Assessing the conditions for economic viability of dynamic electricity retail tariffs for households

Abstract

The success of the energy transition relies on effectively utilizing flexibility in the power system. Dynamic tariffs are a highly discussed and promising innovation for incentivizing the use of residential flexibility. However, their full potential can only be realized if households achieve significant benefits. This paper specifically addresses this topic. We examine the leverage of household flexibility and the financial benefits of using dynamic tariffs, considering household heterogeneity, the costs of home energy management systems and smart meters, the impact of higher electricity prices and price spreads and the differences between types of prosumers. To comprehensively address this topic, we use the EVaTar-building model, a simulation framework that includes embedded optimization designed to simulate household electricity consumption patterns under the influence of a home energy management system or in response to dynamic tariffs. The study's main finding is that households can achieve significant cost savings and increase flexibility utilization by using a home energy management system and dynamic electricity tariffs, provided that electricity prices and price spreads reach higher levels. When comparing price levels in a low and high electricity price scenario, with an increase of the average electricity price by 15.2 €ct/kWh (67 % higher than the average for the year 2019) and an increase of the price spread by 8.9 €ct/kWh (494 % higher), the percentage of households achieving cost savings increases from 3.9 % to 62.5 %. Households with both an electric vehicle and a heat pump observed the highest cost benefits. Sufficiently high price incentives or sufficiently low costs for home energy management systems and metering point operation are required to enable households to mitigate rising electricity costs and ensure residential flexibility for the energy system through electric vehicles and heat pumps.