Political and economical situation of district heat in the Netherlands

Report of EnergieNed

by J. J. Hof

Introduction

Sales of heat in the 25 Dutch heat distribution projects which are operated by 13 energy distribution firms amount to some 12.000 TJ per year, with associated turnover of 240 million NLG. Around 250,000 dwelling equivalents are supplied under these projects, for which a total of 1360 km of double pipes are buried in the ground. The rate of growth in the number of connections in the existing heat distribution projects is around 5% per year. Market penetration at present is around 4%. District heating has developed in recent years from a pioneering activity to a normal energy supply activity. The objective of expanding district heating is shared by the whole energy distribution sector, and it has become a sector-wide move. Both new projects and the expansion of existing projects are under discussion. A number of plans for expansion are at an advanced stage. Sales of heat from heat distribution networks, totalling 12 PJ in 1990, should grow to 28 PJ in the year 2000. This rate of growth has been forecast in some fifteen new projects and expansions of existing projects. This growth consists of around 60% built environment and 40% in horticultural areas. The growth in heat distribution networks will occur chiefly in areas with a concentrated demand for heat, such as existing densely populated areas, in high-rise buildings, large offices and in glasshouse horticulture areas and combinations of these. Heat distribution networks are also possible in those areas in which new construction will take place on a large scale over the next few years. The number of energy distribution firms concerned with heat distribution will double in the near future.

Policy frameworks

The actors who determine policy in the area of district heating are the energy distribution sector, the energy production sector, the national government, particularly the Ministries of Economic Affairs and of Housing, Planning and Environment, and lower levels of government. District heating fits into the policy frameworks indicated by these actors.

Objectives of policy

The aims of the policy into which district heating fits concern promoting a market which works well, paying due regard to the environment and aiming for low costs, high safety and good user convenience. The distribution of heat is associated with what there is a need for in society, among energy consumers and in the energy distribution firms. The aim that has been established here is to satisfy the demand for heat as much as is appropriate by means of cogeneration of heat and power. This means that a large proportion of electricity is supplied on the basis of cogeneration and hear distribution. The underlying principle in the application of cogeneration is that cogeneration is dimensioned according to the demand for heat which remains after saving measures have been taken on the demand side. A multi-year pogramme is aimed at improving quality assurance, cost reduction, the management of financial risks, system optimisation, the development of technology and the support of decision-making processes.

Objective for cogeneration and heat distribution

Every GJ of heat which is supplied to customers from heat networks keeps 96 kg C02 out of the atmosphere and prevents the emission of 2.2 acid equivalents. The utilisation of residual heat is cost-effective if the demand for heat is at a distance of up to around 30 kilometres from the source. There is potential for the utilisation of residual heat in existing power plants and plants where construction is at an advanced stage. Units which will remain in operation until after 2005 have been looked at in partcicular. The potential of utilisable residual heat from these power plants is 170 PJ. It is estimated that 25 PJ of heat demand can be met in a cost-effective manner with this. The potential for cogeneration with heat distribution largely consists of projects in the existing housing stock and also of new housing and existing offices and shopping centres. Studies indicate that there is even greater economically cost-effective potential. Part of this potential will be achievable in the period after 2000.

In view of the potential and the prospects, it is possible to raise the cogeneration objective for the year 2000 to 8000 MWe; this will mean the proportion of cogeneration in all electricity capacity rising from 19% in 1990 to around 40% in 2000.

The development of cogeneration (including district heating) is then as follows:

year                        1990           1995           2000
                            (MWe)          (MWe)          (MWe)

total cogeneration           3285           6600           8000

proportion of total capacity  19%            35%            39%

The policy of the energy distribution sector

The following measures are being taken in the Environmental Action Plan of the energy distribution sector 11 (MAP): the insulation value in new buildings is being increased, investments in insulating existing homes are being subsidised, gas-fired heating boilers with high output and low NOx emissions are being encouraged, energy-saving domestic appliances are being promoted and thermal power, district heating, wind energy and new energy conversion technologies are being encouraged. The energy distribution sector has included its plans with regard to heat distribution in the MAP. The contribution of heat distribution to the objective of the MAP is around 1 0%. The heat distribution projects will prevent 1.6 million tonnes Of C02 in the year2OOO out of the total target of 17.7 million tonnes or C02 per year. The emission of 36 million acid equivalents is also avoided through district heating. Altogether ca. 8 million tonnes Of C02 per year is avoided, ca 90 PJ of energy is saved and ca 70 million acid equivalents are avoided by cogeneration and heat distribution.

The policy of the electricity production sector

The Cooperating Electricity Production Enterprises (Sep) have drawn up a "Heat Plan" in the Electricity Plan which consists in the construction of a number of new cogeneration plants, of around 250 MWe each, in areas there there is a high heat demand density. The fuel utilisation to be achieved is 85%, broadly divided between 50% electricity and 35% heat. Sep puts the emphasis in developing its heat plans on the concept of exergy, the quality of energy. When making choices in the provision of energy, the fuel would first have to be converted into electricity and the residual heat made available to the heat market. Direct burning of fuel solely for the production of heat is not good from the energy point of view. The electricity production sector therefore draws attention in its heat plan to the desirability of utilising residual heat in electricity production. Sep assumes a doubling of heat supply In the period upto the year 2000.

The policy of the energy sector as a whole

The utilisation of residual heat is regarded both by the electricity production sector and the distribution sector as a good way of attaining the energy and environmental objectives. The proportion of decentralised heat and power capacity in Dutch energy supply has increased substantially over the last few vears as a result of efforts to limit C02 emissions and the Electricity Act, which enables distribution firms and end-users themselves to generate electricity in a decentralised manner. As well as industrial combined heat and power, the utilisation of residual heat from existing power plants is also regarded as promising in the MAP. It is possible to exploit this opportunity through close collaboration between the production and distribution sectors.

In the area of residual heat utilisation, consideration is given to utilisation for industrial drying processes, for example fertiliser drying, as well as heat distribution for the built environment. In meeting the demand for heat, an integrated approach has been chosen forthe production of heat and electricity for new and existing electricity production units. Energy-saving measures are as far as possible compared in an integrated manner with other measures aimed at meeting the demand for heat. Sep, EnergieNed and Gasunie have decided to explore the possibility of an integrated environmental plan for the whole energy sector.

Government policy

Central government, particularly the Ministries of Economic Affairs and of Housing, Planning and Environment, has been involved in the subject of heat distribution as a result of the strong energy, environmental and regional planning aspects. The Dutch government has published an environmental policy plan (known as NMP-2). The most important points of this plan are as follows. Acidifying emissions must be cut by 50% and greenhouse gas emissions must drop by 25%. In addition, there is the Energy Saving Memorandum. The aim of this is to promore efficient use of fuel and the application of sustainable energy sources. There is a positive attitude in the government towards heat distribution. District heating fits in with what is referred to as the "noregret"policy. The Ministry of Economic Affairs is aiming for savings in primary energy whilst maintaining the quality of energy supply. In the Energy Saving Follow-up Memorandum, the energy sector is allocated a major role in achieving energy savings. Policy with regard to cogeneration is being continued. It is important to direct choices made towards the greatest possible saving effect. By setting standards, the required measures are largely taken by the responsible market parties themselves. The role of the Ministry of Economic Affairs is chiefly to encourage. In urban expansion areas, the opportunities for the utilisation of residual heat will be explicitly included. The policy of the Ministry of Housing, Planning and Environmentwith regard to heat distribution consists of several parts. As well as the planning aspect of heat distribution, the environmental benefit of heat distribution is also appealing. A large number of environmental objectives are set out in the NMP 2. The reduction in emissions of C02 and acidifying substances scores high with heat distribution. The Ministry of Housing, Planning and Environment has signed an antiacidification-agreement with Sep which encourages the application of district heating.

The policy of lower levels of government

At a lower level it is chiefly the municipalities which are involved in heat distribution, particularly with regard to urban expansion plans, renovation, housing management and the granting of permits The provinces are also involved in mafters such as physical planning on a regional scale. This relates in particularto examining local plans against higher-level plans. Municipalities are active in drawing up their environmental policy. An important part of this is municipal energy policy. Weighing up the opportunities for utilising residual heat fits extremely well into the framework of municipal energy policy.

Economic policy

Financial feasibility and the avoidance of an excessive financial risk will be increasingly important considerations in decisions on new district heating projects. High investments are required Eor achieving the potential of cogeneration with heat distribution. Not only are investments needed in heat production, transport and production, adjustments are also required in existing homes. These are chiefly investments which increase the quality of the home, for example replacing water pipes. In calculating environmental cost effectiveness, a yardstick for gauging the mutual significance of different measures that can be taken, these costs are for the time being attributed to heat distribution.

The cost-effectiveness of heat distribution would improve considerably if the part of the costs which can be described as costs for improving the home were partly borne by the home-owner. The costs of heat from the cogeneration plant are usually determined from the balance of the total costs of the cogeneration plant minus the value which is attributed to the electricity generated in it. The heat is sold to households at a price which is derived from the costs the customer would face if he was connected to natural gas. The heat is usually supplied to large consumers under a special contract or with a heat discount.

Cold, produced with residual heat, can be sold at a market value which is approximately twice as high as that of heat.

The cost-effectiveness of cogeneration with heat distribution is generally lower than that of the other cogeneration options. This is due to the higher investments for heat transport and distribution. In practice, cost-effectiveness may be better. Cost-effective projects can be carried out both in new and existing buildings in areas with a high housing density. Because of the higher connection costs per home, however, costs mount up in areas with a low housing density (low-rise buildings and single family dwellings). The costs for all projects considered feasible are NLG 9 per tonne avoided C02. Adjacent areas can be jointly connected to a larger, and less expensive, combined cycle. Heat networks in existing built-up areas can be constructed on a dual-purpose basis (50 percent of the network capacity meets 90 percent of the heat demand). The remainder is dealt with by the existing gas network. These heat networks are then cheaper and people can continue to cook on gas. In the past, loans and subsidies have been granted to the district heating companies by the national government. In view of the positive developments in the conditions forcogeneration, the subsidy for cogeneration will slowly be reduced. It appears that the conditions for cogeneration will improve further over the coming year, so that the cost- effectiveness of cogeneration will be further increased. The subsidy funds must benefit the best projects from the point of view of energy saving, cost- effectiveness and how well they fit in. Cogeneration on the basis of sustainable sources or waste and residual products has a particular added value. This applies to cogeneration on the basis of waste incineration, cogeneration on the basis of biogas or dump gas, cogeneration on the basis of biomass and cogeneration on the basis of residual gases. Ihere is a subsidy scheme for cold absorption machines and for cold storage with effect from March 1994.

Risk management

The risks associated with heat distribution can be reduced through the greatest possible involvement of the different levels of government in order to reduce the risk for heat distribution of a change in the plans in new construction, by offering greater certainty for heat distribucion, by reserving space in budgets for housing adaptation and improvements for financing these home improvements which are also necessary if a change-over is made to heat distribution in existing buildings. Another possibility is a system of deficit financing from the government, based on a standard cost system, a way of covering the financial risks for heat distribution.

The risks, which are the consequence of eternal factors such as changes to building plans, price risks and uncertainty in planning within house-building, can then be covered through a deficiency financing system. The risks will be spread: the risks of fuel price fluctuations are borne by the energy production sector, and the risks of selling heat are borne by che energy distribution sector.

Setting priorities in policy

The greatest possible energy saving at the lowest possible costs is aimed for. The following method of setting priorities is therefore adopted in meeting the demand for heat and comparing the various measures taken:

Promotion and education

The energy distribution firms will ensure a structured approach to heat distribution. Energy distribution firms will cooperate and swap experience. Opinions on district heating among existing customers are favourable. The views of potential customers and decision-makerswill also be probed through a publicity campaign and if necessary improved. The Heat and Power Project Office (PWK) will be called upon for encouragement, activation, knowledge transfer, exchange of information and education, promoting cooperation between the utility sector or industry, glasshouse horticulture and the services sector. The PWK is tasked with the acquisition of projects to be carried out. An information brochure will be sent to all municipalities and potencial decision- makers, with the aim of involving the opportunitiesfor heat distribution in plans at an early stage in plan development. A computermodel has been developed which indicates graphically in colour coding for the whole of the Netherlands or optionally for parts of the country where the heat demand areas which can be connected to heat networks in a more or less cost-effective way are located.

Thus, a scale of measures will be used to give district heating the position it deserves.

HTML by Morris A. Pierce
21 March 1996