Picture: Victoria Maria Evensen og Knut Inderhaug i Hafslund Celsio, Berit Tennbakk og Åsmund Jenssen fra THEMA Consulting.
District heating and district cooling relieve the power grid and strengthen security of supply
District heating relieves the power system during hours of high heating demand. In areas where the grid is full, the increased use of district heating could free up grid capacity for other consumption and enable the connection of more new consumption to the grid. In the long term, power grid investments could be postponed or avoided.
District heating strengthens security of supply in the power system and across the entire energy system. In part, this is achieved by diversifying energy supplies. However, electric boilers in the district heating system can also provide grid balancing services such as frequency control and help to balance power consumption and production.
Our analysis shows that if 1-1.5 TWh of net annual power consumption for heating in Oslo were converted to district heating, it would free up 250-430 MW of capacity in the power grid. The socio-economic value of the avoided energy generation and freed-up grid capacity is estimated to be between NOK 1 and 1.6 billion annually.
Current conditions hamper the beneficial growth of district heating
Barriers to the socially beneficial expansion of district heating and cooling include the licensing process, district heating companies’ and customers’ incentives to develop and use district heating, and inadequate coordination between different stakeholders within the energy sector.
The licensing process is too limited
The current licensing system assesses competing heating solutions for a limited area and does not take sufficient account of the effects on the energy system as a whole. We therefore recommend that the licensing process consider the impacts on the power grid when assessing the potential benefits of district heating and alternative heating solutions.
Strengthen customers’ incentives to choose district heating and to use it efficiently
The regulated maximum price for district heating is calculated using a monthly average but power consumption is billed according to hourly prices. This gives district heating customers without alternative heating solutions weaker incentives to optimise and increase the efficiency of their heat consumption, both in terms of minimising total system costs and the customer’s heating bill. Changing to hourly maximum prices could be combined with a requirement to individually meter and bill for heat delivered to the customer, akin to the current practice for electricity consumption.
Some types of district heating customers find it challenging to operate their heating systems cost-effectively. To reduce such costs and make district heating more attractive, district heating companies could be required to help customers manage their use where these customers are subject to a connection obligation.
The system benefits of district heating support its use. However, today’s support schemes are insufficient to make the use of district heating commercially viable, even where it benefits the energy system. The government should therefore consider subsiding customers who can convert from electric heating to combined waterborne and district heating.
Other regulations, such as the ecolabelling provisions, should be designed so that they do not weaken customers’ incentives to use district heating where it is beneficial for the energy system.
District heating companies’ incentives can be improved
Today, district heating companies receive no benefit from helping to avoid or postpone investments in the power grid, enabling faster grid connections or contributing to local flexibility. The network tariff regulations and any local flexibility markets should be developed such that district heating companies (and other players) are rewarded for the network benefits they generate.
Other regulations, such as the design of the CO2 tax on waste incineration—which incentivises the export of waste to Sweden, increase the costs of district heating in a way that cannot be justified in terms of maximising social welfare.
Energy infrastructure planning should be better coordinated
The efficient restructuring, development and utilisation of the energy system requires better coordination and planning of energy infrastructure. Pilot projects with regional energy coordinators are an interesting step in this direction. Consideration could also be given to designating areas for the conversion of existing buildings using electric heating where this is socially beneficial, as determined by the relevant authorities (e.g. the Norwegian Water Resources and Energy Directorate). Relevant initiatives could, for example, include targeted support programmes combined with information measures.
This analysis was carried out on behalf of Hafslund Celsio and documented in a public report.
