Subsidies or cost-reflective energy tariffs? Alternative pathways for decarbonizing the residential sector and implications for cost efficiency.

This study assesses alternative energy technologies (i.e., PV and battery systems, electric heat pumps, hybrid gas heating with solar thermal energy) in terms of profitability and CO 2 emissions, for the case of two simulated typical households living in detached houses in Germany. Under the status-quo regulatory framework, the energy transition in the heating sector is fostered through grants for replacing old heating systems, whereas PV generation is fostered by feed-in tariffs and indirect subsidies for self-consumption. This study considers an alternative regulatory scenario with a more market-oriented approach, finding that a CO 2 -oriented reform of energy surcharges and taxes, as well as a reform of network charges, can support a more cost-efficient energy transition in the residential sector. The paper concludes with a discussion of the consistency, cost efficiency and effectiveness of past and current policies underpinning the energy transition in the residential sector. • Assessment of home energy systems across 2 households and 2 regulatory scenarios. • Consideration of PV, batteries, heat pumps and hybrid gas-solar heating systems. • Comparison of subsidies and flat energy tariffs vs. cost-reflective, dynamic tariffs. • Market-oriented approach incentivizes far more cost-efficient CO 2 emission reduction. • The German residential energy sector needs a consistent regulatory framework. [ABSTRACT FROM AUTHOR]