From pipes to prices: Mastering the new realities of DHC operations

In our first article, we explored why District Heating and Cooling (DHC) companies are becoming pivotal to the smart energy transition. In this blog, we dig into the invisible but critical forces that make-or-break operational success: the delay of heat and the volatility of electricity.

Planning in advance is key to mastering heat propagation

Scheduling heating supply involves much more than simply knowing the total demand. It requires precise insights into where and when energy is needed.

Heat demand is distributed across the network, with each asset location responsible for supplying its specific share. Unlike electricity, which balances almost instantly, heat transport is delayed by a few minutes (in smaller towns) to several hours or more (in large cities) as heat usually travels at the speed of 1-2 m/s.

In larger and more complex networks, especially ones where companies also produce power and act as a balancing partner, such time lags significantly increase the complexity of decision-making.

The graph below shows how a ‘heat wave’ propagates through a network. The temperature is highest at the source and drops slightly for each user located at a distance. It also takes time before an increase at the source is observable at the user’s location, as illustrated on the timescale of the x-axis.

This delay, also known as heat propagation, can only be fully understood through a physics-based perspective.

Which factors impact heat propagation? Flow and pressure conditions in both forward and return lines, as well as settings of valves, mixing points, and heat losses along the way. They all have a bearing on the heat flow that ends up reaching the end customer.

Since heat propagation introduces time lags between production and consumption, choosing the right asset at the right time while considering fluctuating energy prices becomes an intricate task. This is why operators need to plan in advance.

When pipes become a problem

In addition to heat propagation, pipe sizes can present a capacity limit for the amount of heat that can be transported.

If we examine traditional systems with just a few major feed-in points, we’ll instantly see that the network was designed to transport heat in one direction. In new-generation networks, decentralised sources distributed across the entire network can completely change the hydraulic dynamics.

Understanding which source supplies which area in real-time

Currently, many DHC companies rely on a few pressure sensors to decide when to activate a (peak) source. But what if a sensor is no longer positioned at the most critical point after adding new neighbourhoods to the network?

This is just one among many questions that may arise:

The image above illustrates the challenge of understanding which heat source supplies which area in real-time, with each colour representing a specific source. In this example, the operator manages more than 20 different heat supply points.

Making operational decisions solely on a handful of pressure sensors is already a complex task, and it doesn't immediately translate into the detailed insights of the best possible decisions.

Meanwhile, DHC companies must also factor in fluctuating electricity prices to determine which heat sources are most advantageous at any given moment.

Electricity market volatility: A new layer of risk & opportunity

Next to thermohydraulic complexities, navigating electricity markets presents DHC operators with unique challenges as each market operates with distinct price dynamics.

Below is an example of a typical day on the German electricity market during summer:

The lines on the graph illustrate typical opportunities and risks that a DHC operator should consider when planning power production and consumption.

Navigating electricity markets

To which E-markets do DHC companies need to pay attention? Here’s an overview of the relevant electricity markets:

The day-ahead market

This market is familiar to most European DHC companies. While prices vary throughout the day, often by a factor of 2–3 or more, E-production and consumption quantities are balanced a day in advance. This gives operators a clearer expectation of what lies ahead.

The intraday market

Represented by the light blue line in the graph above, this market is more volatile than the day-ahead market. DHC companies using heat pumps or E-boilers are familiar with this market.

Trading decisions can be made throughout the day, with transactions occurring in 60-, 30-, or even 15-minute intervals. Although this offers many opportunities to sell electricity at high prices, it also carries a higher risk of underselling electricity generated or overpaying for electricity consumed as fuel.

The automatic frequency restoration reserve market

The red and purple lines are a typical example of a market used by a country’s transmission system operator (TSO) to balance the grid on a very short-term basis.

Participants can submit bids to adjust E-generation within the next period at a given price (e.g., the offer is valid for the next 25 minutes). If the E-grid frequency becomes unstable, DHC companies may be required to adjust generation within a 5-minute warning.

Prices in these markets can be very high, encouraging companies to increase electricity consumption (and get paid for it) or reduce production while still generating revenue without using additional fuel. While most CHPs can’t respond quickly enough, E-boilers and heat pumps enable participation in these markets.

Other ancillary markets

These markets offer similar revenue opportunities to those shown by the red and purple lines (AFRR) above. They are designed to provide grid stability on a very short-term basis (within 15 minutes) and may be implemented differently across countries, such as in capacity, reserve, or frequency markets.

Navigating all of these markets requires both operational expertise and strategic coordination, making the daily life of a DHC operator far from easy.

While traditional CHPs require hours to ramp up or down, E-boilers and heat pumps can adjust to full capacity within minutes. This capability positions operators as key providers of flexibility to the electricity grid, enabling them to respond effectively to intraday price signals and participate in ancillary markets.

Conclusion

The interplay of volatile electricity prices, transition of assets, and intricate thermohydraulic dynamics and heat propagation creates a significantly complex challenge for DHC companies seeking to optimise heat and power production schedules.

In the final article of this series, we’ll explore how DHC companies can use smart digital tools like Digital Twins to navigate this complexity, optimise operations in real-time, and turn flexibility into a competitive edge.

This three-part series is a part of our Flexibility Whitepaper.