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NO. 2 / 2024
INTERNATIONAL MAGAZINE ON DISTRICT HEATING AND COOLING
NEW HEAT SOURCES
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Contents
THIS EDITION'S FOCUS THEMES
DOES GAS HAVE A FUTURE FOR HEATING BUILDINGS? By Søren Magnussen and Sigrid Friis Frederiksen 8 4
HEAT SOURCES
DISTRICT HEATING: THE KEY TO UNLOCKING THE POWER GRID’S POTENTIAL TO RENEWABLE ENERGY By John Flørning, Sebastian Wulff Holtegaard and Søren Møller Thomsen
PLANNING
12
MONGOLIA – STRATEGIC HEATING PLAN AS AN ESSENTIAL PART OF THE GREEN TRANSITION By Lars Gullev
HEAT STORAGE
By John Tang Jensen 18
PRICING HEAT SOURCES FOR DISTRICT HEATING NETWORKS
Magazine cover This edition features a Mongolian family tent situated in one of the Ger areas in Ulaanbaatar. In 2021, coal accounted for 80% of Mongolia's gross energy consumption. Find the article on page 12.
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DISTRICT HEATING: THE KEY TO UNLOCKING THE POWER GRID’S POTENTIAL TO RENEWABLE ENERGY
By John Flørning, Lead Energy Planner
Sebastian Wulff Holtegaard, Consultant
Søren Møller Thomsen, Senior Analyst
Electricity planning The district heating (DH) plants in Denmark have supported the electric grid for decades with services from the cogeneration (CHP) plants and, within the last decade, with services from heat pumps and electric boilers as well. In the continued build-out of renewable energy (RE), the consequent increase in intermittent production has led to more hours, necessitating the curtailing of RE. In response, an increasing amount of DH plants establish electric boilers to absorb the excess production, and to provide services to the grid. In 2023 it was publicly announced that Energinet will actively use electric boilers for balancing the very short-term fluctuations in the frequency. DH systems offer great potential for improving robustness and energy efficiency, reducing greenhouse gas emissions, and integrating renewable and waste heat sources. In addition to the benefits of DH compared to individual heating, flexible
DH systems can also support the power grid with balancing services by responding to price fluctuations and grid stability needs. Electricity planning On the power market, the marginal costing principle guides the dispatching of the plants, and as RE (wind, solar, hydro) has the lowest marginal costs, these technologies are planned in baseload operation. Depending on the actual required capacity, other and increasingly in-efficient power plants are dispatched with increasingly lower priority. Therefore, the hourly wholesale price of electricity is a good measure of the grid emission factor as the marginal units settle the power price. Due to the intermittent nature of wind and, in particular, large- scale solar PV production, it is necessary to install a much higher capacity than the required peak production in the power system. Hence, in the hours when the peaking capacity is needed, there are not necessarily adequately high wind
Example of output from wind turbine: Vestas wind turbine V164, 8 MW, reaches its maximum 8 MW output at 13 m/s wind speed, but at 6 m/s, the output will be approximately 1.1 MW, and below 4 m/s it will not be operating.
In an energy system that relies on wind energy, at low wind speeds electricity must be produced from dispatchable sources, and the fuel may be green gas. In the Danish energy system, the gas grid is planned to be 100% renewable from 2030 due to the increasing production of biogas and the political decision that individual gas boilers should be converted to DH or individual heat pumps. With the very high capacities of wind power planned for 2030, it is expected that there will be many hours of excess production of renewable electricity. The electricity will be used to produce hydrogen (and from hydrogen green fuels for other sectors) and green gas which will be added to the gas network and blended with fossil gas. The longer-term planning is the day-to-day planning of the balance in the power system, which, among others, considers expected production from intermittent renewable sources, required supplementing production from dispatchable sources (such as CHP plants), or operation of units that can down-regulate the power system.
speeds for the wind turbines to operate at full load. Therefore, it will be necessary to operate dispatchable plants. At other times, at high wind speeds, the consumption of electricity may be limited, and it is necessary to curtail the electricity. In this situation, the DH systems with thermal storage supplied from electric boilers can utilize the otherwise curtailed energy for the benefit of the power system and, of course, for the DH consumers. At a high share of RE in the grid, there will be excess production of electricity, and the power prices will be zero or even negative. Excess electricity must be either curtailed or utilized. Curtailing RE will have socio-economic costs, and the additional costs are paid by the consumers. The prices in the power systems are settled every hour, and by planning the production one day ahead, it is possible to plan the production on the power plants with the lowest costs for the power system. Electric boilers or other flexible consumers are often necessary to avoid curtailing RE production.
Figure 1: Ancillary services used by Energinet. Source: Ramboll, but inspired by Energinet
Heat pumps have been stabilizing the power system for years by planning production according to the day-ahead prices. As an example, if a storm from the West is expected in Denmark, the hourly day-ahead prices are expected to be low due to the abundant amount of wind in the power system. The consequence is that all DH companies plan to operate heat pumps at the same time and thereby absorb the expected excess power production. The heat production can be supplied to thermal storage systems, which means that at increasing prices for electricity (meaning limited RE in the system), the DH companies supply heat from earlier stored heat and avoid production from boilers or other technologies. Seen from the power system, the production to thermal storage has the same effect as if it were a battery. Therefore, it is often referred to as a “virtual battery”. In the intraday market planning, imbalances will occur for different reasons, such as unexpected changes in output from RE production, in particular large solar PV plants. To balance the energy system, the TSO procures different kinds of ancillary services, each with a specific purpose in the balancing of the grid. The main difference between these services is the time scale for the required service, as seen in Figure 1. The TSO always prioritizes technologies for balancing with the lowest cost. Examples of available technologies for the TSO are:
Electric boilers, incl. thermal storage for up- and downregulation (upregulation requires that the electric boilers are planned in operation) Increased renewable integration drives the need for technologies that can balance the system. To reduce the need for balancing services, flexibility in electricity use is important. Heat pumps, electric boilers, and the production of green hydrogen are highly flexible technologies since thermal storage can be included, which allows for time- independent electricity consumption and heat supply. Presently, individual heat pumps have limited flexibility since they need to be in operation regardless of the electricity prices and can consequently put high pressure on the electricity system, requiring that in-efficient fossil-based power plants be operated. Therefore, in general, individual heat pumps should be avoided unless they show a clear socio-economic benefit compared to DH. The figure above shows the different tools for the TSO to maintain the balance in the power grid, in the very short-term: Fast Frequency Reserve (FRR), to the longer-term: Manual Frequency Restoration Reserve (FRR). Services can be either manual (m) or automatic (a) In the two extremes in the figure, some services are required for the ultra-short period (FRR as indicated in the above figure), whereas others are used for the longer period (mFRR as indicated in the figure). While electrical batteries are very suited for very short-term regulation, they are expensive to install, have conversion losses, require space, and have a limited energy content. Electric boilers connected to DH systems with thermal storage cannot
CHP plants, incl. thermal storage for up- and downregulation
Electrical batteries for up- and downregulation
Heat pumps, incl. thermal storage for up- and downregulation. Upregulation requires that the heat pumps are planned in operation.
Without electric boilers, the balancing of the grid will be significantly more expensive.
provide services in the very short term (milliseconds) but can provide services in the FFR market (short term) and the longer term. Heat pumps are often planned in the day-to-day planning. Electric boilers can also operate in the longer term. Due to the high flexibility, the limited costs, and the limited requirements for space, electric boilers are a very suited and cost-efficient technology for regulating the power system. The following table shows the capacity the TSO plans to use in the intraday planning in the western part of Denmark (DK- West) to maintain the balance in the energy system:
Heat planning Unlike individual buildings, DH with heat storage can utilize multiple efficient and RE sources cost-effectively, such as waste heat, heat from large-scale heat pumps, CHP units etc. This is what justifies rather large investments in DH networks integrating the buildings. Furthermore, being connected centrally, buildings can not only use RE via the DH system but also offer significant potential to support and balance the power grid. At low forecasted wholesale prices for electricity (equivalent to the high share of renewable energy in the grid), heat pumps and potentially also electric boilers are planned to operate. In addition, electric boilers will stabilize the grid frequency. At higher prices on the wholesale market (limited RE in the grid mix), where additional power is needed from dispatchable power plants, heat pumps are disrupted, and CHP plants are called into operation. Very high electricity prices indicate that the most in-efficient fossil-based power plants are in operation to serve electricity demand, which cannot be disrupted. Therefore, electricity should be avoided as a single source for heat production, and heat should instead be produced from CHP plants. Conclusion DH systems can provide very cost-efficient balancing of the power grid, which benefits both DH consumers as well as the TSO. The Danish experiences show that DH networks ensure a cost-efficient build-out of RE by ensuring that a larger share of the produced electricity can be utilized instead of being curtailed at a cost. Without the shorter-term services delivered to the grid operator, it will be much more expensive to balance the power grid, and the question is whether it is possible at all in a fully RE system.
DK1 - West
FCR
aFRR mFRR
Flexible consumption
1.0
Battery
0.4
Electric boiler
56.0
138.0
10.0
Heat pump
0.7
Power plant
8.0
20.0
Diesel engine
3.8
Table 1: Balancing tools in Denmark West, MW
From Table 1, it is clear that electric boilers play a significant role in the short-term balancing of the system as seen in the allocated capacities. Alternative to electric boilers The question is, what would be the alternative to balance the renewable power system if electric boilers were not available? Regulation on electric boilers serves two purposes, partly to absorb excess production of electricity, and partly to provide short-term balancing between production and consumption. In an energy system without any renewable sources, the short-term balance in the system is upheld with very short- term fluctuations in production from the dispatchable power plants. This is an automated procedure where the plant output is automatically regulated based on the frequency in the electric system. In an energy system almost entirely supplied from renewable sources and with limited production from dispatchable energy, it will be more difficult to keep the short- term balance. In this situation, power plants cannot adjust, and the frequency must be balanced from other sources, such as electric boilers or batteries. In the Western part of Denmark with a very high renewable energy share, the TSO purchases more than 200 MW for short-term services from electric boilers (see Table 1 above). A likely alternative would be to purchase a similar capacity from batteries at a higher cost. The very clear market signals (the hourly electricity prices) catalyze an increasing amount of flexible production/demand to produce or use electricity. Without clear signals, the flexible use of electricity is not activated, and the need for balancing services would likely be significantly higher than the 200 MW since the active balancing should handle all imbalances alone without assistance from other technologies (flexible use). Flexibility is important for the electric grid since electric boilers and other flexible sources in this situation help the electric grid and don’t add further costs to the grid.
For further information please contact: John Flørning, JNF@ramboll.com
EU and all member states have clear carbon reduction targets and have lately seen the effect of being very dependent on natural gas from one source/provider. With no wish to use natural gas for heating and hot water in the future due to it being fossil and imported from politically difficult areas – Europe must set a new direction. This direction is district heating in cities, towns, and villages. The natural gas and energy crisis made Europe stand together and take the proper steps away from Russian gas. The EU stood together, and countries contributed with energy savings and investment in alternatives. The crisis has been averted, but the natural gas that used to come from Russia has largely been replaced by LNG, liquid natural gas whose origin can also be problematic and should be seen only as a temporary measure.
DOES GAS HAVE A FUTURE FOR HEATING BUILDINGS?
Søren Magnussen, Senior Consultant, Danish District Heating Association
Sigrid Friis Frederiksen, Lead candidate for the political party, Radikale Venstre for the EP 2024
Establishing district heating on a large scale could reduce the import demand for gas in Europe. Establishing district heating (DH) across Europe will ensure heat supply in the most economically optimal way to benefit citizens and the entire energy system. DH, together with good regulation, can guarantee that European households can look into a future where the heating of household costs less, could protect against energy poverty, and ensure the local economy. DH properly connected in dense urban areas can be delivered at very low prices. Investments are substantial, or the prize can be very low over the long term. Biogas production is continuously expanding, but the green gas must be used in industry and production, not for heating households. Biogas should not take over significantly and will be taken up by other users willing to pay the most. Multi-sourced DH is the right heating option when people live close together, and heat pumps should cover the rest – this article argues why gas is not an option. The Russian gas adventure in the EU In the years before the Russian invasion of Ukraine, the share of Russian natural gas in the European gas system had signif- icantly increased over a decade. Primarily driven by Germany, which pushed the idea, made agreements, and established an investment in new gas pipelines. That included the now-fa- mous and long-gone pipelines “Nordstream 1” and Nord-
stream 2“in the Baltic Sea, which ended up being sabotaged. However, sharp warnings about dependence on Russian gas started to be heard. Rounded up very sharply, one could say that the fundamental explanation for increasing gas trading with Russia was that it was an important diplomatic move in the belief that economic ties on both sides would ensure a future without aggression. However, it was also about the fact that the Germans were in the process of retiring significant nuclear power resources and, to replace this electricity production, natural gas-generated electricity would reach new levels of demand. A step further to the East, Poland was in the process of retir- ing coal as an energy source for electricity production. It made them 100% dependent on Gazprom’s deliveries without an alternative. Poland, therefore, took steps to establish a new natural gas pipeline from Norway through Denmark. Initially, the pipeline should have been functioning as a substitution al- ternative in a future with significant European dependence on Russian natural gas supplies through the North Sea. A gas con- nection that initially seemed like a very expensive insurance policy, however, ended up being a crucial piece in solving the natural gas crisis. Russia’s prominent natural gas exports to Europe appeared peaceful. They culminated with Gazprom as the primary spon- sor of the top football tournament, the Champions League,
profits of energy traders became public knowledge, and it was clear that trading companies in the electricity market were getting unreasonable profits due to the volatile nature of the electricity market. The European Union demonstrated its strength during this period, and remarkably, this strength went somewhat unno- ticed by the public eye. The absence of chaos diverted media attention as the EU made rapid and decisive decisions to win the “battle of energy.” By sticking to the existing framework and only implementing new measures collectively designed to navigate the energy crisis, the EU countries stood together and found true “renewed energy in unity.” As Ursala Von der Leyern said and repeated by statesmen and women around the member countries. So, do we have a plan? The RePowerEU plan sets the direction towards energy inde- pendence in the EU. The measures in the REPowerEU Plan re- spond to this ambition through energy savings, diversification of energy supplies, and accelerated roll-out of renewable energy to replace fossil fuels in homes, industry, and power generation. One of the goals is to integrate geothermal and solar thermal en- ergy in the modernised district and communal heating systems. DH systems proved to be a significant mitigating factor against inflation during the energy crisis in countries like Denmark and Sweden. DH consumers fared better through the energy crisis and inflation because DH prices remained stable throughout the winter of 2022-23. DH’s energy production is composed of various energy sources, and with long-term delivery agree- ments, smaller price increases only began to take effect in the winter of 2023-24. DH demonstrated its resilience and, most importantly, its en- ergy security. DH consumers and their households acted as a direct counterbalance to inflation. The extent of DH adoption in individual member countries became a crucial factor in de- termining the level of inflation. Gas is important but should not be used in house- holds. The natural gas sector has historically been very influential and has significant economic interests in maintaining natural gas demand in the EU. However, overall natural gas consumption is declining, and as a result, the share of biogas is expected to increase. Nevertheless, reaching a 10% biogas share in Euro- pean gas networks is a long journey. Natural gas consumption must continue to decrease significantly, which the recently
with flashy advertisements displayed at all European stadiums. The sponsorship of the Champions League was the symbolic pinnacle of how Russian natural gas deliveries equated to an advancing power position in European energy supply. How- ever, we should remember that several prominent figures on the political stage, especially in Germany, continuously issued sharp warnings about the critical levels of dependence on Rus- sian natural gas. The end of the story and aftermath With the Russian invasion of Ukraine, the question of energy se- curity quickly became a top political priority. When late sum- mer 2022 arrived, and other sources of electricity production in Europe faced challenges, the natural gas market panicked! Suddenly, natural gas became a cornerstone in electricity pro- duction, and prices soared to unreasonable levels. A natural gas market with an immediate shortage of imports and declining electricity production had transformed into an all-encompassing energy crisis as electricity prices rose in proportion to natural gas prices. The price mechanisms in Eu- ropean natural gas and electricity markets are based on the principle that the most expensive produced electricity sets the bar for the day’s spot market. And with the soaring natural gas prices, electricity produced on natural gas hit the price roof of electricity and set the prices. During the winter of 2022-23, all households, businesses, in- dustries, and public local and state authorities felt the impact on their annual budgets. Inflation started to surge shortly after as the dependency on energy prices in other markets influ- enced pricing. European consumers felt the decrease in pur- chasing power, and a crisis loomed that could have profound and transformative effects on EU cohesion. The Kremlin may have factored in the potential consequences of missing natural gas deliveries, but they were mistaken. Putin may have anticipated the possibility of the EU being en- gulfed in protests against energy poverty, breakdowns in the power grid, conflicts between countries over resources, and the shutting of interconnection. In the autumn of 2022, some member states briefly had a political demand for price differ- entiation and suggestions of protectionist decisions regarding interruptions in energy connections between nations within the common market. Ideas emerged because system analyses revealed that indi- vidual countries’ electricity production costs were much lower than the market prices. The situation didn’t improve when the
adopted gas and hydrogen package also aims to achieve by allowing the removal of supply obligations and thus dissolving decades-long consumer protection. And production must in- crease significantly. Therefore, governments and gas companies may announce the closure of natural gas supply in areas where alternative sources are available within a reasonable period, typically 8 to 10 years. Closing the natural gas network in areas where col- lective heating, such as DH, is established would be the most secure way to develop a stable, affordable replacement. Fail- ing to plan for the closure of the natural gas network due to a lack of political will and good energy planning could result in a triple heating supply through DH, gas, and electricity (heat pumps), which would be suboptimal and the most expensive economic outcome. What’s next? The problem has been solved for right now, but only temporar- ily. In the long term, the gas market and prizes would depend on countries outside the EU, and the prizes will be vulnerable to political decisions far away. World market prices for liquefied natural gas (LNG) will continue to determine the price of gas in Europe for many years to come, regardless of the quantities produced internally in the EU and the use of biogas. The gas market operates similarly to the electricity market, where the most expensive production sets the daily price, incentivizing energy efficiency and ensuring that those who produce most efficiently gain the greatest profit. In general, there will be significantly fewer customers to fi- nance the maintenance of the European natural gas network. Both in Denmark and Germany, DH is becoming increasingly popular and is replacing natural gas heating. In Denmark, the state-owned gas company, Evida, is changing its tariff system so that, in the future, it will consist of a much larger fixed pay- ment for all gas customers (as there are fewer consumers to cover the fixed cost of the gas companies), rather than being solely based on consumption. This new approach underscores the gas network’s challenges with a shrinking customer base. It may be the first of many steps toward a significantly more expensive user economy for households using natural gas as their heating source. In 2023, EU member states and the EU Parliament adopted a large climate package where petrol and diesel vehicles, gas boilers, and oil boilers face rising expenses. This is due to the expansion of the EU’s CO2 quota system in 2027. For gas boilers, the price is expected to increase by 440 euros per year for an average house. This will also help and in- spire households’ incentive to replace natural gas with alterna-
tives. In areas where DH is established, natural gas is replaced as home heating in up to 80% of the buildings.
Summary The new ambition for all cities with over 40,000 inhabitants to have heating planning is a good start. Areas must be investi- gated for their potential for DH. Organization, ownership, regu- lation, and legislation must provide the right framework for DH to be established and supplied with good, cheap, and green heat for a long time. The heating plans cannot, therefore, stand alone. The heat- ing supply must continue to be on the local political agenda, and companies, associations, and citizens must be mobilized so that the green transformation of the heating sector can be successful. Regardless of ownership, DH is a community, and good com- munities require unity and direction. The energy crisis has shown us that we can, and this spirit should live on for the next several years if we are to succeed in establishing green, safe, and cheap heating DH.
For further information please contact: Søren Magnussen, sma@danskfjernvarme.dk
MONGOLIA – STRATEGIC HEATING PLAN AS AN ESSENTIAL PART OF THE GREEN TRANSITION
By Lars Gullev, Senior Consultant, VEKS
Focus on CO2 reduction and a green transition away from fossil fuels is at the top of the agenda worldwide. This also applies in the large but sparsely populated country of Mongolia. A country with very hot summers, frigid winters, and over 80% of gross energy consumption in 2021 was based on local coal.
developed a detailed SHP covering the city of Ulaanbaatar to leverage the existing DH network by utilizing locally available RE heat sources and renewable electricity from solar and wind. A comparative heating system assessment was conducted for Ulaanbaatar as the major city and an exemplary case study for heat demand in Mongolia. The assessment involved the formulation and evaluation of three scenarios: Reference 2020 scenario The Reference 2020 scenario represents the existing heating structure in Mongolia. Heat demand is split into DH demand and individual household demand. DH demand includes space heating and hot water demand in buildings and spatial heat demand by industry. Individual heat demand includes heat demand and domestic hot water for detached single- family homes and tents in the Ger areas in Ulaanbaatar.
This article, based on the report “Renewable Energy Solutions for Heating Systems in Mongolia - Developing a Strategic Heating Plan, 2023,” prepared by IRENA, gives an insight into the energy and climate challenges Mongolia currently faces in the green transition. At the same time, recommendations are also given on how renewable energy (RE) can be implemented in the district heating (DH) sector. The strategic heating plan indicates that it’s possible to reduce the emission of CO2 by up to 93% in 2050 compared to the present level - a challenging task but not impossible. What is a Strategic heating Plan (SHP)? A strategic heating plan (SHP) is a techno-economic assessment that shows how municipalities, districts, cities, or countries can transform their heat supply from fossil-based sources by integrating RE resources. In the case of Mongolia, IRENA
Fact box Mongolia (National Statistic Office of Mongolia, 2022)
• Area: around 1.5 million km2. • Population: 3.4 million, of which 2.3 million live in urban areas. • Capital city Ulaanbaatar has 1.6 million inhabitants. • Population density: around two persons/km2. • Population is growing at around 50-60,000 persons/year, equal to an annual growth rate of about 1.9%. • A large share of the “new” population is in informal settlement areas, called Ger*) areas, which account for around 58% of the total building stock of Ulaanbaatar. • In 2020, the total number of households in Mongolia was 897,400, of which 60.9% were houses, 38.2% were Gers, and 0.9% were other dwellings. Within the housing category, around 50% were apartment buildings and 50% detached houses. *) Ger is a round tent, a portable housing structure composed of a wooden frame with a felt covering, traditionally used by nomadic herders.
Long-term 2050 scenario For the analysis behind the 2050 scenario, two 2050 heating systems are modelled: a baseline fossil fuel-based system and a 100% RE-based system. The Baseline 2050 system is a projection of the current coal-based heating system to 2050. The Renewable 2050 system is a 100% renewables-based system using a mix of RE technologies, such as geothermal, solar thermal, large-scale heat pumps, and waste incineration. The results for both systems are compared regarding annual system costs, primary energy supply, greenhouse gas (GHG), and particulate matter emissions. Short-term 2030 scenario Once the long-term 2050 scenario is finalized, it’s then back cast to create a short-term scenario for 2030. This serves as a benchmark for the short-term implementation of measures such as energy efficiency improvements in DH networks,
building renovations, expansion of renewable heat supply capacity, and DH. This scenario helps energy planners ensure that future policies are aligned with a high-level, long-term goal. The current heating situation in Mongolia In general, the energy supply in Mongolia is dominated by coal – in 2021, more than 880 PJ out of 1,060 PJ were based on coal, equivalent to more than 80% of the total primary energy supply – mainly produced domestically. The heating sector is nearly entirely based on coal, both in DH supply and individual households. Coal provides an economical option for the heat supply to the population but is also a main cause of many challenges in the country. Local pollution due to coal usage is high in cities, causing respiratory-related health issues.
smaller than 10 µm (PM10)) and SO2, - was up to ten times higher than the limits recommended by the World Health Organization (WHO). Since the National Programme for Reducing Air and Environmental Pollution 2017–2025 has been implemented, the PM2.5 concentration fell by 51% in 2019 – 2020 compared to the level in 2016 – 2020 – but many days are still at “unhealthy,” “very unhealthy” or “hazardous” levels during the winter. For example, around 85 days were in these three categories from October 2021 to March 2022. This is a severe health problem that needs to be addressed. Energy systems with low energy efficiency In Mongolia, three coal-fired combined heat and power (CHP) plants and about 100 heat-only boilers (HOBs) supply the existing DH system, accounting for 98% of the DH supply. They are very old and need renovation – most/all plants were commissioned in 1983 or earlier. The energy efficiency of Mongolia’s existing buildings and its DH infrastructure need attention. Heat losses in the Ulaanbaatar DH network are around 17%, which is relatively
Most buildings in Mongolia have low energy efficiency, and their heat supply systems are also inefficient. Furthermore, a large share of the population has relatively low purchasing power, which implies that upgrading heating systems and integrating more renewable supply is not a simple pathway. Finally, the country’s population is increasing rapidly, only adding to these problems if the current heating-related challenges are not addressed. Mongolia, however, also has large potential sources of RE - especially wind, solar, and geothermal energy. Main challenges and opportunities The reliance on and availability of coal create critical challenges for advancing the country’s efforts to reduce GHG emissions from the energy sector. In addition, extreme air pollution lev- els are evident due to these heating systems’ emissions, which contribute about 80% of the country’s accounted air pollution. This condition is worsened by the geographic conditions in cer- tain cities (for example, cities surrounded by mountains), such as the case of Ulaanbaatar and its temperature inversion layer. During the winters of 2015-2020, the average concentration of the three major sources of air pollution - PM2.5, PM10 (mass weight of particles smaller than 2.5 µm (PM2.5) and particles
Figure 1: The development of district heating demand in Ulaanbaatar from 2020 to 2050.
Figure 2: Primary energy demand, including electricity export balance for the assessed cases.
Large potential for renewable energy Due to Mongolia’s rich geological heritage, the country has enormous potential for RE generation. Currently, the energy system has only 4.2% renewable penetration, but the potential to expand is significant: • The wind resource has been estimated at up to 1.1 TWe with an electricity output of 2,550 TWh/year. • The solar potential has been estimated at 4,774 TWh/year based on 270-300 sunny days a year, with an average sunlight duration of 2,250-3,300 hours available in most territories. Mongolia’s annual average solar energy is 1,400 kWh/m2 per year, with a solar intensity of 4.3-4.7 kWh/m2/day. • The significant geothermal potential is characterized by hot springs in several parts of the country. Still, limited data are available in underground temperature maps and site measurements. • Hydropower potential has been estimated to be 1.2-3.8 TWe. • Regarding heating, there could be potential for biomass from forests in northern Mongolia and excess heat from industry.
high compared to similar cities, with heat losses around 6-9%. This results in factors such as high heating demands, which require high supply temperatures due to poor insulation of buildings and DH pipes. In recent years, many of the pipes in the Ulaanbaatar DH system have been replaced, but still, around 25% are from before the year 2000. The temperature level of the system is also relatively high, with a supply temperature of around 130°C, due to high- temperature requirements in individual buildings. Ulaanbaatar’s Green City Action Plan acknowledges the lack of financial resources slowing renovation activity, especially in Ger (see Text box) areas. In terms of energy, it considers that RE promotion is on track. Still, energy efficiency in buildings in the Ulaanbaatar DH heating area is challenging, especially in retrofitting pre-cast concrete panel apartments. Furthermore, there is a need for long-term investment planning strategies to increase energy efficiency in buildings and the Ulaanbaatar DH network.
Figure 3: The resulting annual CO2 emissions in the assessed cases.
Figure 4: The resulting annual emissions of pollutants from the assessed cases.
• Develop enabling regulations for renewable technologies in the Mongolian context. • Set ambitious, specific targets for coal phase-out to meet the 2050 vision. • Assess renewable potential (e.g., geothermal potential). Energy efficiency in buildings • Provide heating installations with energy meters and heat cost allocators. • Implement measuring instruments to assess the development of heat demand in buildings. • Improve thermal insulation in buildings. • Revise construction standards for new building regulations regarding energy efficiency measures. • Introduce energy performance certificates for new and renovated buildings. District heating • Introduce RE solutions (including thermal storage) that supply domestic hot water. • Create DH investment plans supported by regulation to upgrade, increase capacity, and maintain DH systems. • Structure heating tariffs to be composed of both fixed and variable costs. • Create DH cost-covering systems by revising heating tariffs and ownership models. Ger areas • Investigate heat pump potential for buildings in Ger areas. • Assess the electrification of the heating supply in Ger tents and plan alongside electricity distribution grid reinforcements. • Improve insulation capacity in Ger tents where possible.
Recommendations for implementation of renewable energy in district heating systems One of the significant challenges to implementing the green transition in Mongolia’s heating sector is the low price of coal, which hinders the financial feasibility of RE options. One way to solve this is by including externalities such as air pollution and the emission of GHGs in the heat tariff in the form of taxa- tion. The increasing population is leading to a rapid increase in heat demand, which adds pressure to build more heat supply plants. Here, it is important to ensure that new buildings are energy efficient, for example, through building regulation measures. Low heating tariffs are a major barrier hindering the imple- mentation of energy efficiency measures in existing buildings since the cost of building renovation may not be recovered through the associated energy savings. This could be solved by introducing an appropriate tariff scheme based on con- sumption billing that reflects the heat production cost. Today, buildings do not use heat metering to measure their heat con- sumption and billing. Regarding new renewable sources, further investigation into geothermal and excess heat sources would be worthwhile for the DH sector, as there are limited detailed surveys on the po- tential of these sources. Recommended measures that could be implemented to pro- mote RE deployment in Mongolia’s heating systems under four categories are shown below: General • Target increased investment in RE development and the decarbonization of the heating sector.
Figure 5: System costs related to the investment and operation of the assessed cases by categories.
Mongolia (Climate)
IRENA
• Mongolia has a large variation in ambient temperature over the year.
• IRENA (International Renewable Energy Agency) is an intergovernmental organization. • Supports countries in their transition to a sus- tainable energy future and serves as the principal platform for international cooperation, a centre of excellence, and a repository of policy, technology, resource, and financial knowledge on renewable energy. • IRENA promotes the widespread adoption and sustainable use of all forms of renewable energy, in- cluding bioenergy, geothermal, hydropower, ocean, solar, and wind energy, in the pursuit of sustainable development, energy access, energy security, and low-carbon economic growth and prosperity - www. irena.org • Link to the report: https://www.irena.org/Pub- lications/2023/Aug/Renewable-Energy-Solu- tions-for-Heating-Systems-in-Mongolia The analysis in SHP shows that the Renewable 2050 system is the most cost-effective (Fig. 5). This leads to system cost savings of around 62% compared to the Baseline 2050 fossil fuel-based system. The savings are mainly related to the cost of externalities (local pollution and CO2 emission), which are typically not accounted for in Mongolia today. This analysis shows that the Renewable 2050 system is a feasible alternative to the Baseline fossil-based DH system in Ulaanbaatar. Furthermore, an integrated energy system analysis, including other energy sectors, could assist in identifying cross-sector synergies that could make the Renewable 2050 system yet more cost-effective.
• In Ulaanbaatar, the max. temperature reaches 33°C to 38°C while the minimum temperature reaches -33°C to -37°C. • Heating season in Mongolia is about eight months in most places.
Output of Strategic Heating Plan Today, Mongolia’s dependence on coal is high, but the scenari- os highlighted in the SHP show that it is possible to implement a green transition of the country towards 2050: • The conversion will mean a significant expansion of DH in Mongolia (Fig. 1). • The primary energy consumption can be reduced by up to 55% (Fig. 2). • The emission of CO2 can be reduced by up to 93% (Fig. 3) • The emission of SO2, NO x , and particles will be reduced by up to 99% (Fig. 4). • In 2050, the system costs will be able to be reduced by 62% compared to Baseline 2050 (Fig. 5).
For further information please contact: Lars Gullev, lg@veks.dk
PRICING HEAT SOURCES FOR DISTRICT HEATING NETWORKS
By John Tang Jensen, District Heating Expert
– like any other business negotiations. The need for short-term payback and the limited investment resources in an industrial company cannot be neglected and must, at the same time, fit into the long-term thinking and need for constant and reliable supply required from a district heating network company. Analysis of the heat value and its influencing factors The value of heat primarily follows the temperature of the heat, but other factors also influence the value. Suppose delivery is unreliable or cannot be predicted well - in that case, the district heating company may need other and more expensive reserve- and-peak-load capacity and potentially also needs to establish storage capacity – all factors affecting the heat price that can be paid. Delivery capacity in itself has value, and if the heat network can save on or avoid investments in reserve-and-peak- load equipment, this can be included in the price negotiations. Finally, flexibility has a value, which means heat price can be higher if delivery can be flexible over the day and year, e.g., in peak demand situations. The heat source owner needs to know how much waste heat the district heating network company can purchase and if there are any restrictions, for example, regarding summertime delivery. For the district heating network company, knowing something about the production pattern in the industrial plant can be beneficial because the heat delivery will follow production patterns, e.g., if there are seasonal stops and weekly fluctuations. The DH company also needs to evaluate the risk of the heat owner stopping if, for example, the product produced is at the end-of-life cycle or can be expected to be replaced by other products or if the plant simply moves the production to other places. Waste heat should always be extracted from the most efficient production lines to avoid decreasing heat delivery if the production line is renewed. The present energy
Pricing waste heat sources for District Heating networks should be based on sharing the “space available for negotiating heat price,” which is a price found between the marginal heat production price by the heat source owner and the substitution heat price, which is the price the district heating company can produce the same heat for by themselves. When heat/electricity and heat/cooling are produced in combination, the marginal heat production price can be established by agreeing on how to share costs. In a situation where many heat sources are available in a heating network system, it may be beneficial to split the pricing into a capacity payment part and a variable payment part to ensure the sources with the lowest marginal prices are dispatched first without losing capacity in the system. This article aims to establish an understanding of which elements, procedures, and methodologies are needed, from identifying a potential waste heat source for district heating to negotiating and agreeing on a price model in a contract benefitting both the heat source owner and the district heating network company. This occurs on purely commercial terms, and the idea that someone MUST take or give surplus heat is not relevant. However, it requires that it makes sense for both parties and therefore, one must engage in a commercially based negotiation. Establish cooperation between the heat source owner and the district heating company. The business thinking in an industrial plant compared to a district heating company is often very different, and the two partners need to understand the thinking on the other side of the table. This is important, as both partners need to understand the drivers for business in each company; otherwise, it is unlikely that a contract will be made and signed
maintenance costs, and, in some cases, losses and savings on both sides. For a power plant, the electricity production will decrease by changing to CHP, and income is lost. Savings can, for example, be investments both in new and existing equipment and costs for cooling heat away in power plants (cooling towers), data centres, wastewater treatment plants, supermarkets, industrial plants, etc. For some categories of industries, like food factories, the input energy is used for both cooling and heat production. By reusing the heat energy from cooling production, these types of factories can often reduce both the energy demand and, thereby, the available waste heat. The investigation must first focus on using the waste heat for internal purposes. The heat source investigation should result in a calculated average waste heat production cost, including cost and saving on investments, O&M, other losses, and savings, but before a profit, calculated for the number of years selected for the first contract period and taking into account the risks regarding delivery. This price is often called the “marginal delivery price” or “cost-based price”. The heat source investigation and average waste heat production cost should be based on the possible heat temperature without including energy-using equipment to increase heat temperature. How to increase temperature, if necessary, should be a part of negotiations. Heat network price investigations Like the investigation done by the heat source, the district heating network company should also make a price investigation. The heat network price investigation should include all operation and maintenance costs (O&M costs) for
input to an industrial plant can be a good starting point for initial discussions. When understanding energy input, the two partners get an idea about potential delivery. Experiences made by other similar industries can often help in understating temperature and the amount of waste heat available. Regarding possible heat delivery compared to heat demand and capacity need, the heat source and demand often do not fit perfectly. The heat network then often needs to be enlarged before delivery can be feasible, and delivery may be postponed until the heat network size fits or the contract has to take this into account, making it even more complex. After the initial collection of information, both partners need to evaluate the risks before it is decided to carry on. If risks and investments are high for one partner, they must be addressed in the following negotiations. Heat source price investigation A heat source investigation can be complex, and often, it can be a good idea for the heat network company and heat source owner, in cooperation, to find a specialist with knowledge about the industrial processes and district heating systems to investigate on behalf of both partners. Industrial plants do not want to spend much on investigations as it is not their primary business. Often, the district heating company or government, through subsidies, can finance the investigations. Some of the first investigation steps, though, can be done before a specialist is hired as it is pretty easy to determine the grade of the heat source and to understand the expected lifetime of the industrial plant or the production line from where the waste heat can be utilised.
Besides temperature and possibly delivery profile, the investigation needs to explore investments, operating costs,
the marginal production price from heat source I.e. if the heat price is higher than the substitution price, the heat network will stop the negotiation and make a different contract. Figure 1 shows the principles for waste heat price negotiation. Sometimes, the marginal heat delivery price is high because the heat delivery is limited due to low heat network demand compared to the capacity for waste heat delivery or if another cheaper heat source is blocking heat delivery, e.g., during the summer. Expanding the heat network can increase demand and decrease marginal heat delivery prices. This can get the marginal heat delivery price below the substitution price. The difference between the heat substitution and marginal heat delivery prices is the space for negotiating the heat price. If the partners have investments on the same level, the negotiations can end so the partners share the space equally. There are no rules about how the heat price should be negotiated and how the space for negotiating the heat price should be split – but both partners are interested in reaching an agreement. Both partners’ risks, though, need to be evaluated, and the price may be adjusted in the contract period according to risks. If one of the partners needs to invest more than the other, it creates a higher risk for this partner. This risk can be aligned by up-front payment from the partner with low investment to the one with higher investment or through a large share of the “space for negotiation”. Often, the waste heat source owner requires a short payback of investments, which is impossible if the common surplus is split equally. This can be solved by letting the district heating network company pay a more significant part of investments from the beginning, but if the price is split equally, the payback time may still not be satisfying. The district heating company is often better suited for long-term investments. The solution then may be to split the price with a higher payment at the beginning of the contract period and a lower later in the contractual period. However, this solution needs a guarantee or insurance for the district heating company because the heat delivery may dry out before the end of the contract period, and the investments may not be paid back.
the existing heat source(s) that the new heat source heat will replace calculated for the agreed contract period. The heat consumers would pay investment costs for heat capacity twice if the district heating company already has sufficient heat production capacity. This is why investment costs are not included in the heat network price investigation. Suppose the heat network company does not yet have its own sufficient heat source capacity. In that case, the price investigation should include investment costs for the capacity not yet established. According to the above, the costs for its own heat sources during the expected contract period can then be calculated as an average heat production price for heat delivered to the network. Suppose the district heating network saves or adds costs like emission trading system (ETS), taxes, or other operational costs by purchasing waste heat. In that case, these should be reflected in the heat price calculated. The calculated heat production price is often called the “substitution price” or “contrafactual price”, meaning the heat price that can be substituted by cheaper waste heat sources delivered instead. Negotiating heat price For agreeing on a contract and getting to the point where the heat price can be established, the substitution price from heat network or contrafactual price needs to be higher than
Price too high for network
Substitution price from heat source
Space for negotiating heat price
Heat price
Marginal production price from heat source
Price too low for heat source
Figure 1: Principles for negotiating waste heat price.
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