06 Enabling Technologies and Energy Systems Integration

The remarkable growth in renewable energy production in recent years has been concentrated in the power sector; meanwhile, the heating and cooling and transport end-use sectors have not seen commensurate growth. Most power sector growth has occurred among the variable renewable energy technologies (wind power and solar PV) raising concerns about potential challenges of integrating large shares of variable generation into existing power systems. Against this backdrop, certain enabling technologies – along with improvements in energy infrastructure, energy markets and related institutional frameworks – can serve two synergistic purposes: creating new conduits for renewable energy to reach all end-use sectors, and facilitating the successful integration of ever-growing shares of variable renewable electricity generation.

Enabling technologies can take many forms. For the purpose of this chapter, they are technologies that share the potential to facilitate and advance the deployment and use of renewable energy, and include:

■ End-use technologies (e.g., electric vehicles and heat pumps)

■ Energy storage (e.g., pumped storage; home-, commercial- or grid-scale batteries; thermal storage)

■ Demand-side energy management technologies (e.g., energy management systems in buildings; interruptible industrial load)

■ Energy supply and delivery management technologies (e.g., advanced distribution network management and systems control options).1

Overall, enabling technologies comprise both the physical infrastructure and the automation technology required to support, for example, greater systems integration, data collection and dissemination of system resources, and effective and efficient demand response. This can enhance the function and efficiency of energy systems and thereby facilitate greater deployment and use of renewable energy.

This chapter reports on current developments for three types of enabling technologies: energy storage, heat pumps and electric vehicles (EVs). None of these technology groups has been developed for the specific purpose of facilitating wider deployment of renewable energy. For instance, energy storage historically has been deployed for use in consumer goods (e.g., mobile phones), in modern manufacturing (for applications where uninterrupted power is critical) and to support large-scale grid power management (i.e., via pumped storage).2 Heat pumps have been a primary option to improve efficiency in electrified water and space heating. EVs have been pursued largely for their potential to improve local air quality and to reduce the direct use of fossil fuels in the transport sector.3

These technologies present significant opportunities to bring additional benefits by creating new markets for renewable energy in buildings, industry and transport. For example, electrification of vehicles not only reduces local air pollution, but also allows for rapidly growing renewable power technologies to displace fossil fuels in a sector where renewables other than biofuels previously were barred from entry. Air quality is enhanced further, along with other benefits of expanded renewables deployment. Heat pumps allow renewable power to substitute for fossil fuels in buildings and industrial heat applications, and energy storage solutions help to balance grid-connected renewable energy supply against energy demand and facilitate off-grid renewable energy deployment.4

In addition to their potential to create new or expanded markets for renewable energy, enabling technologies can help better accommodate rapidly growing shares of variable renewable electricity generation. Power systems have always required flexibility to accommodate ever-changing electricity demand, system constraints and supply disruptions, but growing shares of variable generation may require additional flexibility from the broader energy system.5 (→ See Feature chapter.) This includes flexible generation; load response from energy consumers; coupling of the electric, thermal and transport sectors; improved delivery infrastructure; and enhanced energy markets and associated institutions. The increased integration of the electricity sector with thermal applications in buildings and industry and with transport is one such approach, as is increased use of energy storage.6

While enabling technologies in their own right may present new opportunities for renewable energy, a wide range of additional considerations needs to be explored to promote broader energy system integration. These considerations span various technical, regulatory and market elements that may help to unlock greater synergies between renewable energy generation and various enabling technologies, possibly allowing more optimal outcomes, and they pertain to the following areas7:

Market design frameworks that allow both the proper valuation of and compensation for enabling technologies. Enabling technologies can provide a range of services and benefits to individual consumers, energy providers and the energy system as a whole, helping to balance supply and demand, to promote the stability of the power grid and to provide backup energy during power outages or energy shortages. However, there may not be a market framework in place either to establish the economic value of such services or to compensate the owner of the enabling technology once such value is established. This may reduce the attractiveness of investment in enabling technologies.

Legal and regulatory frameworks that allow the participation of enabling technologies, as well as the monetisation of their services. Depending on the jurisdiction, the participation of enabling technologies may not be allowed without changes to laws, regulations and grid codes. For instance, while an individual electric vehicle may be used for backup power during an outage, it may not be permitted to sell power into an electricity market.

Sufficient availability and access to system data, and appropriate legal safeguards thereof. A healthy market for enabling technologies likely will require some level of access to consumer and grid data, such that utilities and possibly other parties may pursue the most valuable opportunities and promote economically efficient allocation of resources. This requires finding a balance between consumer privacy and protection of critical infrastructure data, with the objective of forming an efficient, dynamic and open market.

Adequate technology for grid operators to gather, process and act on system data in real-time and to reliably control and dispatch enabling technology installations from a distance. To maximise the effectiveness and efficiency of enabling technologies, it is necessary to know their moment-by-moment availabilities and capabilities and to understand how best to use them. An infrastructure that can support bi-directional information exchange is required in order to feed a continuous stream of data about the conditions of the power system as a whole, including the availability of enabling technology installations (individual or aggregated) to respond to automated commands based on real-time, system-wide resource optimisation.

Energy Storage

Energy storage has long been used for a variety of purposes, including to support the overall reliability of the electricity grid, to help defer or avoid investments in other infrastructure, to provide backup energy during power outages or other energy shortages, to allow energy infrastructure to be more resilient, to support off-grid systems and to facilitate energy access for under-served populations. In 2016, a primary driver for advances in energy storage was the demand for battery storage in EVs.8

Energy storage technologies can capture energy during periods when demand or costs are low, or when electricity (or heat) supply exceeds demand, and can surrender stored energy (electric or thermal) when demand or energy costs are high. Storage can provide system benefits and flexibility to customers, system managers and utilities and can be applied from the household level (behind the meter) to utility-scale. Storage also can participate in a range of market segments, particularly in power markets, acting as a direct energy provider to the broader system, as hardware to support energy delivery or as a supplementary system for individual households or businesses.9 (→ See Figure 49.) Many ownership models are possible (e.g., utility, third-party, customer level), along with a diverse mix of corresponding business and financing models to promote growth.10 A number of different energy storage technologies exist and are under development, and their characteristics (response time, discharge time, output capacity and efficiency) and functions vary widely. As of 2016, most electric energy storage capacity relied on pumped storagei, the oldest and most mature electricity storage option, as well as the largest in scale (per system).11 Other electricity storage technologies include batteries (electro-chemical), flywheels and compressed air (both electromechanical). Thermal energy storage, which stocks heating or cooling for later use (e.g., molten salt, ice storage, etc.) also is present in some markets and can serve both thermal applications and electricity by conversion.12 Only pumped storage is a highly mature technology; all others are undergoing development and transition. The potential for abundant, low-cost energy storage offers the prospect of reconceptualising how energy systems are planned and operated.

Figure 49. Storage Applications in Electric Power Systems

Energy Storage Markets

Global grid-connected and stationary energy storage capacity in 2016 totalled an estimated 156 GWii, with pumped storage hydropower accounting for the vast majority.13 (→ See Figure 50.)) More than 6 GW of pumped storage capacity was commissioned in 2016, for a year-end total of approximately 150 GW.14 (→ See Hydropower section in Market and Industry Trends chapter.) The rest of this section focuses on energy storage other than pumped storage.

About 0.8 GW of new advanced energy storage capacity became operational in 2016, bringing the year-end capacity total to an estimated 6.4 GW.15 Most of the growth was in battery (electro-chemical) storage, which increased by 0.6 GW for a total of 1.7 GW.16 Lithium-ion batteries comprised the majority of new capacity installed.17 The remaining additions were mainly in the form of thermal storage, which was up by 0.2 GW (mostly molten salt storage at CSP plants), for a year-end total of 3.1 GW.18 Very little electro-mechanical storage was added in 2016, with the total remaining at 1.6 GW.19 Emerging technologies such as conversion of surplus electricity to hydrogen or other gases are in the earlier stages of development and demonstration and have not yet seen large deployments.

Figure 50. Global Grid-Connected Energy Storage Capacity, by Technology, 2016

The United States added the most new non-pumped storage capacity in 2016 (0.3 GW), followed by the Republic of Korea (0.2 GW) and by Japan, Germany and South Africa (0.1 GW each).20 The United States also had the most non-pumped energy storage capacity (1.5 GW) at year’s end, followed by Spain, Germany and Chile. For stationary battery storage alone, the United States was in the lead, followed by the Republic of Korea, Japan, Germany, Italy and Chile.21 (→ See Figure 51.))

Figure 51. Global Grid-Connected Stationary Battery Storage Capacity, by Country, 2006-2016

The 0.3 GW of non-pumped storage capacity added in the United States during 2016 included 0.1 GW of molten salt thermal storage at a CSP plant in Nevada, with the remainder being mostly battery storage, comprising primarily lithium-ion technology.22 A large portion of the battery storage additions was installed in California in anticipation of an electricity shortfall due to a natural gas leak.23 By one estimate, about 20% of new US battery storage capacity was in residential and commercial behind-the-meter installations.24

The Republic of Korea’s additions (0.2 GW) in 2016 were all in the form of electro-chemical storage, bringing the national total to 0.3 GW.25 The electric utility deploying the technology noted the importance of owning and operating emission-free resources to support its frequency control markets.26

Deployment of energy storage capacity also is rising rapidly in Japan, where more than 0.1 GW was brought online in 2016 for a year-end total of 0.25 GW.27 Following the March 2011 earthquake, Japan’s government began to explore options to increase power system reliability and cross-regional co-ordination of the electric grid through market liberalisation.28 Energy storage has been deployed to provide flexibility to the country’s rapidly increasing output of variable renewable energy (particularly solar PV).29

In Europe, Germany saw the largest additions of non-pumped storage during 2016, with 36 MW of large-scale projects commissioned for a year-end total of 1.1 GW.30 The country’s residential storage market (behind the meter) is expanding as a growing share of solar PV systems is paired with battery storage; rising from 14% of PV systems in 2014 to more than half of new installations in 2016.31 An estimated 25,355 home energy storage systems were installed in Germany during 2016, accounting for about 80% of Europe's annual market.32

Also in Europe, a 20 MW battery storage project was installed in the Netherlands in 2016 as a replacement for a natural gas peaker generation plant.33 The United Kingdom committed to significant additional future capacity when National Grid (the owner and operator of the transmission grid in England and Wales) procured 0.2 GW of Enhanced Frequency Response services through an auction in mid-2016; all winning bids were in the form of storage solutions that are to be implemented in 2017–2018, at a total cost of USD 81 million (GBP 66 million).34

China has relatively little storage capacity to date, beyond pumped storage. However, this could soon change due to a pilot programme, launched in 2016, to address curtailment of solar and wind power in three of the country’s northern regions. This programme is designed to allow energy storage to provide services such as peak shaving and frequency regulation and to receive payment for services provided.35

Australia, with one of the world’s highest penetrations of residential solar PV, is a small but rapidly expanding market for small-scale, behind-the-meter battery storage systems.36 Battery storage systems are being used to increase on-site use of distributed generation. Rising electricity prices, falling costs of solar PV systems and declining feed-in-tariffs have combined to drive Australia’s market for residential battery systems in conjunction with solar PV.37 Many solar suppliers have begun to offer battery solutions as part of their solar installations, and the market is growing rapidly from a small base.38 In 2016, the annual residential storage market grew 13-fold, with nearly 7,000 systems installed. 39

While most advanced storage capacity added in 2016 was in the form of batteries (electro-chemical), thermal storage is playing an increasingly important role alongside CSP plants. In South Africa, 0.1 GW of molten salt thermal storage came into operation during 2016 at two CSP plants, providing several hours of plant operating capacity.40 China also added a small amount of CSP-linked storage capacity.41 (→ See CSP section in Market and Industry Trends chapter.)

Seasonal storage for heat generated by renewable energy for district heating systems (heat is fed in the summer, taken out in winter) continued to be used in several European countries and in Canada in 2016.42 Such systems often are combined with the electric grid, using excess electricity for stored heat.43

Energy Storage Industry

The year 2016 was characterised by the diversification of utilities, renewable energy companies, vehicle manufacturers and oil and gas companies into the storage industry in order to capture rapidly growing markets. For example, Innogy SE, the renewable energy subsidiary of German utility RWE, took over the solar and energy storage business of Belectric Solar & Battery, and Total (France) acquired a majority stake in Saft Groupe (France).44The year also was marked by the expansion of product options and manufacturing capacity, increased pairing of storage with other systems (including solar PV and wind power) and ongoing advances in a range of storage technologies.

As of 2016, Panasonic (Japan) dominated the production of lithium-ion batteries for EVs and other applications, with double the output of its nearest competitor.45 The company collaborates with Tesla (United States) through the latter’s US-based Gigafactory, which started mass production of lithium-ion batteries in late 2016.46 Other leading manufacturers of batteries for EVs include Samsung SDI and LG Chem (both Republic of Korea).47 Chinese manufacturers are rapidly gaining market share, including BYD and Contemporary Amperex Technology, which reportedly benefit from preferential domestic treatment over their three Japanese and Korean competitors, which are pursuing battery manufacturing in China.48

In the power sector, several companies advanced new home storage options to compete in this rapidly growing market. For example, Daimler AG (Germany) started delivery of its Mercedes-Benz stationary residential energy storage units using lithium-ion batteries that were originally designed for automotive use, and committed to mass development of a lithium-ion battery line in California. 49 Germany’s second largest utility, E.ON, launched a residential solar-plus-storage option in its home country.50 Sonnen (Germany) launched a home battery for self-consumption in the United States, priced at 40% below the company’s existing residential system.51 In the first half of 2016, Sonnen held a 23% market share across Australia, Europe and the United States, followed by LG Chem (Republic of Korea) and Deutsche Energieversorgung. 52Numerous partnerships were launched or announced to develop or distribute solar-plus-storage solutions during the year. 53 For example, solar PV inverter manufacturer Sungrow (China) and Samsung (Republic of Korea) launched a joint venture to provide complete energy storage systems.54 US-based solar technology company Enphase Energy joined Tesla, LG Chem and others in the battery storage market in Australia in response to the country’s surge in rooftop solar power.55 In addition, wind turbine manufacturer Envision (China) and GE Ventures (United States), among others, acquired stakes in Germany’s Sonnen to increase their presence in fast-growing energy storage markets in Australia, Europe and the United States.56

Several utility-scale renewable energy-plus-storage plants were completed in 2016, including Tesla’s first solar-plus-storage installation in the United Kingdom and a Sungrow facility in China.57 Renewable Energy Systems (United States), an international wind and solar power developer, has begun diversifying into large-scale storage and had built 70 MW of storage capacity in North America by early 2016.58 In May of that year, solar PV developer SkyPower (Canada) and BYD announced an agreement to bid for up to 750 MW of solar-plus-storage capacity in India’s upcoming tenders.59 E.ON continued to expand its industrial-scale battery technology operation during the year and announced plans in early 2017 for two projects (totalling nearly 20 MW of storage) at its existing wind farms in Texas.60

Also in 2016, German flywheel developer Stornetic presented an energy storage solution for wind farms that allows operators to balance output fluctuations over the long term and that could enable wind farms to provide grid services.61 The company also launched a 1 MW flywheel storage unit, quadrupling the output of its machine, and commenced a joint project with EDF (France) on advanced smart grid storage solutions.62 In late 2016, Stornetic announced that it had optimised its EnWheel system for transport use, enabling operators to store the braking energy of trains to power acceleration for departure from stations.63

Large increases in manufacturing scale, improvements in storage capacity and density, and reductions in material costs are working to push down the costs of batteries and other storage technologies.64 Between 2010 and 2015, the average price of lithium-ion batteries used in EVs fell 65%, to USD 350 per kWh.65 As of late 2016, lithium technology prices were as low as USD 1,600 to USD 1,900 per kW installed when deployed on a large scale (e.g., comparable to a 100 MW natural gas-fired power plant).66

Lead-acid batteries, which remain common for off-grid installations, have experienced an increase in lifespan through the integration of carbon. This advance has reduced the costs of lead-acid batteries dramatically.67 The costs of alternative chemistry batteries also have declined in recent years, due mostly to falling subcomponent costs and longer operating lives; these advances, in turn, have unlocked additional services and applications. For flow batteries, technology advancements are resulting in longer operating ranges (discharge time), and the introduction of larger-scale manufacturing is driving down prices.68 The costs of thermal and non-battery storage technologies, such as compressed air, vary widely; however, all have seen steady cost reductions.69

Several promising storage options were entering the pilot stage during 2016. The Stored Energy in the Sea project, led by Germany’s Fraunhofer Institute for Wind Energy and Energy System Technology, began piloting a novel pumped storage concept for large-scale storage of ocean energy. Researchers estimate that the concept, which uses water pressure to drive electro-mechanical pump components housed in submerged storage units, could deliver cycle efficiency and levelised costs of storage per kWh similar to conventional pumped storage.70 Also in Germany, GE won a contract to supply wind turbines for Naturstromspeicher Gaildorf, a pilot project combining wind energy and pumped storage. The base of each 3.4 MW turbine will act as a water reservoir; an additional lower reservoir pumped storage facility, which will use Voith (Germany) reversible Francis pump-turbine units, lies 200 metres below in a nearby valley. 71

Energy Storage Policies

Policies to support deployment of energy storage include policy-driven procurement targets, energy market reforms and utility mandates, as well as financial incentives such as grants, loans and tax credits. Generally, policies target either distributed, customer-sited behind-the-meter storage (residential and commercial) or large-scale utility projects in front of the meter. Few incentives exist, and as of end-2016 only a handful of governments had adopted targets for energy storage. For example, in 2016 New York City set a target of 100 MWh by 2020.72 However, energy storage is receiving increased attention and support from policy makers and regulators in a number of countries around the world.

To date, mandates for utility-scale capacity have been the most common form of support for energy storage. In the United States, electric utilities in California are required under a 2010 state mandate to procure a total of 1.3 GW of energy storage by 2020; this mandate was expanded by an additional 500 MW of energy storage in 2016.73 In addition, utilities in southern California were directed by the state’s Public Utilities Commission to quickly procure over 60 MW of electricity storage by year’s end to overcome an expected electricity shortfall due to a devastating natural gas leak discovered in late 2015.74

Other states and territories are following California’s lead. Oregon passed legislation in 2015 requiring that the state’s main utilities deploy 5 MWh of storage by 2020.75 In 2016, Massachusetts became the third US state to pass an energy storage mandate.76 Puerto Rico mandated in late 2013 that renewable energy project developers incorporate energy storage into new projects.77 In Canada, the province of Ontario has mandated the procurement of energy storage, with most projects designed to provide frequency regulations service or voltage support to improve grid functions; a two-part solicitation in late 2015 resulted in contracts for 50 MW of storage capacity.78

In 2016, countries also supported storage through tenders. For example, India called for its first tender for solar energy (300 MW of projects) that mandated the inclusion of a storage component.79 Suriname also held a tender for a solar PV project that included battery storage. 80

In part because electricity storage can be considered both generation and load (similar to supply and demand), regulations governing its role and function can differ greatly from one market to the next. To ensure regulatory consistency, in 2016 the EU’s Energy Commission proposed a regional definitioni for energy storage.81 In some countries, regulatory bodies are clarifying the rules for the participation of energy storage by removing barriers to participation and creating market structures for fast-responding resources. For example, in 2016 the US Federal Energy Regulatory Commission (FERC) began exploring regulations to further reduce market barriers to energy storage solutions. 82 This built upon FERC’s 2011 mandate to create compensation mechanisms for fast-response regulation service providers that can support the grid when frequency deviation occurs with either fast-response generation or stored energy.83

Some governments are using financial incentives to improve the cost-competitiveness of emerging storage technologies. Germany offers a variety of incentive programmes, including low-interest loans and grants for specific uses, customer segments and storage technologies. In 2016, Germany extended its incentive programmes for residential solar PV-linked storage through 2018.84 Elsewhere in Europe, Italy provides a tax rebate for battery storage in solar PV systems, and some cantons in Switzerland offer subsidies. 85 Sweden announced support for energy storage and smart grid technologies with investments of USD 5.5 million and USD 1 million (SEK 50 million and SEK 10 million) per year, respectively, with an initial outlay of USD 2.75 million (SEK 25 million) provided to energy storage in 2016.86

In Asia, Japan offers a national subsidy for residential batteries, and China has offered significant incentives, such as subsidies and domestic quotas, to spur development of a domestic storage industry.87 The Republic of Korea pledged in 2016 to invest USD 36 billion in clean energy by 2020, with 79% of the funds earmarked for deployment of renewable energy and 11% for energy storage.88

In the United States, an investment tax credit is provided for up to 30% of the value of a qualifying energy storage system. 89 In 2016, the country also awarded USD 18 million to six solar PV projects that will integrate energy storage.90 At the state level, California’s Self-Generation Incentive Program, which provides rebates for customer-sited generation and storage systems installed on the customer's side of the utility meter, allocates 75% of its annual USD 87 million budget to storage technologies and has been vital to the growth of customer-sited storage in the state.91 New York State offers incentives for commercial and industrial customers to install batteries to reduce peak load.92

On a smaller scale, the Australian cities of Adelaide and Melbourne have provided incentives for the installation of solar PV systems plus energy storage to increase self-consumption from solar projects.93

Heat Pumps

Heat pumps are used mainly for space heating and cooling of buildings, as well as for some industrial heating and cooling applications. Heat pumps transfer heat from one area (source) to another (sink) using a refrigeration cycle driven by external energy, either electric or thermal. They provide efficient heating, cooling, humidity control and hot water for residential, commercial and industrial applications by drawing on one of three main sources: the ground, ambient air, or water bodies such as lakes, rivers or the sea. Heat pumps also can use waste heat from industrial processes, sewage water and buildings.

Depending on a heat pump’s inherent efficiency and on its external operating conditions, it has the potential to deliver significantly more energy than is used to drive it. A modern, electrically driven heat pump under optimal operating conditions (a modest “lift” in temperature from source to sink) can easily deliver three to five units of energy for every one unit of energy that it consumes. That incremental energy delivered is considered the renewable portion of the heat pump output (on a final energy basis)i. When the input energy is 100% renewable, so is the output of the heat pump.

Heat Pump Markets

The scale of the global heat pump market is difficult to assess due to the lack of data and to inconsistencies among existing datasets. Part of the reason for limited and fragmented data on heat pumps may be due to variation in how systems are classified. In moderate climates, where cooling demand is dominant, heat pumps generally are counted as air conditioning equipment, with a side benefit of dehumidification or provision of hot water. In cold climates, the heating service is much more important and thus heat pumps are counted as heating equipment, with cooling and dehumidification considered welcome byproducts. 94

Air-source heat pumps make up the largest share of the global heat pump market, representing more than 80% of the European marketii, followed by ground-source heat pumps. The vast majority (90%) of air-source units installed around the world are used primarily for cooling and for dehumidification in mild and warmer climates.95 However, global data for air-source installations are limited.

Most ground-source heat pumps are used for heating in colder climates, but they also can serve cooling and dehumidification loads.96 As of end-2014, the global stock of ground-source heat pumps represented an estimated 50.3 GWth of capacity, producing approximately 327 PJ (91 TWh) of output.97 The largest markets for heat pumps are the United States, China and Europe as a whole, where France, Germany, Italy and Sweden were the most significant national markets in 2016.98

Europe’s combined heat pump market (for both air- and ground-source) grew by about 12% in 2015 (the most recent year for which data are available), adding 890,000 units for a total of 8.4 million units installed.99 By the end of 2016, total European installed heat pump capacity reached about 73.6 GWth, producing an estimated 148 TWh of useful energy, of which about 94.7 TWhiii, or 64%, was derived from ambient air and the ground, and the rest was derived from input energy.100

The top 10 markets in Europe account for 90% of the region’s sales.101 As of end-2014, Sweden led the region for ground-source heat pump capacity with a total of 5.6 GWth in operation and 52 PJ (14.4 TWh) of output. 102 Sweden’s output implies a utilisation rate (capacity factor) of over 29%, compared to a global average of less than 21% and a US average of less than 13%. Differences in utilisation rates are explained by variations in climate and the sizing of systems (i.e., whether units are sized for heating load only or for peak-cooling load, which may result in oversizing of units for heating load).103

In recent years, relatively low oil prices have slowed heat pump sales in some markets, and for ground-source units in particular. In Germany, sales of ground-source heat pumps in 2015 (12,500 units and 22% of the total German heat pump market that year) declined by 8.1% relative to 2014, despite government support programmes. By contrast, air-to-water heat pumps showed a small increase of 1.3% in 2015.104 Finland also saw mixed results: the overall heat pump market grew 2.4% in 2016, to over 60,000 units, but the growth was all for air-source units. Finland’s sales of ground-source systems, which accounted for 14.1% of the heat pump market, declined by 7.8% in 2016.105

For the United States, the total market size is uncertain. As of late 2014, the market for ground-source heat pumps was growing at an estimated average rate of 8% annually, and a total of 1.4 million units was in operation, representing 16.8 GW th of capacity and an estimated 67 PJ (18.5 TWh) of output.106

China had approximately 11.8 GWth of ground-source heat pumps in place at the end of 2014, producing an estimated 66.7 PJ (14.4 TWh).107 Although sales of heat pumps (for heating) remain small in China – with fewer than 10,000 units sold in 2015 – they jumped three-fold that year relative to 2014.108

Elsewhere in Asia, Japan and the Republic of Korea also are significant heat pump markets. As of 2015, Japan had in place an estimated 100 MWth of ground-source heat pumps.109 The Republic of Korea had in place nearly 800 MWth of heat pump capacity by the end of 2014.110 In 2015, the country’s stock grew by about 10%, reaching 0.3 million units.111 It is estimated that the heat pump market share represents 3-4% of the country’s 7 million residential, commercial, industrial and public buildings.112Demand for heat pumps is spurred by ever-stricter efficiency standards for building envelopes. Well-insulated and air-tight buildings can be heated, cooled and dehumidified at relatively low thermal differentials (“lift” from source to sink), creating a particular synergy between heat pumps and efficient building design. Moreover, as building design and construction become more efficient, smaller heat pumps are required, reducing initial system cost and further improving the competitiveness of heat pumps relative to conventional fossil fuel systems. The positive effect of building codes has been seen mainly in new construction; however, building renovations invite the use of heat pumps, either as full replacements or as hybrid solutions that supplement existing heating and cooling systems.113

The potential for heat pumps in industrial applications is comparable to that in residential and commercial applications. However, availability of data for the industrial segment is even more limited.

Heat Pump Industry

The industry is characterised by a large number of relatively small entities, although consolidation accelerated in 2016. Manufacturers have pursued acquisitions mainly to gain access to markets and to increase market share, as well as to access know-how and to complement existing product portfolios.

In recent years, the global heat pump industry has grown in scale and scope as major manufacturers from Europe, China and the United States have extended their areas of activity both geographically and sectorally (integrating heating and cooling, as well as ventilation and, increasingly, dehumidification). A typical example is the acquisition of air conditioning and ventilation companies by boiler manufacturers, and vice versa. US and Chinese companies have acquired companies in Europe, and European companies have invested in the United States and Asia.114 Among the notable developments in 2016, Midea Group (China) acquired an 80% stake in Clivet (Italy), UTC (United States) completed a 70% acquisition of the Italian HVAC company Riello Group S.p.A., and Mitsubishi (Japan) acquired DeLclima (Italy) and its subsidiaries Climavenata and RC Group.115 Swedish heat pump maker Nibe completed several acquisitions, including US-based Climate Control Group and the heat pump operations of Enertech (United Kingdom).116

Other notable trends in the industry include the combination of heat pump technologies with ventilation, and the integration of heat pump technologies and solar PV to increase on-site consumption of distributed generation. Further synergies are suggested by the correlation between solar irradiation and cooling load, and the opportunity to use the “waste” heat from heat pump cooling for domestic hot water production.117

Manufacturers of heat pumps and solar PV inverters are co-operating to develop standards that enable a connected and optimised operation of heat pump and solar PV systems. In some instances, heat pumps are being configured to provide demand-response services to “smart” electric grids, in order to take advantage of their inherent operational flexibility.118 Heat pumps that use water as a thermal medium for heating and cooling employ water storage tanks that can aid in this regard.

Growing market penetration and increasing sales of heat pumps also are resulting in cost reductions for components and systems due to technical progress and economies of scale. A doubling of the installed heat pump stock is expected to result in a 20% cost reduction of heat pumps.119

Heat Pump Policies

In addition to indirect support provided by energy efficiency standards and building codes, there are some limited examples of support policies specific to heat pumps, mostly in the form of fiscal incentives such as grants, loans and tax credits. Drivers for heat pump support policies include improvements in energy efficiency of space heating, increased use of renewable energy and reductions in local air pollution.120

Several incentives were adopted in Europe in 2016 to support the use of heat pumps as well as renewable heat technologies. In the Netherlands, a new building energy support scheme introduced grants for heat pumps, as well for biomass boilers and solar thermal systems.121 Romania relaunched a subsidy scheme providing incentives of USD 700 to USD 1,870 (RON 3,000 to RON 8,000) for the installation of heat pumps (and solar thermal systems), and the Slovak Republic adopted a new grant scheme that promotes heat pumps (and solar thermal systems).122

Germany has backed up its commitment to increase its share of renewable energy in the heating market by 2020 to 14% by providing incentives for heat pumps (among other technologies) under its Market Incentive Program. In 2015, the programme provided about USD 13.1 million (about EUR 12 million), which supported the installation of 3,700 heat pumps (equivalent to about 20% of average system cost), about half of which were air-source heat pumps.123

Since 2014, the UK Renewable Heat Incentive (RHI) – similar to feed-in tariffs for electricity generation – has provided incentive payments for the heat output of renewable heat technologies, including the renewable portion of heat pump output. Starting in 2017, tariffs paid were set to rise, alongside limits on annual heat demand for eligible residential air- and ground-source systems (20 MWh and 30 MWh, respectively) and a requirement to meter electrical input in all residential systems in order to provide better information on actual system performance.124

The United States also has enacted policies to support heat pump markets. For example, a 10% corporate tax credit for ground-source heat pumps was in place as of early 2017, as was an accelerated depreciation scheme for businesses; a 30% federal tax credit for ground-source heat pumps expired at the end of 2016.125 In addition, many US states offer direct support for ground-source heat pumps in the form of tax incentives, rebates, grants or loans.126 Through the NYC Retrofit Accelerator, New York encourages fuel switching away from natural gas for heat and hot water, favouring heat pumps and biofuels by providing information to consumers, as well as access to both public and private finance.127

In China, the Beijing municipal government began providing a subsidy of approximately USD 3,600 (RMB 25,000) per household to replace 150,000 coal boilers with air-source heat pumps during 2016.128 The effort was successfully completed at year’s end. Tianjin, Shandong and Hebei provinces planned to follow with similar incentives in 2017.129

Electric Vehicles

Electric vehicles encompass any road-, rail-, sea- and air-based transport vehicles that use electric drive and can take an electric charge from an external source, or hydrogen in the case of fuel cell EVs. Some EV technologies are hybridised with fossil fuel engines (for example, plug-in hybrid electric vehicles, or PHEVs), while others use only electric power via a battery (battery EVs). A third variant uses fuel cells to convert hydrogen into electricity.

Beyond offering the prospect to reduce fossil fuel use in the transport sector, EVs can create a new market for renewable electricity. They can help integrate growing quantities of variable renewable energy by using “smart” EV charging strategies that communicate with grid operators and energy markets to promote flexibility, allowing for the use of generation that otherwise might be curtailed.130 Also, EVs have the potential to send electricity back to the grid during periods of high demand and to substitute for stand-alone customer-sited electric energy storage.

Electric Vehicle Markets

Electrification of the transport sector expanded during 2016, enabling greater integration of renewable energy in the form of electricity for trains, light rail, trams as well as two- and four-wheeled EVs. Political interest in electric mobility increased following the 2015 Paris Agreement, which sparked a broader debate on accelerating electrification of the sector. 131

Global deployment of EVs for road transport, and particularly passenger vehicles, has grown rapidly in recent years. In 2016, global sales reached an estimated 775,000 units, and more than 2 million passenger EVs were on the world’s roads by year’s end.132 (→ See Figure 52.) The EV passenger car market (including PHEVs) accounted for around 1% of global passenger car sales in 2016.133 The top five countries for total passenger EV deployment in 2016 were China, the United States, Japan, Norway and the Netherlands; together, they accounted for 78% of the year’s global sales.134 China and the United States are the market leaders in unit sales, while Norway is well ahead of all other countries in terms of market penetration.135

China’s market has seen dramatic growth in recent years, with EV sales increasing from about 11,600 vehicles in 2012 to more than 350,000 in 2016.136 China surpassed the United States in 2016 to become the country with the most passenger EVs on its roads, with more than 650,000 units in use by year’s end.137

In the United States, sales were up 38%, following a decline of more than 5% during 2015 (despite federal and state subsidies) due to the drop in petrol prices.138 An estimated 159,000 vehicles were added to the nation’s fleet in 2016.139

Figure 52. Global Passenger Electric Vehicle Market (Including PHEVs), 2012-2016

In most countries, even those with strong incentives, EVs continue to represent a small share of passenger vehicle sales. Norway is the only market in which EVs have reached a mass market stage, driven by a set of strong government incentives that include EV exemption from sales and registration taxes, as well as the construction of an extensive charging infrastructure. 140 In 2016, EVs represented 29% of new passenger vehicle registrations in Norway, followed by Iceland with a market share of 6%.141 Because EV sales still depend heavily on incentives, any disruptions in policy (or changes in fuel costs) can cause large shifts between years, as was seen in 2015 in the Netherlands, where an announced incentive reduction for PHEVs caused a jump in demand, followed by a sharp contraction in market share in 2016.142

Although electrically driven passenger cars have experienced the most rapid market growth in recent years, EVs also come in the form of trains, trams, buses, two- and three-wheeled vehicles and others, including some marine vessels. In Europe, some 5,500 electric buses were on the road as of end-2016, around 90% of which were connected via overhead wire, and China also appears to have a robust and rapidly growing market for electric buses.143 In most other countries, cities and transit companies are experimenting with only several units at a time. China also was home to an estimated 235 million electric two-wheelers based on lead-acid battery technology in 2015.144

Beyond the primary motivations to date for electrification of transport – reduced fossil fuel use and local air pollution – several countries, municipalities, EV manufacturers and electric utilities are experimenting with “smart” charging and vehicle-to-grid technologies that will enable EVs to contribute to grid storage, particularly from variable renewable energy sources. The Netherlands is becoming an international leader in the use of variable renewables for EV charging, or “smart charging”. By late 2016, 325 Dutch municipalities, several companies, universities and grid operators had joined the Living Lab Smart Charging platform, with the ultimate goal of ensuring that all EVs in the country are powered by solar and wind energy. The Living Lab, supported by the Dutch government, is converting existing charging stations and installing thousands of new “Smart Charging Ready” charging points, which are used for research and testing, with the aim of developing international standards based on the programme’s findings and innovations. As part of this effort, the Lombok neighbourhood of Utrecht partnered with vehicle manufacturer Renault (France) to test the vehicle-to-grid concept, using EVs as solar power storage for reinjection to the grid when the sun is not shining.145

Significant challenges remain to scaling up markets for EVs. Some of the most important include vehicle range, limited availability (in most locations) of charging infrastructure, and a lack of uniform charging standards.146 As of 2016, there were three primary plug types for rapid charging of EVs: the CHAdeMO network, which works only with Asian-made vehicles; the SAE Combo plug, which fits in German and some US-made vehicles; and Tesla’s Supercharger network, which fits only Tesla vehicles.147 These potential standards all compete in the marketplace.148 Regulatory issues surrounding charging infrastructure also remained a barrier to electrification of the transport sector during 2016.149

With such rapid growth in the EV market, electricity use for transport is growing as well. By one estimate, full electrification of the entire European car fleet in operation in 2015 would consume about 800 TWh of electricity annually, which would represent a 24.3% increase in electricity demand that year.150 With a fleet of this scale, uncontrolled vehicle charging could exacerbate load peaks on the regional power grid by a significant margin. Conversely, if vehicle charging were shifted to off-peak hours, and if it managed to coincide with renewable power generation, the increase in electricity demand associated with EVs could be accommodated.151

Electric Vehicle Industry

By the end of 2016, the global market leader among passenger EV manufacturers was China-based BYD, which sold 100,000 vehicles during the year and achieved a 13% global market share.152 The company started as a battery manufacturer in 1995 and is a relative newcomer in the automotive industry.153 Renault-Nissan (France-Japan) sold about 86,000 EVs in 2016, and as of August that year it was the leader in cumulative sales, with a total of 350,000 units. 154 This was followed by Tesla (United States) with around 76,000 EVs sold, and BMW (Germany) with 62,000 units sold. 155

Several long-established vehicle manufacturers have realigned their strategies, with plans to increase the share of EVs in their future sales. In 2016, Volkswagen Group (Germany), announced plans to bring more than 30 pure-electric models to market and to sell 2-3 million EVs annually by 2025, equivalent to 20-25% of its total projected sales.156 As part of this strategy, the company plans to develop battery technology as a new core competency and has expressed interest in building its own battery factory.157 Daimler AG (Germany) announced in 2016 that it would invest USD 10.5 billion (EUR 10 billion) in EVs, and the company expects to have 10 different models by 2022.158

The emergence of electric drives as an alternative to internal combustion engines has opened opportunities for new entrants to the automotive market. For example, Tesla and BYD quickly became leaders in EV manufacturing; Tesla was founded as an EV company in 2003, and BYD began the same year as a battery manufacturer.159 Apple (United States) also is investing in EVs, spending more on R&D in recent years for vehicles and related services than it did on several other Apple products combined.160

In addition, several other global consumer electronic companies have announced their interest in entering the EV market; in China alone, some 200 mostly small companies were reported to be developing and marketing EVs as of late 2016.161

Driving range continues to be perceived as a relative handicap for EVs, but manufacturers continue to advance battery technologies to increase range. In 2016, for example, two mid-priced battery-EV models from Renault-Nissan and General Motors (United States) entered the market with ranges of more than 300 kilometres each.162 In addition, several companies announced plans to launch vehicles with equal or greater range in the coming years. By late 2016, nearly 500,000 reservations had been made for Tesla’s Model 3 (with a presumed range over 300 kilometres), which the company claims will enter production in 2017.163 Also in 2016, Daimler AG announced its EQ battery EV, which has a range of up to 500 kilometres and is slated to launch before the end of the decade, and Volkswagen Group introduced a concept e-Golf model with a range of up to 600 kilometres to come on the market in 2020 at a similar cost to its diesel-based equivalent.164

The electric vehicle industry is assuming an active role in addressing the shortage of charging facilities. In Europe, the EV charging infrastructure has expanded rapidly, from 30,000 stations in 2014 to 100,000 stations in 2016, including 10,000 fast-charging stations. In late 2016, auto manufacturers BMW Group (Germany), Daimler AG, Ford Motor Company (United States) and Volkswagen Group announced a joint venture to deploy, starting in 2017, a network of high-powered 350 kW charging stations in Europe to enable long-range travel for EVs.165 This charging capacity is more than double the 2016 capability of Tesla Superchargers and allows EVs with a range of 400 kilometres to reach a full charge in 12 minutes.166 In the United States, in 2016 and early 2017, Nissan and BMW announced plans to install fast-charging stations across the country that will be equipped to work with both CHAdeMO and SAE Combo connectors.167 US electric utilities have joined the effort to expand charging infrastructure, but some have been blocked by regulators over concerns about who should pay for it.168

Reducing battery costs is an important driver for EV market development, although few manufacturers have provided details on these costs. Also relevant to overall battery costs, and to EV competitiveness in general, are the trends towards longer battery lifetimes and higher energy storage densities.169 General Motors announced in 2016 that its battery cell cost for the Chevrolet Bolt was a surprisingly low USD 145 per kWh, whereas an expert had estimated the price at USD 215 per kWh.170 As of early 2017, battery sizes for small and mid-sized battery EVs ranged from 30 kWh up to a maximum of 60 kWh (for the Chevrolet Bolt), and Tesla was offering up to 100 kWh battery capacity. Manufacturers have been taking advantage of lower battery prices to increase the range of EVs.171

Beyond passenger cars, work continued on development of EVs for public transit and freight transport. Siemens (Germany) made advances with its long-distance pure-electric trucks, while companies in California, Singapore and Switzerland explored the potential of autonomous electric buses.172

Exploration of methods to integrate renewable energy into charging stations for electric cars expanded in 2016, although many projects are pilot or demonstration, and integration remains relatively small scale. In 2016 installation of what is reportedly the world’s first solar controlled, bi-directional charging station for EVs was completed in Utrecht, the Netherlands, as part of that country’s Living Lab programme.173 Even where renewable energy is not directly available, some EV service providers (e.g., car sharing companies in the United Kingdom and the Netherlands) have begun offering a provision for buying renewable electricity.174 Renewables also are being used to charge public transit systems. In 2016, Chile announced that Santiago’s subway system (the second largest in Latin America, following Mexico City's) will be powered mostly by solar PV (42%) and wind energy (18%) as of 2018.175

In addition, an increasing number of companies was working in 2016 to integrate renewable energy technology directly into vehicles. For example, Hanergy Holding Group (China) introduced four concept EVs that use solar power to extend their range, with plans to produce the vehicles commercially within three years.176 Uganda launched Africa’s first solar-powered bus (battery electric with solar extending the range); an Australian company announced plans to launch a solar-powered jeepney for use in the Philippines; and an inexpensive solar-powered three-wheeled ambulance was set to provide service to rural areas of Bangladesh before the end of 2017.177 Also in 2016, a solar-powered aircraft, the Solar Impulse 2, successfully completed an around-the-world flight after a 16-month voyage.178

Electric Vehicle Policies

The drivers for enacting policies to support EV use are varied. They include enhancing energy security, reducing transport-related carbon emissions and increasing opportunities for sustainable economic growth.179 For cities in particular, EV support policies aim to reduce local air pollution and thereby to improve public health.180

Several countries, states and provinces have issued targets for electric vehicles. In many instances these are articulated in terms of “zero-emission vehicles” (ZEVsi ), which is largely synonymous with EVs, including PHEVs. The international ZEV Alliance, comprising several European countries and North American states and provinces, announced in late 2015 a common goal to achieve zero emissions for all new cars by 2050.181

Within a shorter time frame, the Netherlands set targets in 2016 for 10% of new cars to be EVs by 2020, 50% by 2025 and 100% by 2035.182 Norway is committed to all new passenger cars, city buses and light vans being ZEVs by 2025.183 In April 2015, the country met its initial target – to reach 50,000 ZEVs – three years early.184 In the United Kingdom, all new cars and vans must be ZEVs by 2040, with the goal that nearly all cars and vans on the road by 2050 will be ZEVs.185

In Asia, India aims to have 6 million EVs (including hybrids) on the road by 2020 under its National Electric Mobility Mission. 186 China’s Technical Roadmap for Energy Saving Vehicles, issued in October 2016, set a target for 7% EV sales by 2020 and 40% EV sales (an estimated 15 million units) by 2030.187 The country also has a target for the development of charging infrastructure, aiming for 12,000 charging stations across China to serve 5 million EVs by 2020.188

In the United States, California and several other states require ZEVs to make up around 15% of new car sales by 2025. 189 California also requires that the renewable energy share of hydrogen for vehicles increase to 33% by 2022.190

Fiscal incentives also are being used to advance EV use. In Europe, Germany launched a support scheme for EVs in 2016 that includes purchase grants and funding to expand recharging infrastructure, and, as of early 2017, Austria offered a purchase premium for EVs charged with 100% renewable electricity.191 In Asia, Japan offers subsidies for the purchase of low-emissions vehicles, including EVs.192 During 2015, China spent USD 4.5 billion in subsidies for the purchase of EVs, with plans to gradually phase out the programmes by 2021.193 While China’s policy has increased sales substantially, there have been reports of widespread cheating.194 The country also has invested significant funds in creating fully integrated domestic manufacturing companies over the years. 195

Some cities are developing zero-emission (at the tailpipe) transport strategies. Amsterdam in the Netherlands has committed to becoming a zero-emission city by 2025; starting in 2018, it will replace all 200 public transit buses with electric buses. In addition, the city aims to replace 4,000 taxis with ZEVs under the Clean Taxis for Amsterdam covenant, and similar agreements are in place with freight and delivery companies.196 In China, Taiyuan became the country’s first city to replace its entire taxi fleet with EVs and the city funded a network of 1,800 charging stations.197 By late 2016, at least 14 Chinese cities, including Beijing and Shanghai, offered subsidies to encourage development of charging stations.198 In addition, EVs in Beijing are exempt from restrictions on internal combustion vehicles, which are not permitted to drive one day per week and for which new licence plates are restricted and allocated by lottery.199