Southeast Europe has traditionally treated electricity and heat as separate energy systems, even as their economics increasingly converge. Power markets can experience very low prices during periods of strong solar generation before moving into expensive evening ramps, while cities and industrial facilities continue to rely on gas, coal, biomass and oil to produce hot water and steam.
Power-to-heat can connect these two markets, turning heating demand into a flexible electricity resource.
Electric boilers and large heat pumps can increase electricity consumption when power prices are low, while thermal storage allows the resulting heat to be used hours later. This creates a controllable electricity load whose ultimate purpose is not electricity consumption itself, but the delivery of heat.
That distinction matters because the most economical form of storage depends on the service being provided. If the end use is hot water, storing electricity in a battery and later converting it into heat may make little economic sense when a hot-water tank can provide the same time-shifting function at lower cost.
Thermal storage is less versatile than electrochemical batteries, but versatility is not always required. Southeast Europe needs large amounts of demand that can move away from expensive evening periods and toward hours of abundant midday renewable generation.
Heat may be one of the region’s most accessible sources of that flexibility.
District heating as a market asset
District-heating systems across Serbia, Romania, Bulgaria, Croatia, Hungary, Bosnia and other Southeast European markets already aggregate thousands of customers around central heat-production facilities. Many remain dependent on gas and other conventional fuels, creating an opportunity to introduce electricity as an additional energy source.
An electric boiler can provide flexibility without requiring an immediate replacement of existing fuel-based equipment. A heat operator could use electricity when wholesale power prices fall below the marginal cost of gas and return to conventional boilers when electricity becomes more expensive.
Adding a large insulated thermal storage tank can significantly expand this operating window by decoupling heat production from the moment when customers actually need the heat.
Heat pumps provide another layer of efficiency. They can deliver multiple units of heat for each unit of electricity consumed, particularly when they can use low-temperature sources such as wastewater, rivers, industrial waste heat or data-centre cooling systems.
Their operating profile is less binary than that of an electric boiler but can be economically attractive across a wider range of electricity prices.
Together, electric boilers, heat pumps and thermal storage can turn a traditional district-heating operator into a multi-commodity energy optimiser.
Industrial heat
Industrial facilities represent an equally important opportunity. Food processing, paper, chemicals, textiles and other industries require steam and moderate-temperature heat that can increasingly be electrified.
A hybrid boiler system can switch between gas, electricity and stored heat according to market prices and production requirements. This gives industrial consumers a physical hedge against energy-price volatility instead of relying entirely on financial hedging.
Flexible industrial demand can also create value for renewable generators. A factory located near a solar-rich grid node could increase electricity consumption during periods of low prices, absorbing power that might otherwise be curtailed or sold at weak market values.
This opens the door to long-term energy contracts structured around flexible demand rather than traditional baseload consumption.
Under such a model, the value of an industrial customer is determined not only by how much electricity it consumes, but by how effectively it can change when that electricity is consumed.
What blocks the business case
Network tariffs are among the most important barriers. An electric boiler may operate primarily during periods of low wholesale prices, but capacity charges, taxes and other network costs can still make its electricity consumption uneconomic if tariffs are designed for continuous users.
Connection capacity is another major constraint. Replacing a 20 MW gas boiler with electrical equipment could require a substantial substation upgrade, potentially adding years to project development.
Regulated heat tariffs can create an additional challenge by limiting the ability of municipal heating companies to capture market value or recover investments in new flexible equipment.
Policy frameworks therefore need to recognise the system value of controllable electricity demand. An electric boiler that is contractually prevented from operating during periods of network stress should not necessarily face the same cost structure as a load that contributes to peak demand.
Dynamic connection agreements, time-varying network tariffs and access to balancing markets could significantly improve project economics.
The objective is not to subsidise electricity consumption. It is to reward consumption when the power system has an economic or operational need for additional demand.
Market consequences
A large-scale power-to-heat sector could have effects far beyond the heating industry.
Additional flexible demand could reduce the depth of midday solar price declines, while gas consumption would become more responsive to the relative economics of electricity and fuel. District-heating operators could begin actively managing electricity and gas price spreads, while thermal storage would increasingly compete with batteries for selected flexibility services.
Winter electricity demand would rise as heating becomes more electrified, but an important share of that additional demand would also become controllable rather than fixed.
The strategic value of power-to-heat is therefore broader than decarbonisation. Heat could become a balancing resource measured in hundreds of megawatts across Southeast European power systems.
For years, the region has asked where its next major source of flexible electricity capacity will come from. Part of the answer may already exist inside boiler houses, thermal storage tanks, district-heating networks and industrial steam systems.
These assets have traditionally been viewed as components of the heat sector. The emerging power-to-heat model suggests they should instead be treated as part of the electricity system as well.
