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
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