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District Heating & Cooling

District heating and cooling is the centralised generation and distribution of heating and cooling. Depending on local circumstances, networks can be both lower carbon and cheaper for consumers than an individual heating system. A district heating network allows a large number of individual consumers to access heat that has been produced from a number of sources such as: combined heat and power (CHP), large scale heat pumps, municipal waste incineration, biomass boilers or industrial waste heat recovery.

As countries move to incorporate more intermittent renewable sources of electricity such as solar PV and wind into existing electrical grids, district heating and cooling networks can fulfil an important balancing role. Along with large scale thermal storage, CHP plants can be operated at short notice to provide electricity when the sun stops shining or the wind stops blowing, and the heat produced can be stored for later use. Likewise, an electricity system with high renewables penetration can sometimes produce excess electricity when not needed, using this electricity for heat production and storing it for later use can help balance the grid.

Multiple ownership models exist for district heating networks, ranging from full state or municipal ownership, long term concession agreements with private operators for heat generation and distribution, “unbundled” networks with separate ownership of different network assets or a private owner/operator that bills and interacts directly with consumers.  

Issues

  • Tariff control

    In some countries where district heating systems are prevalent, governments that can control the customer tariffs exploit this for political gain and set or promise artificially low tariffs. These low tariffs may not reflect the costs of...

    In some countries where district heating systems are prevalent, governments that can control the customer tariffs exploit this for political gain and set or promise artificially low tariffs. These low tariffs may not reflect the costs of operation, capital expenditure required for upgrade or allow for a return on investment. An arm’s length or independent regulator that provides clear guidelines for cost-recoverable tariffs is a common solution to this problem in Western European countries with high prevalence of district heating. 

  • High up-front investment

    Networks in need of repair or requiring extension and new capacity have high capital costs that a PPP operator may be required to fund ahead of receiving any revenue. There are various ways to manage this:

    • governments can provide loan guarantees...

    Networks in need of repair or requiring extension and new capacity have high capital costs that a PPP operator may be required to fund ahead of receiving any revenue. There are various ways to manage this:

    • governments can provide loan guarantees to lower the cost of capital
    • governments can inject capital subsidies into the project to share the cost with the private partner
    • governments can tender specific components of the network in order to attract a PPP operator, such as  only the heat generation or distribution and billing (this is known as the the “PipeCo” model)
  • Network disconnections

    Due to underinvestment by state operators, many district heating networks have fallen into disrepair and service levels have declined. This has prompted consumers to disconnect from their local district heating network and invest in their own...

    Due to underinvestment by state operators, many district heating networks have fallen into disrepair and service levels have declined. This has prompted consumers to disconnect from their local district heating network and invest in their own heat generation.

    To encourage consumers to reconnect following investment through a PPP, there should be a comprehensive communication campaign in which the investments and the expected service improvements are explained.  The service improvements will be ensured by the performance standards in the PPP contracts. 

Tools & Guidance

    • 2009
    • Government of Scotland

    Community Renewable Energy Toolkit

    This toolkit has been produced to help community groups to develop renewable energy projects. 'Groups' may be an informal collection of like-minded individuals wishing to start something in their community; or may be well-established, constituted organisations linked to a community facility (e.g. village hall or community centre) or with a wider purpose (e.g. Development Trust). It does not assume any detailed knowledge of the topic and so allows you to decide where to start - whether this means looking at the basics of energy generation and use, or at specific detail of a particular renewable energy technology. The toolkit is designed to allow you to work through what your community's options will be and point you in the...

    • 2015
    • International Finance Corporation (IFC)

    Unlocking the Potential for Private Sector Participation in District Heating

    This report analyzes barriers to and opportunities for private sector participation in district heating (DH) in the Western Balkan countries of Bosnia and Herzegovina, Croatia, Kosovo, and Serbia, as well as in Mongolia and Ukraine. Specifically, the report analyzes the legal and regulatory frameworks for public-private partnerships (PPP) and for DH in each of the countries, including an overview of the primary and secondary legislation, PPP preparation and approval processes, institutional setup of the DH sector, and heat tariff-setting procedures. In addition, the report describes international best practice for various business models for private sector participation in DH and provides country-specific recommendations to improve the...

    • 2015
    • Government of the United Kingdom

    The London Heat Network Manual

    This manual provides guidance on best practice in the planning of district heating systems.

Projects & Case Studies

Lessons & Analysis

    • 2015
    • United Nations Environment Programme (UNEP)

    District Energy in Cities

    Unlocking the Potential of Energy Efficiency and Renewable Energy

    Report from UNEP has surveyed low-carbon cities worldwide to identify the key factors underlying their success in scaling up energy efficiency and renewable energy, as well as in attaining targets for zero or low greenhouse gas emissions.

    • 2014
    • Government of the United Kingdom

    Delivering UK Energy Investment: Networks

    Delivering UK Energy Investment: Networks 2015 provides an in-depth focus into the investment undertaken in networks, the challenges and opportunities on offer and a vision for what future integrated networks might look like. The report highlights the success we have achieved through creating the right conditions to make the UK an attractive place for investment in network infrastructure so we are on track to meet our energy goals and targets.

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