Dynamic Tariffs in Europe: Challenges and Solutions
Written by Yonatan Weissler, Tal Bronfer, Avishai Shaton, and Ido Ginodi
If you live in Europe, we don’t have to tell you how expensive electricity has become. Prices per KWh for residential customers have increased by 69% between 2021 and 2022 due to spiking fossil fuels prices, mainly because of the ongoing conflict in Ukraine.
As much as this is upsetting to consumers, skyrocketing prices may not be the largest challenge faced by the European electricity market. The share of renewable energy in the European electricity grid is increasing in recent years — the culmination of massive long-term investments in solar and storage by the EU and member state governments — with 22% of power generated from solar and wind during 2022. In addition, May 2023 was the first month where wind and solar produced more electricity than fossil fuels. What this means is that during peak solar production times, typically in the late morning and early afternoon hours, the ratio between demand and supply plummets: plenty of excess solar energy is available in the grid, and residential and commercial sites satisfy most — if not all — of their consumption from their own PV sites.
The “duck curve” effect in California between 2012–2020. Source: CAISO
In parallel to these processes, European consumers are electrifying their homes and lives: Battery Electric Vehicles (BEVs) accounted for 12.1% of car sales in Europe during 2022, compared to only 1.9% in 2019. In a typical German household with at least 1 EV, car charging can account for almost 50% of the home’s annual consumption (depending on distance driven and the car model).
Heat pumps, another significant electricity consumer, are also becoming increasingly popular, with a 40% increase in sales in 2022 over 2021. Typical homes adding a heat pump and an EV may see their consumption more than doubling, with the heat pump becoming the biggest electrical load in the home. Those factors are significantly increasing the annual electricity consumption of the European home, while compensation for feed-in solar energy is being gradually reduced in key markets such as the Netherlands.
The ever-increasing variances in demand over days and seasons combined with the electrification of Europe are making the job of balancing generation and demand increasingly challenging. Electricity retailers are now offering innovative tariffs that encourage consumers to shift their production (export) and consumption (import) patterns and help stabilize the grid.
One of the most interesting types of tariffs is the dynamic electricity rate, currently offered to residential consumers in countries such as the Netherlands, Sweden, Germany, Austria and the United Kingdom.
With a dynamic plan, the customer pays the real-time hourly market prices for electricity and can enjoy low (and sometimes even negative) prices when demand is low or renewable generation is in its peak. During peak hours, however, prices can be significantly higher than a standard fixed-rate tariff.
The Challenge
While these smart electricity tariffs can help European consumers save on rising electricity costs, they also require the customer to be actively engaged in managing their home’s energy. Things become even more complex when a PV and storage system is involved: it is no longer sufficient to simply maximize the self-consumption (energy independence) of a home, because at certain times of the day it may be more beneficial to consume from the grid and keep the battery charged with precious solar energy for later. In fact, suboptimal management of energy in Time-of-Use or dynamic plans can result in even higher energy bills compared to a traditional fixed rate plan.
This challenge could prevent smart tariffs from becoming more ubiquitous in the European market, as consumers will need to make tens of energy decisions during each day to take advantage of these innovative pricing models.
The SolarEdge Home Solution
SolarEdge Home ONE combines our industry-leading optimized PV solution with our high efficiency, DC-coupled SolarEdge Home Battery together with an innovative, patent-pending battery management solution.
The SolarEdge HOME ONE battery management system can be thought of as a personal energy AI assistant which uses the following data points to make the most optimal energy decisions:
- PV Production Prediction — based on each site’s installed peak power, configuration, historical performance and weather forecast, ONE continuously predicts how much solar energy will be generated in the near future. It’s also able to forecast periods of clipped, excess PV energy
- Consumption Prediction — based on each site’s consumption patterns, SolarEdge Home ONE predicts how much — and when — energy will be consumed throughout the day
- Electricity Tariff — by integrating with external data sources, such as wholesale energy markets and electricity retailers, ONE determines how much grid-sourced electricity will cost during different times of the day — and how much exported energy will be worth
- Grid Support — for sites participating in Virtual Power Plant (VPP) programs, grid events present an opportunity for extra compensation. In addition, pre-conditioning the battery to support such events or expected outages ensure the most value out of the battery will be generated
Based on these predictions, SolarEdge ONE makes hundreds of decisions tailored for each unique home, to achieve the right goal at the right time: saving excess PV, exploiting periods of off-peak pricing and maximizing ROI — while battery health is not impacted by needless charge and discharge cycles.
Some of the decisions are not trivial: dynamic tariffs are one of the most complex products in the consumer electricity market, as they pass the entire burden of risk management on to the homeowner. Energy prices can dramatically fluctuate in a matter of hours, depending on the share of renewable energy in the national grid, as well as on demand, weather and other factors.
In the example below, energy prices in the Dutch wholesale market climb as high as 0.66€/kWh, and as low as -1.86€/kWh in the afternoon hours. This means that customers can actually get paid to consume energy and penalized for export. A traditional PV and storage system configured for maximizing self-consumption could end up costing the customer more than using only grid-sourced energy in these conditions.
The story becomes more complex considering a Net Energy market such as the Netherlands (until 2025). In this type of market, dynamic tariffs also apply to the solar export (feed-in) compensation. In other words, to fully maximize bill savings, the consumer will need to optimize both import (consumption and/or battery charge) and export (PV production and/or battery discharge) components. In certain scenarios when the export price is negative, it may even be appropriate to curtail solar production altogether — otherwise the consumer could be charged per every kWh of solar energy produced.
The SolarEdge ONE solution integrates with ENTSOE, the European Electricity Market Aggregator, as well as with select electricity retailers in Europe. By tracking real-time retail prices for both import and export tariff, coupled with PV and consumption predictions, SolarEdge ONE can decide when to charge or discharge the battery to maximize bill savings, dynamically responding to changes in solar production and consumption trends. As with other tariff types, SolarEdge ONE also takes battery health into account and will avoid charging or discharging if the predicted financial gain from energy arbitrage is minimal.
48 Hours of Battery Optimization with SolarEdge ONE
The Bottom Line
Smart algorithms are cool, but SolarEdge ONE delivers real results with real impact to your wallet. In net energy markets in Europe, such as the Netherlands, consumers with dynamic electricity plans can save up to 75% of their annual energy bill when adding SolarEdge Home Battery + ONE to an existing SolarEdge PV site.
Looking at these results, it’s clear that even with dynamic contracts, a SolarEdge Home PV system can provide dramatic savings on its own: without solar, the average customer in the analysis group would pay 2400 euros annually. With SolarEdge PV, the customer will only pay 740 euros — 70% less.
But this is where it gets interesting: even in the current net metering environment in the Netherlands, which is generally unfavorable towards solar batteries, SolarEdge ONE’s smart battery management for dynamic plans was able to reduce the average annual electricity cost to 185 euros — 75% less compared to the PV only average.
As net metering in the Netherlands is gradually phased out starting from 2025, consumers will get paid less for their exported solar energy, which is expected to strengthen the case of batteries in the Dutch market and potentially extend the saving potential even further.
SolarEdge ONE and its advanced battery management capabilities will be rolled out gradually to selected European markets later this year. Some of the functionalities mentioned in this blog post are future facing and may be made available at a later stage.
