DISTRICT HEATING FINANCING AND OWNERSHIP
By Peter Lorenzen, Eng., Project leader, Smart Heat Grid Hamburg
Markets offer the opportunity to improve the social benefits of district heating on a macroeconomic level by including third-party access. Smart markets allow us to consider the physical characteristics and are essential to introduce open market structures. Therefore, this article discusses the advantages and disadvantages of increasing competition in district heating systems and the challenges that have to be overcome for a market mechanism to be suitable. Forecasts show that the German goals considering emission reductions for the heating sector will be completely missed in 2020. District heating systems (DHSs) form a part of the problem but could also be part of the solution. One barrier to establish ecologic heat production in several DHS is given by a profit-orientated form of organization without any competition in production. Allowing third-party access (TPA), introducing a pricing on temperatures and increasing competition between different producers while demanding the achievement of ecologic indicators at the same time could be key of a beneficial transition. Especially for some heat sources like surplus heat from industrial processes, it could be an enabling factor, if specialized companies plan and operate the connection between a special type of industry and district heating in more than one district heating systems (economy of scope). Therefore, the objective is to develop a market mechanism that allows for competition, considers physical behavior and aims at generating the highest social benefit including the end consumer costs and ecologic goals.
renewable heating sources. Thereby it is the temperature (up to 130 °C) that is the main technical barrier for renewable heat sources (e. g. industrial surplus heat). Due to the fact, that lowering the system’s supply temperature will increase the competitiveness of renewable sources, there is no incentive for a monopoly to change the system, as long as high profits with the fossil fueled generators are possible. CHALLENGES IN ESTABLISHING LIBERALIZED MARKETS IN DISTRICT HEATING SYSTEMS TPA as well as open market concepts for DHS—comparable to the electricity system—are discussed regularly. However, their implementation has not been done for numerous reasons. One of these is the small and local dimension—there is no trans-European DHS—and this circumstance does not leave much room to ask for additional costs to operate market places (less economy of scale). Besides, a break-up of the monopoly into different companies could lead to higher macroeconomic costs, because the cost optima are determined on a more microeconomic basis. This means that the liberalized companies are more interested in their own benefit than in the overall system’s optimum. In addition, the introduction of market structures to today’s DHSs include high risks for all market participants: On the one hand, investments could be less attractive due to a non-predictable price development for the producers. On the other hand, competitors with high impact could gamble with their strong position and create high prices for the customers. Then again, there are physical aspects given as major challenges. These include the thermal inertia, different and varying temperatures, hydraulic bottlenecks as well as pressure control. DESIGN OF A CASCADE MARKET MECHANISM FOR A LIBERALIZED HEAT PRODUCTION MARKET Due to the relatively small extend of DHS, a completely free market will not be possible. However, a regulated market could be a new and modern concept. The market introduction could be done similar to the liberalization process of the electricity system. Here, the concept of the single buyer (SB) was the first step and is still existent in the reserve capacity market. In DHS, the SB could be responsible for the grid operation (e. g. bottleneck management, temperature and pressure control) as well as for the customers including the continuous enhancement of supply and return temperatures, forecasts of demand as well
DIFFERENCES BETWEEN THE DANISH AND THE GERMAN DISTRICT HEATING SYSTEM
There are many disadvantages of monopolistically organized DHS that result from a lack of competition and transparency. One example is the failure to meet the German climate goals in DHS. In comparison to the Danish DHS sector, the development of some German grids towards renewable heat sources is rather restricted. This is mostly due to organizational forms (mostly profit-orientated) and policy frameworks (connection is not compulsory, competition with low gas prices). The Danish policies aim for a transparent tariff structure as well as for a competition between different DHS by means of transparency. In contrast to that, some German DHSs do not have a pricing system that supports a transition to lower temperature in a long- term development and therefore no transition to competitive
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