where the hot water is also not used for space heating. This group of customers can easily switch out their existing gas water heater for a PCM unit.
Figure 5 shows the top 20 US states with the highest share of residential gas demand that could easily be electrified. The volume is defined as the current gas demand for water heating in households using a stand-alone gas water heater. Florida leads the pack at 7.5%; it also has strong solar potential, making it a good fit for electrification. Five of the six New England states also rank highly on the list. Strategic electrification of hot water demand could help alleviate winter gas supply constraints in that region, and align with environmental aspirations.
Source: 8760 tabulation of EIA 2020 Residential Energy Consumption Survey (2020 RECS) Microdata
Time to deploy
Heat batteries offer an efficient way to store electricity as heat for residential heating needs, enabling compact and silent operation for hot water generation. These systems can be cost-effective due to their durability and reduced maintenance. They are also future-proof as they can work as a heat source for heat pumps.
By shifting hot water production to off-peak hours, heat batteries can alleviate grid demand during peak times, particularly in states with a high prevalence of electric water heaters. This reduces the need for stand-by peak generation capacity and network upgrades.
Utilities can promote heat battery adoption by offering innovative tariffs to customers. Vertically integrated utilities are in a good position to offer such tariffs, which can increase electricity demand and provide opportunities for growing the rate base. However, gas distribution companies would now be at risk of losing gas volumes to electrification.
We are on the cusp of rapid heat electrification. Heat batteries like PCMs offer one piece of the puzzle, helping to electrify hot water demand. Getting them deployed quickly can help to decarbonize residential heat, assuming we can get more wind and solar built quickly to provide clean electricity. It will also buy us more time to deploy heat pumps and/or invent new technologies for space heating. The technology is here; the time to deploy is now.
> Some studies show that the impact of ToU tariffs on peak demand reductions also declines over time.
Thank you for linking to the California 2018-20 Time-of-Use pilot project!
Results are pretty underwhelming, no? Peak load reductions in the treatment group are about 1% (a bit more or a bit less depending on the season and the electricity tariffs), which translates to less than 20W per household during peak hours.
Also, as you point out, the program’s effectiveness decreased over time (2 years), although weather and COVID-19 could explain some of that reduction.