Electrification of district heating: The impact of electricity price volatility and distribution temperatures on the optimal capacity mix

• Electric boilers benefit from the increasing volatility of the electricity price. • Lower distribution temperatures enhance the profitability of the heat pumps. • More expensive biomass increases the feasibility of the heat pump investments. • Higher heat storage costs decrease the investments in electrified production. • Electric boilers increase the peak power demand of the system. Because of the increasing share of variable renewable energy in the power sector, the volatility of the electricity price has increased greatly. This, the electricity tax relief, and concerns about sustainability of combustible fuels have boosted the power-to-heat investments in the Finnish district heating systems. Especially, electric boilers, which have been nearly non-existent in the Finnish district heating systems, will see a rapid roll-out in the next few years. In this study, Backbone modelling framework was used to investigate the impact of increasing volatility of electricity price on optimal power-to-heat and thermal energy storage investments in the Finnish capital region. The impact of decreasing district heating temperatures was analysed as well. The sensitivity of the results to energy prices and thermal energy storage costs was tested. The results show that more volatile electricity price increased the profitability of the electric boilers and heat storages. Larger electric boiler capacity led to higher electricity consumption and peak power demand. The profitability of the heat pumps increased significantly with lower district heating temperatures, which also decreased the electricity consumption of the district heating system. The optimal capacity mix of the P2H technologies and heat storages was highly sensitive to the cost assumptions of the fuels and heat storages, but the total costs increased only a little, if the model was run with suboptimal capacity mix. Lower fuel prices decreased the heat pump investments, and higher prices increased. The impact of fuel prices on the electric boiler investments was not as clear.