Capacity market
Heat producer
Constraints (e.g., network dimensions)
Long-term contracts (CFD)
Heat producer
Day-ahead market
Forecast
Single buyer (System operator, network operator, market operator)
Producers
Customers
Intraday market
Obligatory participation
Customer
Schedules
Customer
Operation
Figure 3. Proposed organizational structure The proposed organizational structure includes three types of agents. The single buyer is the network owner and operator of the entire system. Unbundled heat producers produce the heat. The customers are supplied by the single buyer, but they receive a separate bill for heat production and network operation.
The solution: A new framework The framework is built upon the experiences from current planning and operation processes identified by literature re- view and interviews with Danish DH companies (figure 4). The single buyer enters long-term contracts with independent producers in the capacity market. By this, the single buyer se- cures the heat supply and reduces the investment risk for new producers. Participation in the capacity market is optional for the pro- ducers. Participation in short-term markets is obligatory for all producers. Producers that only participate in the short-term markets must pay a connection fee. Continuously evaluating and adjusting the heat sources Independent from the organizational form (introducing com- petition or not), heating plant capacities, the network, and sub- stations must be planned, built, and changed. In the process of transition, legal and economic conditions are continuously evolving. It is, therefore, necessary to evaluate regularly if the DHS still meets the requirements and supplies heat under the best economic conditions. This evaluation of the financial sit- uation is done by the capacity market in five phases (figure 5). The objective of the capacity market is to minimize total costs by balancing investments into the network and customers or the heat supply. The network operator should secure a mini- mum capacity to reduce some producers’ market power and their investment risk in new plants. Further, annual environ- mental targets and the scheduling of seasonal storage should be considered. Figure 4. Main elements of the new framework As the first element of the framework, a capacity market is introduced to solve the issues of the design scope. It is connected to the short-term markets by long-term contracts, including a contract for differences (CFD) mechanism. In the short-term markets, two routines are implemented: a day-ahead and an intraday market. Finally, the resulting schedules are used to control the plants in operation.
spective: By allowing independent heat producers to connect plants to different DHSs, the economy of scale and scope can be used to reduce the heat production costs on a national scale. Thereby, companies from other sectors can bring their expertise to the DH sector (e.g., oil companies building and operating geothermal plants). Companies may focus on single technologies while up scaling the number of plants. Due to these and further qualitative arguments (presented in the dissertation), a single buyer model for DHSs is proposed to introduce competition (see Figure 3). With this new struc- ture, the core business of the DH operator changes from selling heat to reducing the total costs while meeting the ecological requirements.
Even though many advantages can be identified by introduc- ing competition, some challenges arise with it:
The single buyer and the customers risk that the independ- ent producers might take advantage of their market power on the small-scale DHS (compared to the electricity system). On the other side, there is an investment risk for the produc- ers to build new plants since there might be another new plant that may produce cheaper in the future. The overall system might suffer from suboptimization, which means every agent will try to optimize its subsystem, which can work against the overall optimum.
A framework was developed to solve these issues and weaken the arguments against competition in DHS.
40 HOTCOOL SPECIAL COLLECTION edition 1, 2023
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