Southeast Europe has traditionally analysed electricity and heat as separate systems, even though their economics are increasingly converging. Power markets face periods of very low solar-driven prices followed by expensive evening ramps, while cities and industrial facilities continue to use gas, coal, biomass or oil to produce hot water and steam. Power-to-heat can connect these two markets, creating a new source of flexibility.
Electric boilers and large heat pumps can consume electricity when prices are low, while thermal storage allows that heat to be used later. The result is a flexible electricity load whose final purpose is heating rather than power consumption.
This distinction matters because the economics of storage depend heavily on the service the customer actually needs. If the end use is hot water, there may be little economic justification for storing electricity in an electrochemical battery and converting it into heat later when a hot-water tank can provide the same time-shifting function at lower cost.
Thermal storage is less versatile than a battery, but versatility is not always necessary. Southeast Europe needs large volumes of demand that can shift away from evening scarcity and toward periods of midday renewable abundance. Heat can provide exactly 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 heavily dependent on gas and other legacy fuels.
Adding an electric boiler can introduce flexibility without requiring an immediate transition away from conventional fuels. The operator can use electricity when wholesale prices fall below the marginal cost of gas and return to conventional boilers when electricity prices rise. A large insulated thermal tank can extend this operating window by separating the timing of heat production from actual heat consumption.
Heat pumps add another layer of efficiency. They can produce several units of heat from a single unit of electricity, particularly when they can access low-temperature sources such as wastewater, rivers, industrial waste heat or data-centre cooling systems.
Their operation is less binary than that of an electric boiler but can be economically attractive across a broader range of electricity prices. Combined, electric boilers, heat pumps and thermal storage can transform a traditional heat utility into a multi-commodity energy optimiser.
Industrial heat
Industrial facilities represent another major opportunity. Food processors, paper mills, chemical plants, textile manufacturers and other industries require steam or moderate-temperature heat that can often be electrified.
A hybrid boiler house can choose between gas, electricity and stored heat depending on market prices and production requirements. This gives industrial consumers a physical hedge against energy-price volatility rather than relying exclusively on financial hedging instruments.
The ability to increase electricity consumption during low-price periods can also support renewable generators facing weak capture prices. A factory located near a solar-rich grid node could absorb electricity that might otherwise be curtailed or sold at very low prices.
This creates the potential for long-term contracts built around flexible industrial demand rather than traditional baseload consumption. In this model, an industrial customer becomes strategically valuable not simply because it consumes large quantities of electricity, but because it can change when that electricity is consumed.
What blocks the business case
Network tariffs are among the biggest obstacles. An electric boiler may operate only during periods when wholesale electricity is cheap, but if capacity charges, taxes and other network costs are designed around continuous consumption, the overall economics may remain unattractive.
Connection capacity presents another challenge. Replacing a 20 MW gas boiler with electrical equipment could require a major substation upgrade, potentially adding years to the project timeline.
Regulated heat tariffs can create another barrier by limiting the ability of municipal utilities to capture market upside or recover investment in new flexible equipment.
Policy design therefore needs to recognise the system value of flexible electricity consumption. A flexible electric boiler should not necessarily face the same network-cost structure as an asset that operates continuously at peak times if its operation can be contractually restricted during periods of grid congestion.
Dynamic connection agreements, time-varying network tariffs and access to balancing markets could significantly improve the business case. The objective would not be to subsidise electricity consumption, but to reward consumption when the power system needs additional demand.
Market consequences
If power-to-heat expands across Southeast Europe, its impact could extend well beyond the heating sector. Additional flexible demand could make midday solar price depressions less severe, while gas consumption would become more responsive to relative electricity and gas prices.
District-heating operators could begin actively managing electricity and fuel spreads, while thermal storage could compete with batteries for certain flexibility services. Winter electricity demand would increase as heating becomes more electrified, but an important share of that new 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.
The region has spent years asking where its next source of flexible electricity capacity will come from. Part of the answer may already be sitting inside boiler houses, hot-water tanks, district-heating systems and industrial steam networks—assets that have historically been treated as part of the heat sector rather than as resources for the electricity market.
