Advantages of District Heating

There are several advantages of using district heating compared to its alternatives, one of the most significant of those being district heating’s ability to increase energy efficiency. In addition, the IEA and OECD (2004) identify five main advantages for consumers, suppliers and society: meeting consumers’ energy needs, protecting the environment, energy security, stimulating economic development and facilitating energy reform.

2.2.1 Energy Efficiency

Energy efficiency and energy conservation has taken on new importance in energy policy discussions as concerns about global climate change have intensified (Gillingham, Newell, &

Palmer, 2009). Linares and Labandeira (2010, p. 573) define energy efficiency as “[…] the improvement (increase) in the efficiency with which energy is used to provide a certain product or service, measures in units of output per energy unit.” One way in which district heating is efficient is that it gives the opportunity to make use of excess heat that would otherwise not be used (Benonysson, Bøhm, & Ravn, 1995). In general, energy efficiency allows us to save scarce economic resources, delay the depletion of non-renewable energy sources and to reduce carbon dioxide emissions. Linares and Labandeira (2010) identify these

benefits from increased energy efficiency to reside from the fact that consumers do not consume energy itself, but rather energy services. Therefore it can be possible to provide the same energy services while using less energy. The basis for energy efficiency is expressed as (Bhattacharyya, 2011, p. 142):

Energy Efficiency= Useful output of a process

Energy input into a process (2.1)

The basic relation in equation 2.1 is often adjusted for different energy analysis to measure energy efficiency in physical terms for different activities or sectors. Occasionally, the basic ratio is inversed: energy input per unit of output. The most common approach in residential and commercial sectors is to use energy input per square meter as an indicator in the numerator. In addition, it assumes that the energy requirement is directly proportional to the area of the building. However, this can sometimes be incorrect, as cooking, heating and similar processes may not be directly related to the area of the building (Bhattacharyya, 2011). At a broader aggregate level, energy efficiency can also be measured as “[…] the level of gross domestic product per unit of energy consumed in its production” (Gillingham et al., 2009, p. 598).

From an economic perspective, energy efficiency choices involve a trade-off between higher initial investments and uncertain future energy costs. The initial cost is the difference between the purchase and installation costs of an energy efficient product and the cost of an equivalent product that provides the same energy service but uses more energy. The decision of making an energy efficient investment therefore requires weighing of the initial capital cost against future savings (Gillingham et al., 2009).

2.2.2 Meeting Consumers’ Energy Needs

With a readily available infrastructure, it is uncomplicated and inexpensive for new consumers to connect to district heating pipelines. District heating provides good indoor air quality and is space efficient. In addition, it provides unlimited hot water supply and requires little maintenance compared to individual boilers (Lyse AS, 2015a). These benefits provide consumers with a cost-efficient and reliable heating source. Compared to using individual boilers, district heating networks reduce expenses and complications related to maintenance of the heating system. District heating only requires a small heat exchanger to be installed in the building, which tends to be more reliable than an individual boiler (IEA & OECD, 2004).

For consumers, district heating can therefore be competitive with other heating systems (Persson & Werner, 2011).

2.2.3 Protecting the Environment

When managed correctly, district heating can have significant positive environmental effects.

In most parts of the world, fossil fuels still dominate energy supply, and have a significant environmental impact through emissions of greenhouse gasses (GHGs), such as carbon dioxide (CO2). Energy supply is therefore a major contributor to the greenhouse effect (Henning, Amiri, & Holmgren, 2006). To combat these issues, district heating is a good heating option compared to its more polluting and emitting alternatives.

As a renewable resource, district heating creates both local and global environmental advantages. Locally, the utilization of district heating contributes to reduce local emission of GHGs. Since the heat is produced off-site, the heat provided to buildings produces less indoor air pollution (IEA & OECD, 2004). Producing one unit of heat requires less primary energy and emits less GHGs than fossil fuel based heating. The primary energy savings from using district heating can be as much as 55% (Mahapatra & Gustavsson, 2008). From a global perspective, district heating can contribute to improve air quality by reducing emissions and improving energy efficiency. Many countries are adapting policies aiming to reduce or completely eliminate the use of fossil fuels. Because of its environmentally friendly nature, district heating can play an important part in this conversion (Lund, Möller, Mathiesen, &

Dyrelund, 2010).

For most households, it is troublesome and expensive to install own pollution prevention equipment. Since district heating operated centralized facilities on a large scale away from the supplied buildings, it is more manageable to adapt such pollution prevention systems at each facility than it is in each household. When these measures are made outside the building, users connected to the facilities feel more environmentally safe as pollution management is handled by external operators (Yoon, Ma, & Rhodes, 2015).

2.2.4 Enhancing Energy Security

Energy security involves providing reliable supply of energy. District heating can be important in achieving the International Energy Agency’s Shared Goals. The first goal states that “Diversity, efficiency and flexibility within the energy sector are basic conditions for longer-term energy security: the fuels used within and across sectors and the sources of those fuels should be as diverse as practicable” (IEA, 2007, p. 49). District heating can provide diversity, efficiency and flexibility in that many different input sources can be used, often

within the same facility. Facilities can often switch fuels without much delay should there arise any unforeseen situations. Also, district heating facilities are efficient in that they utilize sources that would otherwise be wasted, and can deliver more energy per unit of input than competing heating solutions can (Persson & Werner, 2011). These security advantages make district heating an important contributor to energy security worldwide (IEA, 2007).

2.2.5 Stimulating Economic Development

The core goal of improving economic development is to increase the welfare of citizens, through economic growth and job creation. District heating has great potential for economic development in that greater efficiency increases gross domestic product (GDP) (IEA &

OECD, 2004). As GDP is a measure of all economic activity within a country, it is an estimation of the average living standards of a country’s citizens (Feenstra, Mandel, Reinsdorf, & Slaughter, 2013). In their study of district heating in transition economies, such as Russia and the Baltics, the IEA and the OECD (2004) found that approximately 70% of households rely on district heating. Families in these countries pay as much as 30% of their disposable income on utilities, primarily district heating. Reducing this burden by improving energy efficiency in homes would allow families to improve their standard of living. Also, improving supply-side efficiency could decrease the cost of heating for households and lessen their financial burden.

2.2.6 Facilitating Energy Reform

District heating reforms can facilitate broader energy reforms that can have a lasting effect on the district heating markets itself as well as on other areas within the energy sector. Henning and Gebremedhin (2012) argue that district heating using surplus heat should be promoted in the same way as pure renewable energy, where extensive use of policy instruments create incentives to switch to more renewable production.

Reforming the district heating sector will make it more sustainable and efficient. For instance, appropriate policies can create incentives for a stable sector with minimal subsidies.

In addition, district heating reforms can have ripple effects on firms in other energy sectors.

Fixing economic issues in district heating through appropriate policies can strengthen the position of other energy sectors, and facilitate more comprehensive policies because of their interdependencies. When district heating firms can operate in an economically efficient way, other companies in supporting industries can also benefit by achieving higher revenues, which they can use to reinvest or increase production (IEA & OECD, 2004).