Needs-Challenges-Barriers-Opportunities

Needs/challenges, barriers, opportunities

Country

Denmark

PART 2: Needs/challenges, barriers opportunities

Country

Denmark

Urgent needs/challenges

The current situation for district heating in Denmark, with a share of space heating of 50 %, a market share among households of 62 % and average market shares within designated district heating areas of more than 90 %, does not warrant urgency.

This is also reflected in answers in the questionnaire, where stakeholders indicate smaller adjustments as needed, but none that points to major needs for rehabilitation.

Adjusting heat planning
Some indicate at a need for review of the existing heat plans, that both tie end consumers and also distributors of collective heating (natural gas and district heating). Natural gas customers are tied to gas, even if cheaper district heating is available nearby, and some district heating producers are tied to the use of natural gas, despite being interested in using renewable energy sources.

Some flexibility with regard to the switch of gas customers to district heating is expected to come, as a general agreement between gas distributors and the district heating sector may be found concerning the sunk cost in gas networks. District heating utilities may compensate for investments in gas distribution not full depreciated, and distributor may then end their resistance to change municipal heat plans that allows gas areas to be converted to district heating.

Heat planning also in many cases tie district heating production plant to a specific fuel and technology (cogeneration on natural gas). This can only be changed at national level, and there are two main concerns. One is that a major shift from gas to renewables will reduce state revenue from energy tax on fossil fuels. To compensate for this, energy tax on renewables could be introduced, but uncertainty about this, and about the level of such a tax, adds risk to investments in renewables. The supply streams of renewable fuels and the usage is a much more complicated than for fossil fuels, with makes taxation difficult to implement, and taxation on renewables only district heating would harm its competitiveness, compared to individual heating solutions. (The “wood burning stove” -effect may set in. This refers to individual houses installing or increasing the use of wood burning stoves in case of increases in price of collective heat supply.)

Fossil transition
Stakeholders identify fossil transition as the biggest challenge, followed by future demands and gaining new customers. Danish district heating is today to a large extent (54 %) based on fossil fuels mainly used in electricity production. Almost 80 % of district heating comes from cogeneration and much of that heat is bought from external producers. District heating companies have little influence on the choice of fuel made in the large scale cogeneration plants that supply around two-thirds of district heating, mainly in all big cities.

Main forces driving developments

Respondents typically refer to economics, heat planning and the well operated and modern district heating systems, with their advantages with regard to the environment and security of supply.

Price advantage for district heating (see graph elsewhere) will is at the moment a main driver for change, but legal barriers need to be removed (see above).

Main barriers

Some stakeholders also point to the challenge in supplying modern buildings designed to increasingly strict requirements to building with regard to energy consumption. To overcome this barriers technological development in district heating is needed.

Other issues pointed out:

• Municipalities lost competence in heat planning
• High initial investments necessary
• Lack of information and knowledge about district heating
• Exaggeration of benefits of individual, renewable heat solutions
• District heating over-dependence on fossil fuel and future shortage of biomass

Main opportunities

The main opportunity for district heating is the climate challenge. District heating has already demonstrated its ability to increase the total efficiency of the energy supply and its flexibility. District heating can make energy demand for space heating and hot tab water more sustainable at lower cost and faster than individual solutions in each building.

In general, stakeholders believe there is a positive to very positive attitude to district heating among existing customers, a mainly positive (with some neutral) attitude in the general public and a positive attitude amongst policy makers. This is also in line with an image survey conducted by Danish District Heating Association in 2007, although it must be mentioned that that survey also revealed much indifference and a huge lack of knowledge.

Technical skills are mainly viewed to be sufficient, but municipalities need to revitalize their ability to conduct heat planning, after some years with little activity in the field.

Contribution towards EU targets

District heating is the dominant supplier of energy for space heating and warm tab water in Denmark, and will obviously play an important role in Danish efforts to meet EU targets in energy policy targets. This seems to be acknowledged by national policymakers, although stakeholders only place medium emphasis on it.

Initiation, expansion and refurbishment

Main stakeholders involved in the establishment of the present district heating systems have been government, municipalities and local cooperatives. The two latter parties will also take part in expanding district heating into natural gas area, and gas distributors will of course play an important role. First as competitors, but, if conversion to district heating is to carried out, playing an important role in securing a smooth transition.

Conversion of a heating district from natural gas to district heating requires an update of the heat planning, which must be carried out by the municipality. The utilities involved are under legal obligation (heat supply act) to provide all necessary information. The updated plan takes is approved by the municipal council, and is implemented by the utility, which often has been involved in designing the change. Normally this process is characterized by cooperation between the parties, utilities in most cases being owned by the municipality or by a local consumer cooperative, but municipalities can, if necessary, order a utility to carry out a project.

As mentioned, ownership of district heating utilities is nearly always municipal or cooperative. No major change is foreseen in this. Commercial companies have shown little interest in acquiring district heating utilities, as they are tightly regulated and must operate non-profit. Some municipalities have shown interest in selling their utility, but tight regulation prevents them from profiting much from it.

Consumer protection
Consumer protection is extensive. The heat supply act, with its pricing regulation, not only protect consumers from abuse of the dominant position district heating has, it also establishes protection for the consumer in the form of surveillance from an energy regulator, ensures customers a special complaints authority etc. This regulation is generally accepted by most district heating utilities, and in general there has been good cooperation between the district heating sector and the energy regulator. It has been difficult for the regulator to get satisfactory information from some of the (few) privately owned district heating companies, so their legal right to collect information has recently been strengthened.

Financing

Financing has never really been an issue. Investments in district heating made by municipal utilities or cooperatives have been financed with bond backed loans from a non-profit municipal lending association. Loans have been guaranteed by municipalities when projects involved an obligation for consumers to connect, and that has ensured low interest rates. This has been a successful arrangement, which still exists, and no change is foreseen.

Cost savings

Cost saving measures in district heating has mainly focussed on distribution. Major savings can be achieved by making distribution networks more efficient. Network loss is 20 %, which is high compared with other countries, and that is due to a much higher penetration of district heating into areas with low heat density, such as areas with individual, single family houses. Danish district heating is unusual in this respect, and the difference is due to the availability of huge amounts of surplus heat from power plants. Most of Danish electricity production traditionally was thermal, and it is preferred to loose 20 % of that heat in district heating networks rather than to loose 100 % in the sea, which is the alternative cooling option. But distribution loss has been lowered as networks were renovated during the last decade, from 23 % in 1994 to 20 % today, and further reductions will be achieved in future, as technology improves.

Development of residential sector

Denmark is sometimes referred to as a country with ambitious rules governing the energy consumption in buildings. The Ecoheatcool study revealed residential demand below the European average.

Source: Ecoheatcool, Ecoheatcool and Euroheat & Power 2005-06

The present t building code operates with an energy limit for residential buildings expressed as (70+2200/A) kWh/m2 per year, where A is the heated area. Future building codes will progressively lower that limit, so what today is known as low energy buildings will become standard. Passive houses may even become the norm in 2020.

Some flexibility will also be added, so not all energy input to buildings will count the same. District heating will be given a factor of 0,8 to reflect its primary input.

Policy-makers intervention

Political intervention in the energy sector has been considerable since the energy crises in the 1970’ties. There is no indication that this will be reduced. Neither at national level nor, it seems, at European level. The development of district heating in Denmark has benefited tremendously from a political intervention, which has seen district heating and cogeneration as some of the most import instruments in achieving energy policy targets. There is no indication that political targets in the field of energy consumption and the associated environmental effects will be less ambitious in future, or that district heating will loose its importance for the Danish energy sector. In all likelihood, political intervention will continue and it will benefit district heating.