Needs-Challenges-Barriers-Opportunities

Urgent Needs/Challenges

The demand for urgent changes in the sector paints a very diverse picture. Some of the urgent needs are in regards of the amount of aid for the development of heating networks in the KWKModG. A further boost beyond 20 % would help the development of DHC. Reasons for this are the high bureaucratic barriers and that it is demanded to have Certified Public Accountants certify a lot of the declarations necessary for applying for the aid, driving costs for the companies up and the actual aid down considerably below the targeted 20 %. A CO₂-tax to combat the negative effects the ETS has on the competitiveness of DHC on the heating market is one of the most urgent changes needed in national legislation as well.

Key changes demanded by stakeholders are a rise of aid levels, due to administrative burdens eating into the aid levels and changes to planning laws, to ease the development of new DHC pipelines. Research and development efforts are another issue that is in need of change. Efforts have to be more intensified according to stakeholders. Loan problems need to be tackled due to unfavourable conditions on the financial markets.

The biggest challenge seen by the stakeholders is, on average, the future legal frameworks. The least significant challenge according to the stakeholders is the handicraft industry. The complete results are as follows:

1. Future legal frameworks (ø 2,42)

2. Convincing new customers (ø 3,67)

3. Convincing policy-makers (ø 3,83)

4. Future demands (ø 4,5)

5. Contribution to EU energy policies (ø 4,92)

6. Fossil transition (ø 5,75)

7. Ensuring customer loyalty (ø 6,42)

8. Knowledge transfer (ø 7,67)

9. Technology transition (ø 7,67)

10. Handicraft industry (ø 8,33)

Legal framework like Emissions Trading have a significant effect on the economies of DHC, therefore influencing investment decisions of companies involved in DHC.

DHC is a very capital intensive sector with long payback periods but the markets favour short payback periods with the most possible return on investment, not factoring in social and environmental benefits. As has been mentioned above, lowering bureaucratic hurdles for network support and raising the support level can help ease this burden.

In terms of new legislation a CO₂-tax is demanded by stakeholders to combat the distortions caused by the ETS. Planning laws should be introduced to grant priority for the development of DHC pipelines in order to access new customers. Other than that stakeholders in majority do not want new legislation but rather use the existing to more effect by lowering administrative barriers and use new legislation to combat barriers like the ETS.

Likewise not a lot of additional support measures are demanded by stakeholders. Existing support measures should in their eyes be better regulated, with less administrative burdens. Complex support measures absorb the manpower of the companies. The aid levels of the existing support measures should be raised to levels of old support measures like the ZIP. According to many stakeholders these measures helped to develop DHC significantly in the past.

Main Driving Forces

Stakeholders see companies and the DHC association as the main driving forces behind the development of DHC.

The outcome for the part of national legislation that has helped facilitate the expansion of DHC is a bit more differentiated. The KWKModG is mentioned by roughly half of the interviewees, while the other half mentions the ZIP I and II as being the most influential. Going by sheer numbers the ZIP I and II were definitely “bigger” but since they started during the oil crises some companies may at that time have not been affected by this programme or the focus in public perception shifted towards the present times.

The positive view DHC has in Germany can in the eyes of the stakeholders be replicated by enhancing the comfort and service level of DHC for the customers and communicate the benefits of DHC for society. A positive image spreads but can only be produced through year-long positive impressions made by people involved with DHC as a customer or in other ways.

Main Barriers

With a very price-sensitive market and District Heating being in direct competition with other forms of heating systems and predominantly gas and oil boilers, a competitive price is a precondition for the further development of District Heating in Germany. The European Union Emission Trading Scheme is therefore considered a barrier towards the further development of District Heating in Germany from the third Trading Period onwards. The European Union Emission Trading Scheme favours installations below 20 MW by not including them in the system. In Germany these installations consist mainly of individual gas and oil boilers. These same systems are also the biggest competitors of District Heating in Germany. Since Germany, unlike other Member States, has no tax on CO₂, the market balance is heavily distorted to the disadvantage of District Heating.

Therefore the biggest barrier towards the distribution of DHC is with an overwhelming majority identified as the ETS, in its shape of the national transformation laws by stakeholders. Especially the disruption of the market is seen as a big hurdle, since it puts more financial burdens on DHC but not on the competitors in the heating market although these usually have worse efficiency and CO₂-emissions. It is suggested that the heating market that is not part of the ETS should be covered by a CO₂-tax as a compensating measure. The companies that are not part of the ETS mentioned planning laws and the investor-user-dilemma as main barriers.

Similar diverse answers are given in regards to the greatest barriers for DHC other than legislation. The main barrier was identified as the high investment costs associated with DHC, as they do not fit current market conditions all that well, that rely on quick return on investment. A potential solution to this problem could be low interest loans issued for investments in environmental and climate friendly, efficient solutions like DHC. The economical and demographic development and the lack of ways to foresee these reliably for long term analysis is identified as another barrier. Solutions can only be made on a big “scale” with governmental activities.

The main barrier mentioned preventing a fair competition is the ETS. Stakeholders feel that the market is distorted towards other heating technologies, especially individual gas boilers and heat pumps through the ETS. The latter also receive more aids in comparison to DHC and do not have to face such high administrative burdens, although the contribution of DHC towards society is much higher. The market power imbalance is another issue that is being brought up by stakeholders. Natural gas suppliers have a strong market position in Germany and stakeholders feel they are not able to challenge this.

In the context of market discussions mandatory third party access is identified by almost all stakeholders as a potential threat to the market position for DHC. Stakeholders fear such a regulation could completely halt the development of heating grids. Security of supply, maintaining technical compatibility (for instance pressure and temperature levels) and higher costs for customers are some of the main concerns in this regard. Even the two stakeholders that are not openly negative towards this idea demand that technical, ecological standards in the heating grid and the same level of efficiency have to be maintained in order for it to work.

The biggest barriers for the use of renewable energy sources in DHC are high costs for fuel, lower relative heating value of wood for instance and the corresponding logistical problems. Security of supply and availability of renewable energy sources were also identified as main barriers for the use of these sources in DHC. High costs involved also put a stress on the cost-effectiveness of DHC based on renewable energy sources.

Co-firing could be a way to promote use of renewable energy sources according to most stakeholders. At the moment co-firing is not forbidden but not incentivized either. Electricity generated from renewable energy sources via co-firing does not apply towards the feed-in-tariff for renewable energy sources. Getting rid of this restriction could, in the eyes of the stakeholders, be a way to promote the use of renewable energy sources and could also solve some of the aforementioned problems.

A part of the German legislation that is seen as a big opportunity is the EEWärmeG. Stakeholders vote for extending this instrument to other countries. As can be seen in the other documents the EEWärmeG forces the use of minimum levels of renewable energy sources for owners of new buildings. These minimum levels can be reached inter alia by using DHC from CHP and/or renewable energy sources. In the eyes of the stakeholders a good way to balance CHP and renewable energy sources and also encourage the use of renewable energy sources.

Main Opportunities

Noteworthy development of District Heating is expected because of the favourable new legislative framework that became effective as of the beginning of 2009. District Heating is considered to be among the fundamental future options in regards to ongoing discussions about climate change, security of energy supply, competitive pricing for end customers and energy efficiency. Chances for an increased extension of District Heating have been proven in various studies highlighting the potential for District Heating in Germany. Areas of particular interest will be District and Local Heating based on renewable energy sources, intensification of existing District Heating grids and substitution of gas grids by District Heating grids. Smart Local Heating systems are able to open up the market for new buildings, which are for the most part not realized in the inner cities but the peripheral region.

District Heating in general has a very favourable image as a modern and clean heating system. For the past 15 years the total connected load increased by around 1 % per year. Considering the cutthroat market and a very low increase of new buildings, this development is quite respectable and demonstrates the positive image District Heating has.

The words used most commonly to describe DHC by stakeholders are efficiency, environmental friendliness, security/stability and comfort, highlighting main areas of opportunity for DHC.

In the view of stakeholders DHC is seen positive to very positive by existing customers; this is in line with studies conducted by AGFW. The general public is seen to have a more neutral stance towards DHC, mainly because they do not have information about it or simply do not know what DHC is or what its contributions to society are. Policy makers are seen to have a neutral stance towards DHC as well, although it leans more towards positive in the eyes of the stakeholders. There seem to be regional differences among policy makers. It is being adverted to that once policy makers do have knowledge of the issues regarding DHC (energy market etc.) they are usually positive towards it.

The size of a DHC scheme that works best can not be generalized according to the vast majority of stakeholders. The flexibility of DHC, allowing for a wide range of differently sized schemes is one of the many positive sides of DHC. The stakeholders that did give an answer have in majority identified schemes with a capacity of above 100 MW to work best in Germany. The same holds true for the number of customers served. Most stakeholders refrain from generalizing in this regard. It is being mentioned that the heat density, measured in MW per m² of settlement area, would be a better way to judge this question.

One field of big opportunity for DHC in Germany is mentioned by the stakeholders: The AVBFernwärmeV. In the opinion of the stakeholders the AVBFernwärmeV helps bringing the interests of customers and utilities into a balance, benefitting both parties. According to the stakeholders the AVBFernwärmeV’s system could and should be adopted in order to strengthen the market position of DHC.

The renewable energy sources best suited to supplying DHC are, according to the majority of stakeholders, biomass and geothermal energy. One stakeholder also mentioned the use of solar thermal parks and large heat pumps powered by wind power.

Developments expected for DHC are varied. They range from a more effective distribution of heat in the networks, to more island networks, more district cooling, more twin pipes to lower temperature levels. Most stakeholders predict a steady positive development of DHC. Due to the barriers mentioned the development is not expected to grow exponentially but more in a steady way over the next years.