Importance and role of district heating

The heating sector requires 57 % of primary energy, as the German Association of Energy and Water Industries’ (“BDEW”) heating status report shows, and is still largely based on fossil fuels. District heating plays a central role in the heating transition in Germany, as it enables a sustainable and efficient heat supply. By integrating locally available, otherwise unused heat sources and renewable energies, climate-friendly district heating makes a significant contribution to security of supply, local value creation and reducing dependence on energy imports.

Market structure and need for regulation
Climate-friendly district heating networks are an important component of municipal heating planning and bring many benefits for private households, neighborhoods and municipalities. However, the district heating market is dominated by monopolistic suppliers, which poses challenges such as a lack of competition and a lack of price transparency. Current regulatory efforts strive to promote competition and transparency.

Opportunities for municipal utilities
The climate policy requirements are clear and municipal heating planning is becoming the master plan for all German municipalities. All natural gas substitutes such as heat pumps, biomethane and sustainable district and local heating concepts with or without CHP are competing for the best solution. For municipal utilities, this will also result in new high-yield business areas that need to be developed, in particular with the inclusion of renewable energies.
 

Our services

  • As an interface to the engineering offices, we support you from the initial idea onwards. Our industrial engineers are highly experienced.
  • Review of the heating strategy, taking into account municipal heat planning
  • Review of the supply structure, also with regard to sustainability and funding mechanisms
  • Development of a business case tool
    • with integrated budgeting (P&L, balance sheet, cash flow, capitalized earnings value method) (approved by the auditor)
    • for use with banks in the context of project financing and after completion as a controlling tool
    • Determination of cost components, allocation and distribution to the cost element
    • Use of industry-standard indices
    • Integration of financing and funding mechanisms
    • Scenario calculation depending on the supply structure used, taking into account different types of generation (plant fleet) and purchasing behavior
    • Preparation of price escalation clauses (AVBFernwärmeV conformity)
  • Preparation of documents for banks
  • Communication with potential customers (housing associations, industries, etc.)
  • Preparation of contracts

Ongoing activities

  • Audit review of the budgeting and price escalation clause calculation incl. indices as proof to authorities
  • Confirmation of economic efficiency and cost orientation
  • Contract review for conformity with AVBFernwärmeV 
  • Review of contract design according to customers and tariffs
  • Adjustment of contracts
     
Hartmut Müller

Hartmut Müller

Partner

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Areas of application for district heating

District heating is used in numerous areas, including residential, commercial and industrial buildings. It provides a reliable heat supply through a centralized network that transports heat from power plants or other heat sources to end users. District heating is a preferred solution, particularly in densely populated areas and cities, as it saves space and increases energy efficiency through the use of combined heat and power (CHP). District heating is also becoming increasingly important in new development areas and when renovating old heating systems, as it represents a modern and sustainable alternative to conventional heating methods. These versatile applications make district heating an essential part of urban and industrial infrastructure, paving the way for a more efficient and environmentally friendly heat supply.

Challenges in the district heating market

The monopolistic structure of the district heating market poses a significant challenge. Only a few suppliers control the majority of the market, which often leads to excessive prices and a lack of competition. These market conditions make it difficult to fully realize the efficiency and environmental benefits the district heating could offer. Consumers rarely have the opportunity to choose between different suppliers and pricing often remains obscure. This situation not only hinders the optimal use of resources, but also the implementation of innovative technologies required for a sustainable and efficient heat supply. Therefore, the creation of a competitive and transparent market is crucial to fully exploit the potential of district heating and ensure fair pricing.

New AVBFernwärmeV and regulatory efforts

In order to meet the challenges in the district heating market, intensive efforts are currently being made to regulate market conditions. An important step in this direction is the comprehensively amended German Ordinance on General Terms and Conditions for the Supply of District Heating (AVBFernwärmeV), a draft of which was presented in July 2022. The presentation of a revised and supplemented second draft is planned for fall 2024.

These regulatory efforts include several key measures. Firstly, stricter price controls are to be introduced in order to prevent excessive prices and ensure fairer pricing. Secondly, the aim is to promote competition by facilitating access for new providers. Thirdly, transparency is to be improved through mandatory information requirements for providers, thus enabling consumers to make informed decisions.

The overarching aim of these measures is to make the benefits of district heating more widely accessible and to maximize its contribution to the heating transition. Through a competitive and transparent market structure, the efficiency and environmental benefits of district heating are to be fully realized and dependence on fossil fuels reduced.