Denmark has been very successful in terms of achieving a high DH connection rate and many decentral DH systems, partially based on combined heat and power (CHP) production. 340 (83%) of all DH systems in Denmark are owned by the local DH consumers. They represent 36% of the total DH production in Denmark. Owing to their special organisational structure (a.m.b.a.) and national non-profit rules, the great majority of local DH systems are technically and economically efficient, resulting in low DH consumer prices.
1. What is the best practice?
The best practice concerns the organization of many Danish district heating companies in consumer owned organisations. Specifically, this entails three main elements: a) DH is generally accepted to be a natural monopoly with only one DH network in each DH supply area; b) as a consequence, DH consumers are protected from unreasonable price increases through non-profit rules; and c) a special cooperative limited liability company (“a.m.b.a.”) represents an adequate ownership model, encouraging DH consumers to form consumer-owned DH companies. In the a.m.b.a., consumers do not actually own shares or assets in the company, but have voting rights as soon as they become members (= consume DH).
This way of organizing consumer-owned district heating (CO-DH) has resulted in high transparency, high technical efficiency and innovative capacity, as well as high economic efficiency and low DH prices. The first CO-DH companies were established around 1960, when the technology was mature enough to be implemented outside the larger urban DH systems, which typically are municipality-owned. CO-DH built on local citizen initiative and the “co-operative movement” (andelstanken) in the agricultural sector, where it was common that diaries and slaughterhouses were owned by the supplying farmers. In practice, CO-DH companies can start out as independent citizen associations or groups (borgerforeninger/borgergrupper) that promote and develop the idea of local district heating (without many financial commitments). Once sufficient local support for a DH system has been ensured through e.g. some form of advance commitments, an actual a.m.b.a can be formed that can take loans for the initial investments necessary to establish the local DH system. During the late 1980s and 1990s, the CO-DH model played a role in the diffusion of decentral combined heat and power plants (CHP). In this way, the CO-DH model contributed to the high level of flexibility and efficiency of the DH sector, since the decentral CHP plants cogenerate electricity and heat efficiently and provide a balancing function for the fluctuating wind power production.
For consumers, DH is a reliable, low-maintenance heating solution – provided that a central heating system is installed. Apart from a heat exchanger unit and some smaller piping, no other installations are required at the customer.
2. How are CO-DH systems regulated?
Unlike collective electricity systems (e.g. wind turbines, solar PV etc.), for which the national transmission grid often can provide the necessary balancing function, DH systems depend on a high spatial density in the heat consumption for better efficiency (lower heat transmission losses etc.). This makes it attractive for the CO-DH company to connect as many consumers to the DH network as possible, and also creates a kind of mutual dependence amongst heat consumers: more consumers within the same DH supply area usually means lower DH costs per consumer and lower DH prices. And conversely, DH consumers leaving the network results in a lower total efficiency in the network, and therefore, higher costs and prices. Therefore, within the framework of DH systems as natural monopolies, DH companies have historically been allowed to demand mandatory connection to the local DH network. As a consequence, since consumers often have no choice but join the local DH network, they, at the same time, need to be protected from being exploited by the DH company – hence the non-profit rule.
The non-profit rule for DH in Denmark works in two ways: first, DH companies are entitled to recover operation, maintenance and investment costs from DH consumers at cost price, which means that the consumer DH price can only reflect the actual costs of running and expanding the DH system. Second, if any economic surplus should arise, it has to be paid back to the consumers. As owners in CO-DH systems, consumers have a detailed insight into the cost developments of the DH company, and they collectively decide upon any price increases, future investments etc. The non-profit regulation makes it unattractive for private companies to become owners of DH networks, even though private DH suppliers in larger municipality-owned DH systems are common (e.g. industrial surplus heat).
In practice, consumer interests are represented in the DH company boards, which are elected at the annual general assembly. Together, these conditions have the effect that CO-DH have an incentive to operate as efficiently as possible, which constantly puts them in a situation where they need to look for solutions that can help maintain a low DH price. For many CO-DH companies, this necessity to innovate has resulted in a search for environmentally sounder DH fuel sources, such as biomass, biogas, solar thermal energy, large heat pumps and electric boilers.
All DH projects have to be appraised in terms of their socio-economic effects (including business economic, user economic, environmental analyses) and in comparison to other heating alternatives. DH projects are approved by the local authorities and there are central guidelines for DH project analysis and planning, which apply to all DH companies. In order to be able to us realistic and up-to-date data for these analyses, the Danish Energy Agency also publishes and updates technology data catalogues to be used in energy planning. Municipalities can in many cases issue securities on loans for DH projects, which can give access to low interest loans.
3. How are CO-DH systems organised and supported?
99% of all DH companies are organized in the Danish District Heating Association (Dansk Fjernvarme). The DH association provides technical support, represents DH companies’ interests politically and is engaged in analytical work regarding the future of district heating. There is a pool of money for DH related R&D projects and smaller DH companies (many of which are CO-DH) can get special rates for consultancy work done by the DH association. The DH association also collects and publishes technical and economic data on DH companies. In addition, the Danish Utility Regulator (Forsyningstilsynet) publishes standard DH consumer prices for all DH networks at least once a year. This safeguards the transparency of the DH sector and brings an element of competition to the CO-DH companies: consumers and company directors can see the prices in DH systems that are comparable to their own, and therefore have an efficiency inventive to at least match or fall below the prices of “competitors”.
In spatial planning, DH supply areas were largely determined all over the country during the 1980s when the goal was to roll out natural gas systems across Denmark. Municipalities and counties were asked to make local and regional heat supply plans and to assess where and how DH should be implemented – as clearly demarcated areas. This helped DH companies and consumers to have a clear picture of the future supply potential. These DH supply areas are largely the same today, including further densification and expansion.
4. Which typical challenges do CO-DH systems experience?
Some CO-DH systems were established when natural gas prices were low, which meant that they could run economically acceptable with a relatively small amount of DH consumers and/or low heat demand densities. Due to increasing natural gas prices and sometimes depopulation in the rural areas, the smallest DH systems face economic problems. In these cases, the government can, for instance, make special provisions to make it more attractive to choose a different fuel: in Denmark, mainly due to lower taxes, many of the small DH systems have converted to biomass, and some have also installed large solar heating systems. From an energy systems perspective it would have been more optimal to support the introduction of power-to-heat (P2H) solutions that can make use of excess wind power in the system, which is especially important in the winter months. This issue is also brought to the political debate by the DH association.
Other issues that have been more or less frequently debate in relation to, both CO-DH and municipality-owned DH systems, are DH price differences and the mandatory connection rule. Apart from the difference in size, DH price differences can also appear due to the type of DH suppliers in the system. In cities with better access to surplus heat sources, DH prices are typically significantly lower. Asking low-energy houses to connect to the DH network has also been a matter of debate, which sometimes is solved by granting an exemption from the mandatory connection rule, or by technical solutions with lower DH supply temperatures etc.
Another challenge concerns the structure of DH tariffs: in systems with a relatively high fixed tariff (consumption independent), there is a lack of incentive to implement energy efficiency measures at the consumers. It has been proposed to introduce 100% variable DH tariffs (=fully consumption dependent) to address this problem. In general, consumer ownership and municipality-ownership has come under some pressure since the liberalization of the electricity sector in 1999. Politically, now and then the argument emerges that there is not enough competition and consumer protection in DH systems, which could be solved by partially privatizing DH companies, making them more “professional”. Against this discourse stands the above argument that in combination, consumer ownership, consistent transparency and non-profit rules is a more efficient way to organize a natural monopoly, such as DH. So far, private DH companies have usually been in the top 10 list of the highest consumer prices.
5. Some interesting examples
- In the example of Slagslunde district heating, DH consumer prices decreased by 33% within 2 years, after the local CO-DH company had taken over the DH network and DH plant from a private company.
- In Hvide Sande, the local CO-DH company plans to connect the local harbor wind turbines, which belong to a local cooperative and trust, to a central electric boiler to use excess wind energy for DH production. The DH company has already acquired the wind turbines.
- In Dronninglund, one of the first decentral CHP plants continuously searches for solutions that can reduce consumer prices. Large solar thermal collectors together with a heat pump, heat storages (short term and seasonal) and the motor now make up a very flexible DH system that can use low temperature heat sources.
- Marstal district heating has been known for the world’s largest solar collector fields. The plant has also installed a demo organic rankine cycle plant based on bio-oil, and has tested several new solar thermal technologies.
6. Lessons learned
- CO-DH is an efficient, transparent and democratic way of organizing DH as a natural monopoly
- The model benefits from clear spatial planning guidelines – e.g. clear DH supply areas
- Clear, central guidelines and support in terms of DH technology, costs and financing improve transparency and help save resources at the local CO-DH companies
- CO-DH systems possess considerable innovative capacity and search for new solutions that benefit consumers and the local community
- Starting from scratch, reduction in building’s heat demand should be the first step in the planning of new CO-DH systems
- CO-DH systems should be integrated into future energy systems with higher shares of fluctuating electricity through P2H solutions
- CO-DH systems are also adequate stepping stones for a stronger local economic and social integration: through e.g. co-ownership of local wind turbines, biogas, solar PV à can be integrated through e.g. P2H
- New CO-DH systems should be designed for low supply temperatures and low heat sources (4th Generation District Heating)
7. More information
Consumer-owned district heating explained – Denmark and Hvidovre:
Slagslunde Fjernvarme modtager Fjernvarmeprisen:
Hvelplund, F & Sperling, K. (2018). Forskere: Lokalt ejerskab giver den laveste forsyningspris. Altinget (https://www.altinget.dk/forsyning/artikel/forskere-kommunalt-og-forbrugerejerskab-giver-de-laveste-forsyningspriser)
Chittum, A., & Østergaard, P. A. (2014). How Danish communal heat planning empowers municipalities and benefits individual consumers. Energy Policy, 74(C), 465–474. https://doi.org/10.1016/j.enpol.2014.08.001
Danish Energy Agency: “Regulation and Planning for District Heating in Denmark: