DBDH publishes Hot Cool, but the main business is helping cities or regions in their green transition. We will help you find specific answers for a sustainable district heating solution or integrate green technology into an existing district heating system in your region – for free! Any city, or utility in the world, can call DBDH and find help for a green district heating solution suitable for their city. A similar system is often operating in Denmark, being the most advanced district heating country globally. DBDH then organizes visits to Danish reference utilities or expert delegations from Denmark to your city. For real or virtually in webinars or web meetings. DBDH is a non-profit organization - so guidance by DBDH is free of charge. Just call us. We'd love to help you district energize your city!
NO. 5 / 2023
INTERNATIONAL MAGAZINE ON DISTRICT HEATING AND COOLING
HOW TO ESTABLISH A DISTRICT HEATING COMPANY?
Sign up to receive Hot Cool
Contents
THIS EDITION'S FOCUS THEME
4
COLUMN HOW DISTRICT HEATING NETWORKS RUN NOT-FOR-PROFIT CAN ENSURE A JUST TRANSITION AND DEVELOP A NEW ECONOMIC MODEL IN SCOTLAND By Duncan Smith
HOW TO ESTABLISH A DH COMPANY?
By Lars Gullev 6
HOW TO START A DISTRICT HEATING COMPANY
WHAT IS THE RIGHT PRICE – FOR CONNECTING TO DH? By Hanne Kortegaard Støchkel and Daniel Møller Sneum 10
THE CURIOUS CASE OF DISTRICT HEATING COST STABILITY By Oddgeir Gudmundsson and Jan Eric Thorsen 14
DBDH Stæhr Johansens Vej 38 DK-2000 Frederiksberg Phone +45 8893 9150
Editor-in-Chief: Lars Gullev, VEKS
Total circulation: 5.000 copies in 74 countries 10 times per year
Grafisk layout Kåre Roager, kaare@68design.dk
Coordinating Editor: Linda Bertelsen, DBDH lb@dbdh.dk
info@dbdh.dk www.dbdh.dk
ISSN 0904 9681
What if digitalisation could make energy more sustainable?
With frequent data readings, automated measurements, and real-time decisionmaking, digitalisation optimises districtheating. At Kamstrup, we have theknow-how and digital solutions to improve energy efficiency.
Read more at kamstrup.com
HOW DISTRICT HEATING NET- WORKS RUN NOT-FOR-PROFIT CAN ENSURE A JUST TRANSITION AND DEVELOP A NEW ECONOMIC MODEL IN SCOTLAND Over the coming decade, Scotland has to decarbonise heating and make our buildings as efficient as possible to meet our climate change objectives and have any chance of staying with a 2-degree rise in global temperatures. Of course, buildings and the built environment are just one piece of the decarbonisation puzzle we must solve. It's a huge task – even today, here in the UK, as much as 80% of our homes are still heated by fossil fuels – mainly natural gas. And while we've got to wean ourselves off the gas for heating, it's still cheaper when we compare it to the electricity price.
By Duncan Smith, Head of Energy & Sustainability at River Clyde Homes, Scotland
And we can generate heat and power through decentralised energy centres that capture and reuse excess heat from local businesses and industries such as data centres. The Queens Quay project in Clydebank is a great example of the model I would like to see replicated up and down the country. It pro- vides heat to public buildings and homes and will be expand- ed this year to include the local hospital and six multi-storey towers. And the residents pay around a quarter of the standard electricity price that most of us in the UK are paying today - about 8 p (9 cents) per kWh compared to 34 pence (39 cents). The project cost around £20 million (approx. 23 million €) with the local authority and Scottish Government funding. However, rather than looking at the cost of the solution, which invariably many organisations will focus on, we need to see the value we can develop with district heating and not-for-profit delivery models. And I'd like decision-makers in local Govern- ment to look at the argument differently, from a different an- gle. I'd like them to look at the opportunity for an economic model that provides affordable heating for residents and sta- bility to local businesses – indeed, supports the new companies we'll need over the coming decade to solve the wider climate crisis challenge.
The cost of electricity – the "net zero" fuel we'll all need and use to heat our homes over the coming decades is part of the issue - if we are to go down a like-for-like route of replacing heating individually. The current model and the reluctance of the Government to intervene within the system to reform the pricing mechanism - and a regulator that hasn't been able to protect consumers in the way they should - has seen millions of households in the UK spend upwards of £2500 (2,895€) last year to heat their homes. It's also how we continue to produce energy – centralised and far away from most communities that need and use it. So, what is an alternative model? What model could create an equitable energy price for both the consumer and business? An energy model that could directly address fuel poverty and put money, millions of pounds, back into households' pockets, eliminating cold and damp homes, improving the health and lives of their occupants, and providing the basis for economic stimulation and skilled employment in local communities. We can develop locally owned heat and power networks with the resources we already have here in Scotland - through wind turbines, solar panels, and water-based heat pumps.
A good example of this is vertical farming in urban areas. The current energy system makes it very difficult for heat-hungry companies to survive – regardless of the merit of their output. By providing affordable energy to residential households, busi- nesses, and public buildings, we can develop decentralised, more egalitarian heat and power networks that serve society and commerce rather than the other way around. By developing heat networks like our Danish colleagues have done, from an ownership perspective, we can end fuel pover- ty and homes with dampness and mould. We can reduce the burden on the National Health Service, making our citizens healthier and more productive and creating local high-skilled jobs for many of our young people. In a recent article in Inside Housing, the Scottish Minister for Net Zero Buildings, Patrick Harvie, responded to whether the Government in Scotland is doing enough and willing to sup- port housing providers financially to achieve Net Zero finan- cially. His answer below might surprise some but should be seen as an opportunity.
"Some of these organisations can be anchor organisations for things like heat networks. I think over the course of this decade, for example, we're going to be seeing a lot more in the way of heat networks going in, where a social landlord is not just a customer but is contributing to running that business and see- ing a larger part of our energy system, at a local level, operating in the public interest." Later this year, each Local Authority in Scotland is required to publish a Local Heat & Energy Efficiency Strategy. The strategy should identify where district heating could be prioritised, with the Heat Networks bill providing legislation on how they are licensed.
HOW TO START
By Lars Gullev, Senior Consultant, VEKS
If we are to become independent of fossil fuels such as coal, oil, and natural gas and instead base the heating of our homes on renewable energy sources like sustainable biomass, surplus heat, solar and wind power, and geothermal energy, it is necessary to establish district heating wher- ever it is technically feasible and economically viable. Therefore, it may be relevant for you to get inspiration - a guideline - on how to start a district heating company. This article introduces the process. Circumstances vary from country to country, so pick the parts which give meaning to your plans – and hopefully you will be inspired.
This article is inspired by the Danish District Heating Associa- tion guidance to how to establish a cooperative district heat- ing (DH) company and at the same time reflect the author’s wide international experience. Some of the content is relevant everywhere and for many, other parts may be less relevant. It is important that the recommendations are not seen as a final work plan for how to establish a DH company – it is for inspira- tion and guidance only. 9 steps toward establishing a DH company There are 9 steps in this plan, that bring a project from the first idea to a final DH system, with pipes in the ground.
able heat supply in the future, who has no DH at present and needs to start from scratch.
“Before start” “find out who is doing what.”
If the use of natural gas is to be reduced – and possibly phased out – it is crucial to expand existing DH networks and establish DH in cities/villages that are geographically isolated from the existing DH networks. First and foremost, it is crucial to investigate if others have had the same good idea. If so, contact the municipality to clarify the climate and energy policy goals in the municipality. Then contact the nearest DH companies (including small com- panies) to get information about their plans to supply DH to your city or area.
Link to the plan in Danish.
This article will exclusively focus on establishing a new col- lective heat supply in areas away from existing DH networks. Some of the recommendations are also relevant for expanding existing networks, but for now we focus on the many large and small cities, towns and villages, where DH could be the sustain-
Establishing DH from scratch requires significant resources,
A DISTRICT HEATING COMPANY
such as many volunteer hours from local enthusiasts to con- tact neighbors and dialogue with advisors and the munici- pality. Preparing a project proposal and technical, economic, and legal screening and preparation for a completely new DH company also requires financial resources.
At an early stage in the process, it is also recommended to in- itiate a dialogue with major heat consumers such as industry/ commerce, municipal buildings, property associations, hous- ing cooperatives, etc. to gauge their interest Also, preliminary considerations of potential heat sources/production - the pos- sibility of surplus heat from industry, data centers, wastewater, water purification, or similar should be investigated. The mu- nicipality is an essential sparring partner in this process. The re- sult is a very early assessment of the opportunities and interest.
A good starting point for a group of persons who want DH is to gather information:
From the municipality regarding climate plans, green transition, or heat planning.
“Investigate start-up capital and cooperation with the municipality.”
From existing similar district heating companies from other places.
If there is no DH planned for your area, you should contact the municipality and gain insight into local climate, energy, and heat plans. It is always a good idea to involve the municipality from the beginning if you consider establishing your own DH company. The municipality can assist with various aspects, in- cluding organizing public meetings. One challenge in the start-up phase is often financing, and a 360-degree advisory approach - technical, economic, and le- gal - is recommended. However, a group of citizens rarely has the financial resources to pay for expert advice and other costs. Screening and establishing a company (technical, econom- ic, legal assistance) cost €15,000-17,000 in Denmark, while a project proposal costs €10,000-15,000. Again, the municipal- ity can often be a good partner and source of support. Some- times, the municipality may support advisory services and
From private companies that establish DH systems as turnkey projects.
Planning and rolling out collective heat supply takes time. Ex- pect a minimum of 1.5-2 years for processing in the municipal- ity, excavation work, etc., before DH is established in a new area.
“Start an initiative group.”
It needs to be investigated whether the area is suitable for DH. Are the properties reasonably close to each other? How many could be expected to connect to DH? If it is believed that there is a basis for a company, the "enthusiasts" can convene a found- ing general meeting to elect a board.
project proposal preparation concerning the municipal heat planning task.
“Start district heating company.”
To raise funds for project proposal development, etc., member- ship shares of, for example, €1,000 can be sold to interested customers/shareholders. Alternatively, a turnkey supplier can cover these costs up-front if an agreement has been made.
Most DH companies in Denmark are organized as cooperative societies (a.m.b.a.) owned by the DH consumers. Another op- tion may be for the municipality or a private entity to own the DH company. If the DH company is established as a limited liability cooper- ative, the owners' responsibility is limited to the share capital each has contributed. In practice, it often starts with a group of enthusiasts deciding that they want district heating in an area. In Denmark, the organization Danish District Heating Associ- ation has developed a set of Standard Articles of Association, which is used by most DH companies in Denmark and can be used by new companies at no cost. Before the physical establishment, the company should con- sider how the project will be tendered. There are specific ten- dering rules to be followed, which vary from country to country and depend on factors such as the type and size of the project.
“Screening (technical, economic, legal)”
It is important to clarify whether there is a basis for establishing a new DH company as early as possible.
DH (collective heat supply) should only be established where it is economically and environmentally sustainable in the long run. There is currently significant pressure to transition from natural gas, volatile energy prices, and high demand for mate- rials (pipes, meters, etc.) and personnel (contractors, plumbers, planners, etc.).
Therefore, a technical, economic, and legal screening of the project is crucial, focusing on the following points:
“Develop project proposal, obtain municipal approval and financing.”
Agree with a competent advisor who can provide com prehensive guidance.
In Denmark, municipalities are the authority for heat planning and approval, which may differ in other countries. However, in Denmark, it means that the municipal councils make the final decision on how heat planning and the expansion of heat sup- ply will take place in the municipality. The Danish Energy Agency sets the framework for municipal heat planning and the municipality's handling of heat pro- jects. The rules are outlined in the "Executive Order on Approv- al of Projects for Collective Heat Supply Systems," also known as the "Project Executive Order." The project proposal describes the project in detail and is usu- ally prepared by a consulting engineering firm commissioned by the DH company or the municipality. Once the project pro- posal is approved, loans must be secured to finance future in- frastructure investments. Examples of project proposals can be requested through DBDH. One of the reasons for the success of DH in Denmark (where 66% of all households are heated by DH) is the simple and at- tractive financing model used. A similar should be investigated in your country. Under this model, a DH company can finance infrastructure investments with loans through KommuneKredit, a spe- cial-purpose credit institution in Denmark, with a 100% guar- antee from the municipality. However, DH companies can also choose private mortgage credit institutions, banks, or leasing companies as an alternative to KommuneKredit. In such cases,
Be cautious with "no-cure, no-pay" advice. It may incentivize establishing DH networks that are not viable in the long run.
Prepare technical sensitivities/scenarios:
Check heat density and calculate heat loss in the network.
Utilize existing boilers (greenhouses, schools) or surplus heat (industry, wastewater, seawater, etc.) and investigate the placement of technical facilities.
Consider supply security, resilience, peak load, and backup capacity.
Consider organization and long-term operation.
Prepare a budget estimate:
Check competitiveness (pricing structure). Calculate the estimated heat price per consumer based on estimated production and administrative costs.
Calculate the necessary and probable connection percent- age (verify pre-interest among the properties involved).
Ensure close dialogue with the municipality's departments for climate, heat planning authority, properties (major public heat consumers that can connect), and land use/ local planning (placement of technical facilities).
long term. In Denmark, several smaller DH companies have established joint operation companies to minimize operating costs in recent years.
the DH company may be able to finance only 80% of the in- frastructure investments, unlike KommuneKredit, which can finance 100%.
“Maximizing connection rates: Strategic communication channels for DH projects” The decision-making process varies from person to person. It is essential to recognize that people's decision-making processes differ. This is even more relevant for long term decisions like connection to a DH network, that may be perceived as both a new technology and riskier than the classic solution. Therefore, the DH company should utilize various communica- tion channels over an extended period to capture individuals at the right moment in their decision-making process. Facebook, meetings, brochures and many others are obvious choices that can be used. It is advised to have a communica- tion plan from early in the process. Maybe even from the very start. After the project proposal is approved, the physical establish- ment of the DH network and other related infrastructure can commence, provided there are enough customers (sufficient connection percentage) to make the project economically vi- able. It is crucial that the DH company considers marketing and communication with citizens as an integral part of the project since its success depends on the number of sign-ups. There- fore, the company must address a wide range of points regard- ing how it will offer DH before starting the communication process to ensure high initial connection rates.
“Assistance and support”
Establishing a new DH company requires time and dedication, but once thriving, it is worth considering membership in the national DH association. As a member, one can gain insights into the latest professional knowledge, stay updated on energy policy topics, and have the opportunity to influence regulatory conditions and professional standards. Additionally, member- ship provides access to various services to support members' core activities and development. The national DH association has technical, financial, and legal consultants that an establishing company can draw upon. The association's website also offers a wealth of knowledge about DH. The above eight points are intended to serve as inspiration and a checklist for establishing a new DH company. It will not be easy, but at the same time, it is not impossible. Summary The background is that most DH customers are supplied from plants using sustainable biomass, waste heat from waste en- ergy plants, or waste heat from industrial facilities. Other DH customers use solar collectors in combination with large heat storage or water-to-water heat pumps from wastewater treat- ment plants. Others again use air-to-water heat pumps or var- ious combinations of the above-mentioned technologies. All in all, a flexible range of different production technologies. The fact that many DH companies also produce electricity or are contractually shared in the high electricity revenues obtained by waste energy plants further ensures low, stable DH prices for end consumers.
“Operation”
Running a DH company today requires various competen- cies, such as technical knowledge, financial understanding, communication skills, administrative expertise, and legal un- derstanding. Smaller DH companies may not have all these competencies in-house, which is why many collaborate in op- erations, sharing the necessary core competencies. In Denmark, there are nearly 400 DH companies in 2023, many of which were initiated locally and have local roots, which is im- portant and beneficial in the initial stages. However, in the long run, establishing joint operation companies or shared emer- gency response arrangements can yield significant economic advantages since district heating companies must be able to provide a stable heat supply to their customers 24/7/365. Therefore, it is a good idea to consider, from the beginning of the project, whether a local DH company or another external operator can handle the operation of the DH system in the
For further information please contact: Lars Gullev, lg@veks.dk
WHAT IS THE RIGHT PRICE – FOR CONNECTING TO DH?
By Hanne Kortegaard Støchkel, Researcher and Project Development Manager, DBDH
Daniel Møller Sneum, Postdoctoral Researcher, DTU - Technical University of Denmark
The amount of money people must pay up-front to connect to district heating (DH) mat- ters. It affects the number of people who will sign-up, and it impacts the economy and risks of a DH project. In this article, we share insights from Denmark and offer advice on making a DH project more robust.
Changing the up-front payment has an effect. Several measures were developed to fix this problem, and one of the solutions was to offer a discount on the up-front pay- ment. Instead of paying up-front, the investments would be paid over many years as part of the heating bill. It would mean that a smaller portion of the investments would be covered for the DH company at the start of the project, but if more people connected, the overall economy of the project would improve.
One of the major uncertainties when developing DH in an area is whether people and companies want to connect. The economy of a DH project benefits significantly if more peo- ple connect and if they join early on. Before the energy crisis, Danish DH companies struggled to get potential customers to abandon their natural gas boilers and connect to DH instead. There was moderate interest, and it was sometimes difficult to get enough people interested simultaneously to reach a high enough connection rate for the projects to fly.
The experience among Danish DH companies is that chang- ing the up-front payment has an effect, and more people will sign-up. It was mainly a psychological effect but likely also a matter of liquidity for the individual households. Not everyone can raise money for a significant up-front investment. Both DH offers would be equally good for the customer if you look at the overall economic value seen over many years. Still, people are more likely to connect if the up-front payment is lower. Making an offer that benefits the business case Two essential parameters in a DH business case are the con- nection rate and connecting customers in one go to keep costs low. Making use of the psychological effects helps to achieve both. Typically, the process will run like this: A time-limited offer: “Connect now and get a large discount on your connection fee.” If enough people sign-up for the project to be economically viable, DH will be developed in the area. When the dates for digging are set, a new offer is made: “We come to your area to dig during this period. If you sign up be- fore we start digging, you can still connect with a (smaller) dis- count”. The second offer also has a sizable effect; the extra customers connecting adds little additional costs and much value. This will boost both the economy and the robustness of the DH projects. Same tool – different use During the energy crisis, the focus in the DH companies shift- ed. People were now eager to join, but the concern is whether their interest to connect is robust or a short-term effect that evaporates when energy prices stabilize. This has brought about a change in the use of discounts on the up-front pay- ment. It is rare to see up-front payments that would secure the
entire investment in Denmark, but discounts are smaller, and some projects have increased the up-front payment.
Before the energy crisis, discounted up-front payments were typically between 0 and 3000 Euros. Now, a broader spectrum is seen depending on the situation. Some DH companies have the philosophy that everyone should be able to have a green heat transition and that connection fees should not stand in the way if the business case is robust. Others have started in- creasing up-front payments as a tool to reduce financial risks and make sure that people are earnest about connecting. Also, the limit for what people consider a bargain has shifted up- wards – allowing the DH companies to secure more funding up-front without significantly affecting the number of custom- ers connecting. How big is the effect? Danish DH experts are not in doubt – the effect of discounts is real - but giving a formula is not so easy. It is affected by en- ergy policy, current events such as the energy crisis, and local parameters for the area. What is considered a large amount depends on your income, the value of the building, and the size of your current heating bill. When asked how significant the effect is, the answers from Danish DH experts come from a gut feeling based on knowing their area and listening to the potential customers. To illustrate the impact and importance of having a realistic un- derstanding of this, figure 1 shows two different situations. The red line represents a situation where the up-front payment is a significant barrier to potential customers, and only 50% would connect if the connection fee is 3.400 €. The dotted line repre- sents an area where the up-front payment is less of a barrier. Perhaps because it is a wealthier area or their current heat sup- ply is more expensive. The figure also illustrates just how valu- able it is to put some effort into connecting more customers.
Figure 1: An example of a DH company’s net present value (NPV) for different combinations of connection rate and size of up-front payment. The analysis shows the results for all combinations of connection rate and fee; but two parameters are correlated. The two lines illustrate two situations where the connection rate depends differently on the connection fee (up-front payment). Source: The report that this article is based on.
company should consider that a discount alone might not be enough and use other tools to improve trust and interest. In the case of low trust, a high up-front payment might even re- inforce the distrust if people feel the DH company is trying to transfer all the risk to them. How to get a higher connection rate The up-front payment plays a role, but the most important tool is effective communication. Keeping people informed, being transparent, building trust, and sharing information about the benefits of having DH. Here are some examples of how Danish DH companies have worked to increase the connection rate: Contact large potential customers directly. They are es- sential for the connection rate and the system’s long-term efficiency. Set the scene for a long-term collaboration and scout for potential suppliers of surplus heat. Arrange information meetings at the local school, sports arena, assembly hall, or anywhere with enough room. Make an offer and a process that is attractive and easy to under- stand for potential customers. Address all concerns and bring a DH unit so people can see what it looks like and how little space it takes up in a home. Collaborate with the municipality. The municipality can as- sist with the process, is used to stakeholder involvement, and share a common goal, as establishing more sustainable DH will help the municipality reach its climate goals. Find the right level for the connection fee. Low enough not to be a barrier to the connection rate and high enough not to jeopardize company liquidity or the ability to invest in other projects. Give customers a choice between owning the unit or having a service agreement with the DH company. The new service agreement option has become very popular in Denmark, with about 90% of new customers choosing this option and existing customers asking for the chance to join as well.
Analyses like this can help DH companies decide on the crite- ria for going ahead with a project and to better understand the consequences of some of the risks involved. For their company and this project, is it better to ask for 1.700 € in connection fee and aim for a 70% connection rate, or to ask for 10.100 € and aim for a 50% connection rate if they are satisfied with a calculated break-even after 20 years? Or if increasing cost levels are a concern, perhaps they recalculate to better understand the consequences of that risk and decide to play it more safely. A discount alone is not enough. A good DH project must be attractive to the customers and a robust investment for the DH company. In any given situation, the DH company has a range of parameters that can be adjust- ed to create the most suitable solution. The size of the up-front payment is one parameter, and others are related to financing, depreciation, tariff structure, and assessment period. Figure 2 illustrates simplified advice on when to focus on the up-front payment.
Trust & interest to join low
high
?
low
Up-front- payment
high
When trust and interest are moderate or high, there is room to adjust the up-front payment and balance it against needs such as the ability to secure cheap financing, agility to make the most of strategic opportunities, risk mitigation, and com- pliance with a regulation. Investigating the ability and willing- ness to make up-front payments and using sensitivity analyses to understand the risks can help DH companies decide which offer to make to potential customers in a new DH area. If the trust and general interest in joining DH is low, the up- front payment would still have an effect, but it would not address the principal risks of the project. In this case, the DH Figure 2: Changing the up-front payment has an impact and can be a valuable tool, but the correct use depends on the circumstances – an illustration based on experience and analyses.
Conclusion The up-front payment is a parameter that affects both the con- nection rate and the economy of a DH project. It can strength- en DH development if used wisely, especially if supported by other efforts to increase the connection rate.
A guarantee that the DH company will fix your heating if your current system breaks down while you wait for DH to be installed. This prevents people from being forced to rein- vest in a new gas boiler or invest in another alternative, such as a small heat pump. This is a way to keep customers un- concerned and committed to DH while waiting to be con- nected. Once connected, people very rarely want to leave DH, but the waiting period is a risk to handle. Meet end-users where they are online with competent com- munication: Use Facebook (or other social media). As each project covers a small geographical area, it is not expensive to target exactly the potential customers in that area. With remarkable success, some DH companies have hired a com- pany with knowledge of DH and communication to handle their Facebook communication during the expansion peri- od. Local ambassadors can be excellent and trustworthy advo- cates for DH development. These can be locals with an in- terest in getting DH themselves. Find them and work with them! A political tool to ensure a high connection rate is to make it mandatory to connect to DH, but even so, these ideas could be used to increase customer satisfaction and move attention to the benefits of DH. Read more: This article is based on a report about up-front pay- ment connecting new customers to DH. It summaris- es experiences from Danish DH companies and other experts. It contains a set of detailed analyses that also investigate aspects of financing, depreciation periods, and the effects of higher connection rates. This work has been supported by The Danish District Heating Association’s research and development funds and by the H2020-funded EMB3Rs project (emb3rs.eu). Link to report on DBDH homepage
The benefits of service agreements on units With a service agreement, the DH company owns the DH unit in the building. It handles servicing, repairing, and replacing it when needed. The Danish DH compa- nies design the service agreements to cover the costs. The agreements give customers value and enable opti- mized operation of the DH system. Benefits for the customer • No unforeseen expenses • Approximately the same price but higher value compared to owning the unit • Better and easier service and maintenance • Improved system efficiency and immediate de- tection and correction of errors or suboptimal op- eration. In some cases, the households even profit when the improved operation of the unit more than covers the costs of the service agreement. Benefits for the DH company • Better service for the customers at no added cost • Access to data and the ability to remotely optimize unit operation bring new options: Immediate error detection, adjusting settings to improve overall en- ergy efficiency, locating the installations that pre- vent the entire system from running as optimally as possible, and new services to increase comfort. • Having only a few types of units makes servicing and IT integration easier.
For further information please contact: Hanne Kortegaard Støchkel, hks@dbdh.dk or Daniel Møller Sneum, dasn@dtu.dk
The commonality of infrastructure systems is that they enable not only cost-optimized opera- tion but also a cost-stable operation. District energy systems, whether district heating or cooling, are no different. By careful thermal planning, identification of possible heat or cool sources, and applying a favorable mix of thermal generation technologies, the district energy utilities can ensure optimal thermal generation cost, exceptional cost stability, and operational resilience. This article highlights the importance of choosing the optimal heat generation technology mix based on both investment costs (CAPEX) as well as operating costs (OPEX). By adopting mul- ti-source operation, district energy utilities can significantly reduce the thermal generation cost compared to single-source operation.
By Oddgeir Gudmundsson
Jan Eric Thorsen
Directors, Climate Solutions, Danfoss A/S, Nordborg, Denmark
I. Introduction District heating systems have many desirable attributes addressing our modern-day challenges. In Northern Europe, they have proved to be exceptionally effective in decarbo nizing building heating demands and enablers of a future smart and efficient energy system. In Ukraine, they have proven to be exceptionally resilient to bombings during the Russian war on Ukraine. The Ukrainian cities with district heating sys- tems, even as outdated as they are, have proven to have safer, more reliable, more stable, and more predictable heat supply than cities with individual heating. In the United Kingdom, district heating is recognized as an important solution to fight
energy poverty. The key reason for the multi-criteria success of district heating is the fact that aggregating the demands of all connecting users enables access to a pool of diverse heat generation technologies. By properly combining heat sources and generation technologies, the district heating utility can ensure low heat costs, long-term cost stability, resilience to disruptions in energy vectors, and in the end, a reliable and future-proof heat supply operating in synergy with the overall energy system.
THE CURIOUS CASE OF DISTRICT HEATING COST STABILITY
II. Multi-Source Heat Cost Optimization Principles The basic steps for minimizing heat costs in district heating systems are: A. Determine the annual heating demand. B. Identify locally available heat sources. C. Identify importable energy vectors. D. Assess the capital expenditure (CAPEX) and operating expenditure (OPEX) of potential heat plants. E. Determine the most suitable mix of heat generation tech- nologies concerning CAPEX, OPEX, and heating demands being fulfilled. A. Determine the annual heating demand. This article assumes we are designing a 100 MW district heat- ing system to supply an annual demand of 333 GWh. Figure 1 shows the annual heat demand curve (left) and the same annual demand sorted in descending order, commonly called a duration curve (right). The load figures clearly show that the system will run on a part load for a large part of the year. The aim of the utility is to design the heat generation to allow cost-effective heat supply at any given heat demand or time.
B. Identify locally available heat sources. To ensure the highest operational stability of the system, it is of
Figure 1. Annual heating demand (left) and demand duration curve (right).
utmost importance to explore local renewables and synergies in the local surrounding. Local renewable heat sources can, for example, be geothermal, lake, river, or sea. Typical synergies can be found with the waste sectors (household waste and wastewater), power generation, local agriculture waste bio- mass, and excess heat from industries. Local resources are commonly well suited for base and mid- load heat supply, as these energy sources are often both stable in cost and availability. C. Identify importable energy vectors. Importable energy vectors are generally any form of energy easily transported over long distances, such as electricity, natural gas, coal, oil, electro-fuels, and biomass. The common factor among these energy vectors is that their costs are influenced by their energy quality and international market conditions. Consequently, cost developments, both in the short and long term, tend to be unpredictable. The history has further shown that fossil-based energy vectors have been weaponized, e.g., the oil crisis in the 1970s and the war in Ukraine in 2022. D. Assess the capital expenditure (CAPEX) and operating expenditure (OPEX) of potential heat plants. Once the available energy sources have been identified, the next step is to access the key economic parameters influenc- ing the cost of heat from using them. For an initial evaluation, financial data can be found in various technology cost cata- logs, for example, from the Danish Energy Agency [1] . It is important to note that CAPEX is a one-time cost, the cost of establishing the heat plant, while OPEX is both fixed and variable. The fixed OPEX is the cost that falls irrespectively of the use of the heat plant; these can be due to general main- tenance schedules of building and equipment. The variable OPEX is the cost directly related to the heat generation; this is the fuel and maintenance costs directly associated with the plant operation (wear and tear). The rule of thumb is that heat plants with high CAPEX and low OPEX should be base load providers. In general, the cost of heat from these plants becomes lower the higher the plant utilization is, as shown by the blue line in Figure 2. At the other end of the spectrum are heat plants with low CAPEX and high OPEX. These plants are well suited as peak load plants, as the cost of the heat will reach a plateau around the variable OPEX, as shown by the black line in Figure 2.
E. Determine the most suitable mix of heat plants con- cerning CAPEX, OPEX, and heating demands being fulfilled. The following provides a simplified example of the heat cost optimization for the heat demand case shown in Figure 1. The case is based on three heat generation technologies, waste in- cineration (WtE), an air source heat pump, and a natural gas boiler, see Figure 3. Figure 2. Heat generation cost in respect to unit annual utilization. The black line represents low CAPEX / high OPEX heat plant, and the blue line represents high CAPEX / low OPEX.
Table 1 shows the cost of heat from a single heat generation technology fulfilling the demand in Figure 1. As the table shows, the air source heat pump is the most cost-effective solution from a single technology perspective. Figure 3. Cost of heat from 3 heat generation technologies given annual utilization.
Table 1. Cost of heat given a single heat generation technology.
Capacity [MW]
Share of annual demand
Plant utilization
Heat cost [EUR/MWh]
Plant
WtE boiler Air source heat pump Natural gas boiler
100
100%
37.9% 42.8
100
100%
37.9% 34.9
100 37.9% 41.7 Table 1. Cost of heat given a single heat generation technology. 100%
On the other hand, if one would designate the waste incine rator as a base load, e.g., ensuring high utilization of the invest- ment, followed by an air source heat pump plant for mid load and at last, apply natural gas boilers for peak load, a better re- sult can be achieved. In this case, the optimal solution would be as shown in Table 2 and visualized in Figure 4.
Figure 6, interesting opportunities can be identified.
Table 2. Optimum technology mix for a multi-source operation.
Capacity [MW]
Share of annual demand
Plant utili - zation
Heat cost [EUR/MWh]
Plant
WtE boiler Air source heat pump Natural gas boiler
42
79.4%
71.7% 16.9
12
11.8%
37.4% 36.1
46
8.8%
7.2% 48.7
Figure 6. Sensitivity of the heat cost on the heat generation technologies capacities.
Total:
100
100%
-
22.0
An alternative mix could be at point B, where the mix is a 38 MW WtE unit, a 25 MW heat pump unit, and a 37 MW natural gas boiler. The increase in the annual heat generation cost when moving from point A to B is only 2%. However, the flexi- bility impact of doubling the heat pump capacity from 12 MW to 25 MW could easily pay off, as the additional heat pump ca- pacity will offer significantly increased sector coupling oppor- tunities. For example, increased possibilities to take advantage of fluctuations in the power prices, provide balancing services to the power system and reduced reliance on natural gas, and consequently reduced dependency on imported fuels as well as reduced CO2 emissions. A larger heat pump plant could also take greater advantage of higher efficiencies achieved during daytime temperatures, compared to night temper- atures, and charge a thermal energy storage if available and limit, or avoid, operation at the coldest period of the night. Another opportunity could be to exploit synergies with other energy sectors, such as the cooling and industry sectors. Con- cerning the cooling sector, the heat pump could operate in synergy with district cooling systems or large building com plexes, such as malls, hospitals, or other large complexes. In respect to the industry sector, the heat pumps could utilize waste heat from various industry processes and, by that, achieve high heat pump efficiencies for the district heating utility and either save the industry the cost of cooling off their waste heat or, in some cases provide a revenue stream to the industry. For additional information on the potential of excess heat, see [2] .
Figure 4. Heat costs from the optimum mix of heat generation technologies, and their respective utilization.
Figure 5 visualizes the duration curve given the cost optimum heat generation mix.
Figure 5. The optimal heat supply mix given the defined CAPEX and OPEX for each heat generation technology.
By analyzing the sensitivity of the heat cost to the capacity distribution between the heat generation technologies, see
Conclusions By opting for multi-source operation and optimizing the heat generation capacities based on the relation between CAPEX and OPEX, district energy utilities can achieve multi-fold benefits, such as:
1. Reduced thermal generation cost compared to a single energy vector strategy.
2. Long-term stable and predictable thermal generation costs, as thermal generation cost from base load plants, will primarily be based on the initial investment cost and sig nificantly less on operating the thermal plant. 3. Significant opportunities to optimize which heat genera- tion technologies to operate at any given time, for exam- ple, based on the cost of the input energy (electricity, fuel, surplus heat, renewables). 4. Optimizing parameters other than cost, such as flexibility, can enable a heat generation mix that offers additional opportunities to take advantage of local conditions and energy spot markets, e.g., balancing services to the power system. Another important conclusion from above is that in district heating, the heat cost sensitivity to the heat generation tech- nology mix is low. With the low heat cost sensitivity district heating enables a wide range of technology combinations with stable and low heat costs. This is important as new sys- tems can be built with long-term planning, e.g., starting with a cheap peak load boiler and later when the system grows to build the CAPEX-intensive base load technology. This heat cost stability further enables district energy systems to take a lead- ing role in the future integrated energy system, with enormous upside potential and limited risk. For maximizing the benefits of multi-source operation, ther- mal energy storage options, and sector coupling potentials, district heating utilities can take advantage of digitalization options for optimizing the whole heat supply system, from the end-user to the heat generation, see [3] . By embracing the benefits and opportunities the infrastruc- ture offers, district energy systems can ensure their relevance today and in the future.
References [1] Technology Data. Danish Energy Agency. https://ens.dk/en/our-services/projections-and-models/ technology-data [2] The world’s largest untapped energy source: Excess heat. Danfoss Impact, issue no. 2, Danfoss A/S, 2023. https://www.whyenergyefficiency.com/solutions/allsolu- tions/the-worlds-largest-untapped-energy-source-excess- heat [3] Pozzi, M., Thorsen, J.E., Gudmundsson, O., Marszal-Po- mianowska, A., Heiselberg, P., Jensen, S.S., Reus, A. and Koning, M. Digitalisation in District Heating and Cooling systems, Euroheat & Power, May 2023
For further information please contact: Oddgeir Gudmundsson, og@danfoss.com
Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18Made with FlippingBook - Online magazine maker