THE CASE FOR DISTRICT HEATING: 1000 CITIES CAN’T BE...

Graz Innsbruck Linz Salzburg Wien Bourgas Plévène Plovdiv Roussé Slivène

Sofia Varna Brno Praha Ålborg Århus Kobenhavn Odense Tallin Tartu Espoo

Helsinki Oulu Tampere Turku Vantaa Grenoble Lyon Metz NantesNîmes Paris

Rennes Strasbourg Aachen Augsburg Berlin Bochum Bonn

Braunschweig Bremen Bremerhaven Cottbus Darmstadt Dortmund Dresden

Duisburg Düsseldorf Erfurt Erlangen Essen Frankfurt am Main Freiburg Fürth

Gelsenkirchen Gera Göttingen Halle Hamburg Hamm Hannover Heidelberg

Ingolstadt Kaiserslautern Karlsruhe Kassel Kiel Köln Krefeld Leipzig

Leverkusen Lübeck Lüdwigshafen Magdeburg Mainz Mannheim München

Münster (Westf) Neuss Nürnberg Oberhausen Offenbach am Main Potsdam

Regensburg Reutlingen Rostock Saarbrücken Schwerin Stuttgart Ulm Plzen

Wiesbaden Witten Wolfsburg Wuppertal Würzburg Zwickau Budapest Debrecen

Györ Kecskemét Miskolc Nyiregyhaza Pécs Szeged Székesfehérvar Reykjavik

Brescia Ferrara Milano Torino Verona Daugavpils RIGA Kaunas Klaipeda

Panevezhis Shauliai Vilnius Luxemburg-Ville Almere Amersfoort Amsterdam

Arnhem Breda Eindhoven Enschede Heerlen-Kerkrade Leiden Maastricht

Nijmegen Rotterdam Gravenhage Tilburg Utrecht Bergen Oslo Stavanger

Trondheim Gdansk Gdynia Kraków Plock Poznan Warszszava Arad

Botosani Brasov Bucuresti Buzau Olomouc Cluj-Napoca Craiova Iasi Piatra

Neamt Ploiesti Rimnicu Vilcea Sibiu Suceava Timisoara Tirgu-Mures

Bratislava Kosice Ljubjana Barcelona Göteborg Helsingborg Jönköping

Linköping Malmö Norrköping Ostrava Orebro Stockholm Umeå Uppsala

Västerås Basel Berne Genève Lausanne Winterthur Zürich Aberdeen

Chesterfield Doncaster Lerwick London Manchester Norwich Nottingham

Rotherham Sheffield Slough Southampton Woking Brno Luxemburg-Ville Oslo

THE CASE FOR DISTRICT HEATING:1000 CITIES CAN’T BE WRONG!

A GUIDE FOR POLICY AND DECISION MAKERS

This guide presents the case for district heating as an environmental option for thecommunity and an investment in future sustainability across the EU 25 member states andbeyond. This guide is useful to anyone involved with district heating and cooling systems,either as user or generator of energy. It primarily addresses senior decision-makers atgovernment and local government level but is also applicable to facility managers,building owners and managers.

In addition, the guide is intended for the international community as a tool for policymakers, in relation to the directives on CHP, renewable energy sources and energy services.It could be utilised by financial institutions and commercial banks for gaining practicalinformation on district heating for financing refurbishment projects.

This guide has been produced as part of the DHCAN project ‘District Heating & Coolingand CHP: Promotional Materials for Candidate Countries and Pilot Actions in Hungaryand Romania’. Other guides in the series are listed below. The project is supported by theEuropean Commission under the SAVE (Special Actions for Vigorous Energy Efficiency)programme.

FOREWORD

THE CASE FOR DISTRICT HEATING

2

DHCAN PROJECT TEAM BRE (UK)

Euroheat & Power

KAPE (Poland)

SEVEn (Czech Republic)

FVB (Sweden)

Ekodoma (Latvia)

Fotav Rt (Hungary)

Debrecen Heat Supply Company (Hungary)

Tata Municipality (Hungary)

ASA (Romania)

ARCE (Romania)

DHCAN GUIDES available from www.euroheat.org andwww.bre.co.uk

Generic guides

� The case for district heating: 1000 cities cannot

be wrong

For decision makers – setting out main benefits

� District heating system modernisation guide

For energy managers – key issues for

refurbishing networks

� District heating system management guide

For district heating company managers

� District heating system ownership guide

Options for public and/or private ownership

� District heating system institutional guide

Background policy and regulatory issues

� Guide for modernization of district heating

systems by implementation of small/medium CHP

Making the case for CHP – used for the pilot

action in Romania

� The heat that turns the light on!

District heating promotional flyer for the

general public.

Case Studies � The role of CHP in the development of district

heating in Budapest

� Towards a modern, customer-driven district

heating system in Debrecen.

3

CONTENTS

FOREWORD 2

EXECUTIVE SUMMARY 4

ABOUT THIS GUIDE 5Introduction 5

Who should use this Guide 6

What is district heating 6

What is district cooling? 7

The extent of district heating in Europe 7

1 THE BUSINESS CASE FOR DISTRICT HEATING AND COOLING (DHC) 91.1 CHP: using the waste heat from electricity generation 9

1.2 Heat from waste incineration 10

1.3 Industrial waste heat 11

1.4 The use of geothermal heat 11

1.5 Central combustion of difficult to handle fuels 13

1.6 Easy integration of future energy sources 13

2 POTENTIAL BENEFITS OF DISTRICT HEATING 142.1 Increase security of supply 14

2.2 Cost effectiveness 15

2.3 Emissions 16

2.4 Air quality in urban areas 17

2.5 Other potential benefits of district heating versus decentralised systems 17

3 FUTURE PERSPECTIVES FOR DISTRICT HEATING AND COOLING 193.1 District heating in a liberalised energy maket 19

3.2 Promotion of the energy services concept 20

3.3 Emissions trading 20

4 FURTHER READING 224.1 Reports and articles 22

4.2 Internet 22


EXECUTIVE SUMMARY


The fundamental idea of district heatingis a piping network that allows multipleenergy sources to be connected to manyenergy consumersultiple energy sinks.Throughout the world, the main drivermaking the business case for districtheating is the use of thermal energy thatwill otherwise be wasted. In particular,district heating allows the efficient useof thermal energy from combined heatand power plants (CHP), refuseincineration plants, waste heat fromindustrial processes, natural geothermalheat sources, and fuels which are moreeasily used centrally includingrenewables like wood waste andresidues, as well as coal and peat.

Using one or more of these five energysources in district heating schemes canincrease energy security. Fuel supplyreliability and flexibility is enhanced byusing indigenous fuels like biomass orwaste. Power grid reliability isstrengthened by generating power nearerto population centres and with CHPdemand is reduced by supplying heatingor cooling through district heating andcooling (DHC) systems.

Integration of these sources of availablewaste heat means that district heating andcooling produces significantly loweremissions of greenhouse and other gases,,compared to alternatives. It is also mucheasier to make sure that emissions targetsare reached with a small number of largeproducers than a large number of smallproducers.

Even when a large plant supplying districtheating is using the same fuel as smalldecentralised boilers, air quality in the

immediate vicinity is still enhanced. Thisis due to better pollution controltechnologies at large centralised plantand higher stacks. At least one city,situated in a basin has solved its problemwith smog, by means of district heatingsupplied from CHP plant situated outsidethe basin.

From the perspective of buildingowners/managers, modern DHC offerseconomic and technical benefits. Itreduces operating, maintenance, andcapital costs associated with boilers andchillers in individual buildings, while theconsumer receives energy services whichthe district heating producer provides inthe most efficient way possible.

District heating networks also provide competition between differentheat sources and fuels and can thereforebe an important element in liberalisedenergy markets. In large-scale integrateddistrict heating systems, all available heat sources can compete to the benefitof the consumers who are united as abulk buyer.

District heating facilitates the provision ofa range of energy efficient services to thewhole community. Accordingly, districtheating companies are likely to beimportant players in future directives onenergy services. Networks also providefuel flexibility for the future: new low-carbon and renewable sources can beintegrated as soon as they becomeavailable and the network quicklyprovides an easy way to supply a largenumber of customers.

4

ABOUT THIS GUIDE


IntroductionThis guide presents the case for districtheating as an environmental option forthe community and an investment infuture sustainability across the EU 25member states and beyond. It is part of aportfolio of guides being developed withinthe DHCAN project, which has beencarried out under the EuropeanCommission’s SAVE programme. OtherDHCAN Guides include the following:

1 The district heating institutional guide,which deals with issues on legislation,price regulation, municipal energyplanning, barriers, CHP supportsystems, taxes, cost allocation betweenelectricity and heat and energy marketliberalisation

2 The district heating modernisationguide, which deals with technicalaspects involved with changing fromsupply to demand driven districtheating

3 The district heating managementguide, which provides informationabout the financial aspects of DHmanagement like collection rate, pricelevel, structure and present value offixed assets and examples of successfulmanaging of the DH networks(including business management,marketing and sales)

4 The district heating ownership guide, which deals with privatisation,public service obligation, operationcontract, etc.

These guides are intended to help you byintroducing district heating and coolingfrom an objective point of view and byproviding advice on how district heatingcan play a positive role in provision ofenergy services locally and energy securitynationally. Although the guides focusmainly on CEE countries, district heatingis increasingly seen by policy-makersacross the EU as a key contributor toKyoto targets.

District heating systems developed in CEE

countries and in Western Europe, have

different past histories based on different

political frameworks and energy policies. It

is now clear that they have a common

future.

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ABOUT THIS GUIDE


The purpose of this guide is to highlightthe environmental, social and economicbenefits of district heating. It containsinformation and relevant examples aboutthe role of district heating in providingsecurity of supply, sustainabledevelopment and competitiveness in theinternal energy market.

The guide is structured in three differentsections:� ‘The business case for district heating’

focuses on the basic principles thatmake district heating a financially andeconomically viable solution for spaceheating and hot water production

� ‘Potential benefits of district heating’highlights some of the benefits derivedfor district heating schemes,integrating one or more of five basicsources of efficient thermal energygeneration

� ‘Future perspectives for district heatingand cooling’ provides information onthe latest developments in the sector.

Who should use this Guide?This guide is useful to anyone involvedwith district heating and cooling systems,either as user or generator of energy. Itprimarily addresses senior decision-makersat government and local government levelbut is also applicable to facility managers,building owners and managers.

In addition, the guide is intended for theinternational community as a tool forpolicy makers, in relation to the directives

on CHP, renewable energy sources andenergy services. It could be utilised byfinancial institutions and commercialbanks for gaining practical informationon district heating for financingrefurbishment projects.

What is district heating?District heating (DH) is the name given toan infrastructure designed to satisfyconcentrated heat requirements on localheat markets.

It takes the form of a piping network thatallows multiple energy sources to beconnected to many energy consumers.Thermal energy in the form of hot wateror steam is distributed by pipelines fromcentral plants to individual buildings.Energy is extracted at the buildings andreturn pipes bring the water back to theplants to be heated again.

Heat can be supplied centrally fromalmost any source including CHP plants,heat recovered from incineration ofmunicipal waste, waste heat fromindustrial processes, geothermal sources,and biomass (or other ‘difficult tohandle’ fuels). These central plantsreplace individual, building-basedfurnaces and boilers.

District heating can supply heating anddomestic hot water to any building:residential, commercial, and public.However, the heat requirements must beconcentrated (high heat demand density)in order to be economically viable.

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ABOUT THIS GUIDE


What is district cooling?The idea can be compared to that ofdistrict heating, however, the energyproduced and supplied to customers iscooling energy instead of heating energy(i.e. extra heat is removed from thebuilding).

District cooling (DC) is often produced byabsorption technology, using surplus heatenergy. DC systems distribute chilledwater to connected buildings for airconditioning or other uses.

The extent of district heating in EuropeA description of the current situation andamount of heat delivered by districtheating in Europe and CEE countries canbe extrapolated from the energy balancescompiled by the International EnergyAgency (IEA).

The bar charts in Figures 2 and 3 showthe composition of final energyconsumption in Europe, Romania,Bulgaria and Turkey.

‘Other sectors’ mainly refers to thehousehold sector. It is important to notethat apart from electricity used in thehousehold sector for lighting andappliances (washing, cooking, cleaningetc), the other energy sources (like naturalgas, petroleum products, coal), are usedfor heating.

From the charts, it is possible to see thatin the EU15 countries, district heating(indicated in the charts by ‘heat’) has abig share in Finland, Sweden andDenmark. Then, in CEE countries, it isapparent that DH plays a very importantrole, supplying a significant proportion ofthe final energy demand.

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Domestic hot water

Space heat

Combined heat and power

Waste incineration

Industrial waste heat

Geothermal heat

Central combustion of fuelsdifficult to handle

Central energy source

District coolingDistrict heating

Steam for industry

Figure 1: DHC System – basic principles

Figure 2: Composition of final energy demand in EU15 countries

A typical district heating and cooling (DHC) system includes threemain elements:� Thermal energy generation: where steam or hot water (for DH) and

chilled or cold water (for DC) are produced� Thermal energy distribution: where the thermal energy medium is

distributed via pipelines from the production sources to thenetwork of users

� Thermal energy use – internal heating and/or cooling systems inconsumer buildings.

Other sectors 2001: Composition of final energy demand

0

10

20

30

40

50

60

70

80

Finlan

d

Sweden

Denm

ark

Germ

any

Austri

a

Nethe

rland

s

Belgium

Luxe

mbo

urg

United

King

dom

Irelan

d

Franc

eIta

ly

Greec

e

Spain

Portu

gal

EU

GJ

per

capi

ta

Solar/Wind/Other

Combustible Renewableand Waste

Coal and Coal Products

Petroleum Products

Natural Gas

Electricity

Heat

Sven Werner, FVB

ABOUT THIS GUIDE


The amount of heat energy supplied byDH schemes in the enlarged Europe isabout 2,1EJ per year, of which 0,9EJ is inthe EU15 and 1,2EJ in CEE countries.

Taking into account the fraction of thetotal heat demand supplied by districtheating, it is possible to estimate theprimary energy savings (see Table 1).These savings occur since DH distributesheat that would otherwise be wasted, forexample, from CHP plants or industrialprocesses. Between 1,3EJ and 1,4EJ peryear of primary energy is saved every yearwhich is equal to the total primary energysupply of Austria!

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Figure 3 : Composition of final energy demand in CEE countries

Other sectors 2001: Composition of final energy demand

0

10

20

30

40

50

60

70

80

Estonia

Latvi

a

Lithu

ania

Poland

Czech

Rep

ublic

Slovak

Rep

ublic

Hunga

ry

Sloven

ia

Roman

ia

Bulgar

ia

Cypru

s

Turk

ey

Malt

aEU+

GJ per capita

Solar/Wind/Other

Combustible Renewablesand Waste

Coal and Coal Products

Petroleum Products

Natural Gas

Electricity

Heat

Sven Werner, FVB

Table 1: Estimation of saved primaryenergy due to DH

Heat Fraction Saving of energy of primary

EJ heat energysupply demand

% EJ

EU15 0,9 80-90 0,7-0,8CEEC 1,2 50 0,6

Saved primary energy 1,3-1,4EJ

1 THE BUSINESS CASE FOR DISTRICT HEATING AND COOLING (DHC)


The idea of DHC is to use local energyresources that would otherwise be wasted,in order to satisfy local customer thermalenergy requirements.

This is the reason district heating can be aprofitable and financially viable solutionfor space heating and domestic hot watergeneration.

The five basic energy sources whichmake the business case for districtheating are the use of thermal energyfrom CHP plants, refuse incinerationplants, industrial processes, naturalgeothermal heat sources, and fuelsdifficult to handle including renewablesources like wood waste.

1.1 CHP: using the waste heat fromelectricity generationCHP (also called cogeneration) is thesimultaneous generation of electricalenergy and useful heat, which can be usedfor heating buildings or as process steamin industrial applications.

The term ‘useful heat’ refers to heat thatmeets an economically justifiable demand,or that could be used to generate usefulcooling via a secondary process. Districtheating and cooling networks provide oneof the best opportunities to utilise theuseful heat produced in CHP plant.

The energy efficiency of CHP is muchhigher than separate production ofelectrical power and heat – this concept isexplained in Box 1 using a Sankeydiagram. A cogeneration plant can reachas much as 90% overall efficiency.

In condensing power plants, between 40%and 70% of energy is lost through coolingtowers.

CHP is the most common heat source forexisting DH systems in the world (46% oftotal heat generated in district heating).There are many examples of thistechnology throughout Europe and CEEcountries including schemes in Riga,Warsaw, Prague, Budapest, Copenhagenand Mannheim.

Further information is available at thewebsites of Euroheat&Power (theinternational association for districtheating, district cooling and combinedheat and power) at www.euroheat.org andCOGEN (The European Association for thePromotion of Cogeneration) atwww.cogen.org.

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THE BUSINESS CASE FOR DISTRICT HEATING AND COOLING (DHC)


1.2 Heat from waste incineration An ‘incineration plant’ generally meansany stationary or mobile technicalunit/equipment dedicated to the thermaltreatment of wastes, with or withoutrecovery of the combustion heat generated.

Where household waste mostly consists ofrenewable material it contributes onlymarginally to an increase in thegreenhouse effect when incinerated.Combustible household waste is adomestic resource which can be utilisedfor heating purposes, if well-developed DHsystems are in place.

It is difficult to obtain an overall pictureof waste across Europe and to identifytrends. Annually, the Communitygenerates about 2000 million tonnes (Mt)of waste, around 200 Mt as municipalsolid waste (MSW) at an average of over1kg per person per day.

In Europe, the majority of municipalwastes are disposed either to landfill or byincineration. In some cases, there is anacute shortfall in incineration capacitywith constraints on new incinerators

following public debate on the healtheffects of incinerator emissions. However,the recovery of energy from MSW is apolicy priority in most countries.

The new Incineration Directive(2000/76/EC) introduces stricterprovisions, with the aim of ensuring thatfacilities operate more efficiently and thatemissions of key pollutants to air andwater are reduced.

After CHP, waste incineration is thesecond most common of the five basicresources in district heating systems inthe world. The SYSAV plant in Malmöhas, since the beginning of the 1970s,supplied 20-25% of the total annualheat requirement of 2300GWh for thecity’s DH system. After 30 years heatboilers have been replaced by CHP.Other examples where incinerationplants are integrated in district heatingschemes include Halmstad, Gothenburg,Uppsala, (Sweden), Sheffield,Nottingham, Lerwick (UK), Prague andBrno (Czech Republic), Paris, Munich,Copenhagen and Budapest.

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Box 1: Separate production of heat and power compared to CHPTypically, a condensing power plant generating 100 units of electricpower simultaneously produces up to 200 units of waste heat, whichin absence of the useful heat load, must be ventilated directly to theatmosphere or absorbed into seas, lakes or river water. For example,the production of 100 units of electric power and heat requires 310units of fuel at efficiency of 64,5%, when produced by ordinary gasfired combined cycle condensing power and boiler plants (HOB) butonly 222 units at efficiency of 90%, if produced by a gas firedcombined cycle CHP plant.

In addition to energy efficiency, the electricity transmission losses arenormally lower with CHP, because electricity is generated close to themunicipality.



1.3 Industrial waste heatMost industrial processes that burn vastamounts of fuel reject a large amount oflow-grade heat through their exhaustsystems. Waste heat recovery involves thecapture of this low-grade heat, which canthen supply a district heating system.

The conversion of waste heat into spaceheat, process steam, or electricity iscommon across a wide spectrum ofindustry, in particular steel, chemical, pulpand paper. Waste heat boilers or devicesare installed after kilns, furnaces, turbines,engines, incinerators and other heatproducing processes to capture and useheat that would otherwise be dispersed inthe environment.

A crucial factor is the temperature atwhich these industrial processes arecarried out: the higher the temperature,the higher the quality and value gained byheat recovery.

The advantage of having a DH network isthat on the demand side, buildings need anindoor temperature of 20oC while provisionof hot tap water means heating cold freshwater from about 10oC to about 55oC. Thisallows industries - with an excess of lowthermal energy in the range of 50-70oC - tosupply district heating networks.

Most of these low temperature heatsources are nearly or completely CO2

neutral.

From an energy efficiency point of view, itis a waste of resources to heat water at lowtemperatures using sources like electricityand natural gas if a DH scheme can makeuse of low-level temperature heat sourcesalready available in the neighbourhood.

However, for DH schemes using thisalternative source, it is important todiversify with other energy sources inorder to avoid heat supply problemsarising if the specific industry closes down.

For example: In Sweden, the Vänersborgdistrict-heating scheme recovers heat froma ferro-alloy furnace. In Göteborg, heat isrecovered from two oil refineries and inVarberg, from the Värö pulp and paperplant where the waste heat is transferredvia an 18 km long transmission pipe. Inthe Czech Republic, Plzen district heatingrecovers heat from _koda Plze_ while inMladá Boleslav, heat is recovered from_koda (VW). In Hungary, the Debrecendistrict heating system recovers heat froma printing works. In Pzock (Poland), thedistrict heating scheme recovers heat froman oil refinery and in Puzawy, from afertiliser factory.

1.4 The use of geothermal heat Geothermal energy is literally the heatcontained within the Earth that generatesgeological phenomena on a planetaryscale. Geothermal energy is not availablefor use everywhere, but in locations whereit is possible to harness, it provides asource of zero-emission heat.

Geothermal systems can be found inregions with a normal or slightly abovenormal geothermal gradient, characterisedby low temperature usually no higherthan 100°C at economic depths. Acomplete map of Europe geothermalresources is available from the Atlas ofGeothermal Resources in Europe [1].

Potential use of heat from old coalworkings is also currently being examinedin several cases.

11



A geothermal system is made up of threemain elements: 1 A heat source2 A reservoir3 A fluid; the carrier that transfers the

heat.

Electricity generation is the mostimportant utilisation of high-temperaturegeothermal resources (> 150°C). Medium-to-low temperature resources (< 150°C) aresuited to many different types ofapplication. The lower limit of 20°C isexceeded only in very particularconditions, or by the use of heat pumps.

Direct heat use is one of the oldest, mostversatile and also most common

utilisation of geothermal energy. Inaddition to conventional district heating,greenhouse heating, agriculturalapplications, aquaculture and industrialapplication can be supplied.

Examples of utilisation of geothermalenergy for DH schemes are Ferrara,Pomarance and Monterotondo (Italy),Southampton (UK), Lund (Sweden),Oradea (Romania), Decan (CzechRepublic) and Paris. One of the mostfamous examples is the DH scheme ofReykjavik in Iceland. Box 2 contains amini case study of geothermal energyutilisation in Klaipeda district heatingsystem in Lithuania.

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Box 2: mini case study - Klaipeda geothermal plant in LithuaniaToday, the plant of Klaipeda has four geothermal wells. In two ofthem, the geothermal water is taken from the Devonian layer at adepth of 1135 meters with the help of pumps installed at 300 meters.The temperature at this depth is 38oC and is raised to 70oC by heatpumps. This water is then supplied to the district heating supplysystem of Klaipeda city.

Hence, heat is extracted from geothermal water using an absorptionheat pump. This pump uses lithium bromide (LiBr) solution as theheat absorbent working fluid. It is driven by water at 175oC from theboiler, which is part of the Klaipeda Plant. The heat supplied by theboiler to operate the pump is then transferred to the DH networktogether with the extracted geothermal heat. Because of unevenconsumption of hot water, the heat produced in the power plant isaccumulated in a thermal water reservoir. The total capacity of thepower plant is 43 MW, enough to provide the whole Klaipeda citywith heat.

Geothermal water at 11oC is cleaned with the help of a few layers offilters and returned back to the same layer of earth at 1135 meters, viatwo injection boreholes. This prevents water pollution problems.

The technology required for the utilisation of the available lowtemperature geothermal heat in existing DH networks is welldeveloped and is being employed in several European towns and cities.



1.5 Central combustion of difficult tohandle fuels

1.5.1 Renewable fuels - biomass One of the fundamental concepts ofdistrict heating is that it can efficientlyutilise locally available low-cost fuels tosatisfy local heat demands. These include:� Wood based fuels – like wood chips,

sawdust and forest residues� Agricultural waste� Fuel crops.

These fuels have significant advantages:they are also available locally and arecarbon-neutral so that they can be anintegrated part of a local sustainableeconomy, often serving wider benefitsincluding local employment and extraincome to the community. These fuelsalso contribute to national security ofsupply.

Biomass fuels are less concentrated thanfossil fuels, and they are often moisture-laden. This means they are expensive totransport and handle and more difficult toburn properly, requiring large orspecialised furnaces and require anefficient combustion control system..Hence these fuels are well-suited tocentralised combustion but not practicablefor small-decentralised boilers.

1.5.2 Fossil fuels - coal and peat There are other fuels which may beavailable locally but which are not asenvironmentally friendly as sources ofbiomass. These include:� Coal� Peat

Combustion of coal leads to high CO2

emissions and in some cases SO2

(although coal combustion technologyhas significantly improved in recent years)while the exploitation of peat bogs incertain areas is a threat to biodiversity.However, both these fuels also contributeto security of supply and, if they are to beused, they can be burned more efficientlyin centralised plant.

1.6 Easy integration of future energysourcesDistrict heating networks provide acompletely fuel flexible system for thefuture. New low-carbon and renewablesources can be integrated as soon as theybecome available and the network providesa quick and easy way to supply a largenumber of customers at lower cost. Theinnovative scheme in Woking (UK) has, forexample, already integrated a fuel cell.

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Box 3: Increasing overall globalefficiency The share of district heating in Centraland East European Countries isapproximately 37%, with almost 70%in Latvia and Lithuania. On the otherhand, the proportion of cogenerationin DH averages about 52%, which issignificantly lower than in WesternEuropean Countries (67%). Therefore,one of the best ways to increase theoverall efficiency of DH schemes inCEE countries is to increase the shareof cogeneration supplying useful heatto well-developed DH networks.

2 POTENTIAL BENEFITS OF DISTRICT HEATING


In addition to the potentially soundbusiness case for DH schemes using one ormore of the five basic energy sources,district heating also delivers otherassociated benefits. These play animportant role towards deliveringsustainable communities anddevelopment:

District heating systems benefits� Increased security of supply� Less dependence on fuel supplier� Higher energy efficiency� Use of locally available resources� Use of environmentally

advantageous fuels� Avoids many small uncontrollable

emissions� Provides a basis for efficient

combined production of electricityand heat

� Heat recovery from industrialprocesses

� Wider use of geothermal energy andother renewable energy resources

2.1 Increase security of supplyThe growing dependence of the EuropeanUnion on external supplies of energy isthe central focus of a ‘Green Paper’ issuedin late November 2000 by theCommission of the EuropeanCommunities in Brussels. Entitled‘Towards a European Strategy for theSecurity of Energy Supply’, the Paper isintended to stimulate debate on the EU’senergy policies and strategies.

If measures are not taken in the next 20 to30 years, 70% of the Union’s energyrequirements (as opposed to the current50%) will be covered by importedproducts.

The strategy for improving security ofsupply aims to reduce the risks linked todependence. Among the objectives to bepursued are those balancing anddiversifying the various sources of supply.District heating schemes can play asignificant role in achieving theseobjectives.

DHC and CHP can enhance energysecurity in a variety of ways, including:� Increasing fuel supply reliability by

using indigenous fuels like biomass orwaste

� Strengthening power grid reliability bygenerating power near load centres

� Reducing power demand by supplyingheating or cooling energy throughDHC systems rather than the powergrid

� Decoupling electricity and heatproduction through thermal energystorage.

Heat from CHP, waste incineration andindustrial processes can be usedsimultaneously to supply district heating

14

POTENTIAL BENEFITS OF DISTRICT HEATING


networks. Connecting these heat sourcesprovides the possibility to shift betweenvarious fuels such as natural gas, coal, oiland to utilise indigenous resources such asmunicipal waste and biofuels. This flexiblesystem configuration maximises securityof supply, increases efficiency and reducesfuel costs. It also allows the operator totake advantage of relative price changes inthe market between thee different fuelsources. The DHCAN Management Guidehas more information about this.

Diversity, flexibility and security of supplyare closely linked to each other; indeed,diversity can increase the security ofsupply by reducing the impact ofdisruption from any one source. In thisway, DH can be economicallyadvantageous, environmentally safe andextremely reliable. One example of such adiversity of supply is the Göteborg DHsystem where waste incineration,industrial waste heat, and large heatpumps are used. Furthermore, the powerconsumed by the heat pumps is suppliedfrom CHP combined cycle plant. Anotherexample is the district heating system inDebrecen – in Box 4.

The integration of indigenous resourcesincluding geothermal, waste incinerationand biofuels in district heating networksleads to less dependency on importedfuels. From a national economic point ofview, this creates more work opportunitieswithin the whole process starting from thesource (e.g. forest) and including transportof the fuels to the boiler houses.

2.2 Cost effectiveness Usually district heating systems are capitalintensive. In particular, high initialinvestment is needed for the heat

distribution network. A crucial factor inestimating the initial cost of the system isthe thermal load density, or the heatdemand divided by the ground area of thedistrict. A high heat density improves theeconomic feasibility of a DH projectbecause of lower distribution costs.

Cost effectiveness is one of the techniquesof economic evaluation designed tocompare costs and benefits of aninvestment to assess whether it is worthdoing. This is, however, difficult to estimateand the choice of technique depends onthe nature of the benefits specified.

15

Box 4: Mini case study: Debrecen districtheating scheme, combining different heatsources.Debrecen is situated in the northeast ofHungary. The local municipality (ownerof DH system and the corporate body)has succeeded in operating districtheating profitably and at the same time,satisfying consumer expectations. Inorder to achieve this objective, several ofthe five basic fuel types have beenintegrated in the DH. In particular:� A new CHP plant, with 90 MW heat energy capacity was

commissioned in year 2000 to generate electricity and heat energy� Gas-engines will be operated in the neighbourhood of the Debrecen

Power Plant Ltd. to fulfil the extra heat demand caused by themarket development projects. The installed capacity will be 2x6MW and electricity will be generated as well

� Utilisation of waste heat energy from Alföldi letter-press industry.Since 1999, the Debrecen DH company has purchased heat energyfrom the factory at a lower price compared to heat produced fromthe Debrecen Power Plant Ltd

� Biogas, a modern sanitary landfill was built, where the communalwaste of the town could be placed for decades. It is possible toutilise biogas there, since the landfill was built partly for thispurpose

� Geothermal energy (investigated but not yet used).



For assessing cost effectiveness of projectsconcerning district heating or theinstallation of new cogeneration plant, thefollowing criteria could be used:� Return of investment, using indicators

like payback period, Net Present Valueand Internal Rate of Return

� Investments related with CO2 emissionreduction using indicators likeEuro/tCO2 or Euro/tCO2 per year

� Profitability analysis, based on energysavings for the project owner

� Economical profitability, based onsavings at State level.

For DH projects in general, it is notsufficient to simply look at return oninvestment. It is necessary to take a long-term view of the projects, for exampleusing whole life cycle analysis, includingthe possibility of using the discount rateapplied for the public sector works.Furthermore, social factors should betaken into consideration.

In economics, the notion of cost is basedon the value that would be gained fromusing resources elsewhere – referred to asthe opportunity cost. In other words,resources used in one project are notavailable for use in other programmes andas a result, the benefits that would havebeen derived have been sacrificed.

Hence, resources used to install individualplants (in which each building has its ownheating and cooling system) are no longeravailable for use in DH and vice versa. It isusual to assume that the price paid reflectsthe opportunity cost.

The function is the same for a DH systemor an individual plant; the difference isthat the district plant serves manybuildings from one location so each

building does not need its own heatingand cooling equipment. In other wordsdistrict heating allows:� Fewer operators – less costly (from an

operations standpoint)� Usage of a wider variety of fuels,

selecting the most cost effective energysource

� Waste incineration, CHP productionand heat retrieved from industrialprocesses which can be usedsimultaneously to supply DHnetworks. This flexible systemconfiguration reduces fuel costs

� Greater efficiency than individual plants.The efficiency rating of any energy plantis based on ‘economy of scale’ .

2.3 EmissionsHeating and cooling systems thatminimise the quantity of fuel andelectrical power required to meet userneeds, will result in reduced negativeimpacts on the environment and lessemissions of GHG emissions.

While DHC plants are not immunefrom emissions, production ofgreenhouse gases and pollutants can besignificantly reduced particularly whenthe five basic sources of locallyavailable waste heat are integrated in a scheme.

Dual or even triple use of energysupplied reduces fossil fuel demand forheating buildings, industrial processes,and electricity generation. Districtheating can be seen as a second handbusiness within the energy sector and allthese possibilities make it a carbon leantechnology.

Emissions avoided globally by the use ofdistrict heating correspond to an annual

16

Emissions from DHCThe combustionprocess creates‘products ofcombustion’including CO2, CO,SO2, NOx, which areemitted to theatmosphere. Theseresult in negativeenvironmentalimpacts such asglobal warming, acidrain and poor local airquality. By enablinglocally available wasteheat to be harnessed,modern districtheating systems emitsignificantly smalleramounts of thesepollutants.



reduction of 700-900 Mton carbon dioxidecompared to global annual emissions of22700 Mton. Most impressive consideringthe current low global market share fordistrict heating and good reason forGovernments to pursue this technology.

2.4 Air quality in urban areasThe local pollution dilemma caused bydust, sulphur dioxide (SO2) and nitrogenoxides (NOx) is amongst the first pollutionproblems to be identified in urban areas.District heating improves urban air qualitybecause a large number of local heatboilers are replaced by centralised DHplants with higher chimneys that are moreefficient and better maintained. In citieswith district heating, nitrogen oxideemissions from vehicles is the majorinfluence on urban air quality. Thesituation is graphically illustrated inFigures 4 and 5.

Large facilities are much more likely toincorporate sophisticated state-of-the-artpollution control technologies than smallplant in individual buildings. It isnormally impractical to incorporate suchequipment on a small-scale basis, due tothe general lack of low cost effectivepollution control equipment..

The exhaust stacks for district heatingplant are relatively high and thereforegases that are discharged are well mixedwith large volumes of the ambient airbefore the pollutants can reach thesurrounding population, structures orplant life. While local air quality canbenefit significantly from DHC, it shouldbe noted that long range pollutanttransport is a subject of continuing debate.

2.5 Other potential benefits of districtheating versus decentralised systemsThe debate about district heating and

decentralised heating systems has alwaysbeen controversial. People argue thatindividual boilers, in which each buildinghas its own heating and cooling system,are preferable to district heating andcooling. Discussion mainly refers to thepoints below, without any economic andtechnical evaluation:� The desire to be independent from

centralised heat supply, in particulardue to the negative image attributed ofdistrict heating utilities from the past

� Possibility of better comfort andcontrol of space temperature

� The belief that individual heating is acheaper option.

Modernised DH schemes, however, havethe potential to provide equivalent levelsof comfort and control, at a lower runningcost. There are many examples of thosewho wanted to disconnect from old DHsystems, asking to join the newmodernised scheme.

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Figure 4: small individual boilers greatly contribute to local air pollution

Figure 5: district heating gives a minimum amount of local air pollution



One solution is to develop a municipalheating plan, ideally with the input andco-operation of state and energy agenciesand public utilities. Such a plan wouldidentify areas which should be suppliedwith district heating and areas wheredecentralised solutions are moreapplicable. It would consider locallyavailable resources and theirenvironmental impact, safety andreliability, security of supply, and likelyfuture building development. Based oneconomic, environmental and technicalstudies, these plans are designed to ensure: � Economic viability and low cost of heat

supply � Long-term and safe supplies of heat for

consumers� Use of indigenous resources rather than

imported fuels� Use of heat supply technology which

causes as little pollution as possible� Retention of customer choice in the

energy market.

From the perspective of the buildingowner/manager, district heating andcooling offers a number of short and longterm economic and technical advantages:(see box). � Lower capital costs: costs associated

with new boiler and chiller installationsare all eliminated with DHC

� Lower energy costs: in-building boilersand chillers typically carry excesscapacity to meet occasional peakdemand so that collectively capital istied up in redundant plant.

� Lower operating and maintenance cost:boiler and chiller operating expensesare all eliminated including the cost ofplant running inefficiently atoccasional or part load.

� Stable competitive energy rates: centralDHC systems can easily convert to theleast costly and most available fuel(fuel flexibility), and thus achieveeconomies of scale with volumepurchasing

� More revenue generating space:elimination of production system andauxiliaries within a building frees upvaluable floor space for income-producing purposes and increasesarchitectural flexibility

� Reliable heating and cooling service:central utility systems are usuallybetter maintained and operated thanin-building systems. They are manned24 hours a day by highly qualifiedoperators, are on strict maintenanceschedule and can be switched to areserve fuel source as needed

� Lower costs through systemexpansion: as more customers joineach DHC system, the fixed capitaland operating costs are spread over alarge base and individual energy billscan be reduced or stabilised

� Cleaner environment: central energyservice from a thermal plant reducesthe number of smokestacksthroughout a city and eliminatesproblems associated with fuel deliverythrough a city's congested streets.

Fuel poverty is another importantconcern, where district heating couldmake the difference. Indeed a DH systemcould play an important role in solvingsocial problems related to tenants notable to support their heating costs.

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Eight reasons for using DHC1 Lower capital costs2 Lower energy costs3 Lower operating

and maintenancecosts

4 Stable competitiveenergy rates

5 More floor space6 Reliable heating

and cooling service7 Lower costs through

system expansion8 Cleaner

environment

Source: Euroheat &

Power – the

International

Association of District

heating, District Cooling

and Combined Heat

and Power

3 FUTURE PERSPECTIVES FOR DISTRICT HEATING AND COOLING


The main EU energy policy drivers aresecurity of supply, market liberalisation,competitiveness and climate change andin each case, district heating could play animportant role for achieving targets.

District heating offers the potential toreduce carbon dioxide and other GHGemissions. The five fundamental ways ofreducing carbon dioxide are substitutionof fossil fuels, deposition of carbondioxide, lower demand, higher efficiencyin energy conversion and recovery ofconversion losses in energy conversionprocesses. District heating makes it easierto utilize the first and fifth ways.

A related aspect relevant to DH concernsthe integration of dispersed generationand renewable energy (DG/RE)technologies. In particular, this could:� Promote EU energy security/diversity

objectives� Reduce overall generation cost at

constant risk� Reduce market power - create open

markets & deliver promised benefits ofrestructuring.

District heating remains a difficult subjectfor the European Commission as itcontinues to be a local business linkedonly through the electricity part to theEuropean internal market. Yet, given theperspectives of the upcoming EUenlargement (average share of districtheating 37%), it becomes increasinglydifficult to avoid it.

The European Union is now seriouslydealing with combined heat and power,energy efficiency in buildings, renewableenergy in electricity and heat markets.

These are positive steps for district heatingcompared to the stalemates of the past.

A ruling on energy services wouldcomplement the Directives on energymarket liberalisation and emissionstrading to provide a general frameworkwith harmonised definitions, tools,monitoring instruments (certification) andtargets. The ruling will include the districtheating sector, which is considered animportant service.

In general, there are distinct opportunitiesfor DH operators to play an important rolein emerging energy markets, enablingthem to become more competitive.

3.1 District heating in a liberalised energymarketEven though district heating currentlyremains a local municipal business linkedonly through electricity and gas to theEuropean internal market, it is a truecompetitor for all sorts of heat sources andfuels. It is therefore an important elementin a liberalised energy market, even if theDH network is itself a natural monopoly.

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Producers

Transmission

Distribution

Consumers

FUTURE PERSPECTIVES FOR DISTRICT HEATING AND COOLING


In most EU countries, regulation of thegas and electricity sector has beenimplemented on part of the supply thathas a natural monopoly. A liberalisation ofthe other activities is also underimplementation..

For district heating, it will hopefully bepossible to establish a technical systemand tariffs to ensure operation is based onmarket principles.

In large scale integrated DH systems, allheat sources can compete to the benefitfor the consumers united as big buyers.

In principle, it is possible to divide thedistrict heating system into individualparts, belonging to different entities andconnected by contract agreements. Thenetwork can even be divided intoseveral entities, e.g. a transmissionnetwork and one or more distributionnetworks. The activity of the networkcompany may also extend tocomponents within the production orconsumer facilities (e.g. substations,heat exchangers).

There is a DHCAN Ownership guidegiving more detailed information aboutthese issues.

3.2 Promotion of the energy servicesconceptTwo EU Directives have accelerated therestructuring and liberalisation on thesupply side of the electricity and gasmarkets. However, competition in thesupply of electricity and gas addresses onlyhalf of the market for least-cost energyservices. The other half is demand-sideenergy efficiency.

In recent years, there has beenincreased interest in the provision ofenergy services, mainly driven byelectricity and gas liberalisation. Themost innovative utilities haveunderstood that to retain customers, aswell as to gain new ones, they had tooffer additional services to the basiccustomer requirements of guaranteedwarmth and not just the supply ofelectricity and gas. These servicesinclude energy efficiency advice, energyaudits, maintenance and operation,property management and equipmentsupply. In addition, some other marketactors such as equipment and systemsuppliers, installation and engineeringcompanies, decided to enter the samemarket.

There is no doubt that district heating isan important service product supplied byenergy services companies and utilities,often with large potential for theimplementation of energy efficiencyprojects.

Energy efficiency projects in districtheating generate incremental cost savingsas opposed to revenues from sale outputs.The energy cost savings can be turnedinto incremental cash flows to the lenderor ESCO based on the commitment of theenergy user or utility, to pay for thesavings.

3.3 Emissions tradingThe EU Directive on establishing ascheme for greenhouse gas emissiontrading within the Community, definesactivities which will have to meet theDirective’s requirements. The rulingaffects DH schemes which have

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ESCOs and DistrictHeatingAccess to finance isa significant barrierfor investment inenergy efficiency inDH. The concept ofthe Energy ServicesCompany (ESCO) isan important onefor financing energyefficiency andrenewable energyprojects. It could bea major player inDH refurbishmentand development,ensuring that themost suitabletechnical solutionsare backed up withthe necessaryfinancial resourcesto implement theprojects successfully.

FUTURE PERSPECTIVES FOR DISTRICT HEATING AND COOLING


combustion installations with a ratedthermal input exceeding 20 MW (excepthazardous or municipal wasteinstallations).

Emissions trading schemes, whetherdomestic or international, allocateallowances for emissions to companies.Those that reduce emissions by more thantheir allocated allowance can sell their‘surplus’ to others who are not able toreach their target as easily. This tradingdoes not undermine the environmentalobjective since the overall amount ofallowances is fixed. Rather, it enables costeffective implementation of the overall

target and provides incentives to invest inenergy efficient technologies. Therefore,emissions trading will be a tool that mayhelp to improve the performance of DHcompanies through energy efficiencyprojects. It may also help to provide muchneeded income for modernised systems toreflect environmental performance.

The key economic rationale behindemission trading is to use marketmechanisms to ensure that reductionsachieve a pre-determined environmentaloutcome where the cost of reduction isthe lowest.

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This guide was written by Claudio Rochas, Ekodomawith review carried out by the DHCAN project team (see page 2).

4 FURTHER READING


4.1 Reports and articles� Atlas of Geothermal Resources in

Europe (2002), 93pp, 88 plates. Editors:Suzanne Hurter and Ralph Haenel –ISBN: 92-828-0999-4 CG-NA-17-811-EN-C. Office for Official Publications ofthe European Communities, L-2985Luxembourg

� Institutional Handbook for CombinedHeat and Power Production withDistrict Heating (2002), 67pp. ArtoNuorkivi

� Promotion and Recognition of DHCand CHP Benefits in Greenhouse GasPolicy and Trading Programmes, SvenWerner, Mark Spurr, Christine Pout.IEA District Heating and Coolingprogramme. Annex VII May 2002

� Sven Werner, Avoided carbon dioxideemissions from the current global useof district heating and combined heatand power

� Sven Werner, District Heating SystemsTechnology

� Sven Werner, District Heating inSweden 1948-1990

� WADE - World Alliance forDecentralized Energy. World Survey ofDecentralized Energy – 2002

� John W. Lund a, Derek H. Freeston.World-wide direct uses of geothermalenergy 2000

� EIB Financing of Solid WasteManagement Projects. Evaluationreport. June 2002

� Municipal waste management inAccession Countries. ISBN : 92-894-4496-7 Office for Official Publicationsof the European Communities,Luxembourg 2002

� Waste generated and treated in Europe– Data 1990-2001. Eurostat. ISBN/ISSN92-894-6355-4

� Green Paper on greenhouse gasemissions trading

� Euroheat & Power. District heating inEurope. Country by country 2003survey. Belgium May 2003

� Green Paper, towards a EuropeanUnion strategy for the security ofenergy supply. ISBN 92-894-0319-5.Office for Official Publications of theEuropean Communities, 2001

� Accelerating the Deployment ofRenewable Energy/DistributedGeneration in the Balticswww.iea.org/workshop/baltics/agenda.htm

4.2 Internet� Gateway to European Union:

http://europa.eu.int� ManageEnergy:

http://www.managenergy.net� OPET – organization for the

promotion of new technologies:http://www.opet-chp.net

� The International Energy Agency(IEA): http://www.iea.org

� IEA District Heating and Coolingprogramme. www.iea-dhc.org

� Euroheat and Power – theinternational association for districtheating, district cooling and combinedheat and power:http://www.euroheat.org

� COGEN – the European Association forthe promotion of cogeneration:http://www.cogen.org

� Danish Board of District Heating.Journals: http://www.dbdh.dk

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Disclaimer: Neither the authors, the DHCAN project team nor theEuropean Commission give any warranty that the guidance containedin this guide or others in the DHCAN series is or will be suitable andappropriate for particular applications and can therefore take noliability whatsoever should it be followed in whole or part. This guidedoes not necessarily fully reflect the views of the individual membersof the DHCAN project team

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