Shaping the energy transition in the residential sector: Regulatory incentives for aligning household and system perspectives

The regulatory framework influences households' decisions in the context of the energy transition, affecting the potential for CO2 emissions savings and the operation of the electrical network infrastructure. In this paper, the profitability and optimal operation of alternative home energy systems (HESs) consisting of photovoltaics (PV), battery energy storage (BES), and either a gas condensing boiler (GB) or an electrical air-to-water heat pump (HP) is investigated for the case of a German single-family house and across alternative regulatory scenarios. Two policy reforms are considered: (i) an alternative design of network tariffs, the objectives of which are the financial sustainability and the efficient operation of the power grid, as well as the cost reflectivity of such charges; and (ii) a CO2-oriented reform of energy taxes and surcharges on retail energy prices. For the latter, the real-time carbon intensity of grid electricity is estimated and priced in dynamic retail electricity rates. After the optimization of the operation of each alternative HES under such alternative sets of price signals, a simulation over a 20-year planning horizon is carried out in order to evaluate each option in terms of profitability, impact on CO2 emissions and grid integration. The findings show how a change of regulatory framework can foster a low-carbon-oriented and grid-friendly adoption and operation of energy technologies. In the case under analysis, a regulatory shift: (i) results in a decrease of up to 17% in the discounted lifetime costs of the HP heating, thereby steering the household's adoption decision towards a reduction of up to 63% in CO2 emissions; (ii) induces a grid-oriented operation of the HP and the BES, reducing coincident peak demand by up to 62%. The implications of such a regulatory shift are discussed in relation to the effectiveness, cost efficiency and distributional fairness of the energy transition in the residential sector.