Cross-sector flexibility, storage investment and the integration of renewables: Capturing the impacts of grid tariffs

This article captures the role of electricity grid tariffs in the flexible electrification of district heating in the Nordic region at the horizon of 2050, in a situation of limited and optimal interconnections. Optimization of electricity and district heating systems is performed using the Balmorel energy systems model. Our results indicate that current volumetric tariffs substantially limit investment and flexibility from power-to-heat technologies and seasonal thermal storage in district heating. We also demonstrate how the additional flexible coupling of district heating enabled by adapted grid tariffs affects investment and generation in the electricity sector through a ratchet effect. We show that appropriate tariffs may result in up to 27% more electrification in district heating, 5% more wind and solar capacity investment in the electricity sector and up to 12% more wind and solar generation. Our results shed new light on the role of grid tariffs in the energy transition and inform policy-makers about the dynamics at play around tariff designs. •Volumetric grid tariff design hinders flexible sector coupling with district heating.•New tariff designs could trigger 27% more P2H and storage in Nordic district heating.•This additional flexibility unlocks 4.8% wind and 2.5% solar PV capacity.•Resulting in up to 15 TWh extra wind and solar production in 2050.•But at the expense of biomass CHP that loses ground on the heat supply-side.