In 2021, district heating supplied just 11 percent of Europe's households’ heating demand yet district heating is a multi-technology solution that could help help Europe to meet near-term decarbonization goals, affordably, a new study released by Wärtsilä Energy, part of Finland-headed international technology group Wärtsilä Oyj.
The study, “Decarbonising District Heating: A Profitable Pathway to Net Zero” was conducted by economic consulting firm Compass Lexecon, and it shows that modernizing this sector could cut EU carbon emissions and scale renewable energy use significantly by transitioning away from inflexible coal-fired systems.
Sector coupling heat and power
The findings highlight the significant potential of integrating district heating and power systems – also known as sector coupling – to decarbonize both heat and electricity while delivering savings.
Inflexible coal-fired power and heat generation together accounted for almost 450 million tonnes of carbon dioxide (CO2) emissions in 2022 – almost 60 percent of the sector’s emissions.
The study identifies and analyses various revenue streams for combined heat and power (CHP) generation, particularly CHP engines using gas – an area Wärtsilä Energy specializes in having installed 79 GW of power plant capacity in 180 countries around the world.
The study examines relevant European regulatory frameworks and future trends affecting these revenue streams and includes country-specific case studies with insights into national regulatory and market environments.
District heating has untapped potential in Europe to be a profitable pathway to net zero. It is more than just heating homes – it is about enabling renewable energy growth, offering flexibility, and creating a viable solution for coal-dependent countries transitioning to cleaner energy, said Igor Petryk, Market Development Director at Wärtsilä Energy.
Facts
About district heating
District heating (DH) is a system that distributes heat generated at a central source, such as a plant or boiler, to multiple buildings through insulated pipes, providing space heating and hot water. It is an efficient and sustainable energy solution and is capable of running on renewable energy sources to reduce emissions and improve energy efficiency.
District heating is unique because it can source heat from a variety of low-carbon and renewable sources including biomass, biogas, geothermal, heat pumps, surplus heat from buildings, and residual process heat from industry. This flexibility allows operators to switch to greener power alternatives.
ICE-CHP technology can contribute
The findings suggest that flexible district heating technologies, such as internal combustion engine combined heat and power (ICE-CHP) technology, can contribute to the integration of increasing renewable energy supply and accelerating the phasing out of fossil fuels.
ICE-CHP technology is a system that uses an engine to produce electricity and heat simultaneously. It efficiently captures the heat produced during electricity generation, which would otherwise be wasted, and repurposes it for heating buildings, water, or industrial processes.
This dual output makes it an energy-efficient solution.
In Poland, recently published Wärtsilä’s modeling shows that by integrating district heating and power systems the country could save EUR 3.8 billion over the next decade, reducing annual CO2 emissions in its coal-dominated power sector by 57 percent by 2032.
In the modeling, CHP engines and heat pumps emerge as the key facilitators for efficiently integrating Poland’s expanding Renewable Energy Sources (RES) capacity.
Combined heat and power engines and flexible technology like heat pumps optimize energy use. They dynamically select between heat and power production technologies to adapt to market prices, maximizing economic returns. For example, when renewable energy is abundant, heat pumps and electric boilers absorb the extra energy. When solar and wind are low, these engines produce heat for cities and power for the grid. This two-way balance keeps the energy supply reliable, Igor Petryk explained.
More flexible than gas turbines
The study further highlights the flexibility of the ICE-CHP technology compared to traditional gas turbines, allowing it to react more efficiently to fluctuating electricity supply and volatile prices.
This advantage has been observed in case studies globally, where flexibilities procured by grid operators need to be made available within only 5 minutes or less.
The ability to provide such short-term flexibility can provide a significant revenue stream for ICE-CHP installations, thereby reducing heat costs while also improving power system stability.
The case studies in Denmark, Hungary, Czech Republic, and Poland all of which are existing district heating projects, confirm that investment into flexible technologies such as CHP engines is feasible and future-proof.
As district heating systems evolve across Europe the Skagen case study in Demark shows how ICE-CHP technology plays a key role even in grids with high renewable generation shares.
Meanwhile, Zuglo in Hungary demonstrates the versatility of ICE-CHP technology deployed in district heating systems in providing electricity and grid stability.
Government support is a critical enabler
Government support has been identified in the study as a critical enabler for modernizing and decarbonizing district heating systems.
In the Czech Republic, targeted subsidies aligned with EU goals have sped up ICE-CHP technology adoption and boosted investments.
In Hungary, the ancillary services market encourages such technology investments, supporting greater use of renewables and lowering carbon emissions.
As Europe continues to focus on decarbonizing its energy systems, district heating stands out as a robust, flexible multi-technology solution to address both climate change and energy efficiency challenges.
While European Union (EU) regulations, such as the Energy Efficiency Directive (EED), set the framework for decarbonization by promoting the shift to renewable and low-carbon energy sources, national policies and transpositions of EU policy remain crucial in creating the regulatory frameworks that support investments into district heating.
With the right policy frameworks and technology investments, district heating can play a pivotal role in ensuring a sustainable and affordable energy future.
Our study shows that efficient CHP engines can play an important role in contributing to the mitigation of climate change by replacing coal. This is also acknowledged by the fact that these engines can fulfill the criteria of the EU Taxonomy for sustainable activities under certain conditions, commented Gerald Aue, VP of Compass Lexecon.
