Needs-Challenges-Barriers-Opportunities

Needs/challenges, barriers, opportunities

Country

Finland

#

Name and reference of measure

Type of measure

Responsible organ

Existing or planned?

Urgent Needs/Challenges

There are not many recognised urgent needs in the Finnish DH sector. From the point of equal treatment DH is carrying heavier tax burden compared to some other heating systems. For example excise tax is allocated on coal, natural gas and oil fuels used to produce heat. Fuels used to produce electricity are exempt from tax in Finland. Electricity is taxed based on end use. In practice it means also that electricity used in DH network pumping stations is taxed as well.

The main challenge is finding relevant heat loads in the future. Generally speaking the most of the viable areas are connected to DH already as the current share of DH is 49 percent of the heat market. In future finding the relevant heat load will be even more challenging due to low energy buildings and tightening building codes. However, the current trend of increasing the density in urban planning may create more viable heat loads for DH. DH is professionally managed and controlled and it is also a carefree, safe and secure, easy and comfortable heating option for ageing population.

DC is still a bit unknown but generally considered as interesting and positive option to make cooling more efficient where cooling is needed. Cooling in general is not that much of a topic of general discussion in Finland. The general impression is that there is a need for cooling but nationwide data is hard to come by. However, the energy efficiency may also mean that less cooling is needed in future houses.

The key issue on the DHC development is developing the infrastructure in harmony with the surroundings. Investment costs are considerably high and DH industry must develop lighter technology concepts for future conditions with less heat demand. The present customer price of DH is not elastic enough in order to fit the expectation of low energy consumption, especially in single family houses. New tariff systems and business models have to be introduced. Actually, the FEI prepared a DH branch strategy 2008, where above mentioned and many other future phenomena are analysed and development measures identified.

DH sector is often seen as lazy in putting effort into innovations, research and development. One possible reason for the lack of development is strong public ownership of the DH utilities. Thus, municipalities have been criticised of forgetting the development side of technology and business models as long as everything works out well. Energy companies provide the municipalities much needed returns and some stakeholders call it even as being a hidden tax paid by the customers to the communities. In that sense new tariffs would be needed to promote also the transparency of pricing.

The challenges are also on the long term development of municipal planning and in building up economically viable heat loads for already mature market and for conditions of less heat demand. Adding new less densely populated areas requires technology that ties less investment to the new infrastructure. Image wise it is important that the network construction is carried out with as little trouble for the neighbourhood as possible.

DH companies feel that the benefits of the DHC/CHP production are still not clearly understood by the stakeholders at large and the general public. Some feel that the benefits of DHC are solely connected with the use of biomass and other renewable sources. Others feel that the heat sources should be dealt as a separate issue from efficiency of the system. Finland can not produce all energy with renewables in any case and therefore the efficient use of different fuels in different cases should be studied carefully, for example by primary energy calculations.

The general feeling is that DH does not need specific legislation or other obligatory support measures. The legislative needs are actually in keeping all options open and the usage well founded. If any obligatory measure was to be introduced that should be aimed at mixing the electric heating systems with DH dwellings. In practice that means that DH buildings should be kept clear from auxiliary electric heating systems such as floor heating in shower rooms and electric secondary heaters for ventilation intake that have become very popular during past decades.

There are some irrational examples where the government grants are awarded in order to build a heat pump system to one single house in an area that is otherwise connected to DH. Municipal decision makers should not make building type or other limitations of to the use of DH.

DH is and should be cost effective system in order to survive the market competition without additional subsidising. The industry has to pay constant attention of not exploiting the dominant market position since even doubts about that will harm the over all image of the sector in general. Then DH operates on a healthy and long term basis.

Main Driving Forces

Finns generally value DH as easy, efficient and the environment, climate and customer friendly over all beneficial heating system for urban communities. DH is also considered cost effective. The development of DH has gone hand in hand with the development of CHP and together they form very efficient backbone to the Finnish energy system in whole. 75 percent of DH is produced in CHP plants and the electricity from CHP plants covers about one third of the national electricity supply. DH and CHP offer also benefits such as wide selection of possible fuels that lowers the risk in security of supply, price and availability.

The heating market is under transition period, which will last some time. Currently there are lots of new developments that test and compare the different features and cost efficiency of individual heating systems such as heat pumps, solar heating, pellet boilers etc. The transition period will continue for some time, but in few years time there will be better inclination of the future perspectives and the DH industry’s response to it.

In general the industry strongly supports the market based thinking where the system will either be cost efficient on its’ own or then some other choices will have to replace it. The market competition between different systems is considered to work well when heating choices are being made. After the choice is made DH will have a dominant market position, but recently there have been also some cases where a former district heated apartment buildings switched to heat pump system in order to save in heating costs.

DH and CHP are widely seen as the one of the best ways to increase the use of renewable and waste fuels. Finland is currently already the leading user of biomass in European Union. The total share of renewables (incl. biomass, hydro, wind and others) was 28, percent of the energy end use in 2005 mostly due to the extensive use of biomass. In 2020 the EU renewables target is set on 38 per cent. Due to strong forest industry the energy content reclamation of raw wood and biofuels refining have been an essential part of the national competitiveness for decades.

In DH sector biomass provided 11 percent of the total fuels used to produce DH and CHP electricity in 2008. Another domestic fuel peat covered 21 percent of the DH and CHP electricity fuels which is very beneficial from the security of supply angle. The environmental benefits include also the good air quality in city centres, which is sometimes forgotten as DH has been so widely in use for long time.

In order to utilize maximum local biomass and waste resources needs strong commitment to develop the cost efficiency of small scale DH and CHP technology (from few hundred kW up to 10-15 MWe).

In the beginning of 2009 it became possible for local planners to obligate certain areas to join DH network. This measure was strongly supported by the Association of Finnish Local and Regional Authorities. Obligation to join DH has not been warmly welcomed by all utilities. Some companies feel that it might encourage to inefficient and expensive forced growth of the network.

Some stakeholders have felt that there is a need to have some guidelines and codes of conduct in order to create a fully transparent and widely accepted pricing framework for DH. As a response, the DH industry has created a voluntary certificate system called “Reilu kaukolämpö” (Fair DH) to harmonize the product and to make price setting of DH more transparent. Certified heat sales cover about 78 percent of the total heat sales. Moreover, the FEI publishes statistical price data twice a year in order to promote transparency.

Among the interviewed stakeholders the Finnish expertise in DH is valued very high. The DH sector is seen often as stiff and not very proactive in developing new business models, strategies or technology. Many stakeholders see this also as a possibility for the sector to improve in future, but they are still waiting for awakening signals from the industry.

On the industry point of view development is being carried out already. Helsinki Energy, for example, is developing light technology to connect the “grey area” to network. Gray area refers to the remote end of the current DH network where the area turns too thinly populated for full size DH system. For them the light technology under development is able to deliver the heat, but does not enable further development of the network. If the heat needs to be carried even further it requires other solutions such as heat pumps.

Main Barriers

General consensus is that there are no institutional barriers to hold back the development of DH. Streamlining the planning process could effect positively on building the viable heat load for cost effective DH system. Under the current technological solutions the heat loads are well utilised under DH all over the country. More technology development is needed in order to lower the investment costs of less densely populated areas.

The possible policy measures should be directed to early stages of planning. In future the plans should include integrated energy plans with an overall description of the planned energy system and calculations of the emissions in order to promote a wider look at energy efficiency.

Early planning could also increase the dynamics of DH sector. Active companies could show the benefits of different approaches and this could have a positive and coherence increasing impact on the whole consideration of the impacts of urban living.

Main Opportunities

DH will remain strong in the Finnish heating market in the foreseeable future. It is efficient, secure and indiscriminative heating system that has not relied on outside subsidising before and does not count on it in future either. The core value of the DH system in Finland has been that considering all the benefits, it has been able to operate competitively by itself. Some adjustments need to be made and for past couple of years DH sector has been developing strategies for both on short term basis and long term basis in order to be proactive on settling to the changes in the operational environment.

Key issues to tackle are the warming weather due to climate change and the policy measures that limit the need for heating and cooling in general. Support for DH comes from the ageing population that will be living more densely in future. As a carefree, secure and comfortable heating and cooling system the customers can leave the indoor air comfort questions to the professionals. In future energy efficiency of buildings will be measured by primary energy use and there is also a possibility to include a CO2 emissions component to the calculations. DHC should be in strong position in comparison with many of the other heating systems especially in connection to CHP.

DHC and CHP also offer good possibilities to increase the efficient use of biomass. The forestry industry has traditionally provided the logistical chains for the biomass supply even for the energy producers. In the industrial energy production the forestry industry by-products have contributed major share of the national biomass supply. Now that the forestry sector is going through a major transition and mills are closing down the consequences remain to be seen. Increasing the share of biomass in DHC and CHP requires some streamlining throughout the fuel supply chain and strategy work is currently going on. In order to obtain the target the Finnish government has so far introduced a feed in tariff for wind power and biogas production. The system is currently under construction but should be finalized in 2010.

General feeling in Finland is that the member countries who have lacked ambition in their previous efforts are the winners of the burden sharing. Even more generally, DH industry in Finland feels that legislation originating from the EU may have a negative impact on DHC and CHP in Finland, because the EU doesn’t take enough into account the early actions taken by the Finnish energy sector. From the DH industry point of view the investments and hard work in order to improve the efficiency of the power plants and networks are considered worth nothing because it was carried out before 2005. DH industry feels that system efficiency as such should be taken into account as a separate characteristic and some award should also be given to efficient actors even when they can not increase the share of renewables instantly.

The DH industry’s attitude towards new investment is generally realistic but positive. Healthy utility will develop its’ business in order to survive in the competitive market. Municipalities usually have strong interest to stay on top of the decision making in energy issues. With functioning relationship between the municipality leadership and utility management investments are being made and possibilities investigated in connection with urban planning. In urban planning the timing and coordinating different projects together can be full of challenges. In practice the utilities have to be flexible and when necessary provide new customers also help and temporary heating or cooling solutions in order get them join the DHC network in good order. This modular approach has proven to be useful especially in DC where the market is growing rapidly.

The government does not subsidise DHC projects. Grants and financing is offered for R&D and increasing the use of renewable energy i.e. biomass regarding DH. The energy investment totalled 60,1 million Euros in 2009 budget. However, the investment grants are awarded to all renewable investments and a big share is directed to wind power projects.

The main risks in DH investment are considered to be in incoherent political decision making. Different level regulation from EU directives to national legislation and local planning decisions give mixed signals of the need for investment. Utilities also underline that DH sector requires long term commitment in order to be functional. The system is easily spoiled if the profit margins are set on too high level.

Such future risks as the diminishing heat demand are somewhat controllable because of the pace of change. Adaptation to warmer climate needs gradual changes. The building stock is changing as well but the annual change is only about one percent annually.

Some municipalities have been forced to make fast decisions on how to replace DH production when a big industrial facility shuts down a production unit with integrated heat production. In small municipalities such big structural changes may cause also migration away from the area and the cost of infrastructure, heat and water for example, falls on fewer inhabitants while also making economic losses.

In ten years the amount of new dwellings will not make a huge difference to the heating systems. The building code amendment put in action on Jan 1 2010 new buildings are required to be 30 percent more efficient and the changes are carried out in building codes regarding envelope insulation, building energy efficiency and ventilation. In 2012 the building code will be amended further in order to implement the energy efficiency requirements further. New regulation will set limits to buildings total energy consumption. Energy efficiency requirements will increase by further 20 percent.

There is a strong inclination also to increase the energy efficiency requirement for the existing building stock but the incentives and measures are more difficult to define. Government grants and subsidies for energy renovations are available. Additional measures such as changes in the real estate tax system have been mentioned but nothing final has been decided so far. Most stakeholders interviewed were hopeful that even though the improvements are slower in existing buildings the energy efficiency improvements are possible and noticeable in ten years.

Low energy housing will possibly cause some changes for the DH business and tariff models and adaptation to the changes in heat demand require active approach from the utilities but are manageable. Future heating systems can also consist of several heating sources combined and optimized into one intelligent system. Zero energy housing in Finnish conditions is considered unrealistic.

Market based approach has benefited both the Finnish society and DH sector. For customers the large share of DH has provided a cost effective, efficient, environmentally sustainable, comfortable and secure heating system. DH sector has proven to be strong, competitive and self sufficient by itself without any dependencies on outside funding.

No major changes are expected for DH sector by 2020. Strong market position will remain at the same level. Major share of the renewable increase will come from biomass and that will support the use of DH as well. Gas, coal and peat will still be an important part of the DHC fuel mix due to security of supply, logistics and technical reasons. The increase of biomass depends also a lot from the supply of fuels.

For utilities the DH products give opportunities for new innovations. In 2020 the product sold will not be solely heat but rather heating solution. Real time metering and smart pipeline grid will be in effective use. DH is good base for new solutions with increasing comfort requirements and high standard of living for ageing population. For DC the market is still very much growing. In densely built environments DC offers technical, appearance and spatial choices that are hard to come by individual systems. Image wise it is important to have a transparent tariffs and prices, good customer service and new more flexible technology and products that will require different pricing systems from the current one.