How to reap the benefits of district heating? Make it local

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The views expressed are those of the author and do not necessarily reflect the position of FORESIGHT Climate & Energy

With a coordinated policy approach, district heating can provide a large share of Europe’s heating needs

The city of Groningen in the Netherlands has long been home to Europe’s largest fossil gas field. As fossil fuel production winds down, city authorities are looking for alternative residential and commercial heat sources. One of the solutions they found is a district heating system using locally available waste and renewable heat.

Clean, efficient and smart district heating, like the system being built in Groningen, can play an important role in decarbonising our buildings, using the huge potential of excess, ambient and renewable heat and providing crucial energy storage and flexibility.

But, matching this supply of clean heat with demand requires a coordinated policy approach and substantial infrastructure investments. The decarbonisation of existing and the development of new district heating networks will need to be aligned with making buildings ready for clean heat.

In countries with extensive fossil gas use, there is the added challenge of simultaneously phasing out gas grids. Moreover, end users will need to have confidence that district heating will be a good choice financially, environmentally, and in regard to service provision.

This is not easy. But, if lawmakers, regulators and industry can get three things right—heat planning, societal trust and regulatory frameworks—we stand a good chance.

LOCAL HEAT PLANNING

Heat, especially the low-temperature heat that most clean sources provide, needs to be used close to where it is produced to be energy-efficient and prevent high infrastructure costs. Similar to the electricity sector, heat production will be increasingly decentralised, as we switch to clean heat.

Local heat planning is a crucial instrument in matching local demand and supply of heat. This involves mapping locally available clean heat sources and heat demand, assessing area building stock and identifying solutions with the lowest societal cost for each region.

Municipal authorities are well placed to lead this process and bring together the key actors involved such as district heating and building owners, operators and users and potential suppliers of heat. Yet very few European countries require their local governments to engage in strategic heat planning.

The Nordic countries have a long history of heat planning. More recently Germany, the Netherlands and Scotland have introduced obligations for municipalities to do so.

The revised European Union (EU) Energy Efficiency Directive, however, will make heat planning mandatory across the EU for all municipalities with over 45,000 inhabitants. Although this obligation is a great start, it should be expanded to include smaller municipalities and will require careful implementation and monitoring.

REGULATORY UPDATE

Municipalities cannot do this alone. They will need a supportive regulatory framework.

Firstly, national governments could empower local jurisdictions with the authority to decide which heating solution should be deployed for each area (known as zoning) and set standardised methodologies for decision-making, for instance on how to weigh societal costs and benefits of different solutions, and how to prioritise when each area is switched to clean heat.

Secondly, regulation should find a balance between enabling economically viable business models for district heating while protecting end users. District heating systems are often vertically integrated, with one entity operating both the distribution network and delivering heat to end users.

Moreover, networks are natural monopolies. Once consumers are connected, it is costly for them to switch, and it is not attractive for competitors to set up a rival network. This means relying on competition between providers to drive down prices does not work well in the heat sector.

There are different ways to address this issue, with some countries limiting district heating profits, and others regulating heat and connection prices or ownership models. The challenge is finding a model that ensures district heating can provide affordable heat while ensuring public and/or private investment in the construction of new infrastructure.

Finally, it is key to provide long-term certainty and the assurance that enough end users will connect to the networks. As upfront investments are high and payback times long, a critical mass of heat demand is necessary for networks to become economically viable.

SOCIETAL TRUST

It is important that lawmakers and industry also work on building trust among potential end users. This will be key in areas where district heating is currently underutilised, such as northwestern and southern Europe, because people are usually wary of “new” solutions, even more so when it comes to a significant investment decision such as changing their heating system.

Although, according to a recent EU-wide survey, public perception of district heating varies between countries, people saw a risk of becoming dependent on a single energy supplier when joining a district heating system. Moreover, in several countries, there was an overall negative perception of district heating.

In Denmark and Sweden, countries with the most positive public view of district heating, transparency and provision of information to consumers have shown to be key elements in bolstering end-user trust. It facilitates monitoring of the sector, leading to increased accountability on pricing and performance—a safeguard that regulatory frameworks can foster.

ACT QUICKLY

Clean, efficient and smart district heating has huge potential, but governments need to act quickly. Consumers rightfully expect clear direction and clarity on how to heat their homes in the future.

If action is not taken soon, municipalities and consumers will not be in a position to make informed decisions about their clean heat solutions. Heat pump markets are booming, with prices of installation dropping and newer, smaller and more efficient models further increasing their attractiveness. Yet in many, especially urban, areas, district heating will be the most economical choice.

Heating with existing fossil boilers will become increasingly expensive as the expanded EU Emissions Trading System goes into effect in 2027. This date might seem far away but is just around the corner considering the long planning timelines for energy infrastructure.

As the date nears, people will vote with their wallets and switch to individual solutions such as heat pumps in areas that could potentially be served by a district heating network, at lower overall societal cost.

To make the most out of the benefits district heating has to offer, we need to accelerate the development policy and regulations for the deployment of clean district heating. •

Across this three-part series, Sem Oxenaar examines the state of district heating in Europe and charting a route forward to clean, efficient and smart systems. Read part one and part two

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