New Business Models for District Heating Networks
for the successful transformation of existing district heating infrastructures to innovative district heating systems, it is not only the technical aspects that are crucial. It is also important that the systems can be operated economically. Low and reliable prices for customers are particularly important in this context, especially with the recent dynamic developments in the energy sector. In the 25th issue of our Research Newsletter, we would therefore like to summarize the key messages of two articles that deal with how necessary changes in district heating networks can be supported by new business models.
The article Developing innovative business models for reducing return temperatures in district heating systems: Approach and first results by P. Leoni et al. investigates how temperature reductions in existing district heating systems can be implemented economically. The study focuses on how the return temperatures of the consumers can be reduced. P. Leoni et al. develop three possible solutions: (1) make customers more aware of how to avoid operational errors and the importance of temperature reductions, (2) invest in error detection and optimization (with strategic partnerships and crowd-funding), and (3) design special contracts for energy savings that benefit tenants in particular.
In the article Contracts, Business Models and Barriers to Investing in Low Temperature District Heating Projects K. Lygnerud et al. K. Lygnerud et al. specifically examine the barriers that currently exist for using waste heat in district heating systems. To this end, they also identify and discuss the challenges in contracting. A major challenge is that different parties with different interests are involved in waste heat utilization projects.
Both studies use stakeholder analysis as a methodology. Operators, customers, investors as well as political decision makers of district heating networks are interviewed about current technical as well as economic barriers. A stakeholder analysis is particularly important in the development of new business models to understand which measures have already been implemented or why certain measures have not yet been taken.
Business Models for Secondary-Side Reduction of Return Temperatures
P. Leoni et al. focus in their work on the reduction of secondary-side return temperatures. The elaborate stakeholder analysis reveals that the following errors often lead to high return temperatures. A very common error is the incorrect or suboptimal design of heat distribution in buildings. This can be, for example, small radiators, wrong valves, wrong bypasses or wrong positioning of sensors. Another problem is inefficient operation of the secondary side. Often, suitable heating curves for the supply are missing or the control system is completely switched off. Customer behavior is also a common problem (e.g., heating with an open window or blocked radiators). Other faults include the failure of sensors, valves or the control system. The described faults on the secondary side lead to high return temperatures in about 89% of cases, while faults on the primary side are the reason in only 11% of cases. The article proposes three possible business models to avoid these faults in the future and to achieve lower return temperatures in district heating networks.
The first business model aims at strong communication between district heating network operators and customers. Customers are to be motivated and activated to identify and correct faults. To this end, the operators can focus, on the one hand, on the initiative of the subscribers, which requires particularly intensive communication. But the offer of regular inspections of the secondary side by the district heating network operator are also possible measures for this business model. Smaller, high-impact repairs can be offered free of charge. Operators must pay particular attention to communicating the added value for customers. Here, energy savings and increased comfort in the apartments can be two important arguments. The aspect of sustainability is also becoming increasingly important to customers.
The measures listed above are often not enough to eliminate all faults. Rather, major investments are needed in infrastructure and modern monitoring systems. These kinds of systems involve investments. The work of P. Leoni et al. suggests that these investments be supported by external capital. In particular, investors aiming at long-term investments should be considered. The possibility of crowd-funding is considered particularly promising, where customers themselves can invest in the expansion and transformation of the district heating network and thus benefit in the long term. In addition to crowd-funding, the possibility of strategic partnerships is listed. These should be partners who have an interest in low network temperatures, in turn to benefit monetarily themselves. As an example, P. Leoni et al. mention waste heat suppliers with low temperature levels (data centers, industry, etc.). But also manufacturers of building technology with low supply temperatures can be interesting investors.
As a third possibility for new business models, special contracts are listed where tenants profit directly from the investment. As an example, investments in the optimization of the secondary side could be shared by landlord and tenant and special contracts could be offered by the district heating network operator, where the tenants profit directly from the optimization.
Business Models for integrating Waste Heat into District Heating Networks
The work of K. Lygnerud et al. focuses on the use of waste heat in district heating networks. From the stakeholder analysis, the following barriers to the integration of waste heat in district heating networks could be identified. Particularly hindering are only a few demonstrations with large-scale heat pumps and the associated relatively low industrialized production of these systems. The high investment and associated long payback periods are also linked to the low availability of the systems. Interestingly, the stakeholder analysis shows that existing incentives for renewable energy (e.g., solar) or cogeneration prevent the integration of waste heat. It should be noted here that this is a European study. With regard to the BEW, the integration of waste heat is also promoted in Germany. An important point raised by K. Lygnerud et al. is that so far there are few legal regulations and no standardized contracts for waste heat utilization. In implemented projects, long planning periods are often required for these issues. Further challenges are the monetary valuation of waste heat and the uncertainty regarding the long-term availability of this waste heat.
According to K. Lygnerud et al, a particularly important issue for solving the challenges is the contract design for the use of waste heat. The stakeholder analysis highlights that it is important that both parties must benefit from long-term operation of waste heat utilization. For this purpose, it is important, for example, that details about the waste heat are precisely specified and guaranteed. These can include not only the heat output and availability but also the temperatures, and a time-dependent payment (e.g. different tariffs for summer and winter). It is emphasized that in the contract the boundaries of supply must be designed in such a way that both parties can focus on their core business. For example, the waste heat supplier should not be responsible for the safe operation of the district heating network; vice versa, the district heating operator is not responsible for process safety.
Further information
We recommend both articles in full length, both are freely available at https://doi.org/10.1016/j.energy.2020.116963 and https://www.mdpi.com/2076-3417/9/15/3142 respectively. The next issue of our newsletter will be published on December 7, 2022. Until then, feel free to follow us on LinkedIn where we share smaller use cases and information.
