How to manage fuel risks and build a resilient heating system
Although the energy market seems to be stabilising, leaders can no longer securely bet on fuels. How can district heating companies plan for a resilient future in the face of such basic uncertainty while remaining cost- and energy-efficient?
The European district heating sector has been facing increasing uncertainty and risk around fuels for the past few years. The Russian invasion of Ukraine in 2022 produced an unprecedented energy crisis. Security and supply concerns for basic commodities such as gas and biomass resulted not only in price increases but also greater-than-ever market volatility.
While the energy market appears to be stabilising today, leaders can no longer make safe bets on fuels.
How can district heating companies plan for a resilient future when facing such fundamental uncertainties, all the while keeping their operations cost- and energy-efficient?
In this article, we share two best practices that leaders in district heating are implementing to build resilience and stabilise heating prices for customers.
Best practice 1: Build a multi-fuel strategy
Even though district heating is in a uniquely advantageous position in terms of using multiple heat sources, many organisations across Europe have been slow to leverage it. The current volatility in the fuel market is making many reconsider this matter.
Diversifying fuels and finding alternative heat sources are two core steps that leaders in the field are prioritising. Given the current supply and pricing risks, betting on a single fuel is risky. Organisations that embrace multiple fuels gain more control and can stabilise pricing for customers.
How E.ON Denmark is building multi-fuel capability
E.ON Denmark is a good example of a district heating company that is diversifying its heat source mix to build greater flexibility and resilience against fluctuating energy pricing situations. When natural gas costs jumped dramatically in 2022, the provider had a solid reason to accelerate its green transition.
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.”
Best practice 2: Reduce your dependency on fuels
Driven by the climate objectives outlined in the 'Fit for 55' package, the EU has been putting increasing pressure on CO2 pricing, which impacts district heating providers’ expenses. A whitepaper Gradyent produced in partnership with Euroheat & Power estimated that if CO2 costs exceeded €100/tonne, the sector would incur an additional cost of €40 billion. This pricing level was reached in February 2023, and the pressure on CO2 is here to stay.
This is why forward-thinking district heating companies advocate for systems that don’t depend on fuel at all. Foreseeing future supply risks and environmental pressures around biomass, they seek non-fuel heat sources such as e-boilers, geothermal, waste heat, and heat pumps.
Forsyning Denmark combines heat storage with non-fuel technologies
Forsyning Denmark is a new entrant in the district heating sector that 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.
Lars van Hauen, CEO at Forsyning Danmark: "Consumers want to get rid of their gas boilers and connect to a district heating network because gas has become very expensive. However, they also demand district heating grids to diversify their technologies. Because even if it's based on only one heat pump, they understand the same (price increases) might happen again."
Building future resilience
Further pressures for decarbonisation and fuel market volatility are both inevitable, leading every district heating provider to face the challenges related to these uncertainties.
District heating leaders need to start preparing for the future today by assessing their options and finding ways to reduce risk and fuel dependency. This is naturally just one of many challenges facing district heating companies today.
Are you wondering how leaders in the sector are preparing for other known certainties like the increasing role of electricity in heating or the growing complexity of heating systems?
Read our Market Research Report and get hands-on advice backed by real-life case studies, based on interviews conducted with 17 district heating leaders from the Nordics.