10 best practices for district heating companies in 2024 (+ free Checklist!)
In 2023, district heating sector decarbonisation accelerated following the uptake of more renewable sources across Europe. 2024 offers a chance for heating companies to approach their net-zero targets by executing projects, preparing new investments, and moving their transition forward.
Here are 10 best practices district heating leaders are using to achieve their objectives and build resilient, future-proof heating systems.
1. Build a multi-fuel capability
Diversifying fuels and locating alternate heat sources are two critical initiatives that industry leaders are focusing on. Betting on a single fuel is risky, given the existing supply and pricing uncertainties. Organisations that manage to combine various sources of heat into their heating systems get more control and can work further to stabilise customer pricing.
Case study: E.ON Denmark
E.ON Denmark built its multi-fuel capability by combining various district heating grids as part of the transition, resulting in a single heating bill for all users. By 2024, the company plans to cut its reliance on gas in the production mix from 31% to 14% while increasing the percentage of heat pumps in the process from 1% to 16%.
Bjørk Paamand Olsen, Head of Heat at E.ON Denmark: “We want to be as ready as possible for different scenarios in energy pricing, and therefore, having a diverse portfolio is a necessity to us.”
2. Reduce dependency on fuels altogether
The EU has been increasing pressure on CO2 pricing, which affects district heating supplier costs. This is why forward-thinking district heating businesses advocate adopting non-fuel-based solutions such as e-boilers, geothermal, waste heat, and heat pumps. Companies are increasingly introducing them to their heating grids in anticipation of future supply problems and environmental challenges associated with biomass.
Case study: Forsyning Denmark
Forsyning Denmark runs grids based on a mix of solar photovoltaic technology, steam turbines, and a high-temperature accumulator. By intelligently mixing diverse technologies, the company delivers clean heat at a lower risk to customers than separate heat pumps.
3. Prepare for a more electric future with minimal risk and maximum benefit
Many companies are investing in digital tools that allow the design, modelling, and operation of systems that integrate multiple energy sources with electricity-based solutions.
Digital solutions bring the following advantages and capabilities:
Weather and customer demand forecasting for optimal load scheduling
Understanding the cost profile of your supply and making smart decisions
Ability to simulate network changes or maintenance events using actual network data. Since electricity markets are volatile, these technologies allow providers to precisely analyse both the current and future flexibility of the network. This enables data-driven decisions regarding charging and discharging accumulators, as well as leveraging the network as a buffer to lower peak demand by predicting future changes.
Case study: Oulun Energia
Oulun Energia, a Finnish district heating supplier, is actively developing a multi-energy virtual power plant. This implies that the company can 'virtually' create and consume power in its heating system, as well as store energy in our 190,000 m3 accumulator.
Kimmo Alatulkkila, Director of Heating and Cooling at Oulun Energia:
“We have been able to leverage this flexibility and deliver heat at the lowest levels in Finland. This flexibility will continue to be a crucial factor going forward.
Even more so, I believe the district heating system plays an important role in balancing the city's energy system. You could even see the whole district heating system as a part of a virtual power plant.”
4. Break the silos and organise around a single integrated system
Heat generation and distribution are increasingly linked with non-fuel temperature-dependent heat sources installed throughout the heating system. This implies that good coordination between manufacturing and distribution will be extremely beneficial for district heating providers.
As the usage of renewable energy sources grows, the European energy market confronts new challenges due to the specific characteristics of these sources: intermittency and daily ramping.
Short-term markets, on the other hand, provide greater flexibility in dealing with the daily ramping implications of renewable energy generation, so serving as a stabilizing factor. This calls for increased flexibility and communication across departments.
5. Prevent system complexity from driving costs
Ensuring that the heating system functions as expected and that operators are able to maintain supply security will become more challenging due to the rising complexity of the network. Many companies use safety margins throughout operations that result in significant inefficiencies.
How can leaders prevent resource waste while retaining control as the system grows more complex? Here are three strategies:
Developing a realistic and dynamic model of the complete heating system - by simulating a longer period rather than a "snapshot" of a peak or baseload situation, companies get a better understanding of when and how frequently a specific issue arises.
Using historical system operation to generate models during expansions - rather of depending on the "theoretical" historic parameter model from when the system was built, businesses should leverage existing system data from sensors, heat sources, and smart meters.
Considering future control systems carefully – frequently, peaks define system cost and size, but it's better to shave peaks by using dedicated buffers or frontload the system (temporarily boosting temperatures). Such solutions should be considered throughout the design phase since they lower system peak capacity needs.
6. Create a next level of understanding of your current system
Companies have been adding heat meters and other sensors to their networks to comply with European standards. As more data from the production, network, and substations is acquired, providers can use it to improve the system's efficiency.
However, they often encounter these issues that prevent extracting value from data:
Data is often held in silos: departments, servers, or even computers that are unavailable to the rest of the enterprise.
Since data doesn't always result in commercial value, increased levels of automation in data analytics are critical for unlocking insights to feed decision-making processes.
Case study: Turku Energia
In the past six years, Turku Energia has increased its efficiency by 100 GWh, setting a record for heat losses of less than 7.5% in 2022. The company achieved this thanks to automated meter readings and consolidation of their operations, gaining complete visibility and control over their system.
7. Work towards full automation and autopilot
Heating systems are becoming more complex and difficult for companies to operate efficiently. The new requirements call for digital optimisation systems that analyse heat sources and the network as a whole in real-time.
This involves a shift away from traditional data analytics tools that tend to oversimplify the network and fail to consider aspects such as heat propagation, hydraulics, energy sources, storage, and users.
To maximise the value of the system's flexibility, a digital solution would need to anticipate on a granular network level and optimize the whole system against it, delivering dynamic setpoints rather than static and respecting system constraints for temperatures and the production schedule.
Juha Räsänen, Business Director at Savon Voima:
“We collected 6.3 billion data points last year, and we have the capability to control all networks from one control room. To create more value out of the data, we need more automation, even autopilot.
To take into account fuel prices, weather forecasts, forward temperature, return temperature, control of accumulators, control of electricity production, etc., we can't do it all alone, so we need long-term partners for this.”
8. Prepare your data for predictive maintenance
Many district heating grids have been in operation for decades, and both the pipes in the ground and the equipment have deteriorated over time. Updating the existing network is time-consuming and sometimes cannot be covered all at once. Maintenance is expensive, and repairing everything is next to impossible. On the other hand, if providers don’t take action, they risk unexpected leaks and disruptions.
Data enables proactive maintenance and repair activities, showing the best starting point for maintenance and places where your network is most susceptible.
Modern AI-powered analytics systems:
Provide insights for both short-term and long-term maintenance planning
Help businesses to conserve resources and reduce downtime,
Realise capex savings through exact replacement proposals and the elimination of needless replacements.
Case study: Öresundskraft
To learn which parts need replacing, Öresundskraft invested in gathering more data by installing sensors throughout the network.
Johan Klinga, Head of District Heating at Öresundskraft:
“Predictive maintenance of the district heating infrastructure has not received the attention it should get in the sector... So far, maintenance has been only reactive, which will not hold. Smart use of data and Al is necessary to be future proof and to provide security of supply.”
9. Use scenarios to model high-impact situations
Given that uncertainties impact all components of the heating system, from production to network and consumption, scenario modelling should evaluate the entire district heating system rather than just one aspect, such as suppliers or customers.
That’s why providers are using full-year scenario modelling to deal with market volatility and foresee future occurrences. When developing estimates and projections in a well-functioning energy system, all elements are taken into consideration. This is especially true given the increasing variety and decentralisation of heat sources.
Case study: Helen
An example of a scenario with an end-to-end impact is the Finnish provider Helen. Driven by its plan for achieving carbon neutrality by 2030, Helen used Gradyent’s Digital Twin solution to simulate the phase-out of coal and gas-powered facilities.
The company evaluated network behaviour for each scenario by balancing CO2 emissions and production costs. Scenario feasibility was assessed by checking the hydraulic stability of the network (pressures and flows) to ensure operation within system boundaries.
10. Smart differentiation of your customer offering
District heating companies with a thorough understanding of their networks can incentivise users by adjusting pricing over time (also known as flex tariffs). A segmented offering can promote consumer involvement while also increasing the heating system's durability.
This segmentation can take three forms in particular:
Technical - this comprises the type of heat source (central grid connection, local booster, or subnetwork) and the time of day.
Service-level differentiation - in this case, the supplier provides different contracts based on the weather, time of year, and temperatures.
Pricing differential - in this sort of segmentation, pricing is altered to meet the customer's preferred payment arrangements.
Case study: Vatajankoski
The Finnish utility provider Vatajankoski applied changes to its pricing model in 2022 by introducing seasonal pricing for district heating energy. The company analysed heat production costs and set up a new tariff where pricing for district heating services in the summer is lower than in winter. Previously, it offered a fixed energy price for the entire year.
This strategy helped build Vatajankoski’s competitive advantage as a potential heat provider for customers who require more heat during the summer months.
District heating providers can and should start their digitalisation journeys today, utilising current data and preventing siloisation. This is the shortest road to economic value and the most secure option for constructing a strong, future-proof district heating system.
Are you curious about how industry experts plan to deal with industry issues, including increased system complexity, rising fuel prices, and sector coupling?
Read our Market Research Report for practical recommendations backed up by real-life case studies drawn from interviews with 17 Nordic district heating leaders.