District Heating is one of the three pathways for the decarbonisation of heating, together with electrification and green gas. In other words, and looking at the prospects of residential heating, the two types of potential substitutes for domestic fossil fuel boilers are centralised district heating and heat pumps.
Policy initiatives stoke the heating market
Based on BSRIA’s research, district heating networks are witnessing significant growth in many European countries and in China, a trend that is set to continue to 2030. The expansion of district heating networks is supported by national governments, and there are significant policy initiatives throughout Europe. For example, in France, by 2023 a projected 50% of energy consumption dedicated to heating and cooling will come from renewable/sustainable sources, of which 39% will come from heat pumps, 4% from solar thermal, and 7% from district network (up from 3% in 2020). In the Netherlands, district heating already plays a key role in the Climate Agreement; this aims to increase the number of buildings connected to district heating systems from 420,000 to 750,000 by 2030.
Similarly in the UK, where there is increased interest in district and communal heating, enquiry levels are up, and order books are strong. The London housing market is also coming back after the slide due to the pandemic. Many players are optimistic about the future for this market. Significant sales are also made outside the capital too. The main constraint is the long time required to bring district heating networks into operation.
Overall, we are witnessing increased public and private investment – supporting new business models such as utilities selling heat-as-a-service rather than a commodity. District heating is curbed by the complexity to expand the grid and high cost of building new networks.
Technological challenges
The technology challenge is the drive towards lower temperatures and the use of renewables for heat generation with reduced carbon footprint and dependency on fossil fuels. Typically, at present, CHPs provide the base-load heat level and gas boilers are installed for peak-load demand and as a back-up. Ongoing developments see the extension of district heating projects with increased share of renewables in the energy centre, as the share of heat pumps and Energy-from-Waste in district heating and cooling systems is increasing. These are often combined with CHP units as heat pumps’ electricity demand improves the economic case for using CHP gas engines.
5th generation heat networks
The trend is for smaller sized, more efficient heat networks. The development of 5th generation heat networks is set to further boost district heating. Fifth generation district heating (and cooling) is demand driven, and low temperature, using locally available (i) low-grade waste heat (A/C, datacentres, underground stations, etc.), (ii) low temperature renewable energy in bodies of water, or (iii) solar energy. There is no central energy centre, but distribution of water at, or close to, the ambient ground temperature with reduced heat losses. District heating becomes a good (if not the best) solution for large urban centres where the heating source is nearby, which makes heat more efficient to transfer.
Technology trends include heat loss minimization and the use of digital technologies to combine product operations and services. Technological improvements and wider product offerings (such as large capacity heat pumps) mean that looking beyond 2025 the domestic gas boiler market is forecast to shrink moderately not only because of the predicted conversions to hydronic heat pumps, but also, collective heating and connection to district heating networks. The implementation of heat pumps of commercial and industrial outputs in energy centres or closer to the source of heating (e.g., waste heating) opens up new opportunities for modern heating networks.
Heat Interface Unit sales
Meanwhile, sales of heat interface units (HIU) increased slightly in 2021. They are linked largely to district heating networks. Their sales in many European countries have been driven by the demand for the extension of district heating networks. According to BSRIA’s recent research due to be published by end of June, the European HIU market reached some 300,000 units in 2021, with the largest markets being Germany and the UK. Overall, European sales volumes are growing steadily at rates between 4% to 10%, depending on the country. Growth comes from multi-dwelling projects mostly in new construction and the gradual progression of the district and communal heating.
They offer advantages over individual gas boilers as they do not require annual gas inspections. They can be installed with any source of heating, including renewable heating sources. Further, heat interface units are usually installed with heat meters, giving flat owners and occupiers the advantage of being able to control their heating use and have precise information about the amount of heat used, hence the right billing.
The market for HIU is likely to continue progressing at a steady rate as it is mostly driven by the New Build sector. The connection cost for single housing is high, hence new blocks of flats will be the core market. A driver is tighter energy consumption in new homes, which is foreseen to be implemented around 2025 in most European countries. The demand is forecast to go up primarily driven by the UK and Dutch markets as potential is high in these countries.