HOT|COOL NO.2/2021 - "Economics, Finance & Money"

Table 1: Overview of assessed economic effects, indicated with the cost reduction gradient (CRG) in euro/(MWh∙°C), of reduced system temperatures

In sum: tangible and appropriate technologies and methods are available for the implementation of low-temperature district heating. Early adopters have tested and implemented lower temperatures in both existing and new heat distribution networks. Thus, buildings can and should adopt the utilization of lower temperatures in the future. Reductions in specific heat demand will also facilitate the use of lower temperatures. Current technologies and methods can be further elaborated and refined by research and development.

During the guidebook's writing process, we also identified that companies engaging in low-temperature installations focus on technology - dealing with the business model aspects later. A paper was written based on the analysis of six Low- Temperature District Heating (LTDH) cases (Lygnerud, 2019). This paper addresses the following research question: Do district heating companies that implement low-temperature solutions develop their business models simultaneously as they make the shift in technology? The answer to this question is no. The main conclusion is that none of the six studied cases upgraded the business model or logic. Instead, the high- temperature context was applied to the low-temperature solution, leading to the loss of the potential value created in the low-temperature context. The central values made, but not capitalized on, are related to: 1. The customer value when offering a differentiated, green, district energy solution. 2. The prosumer relationship is long-term and generating a profit for both sides. 3. Increased flexibility in the heat supply. The inclusion of low temperature in the district heating portfolio can increase competitiveness, but it necessitates a shift in the business logic. When discussing business models, it is relevant to consider the one component that generates revenue, namely price. Motivational tariffs are being applied notably in Denmark and Sweden; however, the dilemma is how significant the motivations should be. And when to reduce them not to erode the benefit of the district heating provider (once the customer has become an efficient actor in the network). When printing the book, there was no consensus on building the best motivational tariff for low-temperature installations - this needs further research.

The most significant barrier to undertaking LTDH investment is that it is not business as usual.

One crucial factor explaining the limited interest in futureproof LTDH technology is that the risk of limited heat supply in 2050, when fossil fuels are not available, has not yet become apparent for most end-users and heat providers. While the economic benefit of low-temperature district heating can reduce the LCOH from future district heating systems, the benefit in current systems remains limited. Hence, this benefit alone is not currently strong enough to push the transition towards more decarbonized district heating systems. Carbon pricing, or other efficient policy drivers, must be used. It can be a solid, parallel economic driver for incentivizing decarbonization. Old institutional rules must also be appropriately revised for better alignment with low-temperature district heating. To conclude, old habits die hard. In combination with lock-in effects from the application of current technology and a lack of understanding of how to efficiently link stakeholders to each other, it is difficult to escape the paradox of catch 22.

For further information please contact:

International Energy Agency Technology Collaboration Programme on District Heating and Cooling, LOW-TEMPERATURE DISTRICT HEATING IMPLEMENTATION GUIDEBOOK ISBN 978-3-8396-1745-8

References: Averfalk, H., & Werner, S. (2020). Economic benefits of fourth generation district heating. Energy, 193, 116727. doi: Lygnerud, K. (2019). Business Model Changes in District Heating: The Impact of the Technology Shift from the Third to the Fourth Generation. Energies, 12(9), 1778.

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