DHC Market Outlook

Introduction

In 2022, Euroheat & Power Country by Country becomes the District Heating & Cooling Market Outlook, a comprehensive overview of the district heating and cooling sector in Europe and beyond 🌍. This publication has become a reference for District Energy data, widely used by national and European policymakers, regulators, energy consultants, engineering companies, utilities, researchers and other players in the district energy market.

📄➡️ Please note that the DHC Market Outlook is also available in PDF format.

*For eligible Euroheat & Power members and European policymakers, the latest DHC figures for all participating countries are now available in the member's website area. For more information, please contact [email protected] 


The District Heating & Cooling market Outlook reflects the natural evolution of the Country by Country from a deliverable initially based on quantitative data, to a more detailed overview of the recent business and regulatory developments in respective markets. From the renovation of the building stock, energy taxation policies, geographical conditions and local incentive schemes – the factors affecting the district energy industry vary from one country to another.

This year’s edition is also enhanced with a whole new chapter on “National DH transition pathways”, which gathers detailed information on the district energy transition for 10 selected markets: Austria, Czech Republic, Denmark, Finland, France, Germany, Italy, Slovenia, Sweden and the Netherlands.

The local nature of district heating and cooling makes collecting data a challenging and complex exercise. Different data reporting practices and obligations across different countries using varying statistical methods reflect the fragmented nature of the district energy industry. Consequently, there is a lack of consistent, detailed and comparable data on district heating and cooling at the European and international levels. The scarcity of available institutional data on district energy is even more apparent when compared with extensive data sets published regularly by Eurostat and the International Energy Agency on the power and transport sectors.

High quality, detailed statistics are fundamental for the district heating and cooling sector, at a time when some of the most crucial policy and investment decisions are being made to put the world on track of achieving climate-neutrality before the end of the century. District Energy is by nature a technology with high up-front costs, which is why investors active or wishing to enter a new market benefit from solid perspectives on local market trends, technology development and potential consumer outreach. This is especially relevant for the district cooling segment, which has witnessed significant growth in recent years. Recently, the conflict in Ukraine and subsequent EU energy crisis have pushed governments to reconsider their dependence on Russian gas, shedding light on the urgent need to deploy sustainable and home-grown heating and cooling solutions such as District Energy. Mapping the potential of heat resources in key European and neighbouring markets and fine-tuning our knowledge on their respective transition pathways away from fossil-fuels, has become a political imperative.

District heating has the potential to be at the centre of the decarbonisation of the heating and cooling sector, and contribute to strengthening Europe’s energy resilience and security. Locally owned and a flagship of the European energy industry, district heating and cooling has tremendous potential to grow in Europe and could provide up to 50% of the heat demand in Europe by 20501.

It is a true European solution, adapted to various energy mixes and enabling the development of multi-energy heating networks capitalizing on local resources (CHP, waste to energy, geothermal, solar thermal, sustainable biomass, wind and solar). DHC is also a gateway to deploying more renewable heat in our homes: the seven European countries with the highest national shares of renewable heating and cooling also have the highest shares of district heating in their heat markets (Iceland, Sweden Estonia, Finland, Latvia, Denmark, Lithuania).

In the next decade, deploying district heating and cooling will be critical to gradually phase out fossil fuels supply in heating: a recent assessment by Agora Energiewende with the help of Artelys, TEP Energy and Wuppertal Institute found that district heating could have a technical potential to achieve around 125 TWh (~12.5 bcm) in gas savings in Europe, already by 2027. The recent announcements in Denmark and Netherlands are a good reminder of this.

Year on year, developing more accurate and complete data on the sector will help unlocking the full potential of District Energy in Europe and beyond, mobilizing the industry and policy maker around a joint vision.

The District Heating and Cooling market outlook is published as an online tool. This flexible format allows Euroheat & Power’s team to edit content and add updated information as it becomes available – thus adapting to the rapidly developing and changing district heating and cooling market worldwide. The publication is expected to contribute to the ongoing public debate about the future and potential of district heating.


1 - Heat Roadmap (2018)

Methodology

The District Heating and Cooling Market Outlook is based on an extensive questionnaire completed by members and associates of Euroheat & Power at international level. As a result of feedback and support from our members and users, the questionnaire has been improved to ensure that, where possible, district heating and cooling statistics are comparable across countries and include the most important and relevant indicators.

Quantitative questions were supplemented by qualitative descriptions of individual markets, providing details about the latest industry trends, regulatory environment and various challenges and opportunities.

It is important to note that, due to different national data gathering practices, some information is not available in specific countries. This is particularly evident in the district cooling sector which, despite a significant increase in the amount of data provided since the 2017 edition, is still at an early stage in most countries and is not monitored as extensively as district heating or combined heat and power.

District Heating

Introduction

Heating is by far the largest energy consumer, accounting for over 50% of Europe’s annual final energy consumption. Most of the European heat is still generated using fossil fuel-based sources, almost half of which is natural gas.1 The climate crisis and the recent Ukraine conflict have highlighted the need to accelerate the decarbonisation of the heat market. In 2019, District Heating and Cooling represented 12% of the European heat market2, with over a third of DHC energy supplies from renewable and bio-energy sources.

By allowing the integration of clean and flexible energy sources, district heating is an integral part of the effort to reduce the sector’s dependence on fossil fuels and cut down CO2 emissions. Renewables currently account for about 18% of the global primary energy consumption - especially geothermal, biomass, biodegradable waste, and solar energy. In comparison, Europe is leading the decarbonisation pathway for the sector. The share of renewables in heating and cooling already account for 28.9%. When incorporating industrial waste heat, the share of renewable and climate-neutral sources rises to 30.6%. Additionally, low-temperature modern networks can potentially integrate 100% renewable sources to supply energy-efficient buildings.

The importance of renewable electricity-powered large heat pumps connected to district heating networks is also clearly demonstrated by the 2050 country Roadmaps, confirming the potential of this technology to further integrate renewable heat sources (such as geothermal), and harvest the potential of renewable electrification. Furthermore, the large untapped potential of waste heat from industrial and commercial activities, could meet most of Europe’s heat demand and result in considerable efficiency gains3. In this innovative landscape, excess heat recuperation from hydrogen production is gaining increasing traction from the industry. Finally, integrating various sources of renewable electricity, district heating offers an effective energy storage solution: one that can absorb excess renewable electricity and help balance the grid. The cost-efficiency of thermal energy storage is also very promising, compared to electric-based storage solutions.

Business performance and sector growth

Notwithstanding the benefits outlined above, district heating still represents a relatively small share of the EU’s heating market. The 10 0001 European heat networks currently meet around 12% of the EU’s heat demand. This is, however, above the global average which, according to figures published by the IEA in 2021, currently stand at 8.5%. It clearly shows that the deployment of district heating and cooling is more developed in Europe than in other parts of the world.

The share of district heating varies significantly from one region to another e.g., district heating is by far the most common heating solution in the traditionally cold-winter countries in North/Eastern Europe (Nordic and Baltic regions, Poland, etc.) whereas it still plays a minor role in Southern and some Western European countries (e.g., The Netherlands, United Kingdom). Overall, the largest district heating market in Europe is in Germany, followed by Poland and Sweden.

Approximately 60 million EU citizens are currently served by district heating, with an additional 140 million living in cities which are already equipped with at least one district heating system. It highlights the strong potential of District Energy solutions to meet the challenge of urban densification and transitioning European buildings away from fossil-fuel heating. According to the Heat Roadmap Europe data, if the urbanisation trend continues and appropriate investments are put in place, district heating could meet almost half of Europe’s heat demand by 2050.
 



District heating sales, the actual amount of heat delivered to final customers. It is one of the key business indicators for assessing the size of the sector.

As shown by the graph above, district heating sales remain constant, without significant variations for most countries. Although there was a slight decline in some countries (such as Sweden, Finland and France) in 2015, this was quickly reverted. The uncharacteristically warm winter in 2014 (the warmest on record for Sweden and France and the second warmest for Finland) can partially explain the slight decline in sales. All the countries have experienced significant growth since 2017 and greatly surpassed their figures in 2013.

It is worth noting that the 2019 figures show once again a slight decline in sales in countries like Denmark, the Czech Republic, Austria and Lithuania. This can, in part, be attributed to the Covid-19 pandemic which forced may businesses around the world to close for several months. Nevertheless, the decline is marginal for most countries, and in the case of France, Norway and Spain, sales went up on that year.

Despite the slight decline in sales in some countries in both 2017 and 2019, the resilience of the market is clear. The realisation of the potential for District Energy in Europe will rely to a considerable extent on the ambition of the current Fitfor55’ package, a legislative package currently under negotiation at EU level.

Some key proposals part of the Fit for 55 Package, published by the European Commission in 2021 and currently under discussion by EU policymakers, are very positive for the sector. They include:

  • a coordinated framework for the integration of waste heat,
  • a push for EU cities above 20.000 citizens to conduct heat planning, emphasis on DHC’s ability to ensure efficiency and stability of the renewable electricity system through CHP/Power-to-heat and integration of RES-electricity as well as heat from new uses of electricity (Power-to-X),
  • equal treatment of ”on-site” and ”nearby” renewable generation for building decarbonisation,
  • the extension of the EU ETS system to the building sector and accountability of RES-heat in meeting increased building sector targets.

Furthermore, it will be interesting to examine the extent to which the current push to move away from Russian gas will impact district heating sales. In EU countries such as Austria, the Netherlands, Denmark and the Flemish region of Belgium, the progressive phase-out of individual fossil boiler solutions and mandatory connection to heat networks or heat pumps has been announced.


The total length of heat distribution networks provides an additional indicator of the growth and potential of the sector. Most importantly, this demonstrates investors’ outlook and their trust in the future of the sector since investments in district heating are made with a long-term business model in mind.
 


 
As shown in the charts above, the upward trend continues which is very positive for the sector. While most countries either increased or maintained the length and have developed their networks at the rate of previous years, Germany has have seen an exponential growth in 2019. Such growth clearly indicates trust is growing in those markets which may result in further investments in the coming years.
 



Comparing the district heating market share with other heating solutions such as individual natural gas boilers, electrical heating, central biomass heating, heat pumps and others is an important indicator of its strength.

As demonstrated by the graphs above, there is a big disparity in the share of district heating in Europe. It originates in different climates, determining the heat demand, political and economic factors, urbanisation, and energy policy with differentiated responses to the global oil crisis of 1973 and 1979. 

On the one hand, in Northern and Eastern European countries such as Denmark, Sweden and Finland over 60% of the population is served by district heating networks. For instance, in Denmark, after the first oil crisis a decision was taken to drastically improve energy efficiency through the development of combined heat and power (CHP). The country adopted its first heat planning legislation in 1979 and several afterwards, which resulted in the progressive increase of the district heating market share to 68% in 2019.

On the other hand, in Southern countries such as Portugal and Spain where winters are relatively warmer district heating networks are less developed. The need for sustainable cooling rises rapidlly across Europe due to an increasing commercial and industrial demand, as well as more frequent heat waves episodes.

The greatest increase market share in 2019 was in Sweden where figures had greatly declined since 2015 with low electricity prices driving more customers to choose electric heating. There has been a considerable uptake since then, and the share of district heating and cooling has now surpassed the figures in 2013. Norway has also seen noticeable increase in the same year.

Sustainability

District heating has been garnering more attention from policymakers at the EU level in recent years due to its potential to mitigate CO2 emissions and contribute to energy security in the continent. This is a testimony to the growing interest in the sector, at European level and beyond. With great power, comes great responsibilities: which also means that the sustainability credentials of DHC are under stronger scrutiny.

As previously mentioned, heating and cooling account for half of the energy demand in the EU. DHC represents 12% of that share with 28.9% being covered by renewables. The figure is even higher if industrial excess heat is taken into consideration. According to the influential think tank Agora Energiewende1, district heating would need to supply 20% of heat in buildings by 2030, with 50% of it supplied by RES and waste heat.  This is particularly encouraging considering that Europe is a world leader in the use of renewables for district heating.

The EU currently produces more waste heat than the demand of its entire building stock. Although it remains marginal compared with renewables (currently represents 1.7% of the heat supply in Europe), tapping into waste heat could greatly contribute to the sustainability of the sector. According to Heat Roadmap Europe, up to 25% of the DH could be supplied by industrial heat2. Furthermore, urban waste heat from data centres, metro stations, tertiary buildings, and waste-water treatment plants can meet more than 10% of the EU’s total energy demand for heating and hot water. The substantial potential of waste heat recuperation from hydrogen should also be considered.
 




Please note that the graph above does not show all the markets. Due to space constraints, only the top 13 countries are displayed. Additionally, as previously explained, we rely on contributions from national associations and companies for data collection. Unfortunately, we have not yet received data from Poland, one of the largest district heating markets. Euroheat & Power is working hard to remedy the situation and will make the data available if/when it receives it.

Nonetheless, the data above illustrates the considerable progress many countries have made over the last five years in integrating renewable sources into their district heating systems. For instance:

  • the share of renewable heat has grown from 42% in 2011 to 63% in Denmark in 2019,
  • in Finland more than 40% of district heating is carbon free
  • in France the average renewable and recovered energy rate exceeded 60% in 2020
  • Lithuania reported a decrease of around 70% CO2 emissions from the heating and cooling sector since 2000
  • Both Sweden and Croatia have seen considerable growth in the share of renewable energy in DH

All these countries have experienced rapid RES growth and identified increased biomass production as well as supply diversification as a contributing factor. The graph below shows the supply fuel mix in the EU in 2018.

EU 27 Fuel Mix.png

Unlocking the potential of DHC

In an effort to identify potential obstacles to the development of DHC at national level, contributors were asked to identify and summarise key barriers in their respective markets. A wide range were listed, most of which pertaining to a specific regulatory and/or fiscal development. However, some barriers are common among most countries and can be grouped into the following categories:

  • Cogeneration – A large share of the heat in district heating systems is generated in cogeneration plants (CHP) which produce both electricity and heat from either fossil fuels or renewables. The low electricity prices in most of the European countries have an adverse effect on investment as many CHP operators are facing substantial financial losses.
  • Legal & policy frameworks – The substantial investment required to cover the upfront costs of district heating systems can be prohibitive. On the other hand, several countries still lack a level playing field to drive the most energy-efficient and sustainable heating solutions. Legal certainty and sound policy frameworks are, therefore, crucial. However, several contributors identified fragmented and unstable legislative frameworks in their respective markets as one of the main reasons preventing more investments on new projects.
  • Long term planning – The expansion of district heating networks requires long-term planning and a systematic approach, which according to Euroheat & Power members is lacking in some countries.
  • Awareness-raising – In countries where the uptake of district heating is still relatively low, key decision-makers are not yet fully aware of the multiple benefits of district heating. Policy decisions are made based on cost and without considering broader environmental and societal advantages. The lack of awareness and knowledge is particularly evident in the district cooling sector.
 

Sources:

Introduction:

1,2 - District heating and cooling in the European Union (Tilia, 2022)

3 - ReUseHeat

Market Outlook:

1 - Source: Interreg “District Heating in North-West Europe A Guide for Energy Consumers

Sustainability:

1 - https://static.agora-energiewende.de/fileadmin/Projekte/2021/2021_04_EU_Ff55-Benchmarks/A-EW_246_Transitioning-climate-neutral-EU-buildings_WEB_V1.1.pdf

2 - Source: The legacy of Heat Roadmap Europe, Scenarios, recommendations and resources for decarbonising the heating & cooling sector in Europe and complementing the strategic long-term vision of the EU, https://heatroadmap.eu/wp-content/uploads/2019/02/HRE_Final-Brochure_web.pdf

District Cooling

The growing need for cooling, especially in the tertiary sector is evident across Europe. Buildings – such as hospitals, shopping malls and data centres which need cooling energy all year round - represent the largest target group for district cooling. Additionally, demand for residential building especially during hot summer days, is also increasing. Recent heat waves have driven consumers to purchase individual solutions for comfort cooling which directly impacts peak electricity demands.

In the wake of the financial crisis, European projects were put on hold, but a new wave of projects can now be discerned inspired by the need to develop more efficient and clean cities. Adequate cooling supply is also becoming a prerequisite for the service sector. In this perspective, District Cooling can provide tailored solutions using local resources to provide a wide range of benefits for real estate developers and urban development.

France and Sweden remain, by far, the largest markets with both producing around 1 TWh of cooling. The data below shows key information about the growth of the cooling market in Europe:

  • In Austria, between 2009 and 2019, heating supply companies invested an average of €10 million annually, in district cooling. District cooling sales already reached 192 GWh in 2019
  • In Copenhagen, Denmark district cooling contributed to reducing the CO2-emission by almost 70 % compared to traditional technologies. It is also expected to reduce costs by up to 40 %, according to HOFOR
  • Finland reported a growing need for cooling in the buildings, especially in the tertiary sector. Service buildings and office buildings form the largest customer target group for district cooling. For example, hospitals, shopping malls and data centres need cooling energy all year round. There is also a growing need for cooling in residential buildings during hot summer days
  • District cooling is under constant development in France and demand is growing. In 2019, 24 cooling networks delivered approximately 1 TWh of cooling to 1,400 through 225 km of networks. 93% of cooling deliveries are intended for tertiary buildings (offices, hotels, museums, airports, hospitals)
  • District cooling still remains sparsely developed in Germany. While it has received growing attention by utilities in recent years, project planning and development has not yet taken off on a broader scale across the country
  • As the demand for cooling is growing in Sweden, DC remains resilient and its market share has slightly increased in recent years. The total sales of DC were approximately 1 TWh in 2019 (990 GWh) and is expected to increase by more than 50% by 2030. Swedish DC systems use free cooling (19%), excess cooling from large heat pumps (25%), surplus energy from industries and waste incineration (27%) along with cooling from efficient cooling machines (28%).

A comprehensive assessment of the evolution of cooling demand is necessary to ensure public policies are developed to address them in the most efficient way. It is assumed, too often in public discourse that higher efficiency from stand-alone solutions can provide the solution. However, by exploiting high-efficiency processes, renewable sources and energy streams otherwise not valued, district cooling can be five to ten times more efficient.

Additionally, District cooling can play a key role in smoothing out peak demands from increasing electrification shares across sectors. It reduces the need for electrification as it can tap into alternative sources (e.g., free cooling from rivers and the sea). This flexibility is expected to yield significant benefits as demand for cooling increases.

Conclusions

On average, 80% of EU households energy demand is directed towards space heating & cooling, and water heating[1]. Despite the potential to be at the forefront of decarbonisation efforts, the sector is still heavily reliant on fossil fuels. The climate crisis and the ongoing conflict in Ukraine have further demonstrated the urgency to accelerate the decarbonisation of the heating sector.

Pursuing more ambitious climate and energy goals – namely achieving climate neutrality by 2050 - requires a faster heat transition. The deployment of locally sourced, sustainable heating solutions such as district heating is key to ensuring more renewable and sustainable heat in our homes. The seven European countries with the highest national shares of renewable heating and cooling, also have the highest shares of district heating in their heat markets (Iceland, Sweden Estonia, Finland, Latvia, Denmark and Lithuania). It is a clear indication of the direct correlation between district heating and renewables shares.


res_img.png

Source 2 Study for the JRC by Tilia, 2021, “Integrating renewable and waste heat and cold sources into district heating and cooling systems


District heating adapts to national energy specificities and enables decarbonisation through the integration of a wide range of local renewable energy sources (RES) such as biomass, geothermal or solar energy, and the use of various forms of waste heat and cold that otherwise would remain untapped (industries, data centres, etc.). Additionally, it fosters important energy efficiency gains through the integration of excess heat that would otherwise be wasted or the storage of thermal heat to be used during peak demand periods.

As highlighted in the Commission’s strategy on energy system integration, “the coordinated planning and operation of the energy system across multiple energy carriers, infrastructures, and consumption sectors – is the pathway towards an effective, affordable and deep decarbonisation of the European economy […] Modern low-temperature district heating can connect local demand with renewable and waste energy sources, as well as the wider electric and gas grid – contributing to the optimisation of supply and demand across energy carriers.

The adoption of the ambitious provisions on heating and cooling included in the Fit for 55 Package – notably the renewable energy directive, the energy efficiency directive, the emissions trading system and the energy performance of buildings directive – as well as new State aid rules, which will in principle provide an easier access to aid for modernisation and deployment of DHC systems, will be critical to drive the expansion and modernisation of efficient DHC in the next 5 years.

Furthermore, concrete measures can be undertaken to further expose the potential of efficient DHC under REPowerEU and national recovery and resilience plans. DHC has tremendous potential to grow in Europe, drive the heat transition and provide up to 50% of the heat demand by 2050 (from 13% today).

 

 


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District Heating: Nearer than you thought