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The possibilities to open updistrict heating networksRoundtable Milan
18 September 2015Robert Hensgens
PwC
18 September 2015
Recent developments have turned district heating intothe spotlight and trigger fundamental questions
2
The possibilities to open up district heating networks
Ambitious“Warmtevisie”
Can district heating networks be opened up through Third Party Access?Can competition be introduced, like in electricity and gas sector?
Evaluation of theHeat Act
Stroom & Unbundling
• District heating crucial fortransition to realise desirableenergy mix by 2050
• Substantial potential forrenewable heat, which shouldbe tapped into
• Reforms in policy, e.g. TPA,required to supportdevelopments
• Future role of the DSO’s onthe district heating marketunclear, but under discussiongiven Stroom (limitingplaying room) and recentunbundling decision
• Inquiry into currentfunctioning of the Heat Act
• Evaluation of alternativemarket models for heat,better able to meet objectives
…lead to fundamental questions
PwC
18 September 2015
• Companies deliver heat to heating the grid and toconsumers, consumers can choose a supplier
• Heat producers can deliver heat to the heating grid
Unlike, for example electricity, TPA models in thedistrict heating sector are mostly based on feed-in
4
The possibilities to open up district heating networks
Distribution network
A
B
C
A
Distribution network
A
B
C
A
B
C
D
1
2
a
b
TPA for suppliers: full grid access
Production Distribution Supply
Production Distribution Supply
TPA for producers: feed-in
Munich
Warsaw
Copenhagen
Rotterdam
Stockholm
Negotiated feed-in
Regulated feed-in (tariffs and conditions are known ex ante)
Transport network
Transport network
PwC
18 September 2015
The difference in market model is explained by thespecific characteristics of district heating
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The possibilities to open up district heating networks
Possible technological alternatives
Po
ss
ible
loc
ati
on
s
Water• Water from a limited
amount of locationspecific, natural sources
• No technologicalalternatives to potablewater production
Gas extraction• Gas extraction from a
limited number oflocation specific sources
• Some technologicalalternatives available,like biogas
Heat production• Technological alternatives
such as CHP, residual heatfrom waste andgeothermal
• In practice locationspecific as the availabilityof residual heat is leading
Electricityproduction
• Multiple alternativesfor electricityproduction
• Different technologiesand due to centralisedgrid many locationspossible
PwC
18 September 2015
Heating grids are local, so production tends to beconcentrated and economies of scale difficult to realise
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The possibilities to open up district heating networks
Gas grid Electricity gridDistrict heating grids
~Connectionsper network
~800k ~900k~26k
PwC
18 September 2015
District heating networks in the Netherlands arerelatively small
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The possibilities to open up district heating networks
Copenhagen
Stockholm
Munich
Amsterdam
350,000
250,000
640,000
Warsaw
# of heat connections
65,000
800,000
European cities
Source: Euroheat & Power
5
11
20
61
63
% connected to heating grid
Baltics
Germany
Nordics
Netherlands
East EU
EU Countries
PwC
18 September 2015
Conclusions and policy considerations
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The possibilities to open up district heating networks
Market model
Importance of scale
TPA: what canbe done
Unbundling &transparency
• Full network access (like electricity) unrealistic due toconcentrated production, local markets and externalities
• Regulated feed-in (e.g. Copenhagen) could be alternativeif large enough, inefficient for small-scale networks
• Scale is needed to open up networks, not the other wayaround
• Facilitate demand (e.g. new DH versus gas connections)and supply (e.g. invest in transport infrastructure)
• Solidify negotiated access by clarifying negotiationprocess steps and definitions in Heat Act
• Improve transparency across the heat chain and publicparticipation in infrastructure
• Main transport networks: role for independent publicparties
• Distribution networks: separation between production vsdistribution/supply (unlike electricity)
PwC
18 September 2015
Thank you for your attention!
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The possibilities to open up district heating networks
PricewaterhouseCoopersAdvisory N.V.1006 BJ AmsterdamThe NetherlandsM: +31 (0)6 13 64 59 [email protected]
Robert Hensgens
PwC
18 September 2015
Appendix
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The possibilities to open up district heating networks
PwC
18 September 2015
Munich & Stockholm: negotiated feed-in
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Core figures
Length of network: 765 km
Heat: 9 TWh
Households: 350,000
Core figures
Length of network: > 800 km
Heat: 4.6 TWh
Households: 640,000
The possibilities to open up district heating networks
Munich
Stockholm
• Bundeskartellamt (2012): study intoaccess regulation for district heatinggrids, partly triggered by allegedmonopoly prices
• Conclusion: opening of grids is noteconomically viable. Verticalseparation leads to small benefits athigh costs
• Swedish Energie Agentschap (2011):study into possibilities for full TPA
• Conclusions: heat prices willprobably rise, willingness to investwill go down, will lead to technicalchallenges
Case Value Chain TPA regulation
PwC
18 September 2015
Copenhagen & Warsaw: regulated feed-in
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The possibilities to open up district heating networks
• Copenhagen: Heat production isfully regulated (compensation fixedcosts, variable on an actual costsbasis)
• For heat suppliers there is aturnover ceiling on the basis of abenchmark set by the regulator
• Warschau: production anddistribution regulated on a cost-plusbasis and with elements ofbenchmarking
• In theory, the consumer can chooseits supplier, but in practice noalternative suppliers make offeringsto consumers
Case Value Chain TPA regulation
5 differentmunicipalities
Core figures
Length of network: 1700 km
Heat: 10.8 TWh
Households: 800,000
Core figures
Length of network: 54 km(CTR core network only)
Heat: 9.6TWh
Households: 250,000
Copenhagen
Warsaw
PwC
18 September 2015
Regulated feed-in (e.g. Copenhagen) has pros but canalso lead to inefficiencies, especially for small projects
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The possibilities to open up district heating networks
Cons Pros
Diverse productioncan lead to more
flexibility
Competition can leadto increased
efficiency
Increased certaintyfor producers
Costs of regulationand supervision
Negative impact onexisting business
cases
Technicalinefficiencies
(systeemoptimalis.)
Economicinefficiencies
(crowding out prod.)
PwC
18 September 2015
Full network access (TPA 2) rarely occurs and does notseem feasible
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The possibilities to open up district heating networks
Possible cons offull network
access (TPA2)
Possible pros offull network
access (TPA2)
