This article is part of our special report District heating.
Russia’s aggression in Ukraine is prompting the district heating sector to look at other options than fossil gas, with the industry’s representative in Brussels underlining the huge untapped potential of waste heat coming from industry and data centres among the immediately available options.
Birger Lauersen is President of Euroheat & Power, the association representing the district heating sector in Brussels. He spoke to EURACTIV’s Frédéric Simon.
The ongoing conflict in Ukraine is looking increasingly like a major turning point for EU energy policy, which makes the decarbonisation of heating more urgent than ever before. What are the consequences for district heating? Is a gas phase-out now becoming a priority for the sector? And how quickly could that be achieved?
First of all, it’s important to underline that the use of natural gas in district heating and the heating sector in general is very different from country to country.
There are countries like Sweden, where district heating is well developed, but where natural gas hardly plays a role. And there are countries like the Netherlands where natural gas plays a huge role but where district heating is not much developed. In other countries like Germany, natural gas plays an important role in district heating, also indirectly through the use of gas and combined heat and power (CHP).
And finally, there are countries where natural gas is seen as an insurance solution for the phase-out of coal. And in those countries, coal might be seen in the short term as an alternative option to the use of gas – for instance in the Czech Republic.
So the situations vary widely. In my country, Denmark, we rely on natural gas for approximately 12% of our district heating. And the political environment is focused basically on phasing out gas and replacing it with heat pumps and district heating.
So it’s a very diverse picture across Europe.
Is the sector ready to adapt to the changing geopolitical environment on gas?
Yes, the sector is willing to adapt. But it’s not up to us to choose what we replace gas with. In some places, it might mean that coal will be retained for a longer period.
If, for example, a country wants to replace gas with electricity, where is that electricity going to come from? Is it going to come from wind turbines, nuclear, coal, or something else? That is a national decision, which, for the most part, is out of our hands.
Central and east European countries like Poland are contemplating gas as a transition fuel to get out of coal. But with the Ukraine crisis, the case for gas now looks much weaker…
That’s putting it mildly! Probably they will have to consider other options. People are talking about replacing natural gas with renewable hydrogen and heat pumps. But where on earth is the electricity going to come from?
In Northern Europe, we currently have sky-high electricity prices because the wind hasn’t been blowing over the winter and the hydro reservoirs in Norway are empty. That does not indicate an abundance of renewable electricity – it’s a shortage. And at the same time, we’re increasing the demand for electricity in sectors like transportation, industry and heating.
Looking at this, I don’t think there will be much electricity left for green hydrogen production or even for electric boilers. This is why we have to focus on reusing waste heat from industrial facilities. This is a huge untapped potential that does not require additional energy supply.
In Germany, they have 20 million individual gas boilers. 20 million! Let’s be honest, it will take more than a decade to replace all of them with heat pumps. And even if they have the electricity to replace those, where on earth are they going to find 20 million heat pumps?
It becomes an industrial challenge, indeed…
There are no short term solutions in the heating sector – everything is long term. These are tectonic movements that we’re talking about. And there is no magic bullet.
So we will support any short term measure to reduce gas consumption – like lowering the thermostat, and improving the insulation of buildings. But everything else takes time.
District heating networks can be supplied with any source of energy, which makes them particularly versatile. However, many of them are still running on fossil fuels. Looking at the EU-27, what is the current energy mix in district heating systems?
At EU level, natural gas makes around 30% of the mix, biomass and biofuels 27%, and then coal and peat, around 26%.
Now, two thirds of heat supply comes from high-efficiency CHP installations producing both heat and power, which is the most energy efficient. And if you look at the trend in investments across Europe, all cities with ambitious energy and climate agendas intend to develop district heating. And these projects, to a great extent, are based on renewables and waste heat, usually coming from industries or the tertiary sector like data centres.
Looking at Eurostat statistics, you will notice that the countries with the highest shares of renewable heat are those where district heating has a high market share: Iceland, as well as the Nordic and Baltic countries.
In fact, the choice of fuel is very much based on local or national circumstances and the diversity across the sector is enormous. If you take ‘mature’ district heating countries like Sweden, Finland and Denmark, renewables already dominate the supply of district heating. Whereas in Germany and Poland, where coal has tended to dominate the electricity sector, obviously it also dominates the CHP sector. Denmark has traditionally used coal, but we have now almost completely gone out of coal.
So as countries phase out coal-based electricity, they also phase out coal in the district heating sector to a great extent. And then they will start replacing it with something else, such as renewables and waste heat.
In addition, we have some expectations about electricity coming from large-scale heat pumps to play a decisive role in some district heating systems, using surplus electricity, geothermal heat, industrial waste heat, and so on.
Thanks to digitalisation we are also entering a new era to further develop efficiency of heating systems. And we are now talking about local systems which integrate different energy carriers and networks together, which is in line with the European Commission communication on Energy System Integration (July 2020).
What are the most notable regional differences when it comes to the fuel mix and the technologies used?
If you look at Sweden, they have always had a dominant share of renewables – bioenergy or biofuels – in their heat supply, because that is widely available there.
Denmark has been dominated by coal for many years, but those facilities will be shut down in 2025 and 2028. In Germany, coal is still important but natural gas certainly dominates. So, all in all, the energy transition is reflected also in the district heating sector: where coal is available, coal is used, and where coal isn’t available, it is not used.
District heating systems are quite popular in Scandinavian countries and eastern EU states from the former communist bloc. Are there also some differences between regions in how the systems are installed? Or are district heating systems similar?
The systems are broadly comparable between countries. Technically, there are differences. In Denmark for instance, the district heating systems are typically operated at much lower temperatures than in many other places. Denmark has also spread district heating networks into the suburbs (or lower heat-density areas), which you normally would not do in with district heating.
The reason is because Denmark used to import all its coal, which was delivered to harbours located in the city centres. And this is where we located CHP installations as a result. In the 1970s, when we had to replace oil in the heating sector, we just expanded our district heating network because we had the heat available.
In Germany, it is different because they built the coal plants where the coal is and transport the electricity rather than the coal because that’s much simpler. And typically, there is not that sort of urban or suburban heat market available near coal mines. So technically, these kinds of structures also play a role and district heating.
Ownership structures play a part too. In Denmark energy cooperatives have traditionally dominated our electricity sector, while elsewhere it is based on different models. So historically, all these things have had an influence on the development of district heating, because it is essentially a very local thing.
What plans does the industry have in order to meet the EU’s decarbonisation targets for 2030 and 2050? Do you have a phase-out deadline for coal?
In 2019, we made the pledge as a sector to fully decarbonise by 2050.
Now, that ambition has very different consequences around Europe and our member associations are currently developing national decarbonisation roadmaps. And that can be a bit challenging for some. Because we are always directly or indirectly dependent on what happens in other sectors.
If a country decides to phase out coal power generation, obviously something else needs to take over. If that coal power is replaced with biomass, you would still have a heat source to use in CHP. But if you replace it with wind energy, then you won’t have a heat source available anymore – and other solutions should prevail. So we’re very dependent on what happens in other sectors.
That said, all our member associations also recognise the necessity to have a sustainable climate neutral product by 2050. And in some countries, both the heat source and the network need to be replaced because they are in a very bad condition. Whereas in countries like Sweden, the infrastructure is in perfect condition and their heat production sources are also relatively modern.
For the Swedes, the Finns and the Danes this is probably a much easier exercise than it is for Central and Eastern European countries. But we accept the challenge and we try to inspire them. And by June, we plan to have an aggregated roadmap for the future direction of district heating in Europe. And I bet it’s going to be very diverse.
As an example, in Denmark, we have a national ambition to have a climate neutral heating sector in 2030. So we won’t have a roadmap for 2040 and 2050! But for the Czech Republic though, it will be a huge challenge to replace their coal-based district heating with something else: they don’t have offshore wind, or biomass widely available so the challenge is much bigger. Whereas for other countries, it will be much more convenient.
Are there any low-hanging fruits when it comes to decarbonisation in district heating?
One of the low-hanging fruits is to use what is already available.
Take Antwerp in Belgium for instance, they have a gigantic petrochemical site there. Obviously, the low-hanging fruit is to use the waste heat from these installations to supply heat to the city and its neighbourhoods. And probably there would still be excess heat that could be piped to Brussels.
Some of these things are obvious. But why haven’t they been done before? Because district heating is not so much about technology.
District heating is all about context: you have to mobilise cities, regions, building owners, investors, waste heat producers, and so on. It’s not like when developing a wind turbine where the government will clear the way, tell the TSO to build infrastructure, deal with local public opinion, etc. For district heating, you have to get the local authorities involved every step of the way to solve issues because you have to dig in the ground to build the infrastructure.
The basic technology – low-temperature hot water and pipes – is not rocket science. But the projects are hugely complex to bring over the finishing line.
Why haven’t the Belgians done that? Because they never had to. Gas was available from Germany and the Netherlands, so why bother? Some countries learned the lesson from the energy crisis in the 70s, while others went for convenience. But that is not fit for our climate goals in 2030 or 2050. In many places in Belgium, you will still find single glazing windows. I mean, come on…!
This is why we support the level of ambition in the European Commission’s ‘Fit for 55’ package. Because we have a clear destination for 2050, and that’s really important for operators to know where they are going. And then, there are the tools to get there.
And one idea we support very much is to have a coordination framework for waste heat. Because that way, we can have all interested parties around the table – cities, utilities, industries and citizens– to organise a dialogue.
Going back to the example of Antwerp, it’s obvious that we should use this vast amount of waste heat but it’s not being done. This is one of the reasons we support the increased level of ambitions and then tools in the ‘Fit for 55’ package – because developing district heating infrastructure is the only way to decarbonise our cities, where heat demands are located.
Can natural gas be a transitional solution for district heating? And if so, how can the industry ensure there is no lock-in effect?
Again, it depends on local circumstances. Whether natural gas should play a role in the energy transition is not for the district heating sector to decide, it’s a national choice each country will make.
Not all countries can replace all of their coal with solar PV or wind turbines, many of them will need some kind of thermal power production. And what is the obvious choice? In a lot of countries, that might be natural gas.
Our position is not to say whether they should use gas or not. Our position is that if they use thermal power production, they should do so using CHP because otherwise you dump the heat. And that would go against the Energy Efficiency First principle.
As an association, we cannot tell the Germans whether they should use natural gas or not – not even the Americans can do that. The reality is that some countries will use natural gas in the energy transition, before phasing-in other fuels. And out message is: whatever energy sources in a transition phase you use, if there is waste heat, please take it.
In the long term, there are also questions about the volumes of renewable gases that will be available. These resources should be used in the most efficient way. And I have the feeling that this has been acknowledged. If you look at the EU or German strategies on hydrogen, there is an acknowledgement of the Energy Efficiency First principle – hydrogen should go for those sectors ‘difficult’ to decarbonise.
Cleary hydrogen should never make its way to the residential heating market, it doesn’t make any sense. It should be used in priority for sectors that are really difficult to decarbonise – heavy industries, the steel sector, heavy duty transport – but not in the residential heating sector. These fuels are way too costly to be used to heat our buildings at 70 degrees. There are far better products for heating than hydrogen.
Biomass is a popular source of energy for district heating networks in Scandinavia. How can the industry ensure that the biomass is sourced sustainably? Are additional safeguards needed there?
The 2018 renewable energy Directive already introduced a set of safeguards to ensure that we only use sustainable biomass. We believe that those requirements are adequate.
If we’re going to change the regime around the use of biomass every two years, this will create uncertainties in the market and make it difficult for operators and investors.
One important proposal from the European Commission in the renewable Directive is to make the cascading principle a legal obligation. But this is unnecessary, we believe the market already does that. The market already ensures that stem wood or ply wood is not being used in energy production: the price that the energy sector is ready to pay for biomass is lower than the market value for this kind of wood so we simply would not be buying it. And our members witness this every day – in Denmark for instance, we even export wood to Russia.
That being said, we fully acknowledge the need to ensure that the biomass used in the energy sector is sustainably produced and recovered. But for the time being, we would rather have a legislative pause on this so that we know on what basis to invest.
Biomass can be used to produce these high-value low-carbon fuels for the transportation sector, heavy industry, etc. So rather than having a debate on eliminating the use of biomass, we should ensure that we use this biomass in the most sustainable and circular way.
The European Commission has actually addressed the same issue in its communication on sustainable carbon cycles. So, I think we’re on the same page.
The European Commission presented legislative proposals last year to cut the EU’s emissions by at least 55% before the end of the decade – the so-called ‘Fit for 55’ package. What regulatory measures are being envisaged to support the development of district heating in the Commission’s plans? And do you see any gaps in this package?
On the Energy Efficiency Directive, we support the idea of making the national heating and cooling plans – or ‘Comprehensive Assessments’ – more impactful. We need to see a better link between the identified potentials for district heating and CHP and the new policy measures that are taken at national level to decarbonise the heat market.
We are also supportive of the approach to define the kind of efficient district heating and cooling we want to see in the future, with references to an increasing share of renewable and waste heat over time, moving towards fully decarbonised systems. And this gradual approach is important because we are dealing with a lot of diversity at national and local levels when it comes to the heating market, as described before.
On the energy efficiency directive, there is also a welcome focus on cities. Under the revised Directive, every city above 50,000 inhabitants should develop local heating and cooling plans, which is very important.
Regarding the renewable energy directive, we support the increased level of ambition – the 40% target for 2030 – and in particular the binding objective regarding the share of renewable heat. There is also a welcome recognition of the value of waste heat, and the complementary interplay between the use of renewables and waste heat.
How much is the untapped potential of waste heat?
We evaluated that in the Heat Roadmap report. But it depends on temperature levels. If you have a district heating system using 100 degrees centigrade heat, then the potential is different because anything below that temperature either has to be upgraded or cannot be used. But if you have a district heating system operated on, say 40 degrees, with a local boost of hot water to the production, obviously sources are much richer and much more diverse. This is why we’re talking about fourth and even fifth generation of district heating – because the distribution technology also will affect the possibility to use waste heat.
And the potential is huge, there is enough waste heat at the moment to heat the whole of Europe, whether it’s coming from industry or data centres. It’s just that not all of it is available where we have a heating demand. And on top of that there is an enormous geothermal capacity potential.
What about the gaps in the Commission proposal?
On the energy performance of buildings directive, we’re still in the process of analysing it at the moment. But we have the impression that EU policies still tend to look at buildings in isolation, like islands isolated from the rest of the energy sector.
That said, I would add that the gaps are mainly in the member states, not at the EU level. District heating is something that countries could have done on their own initiative if they wanted to. The European Commission has been pushing and making planning requirements stronger and stronger. But at the end of the day, it’s up to the member states and local authorities to make the investment decision.
District heating networks typically have high upfront costs and long payback periods. What is the current landscape at EU level when it comes to the financing instruments for district heating infrastructure? Do you see improvements there that are needed?
This equation of financing is, is really important. We see appetite from the banking sector for some recognised criteria for funding projects – and the EU sustainable finance taxonomy recognises district heating as a green investment. Now, it’s too early to draw the conclusions on the effects of the taxonomy; we’ll have to see if that really helps more projects materialise or not.
Basically, the money is there. Private equity firms and pensions funds are very keen on district heating projects because they have long term commitments.
What’s missing is perhaps not so much the money as the handling of risk, because these are long-term investments. And member states should employ some kind of mechanism to ensure that the risk is handled once you go into these investments. You cannot sell district heating on a house-by -house basis, you need to address issues at the district level and ensure there is a critical mass of demand in an area before you start building the grid.
You can address this uncertainty through planning or by keeping the alternatives out of the market through pricing, for instance by keeping taxation on natural gas at a certain level. Member states have to look into this element of risk and not just assume that you can sell district heating in competition with say natural gas or electricity whose networks are already there.
What kind of risk are you talking about?
You could put a district heating network in place and suddenly you end up without customers because the gas prices or the electricity prices might be too low.
People may prefer individual heat pumps because the EU buildings directive promotes on site-solutions rather than district heating.
These are part of the risks. But with district heating, we’re talking about a systemic, collective approach to heating decarbonisation, versus individual solutions in the buildings directive, which basically just looks at what happens on the individual plot, and does not take into account the systemic consequences of all these individual heat pumps.
If you decided to install a heat pump, would you know the systemic consequences for the electricity grid in Belgium? No, you wouldn’t.
What we say is that there should be some element of planning into this, to ensure that we see the broader perspective, and not just something that consists of random, and sometimes even sub-optimal individual decisions.
That planning dimension, is it not better dealt with at the local or national level?
The Commission indeed proposes that cities with more than 50,000 inhabitants do heat planning.
You know, I come from a country where the planning is something we’ve been doing for 40 years. And why do you think we have so much district heating? This is why we can go through the transition of the heating sector so easily and so cheaply. There is a connection.
If we want to meet our 2030 climate goals, we got to act now, collectively – with governments and local authorities – because we have no time.
And that planning dimension doesn’t really exist at the moment, right?
My impression is that in a lot of countries that is not strong. Basically, the energy policy has been left to the market. That may have worked very well, for many years. But it’s not going to work if we want to decarbonise the heating sector.
Look at the Netherlands, they’re desperately looking for ways to address emissions from the heating sector. Their current heating system is entirely based on natural gas, for obvious reasons. It was so convenient for the Dutch. And they’re now looking at what on earth they can do to address this.
The question is: do we go for private investments where everybody is spending €5-10,000 to install a new heating system? Or do we go for collective heating systems that allow to use renewables as well as resources that would otherwise be wasted? This is a decision which is in the public domain. Somebody needs to take responsibility, to take the risk.
Banks are quite at ease with giant projects like wind farms, they’re less so with diversified and smaller projects like district heating.