BOX 2
Understanding consumer power on the monopolistic DH companies The analytical framework for ‘consumer power in natural monopolies’ distinguishes four dimensions of consumer power (or categories of institutional conditions) concern- ing natural monopolies: ‘state regulative power,’ ‘ownership power,’ ‘buying power,’ and ‘communicative power.’ The combination may result in various configurations and levels of consumer power.
The hypothesis (supported by this study’s results) is that there are links between the configurations and levels of consumer power and DH companies’ behavior regarding respecting consumers’ interests.
Why compare Denmark and Sweden? Denmark and Sweden have succeeded in reaching and main- taining high shares of residential buildings supplied by DH: Denmark (64 %) and Sweden (51 %). Despite similarities, the countries have implemented somewhat different regulations and governance models regarding DH systems’ price and qual- ity control during the last few decades. When comparing DH in Nordic countries, Sweden has the largest share of commercial ownership and the softest public regulation for DH, with no price regulation and a free consumers’ choice of heat supply technology. In contrast, Denmark has the largest share of con- sumer ownership and the strictest public regulation for DH, with a non-profit (or cost-based) price regulation and, until recently, the possibility to oblige consumers to connect and remain connected to the local DH system. Furthermore, some examples of DH companies misusing their monopoly position have been seen in Denmark and Sweden. Lessons fromDenmark and Sweden Below, we outline our study’s insights; in box 3, we introduce policy recommendations. 1. Free choice of heat supply technology alone does not put sufficient pressure on DH companies to set reasonable DH prices. It must be supplemented with regulation, high transparency, communicative power, and possibly high or very high ownership power (e.g., as in local consumer coop- eratives or local municipal companies). 1.1. To ensure a free choice of heat supply technology, individ- ual heating solutions must be available at a competitive price with DH. However, DH can be cheaper than individ- ual heating from a socio-economic perspective, especially in areas densely populated or with excess heat. Therefore, creating effective market competition can result in addi-
tional costs for society due to the economic incentives that would be necessary and the reduction in the connected heat demand density. 2. Strong price regulation (such as the cost-based regulation in Denmark) does not ensure reasonable heat prices unless high or very high ownership power is in place (e.g., through local consumer cooperatives or local municipal compa- nies). It should also be coupled with high levels of transpar- ency and communicative ability. Additionally, it could also be essential to address information asymmetry, agency problems, and lack of expertise. 3. Ownership of DH companies influences DH prices and transparency. Under the same regulation, consumer coop- eratives and municipal companies result in lower DH prices and higher transparency than commercial or state-owned companies. In Sweden, companies with cost-based pric- ing are more open about their costs than those with mar- ket-based pricing. 4. With the right combination of policies and regulations, lo- cal consumer cooperatives and municipal companies can develop and run DH systems and contribute significantly to DH implementation. In Denmark, 94% of the DH demand is supplied by local consumer cooperatives and municipal companies; in Sweden, about 63% is provided through lo- cal municipal companies. Cultural aspects may influence the choice of ownership. 5. Regulatory Authorities might not identify all law in- fringements or questionable practices by the DH compa- nies. Transparency, access to information, and media cov- erage are essential to monitor and control DH companies. However, for this to work, Regulatory Authorities and poli-
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