Earthquakes in Groningen, increasing dependency on natural gas from abroad, and an abundance of greenhouse gas emissions. Just some of the negative side-effects of our current heating system. Clearly, there's an urgent need to transform this obsolete system into a sustainable heating system.

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In the National Climate Agreement (2019) (or ‘Klimaatakkoord’), the Netherlands has set the goal to phase out natural gas as the main source of heat supply for over 7 million households by 2050. These households are in need of a new, sustainable heating system to reduce greenhouse gas emissions. As a first step, the Dutch government has set the goal to have 1.5 million households connected to a new heating system by 2030.

Under the framework of the National Climate Agreement, municipalities are in the lead to establish a heat plan (‘Warmteplan’) by 2021; this will determine what the future sustainable heating system of every neighborhood will look like.

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1.5 million

  

households should be connected to a district heating system by 2030. 

 

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District heating: a cornerstone of the future heating system

One of the most promising options for sustainable heating is district heating. District heating typically consists of a network of pipes, distributing heated water from centralized or decentralized heat sources to households and other customers. It’s key to use heat sources that are already present in or around the customer area, as transporting heat over long distances leads to substantial losses.

When using a renewable energy source, district heating could reduce CO2 emissions between 50 and 70 percent. It’s no surprise then that the share of district heating and combined heat and power (CHP) in final European energy demand is expected to grow by 11 percent by 2030—almost tripling from a base of 4 percent in 2015.

Currently, heat sources like gas boilers and co-generation plants (largely based on natural gas) are used for heat generation, leading to a dependency on fossil fuels. Sustainable heat can be derived from many alternative sources. Aquathermal energy can, for instance, be taken from surface or wastewater. Or geothermal heat can be derived from biomass, waste incineration, and residual heat from industry and data centers.

One noteworthy complication for large-scale district heating is, however, that many of these decentralized heat sources need different heating networks for transportation to users compared to the traditional centralized heat production based on fossil fuels. Let’s dive deeper into possible solutions.

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Each heating company’s key challenge is to realize a value chain with heat that is sustainable, secure, and affordable for customers.

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Two district heating systems

With the emergence of new, sustainable district heating, we can now distinguish between two types of district heating systems.

  • Conventional district heating system. Typically with one or a limited number of centralized heat sources based on fossil fuels or biomass, which distributes heat to the consumers at high temperature levels, usually above 65°C.
  • Decentralized district heating system. This system typically uses multiple decentralized heat sources that tend to be sustainable and generally produce heat at a low temperature. The heat distributed to consumers has, therefore, also a lower temperature level, usually between 25°C and 65°C.

Following the Climate Agreement, both centralized and decentralized district heating systems will be expanded. This fast transition requires a new regulatory environment. However, the details of this future regulatory environment are still under development. This can also be said about the value chain of district heating, as choices must be made in types of heat sources, supply temperature, and the type of customers to connect to district heating—offices, supermarkets, industry, or small consumers like households.

As we don’t know how the different scenarios will play out, we’ll explore future developments in district heating by discussing the current situation and looking into possible prospects, implications and actionable steps you can take.

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Challenges and lessons learned in district heating

In the second episode of our Transition Talk podcast series, we discuss the current challenges and lessons learned for district heating network operators and stakeholders. 

GO TO the PoDCAST

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The now

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Current Dutch district heating system | Regulation

The Dutch government has indicated that district heating systems with sustainable heat sources can affordably and reliably supply our heat demand. That’s why the Climate Agreement strongly focuses on its development. At the same time, the Ministry of Economic Affairs and Climate realizes that, for many neighborhoods with limited potential for electrification or opportunity to use local biomass/biogas for heating, this step requires great investments in infrastructure.

The regulatory framework for district heating needs to be adapted to fulfill the ambitious goals of the Climate Agreement while encouraging efficient implementation to keep control of the costs to end users. Whereas the current framework mainly focuses on consumer protection—like security of supply and tariffs—the new Heating Law 2.0 (‘Warmtewet 2.0’) will more comprehensively aim to safeguard the public interests of reliability, affordability, AND sustainability.

Current Dutch district heating system | Value chain

In the Netherlands, we currently have 18 major district heating networks and 100 smaller district heating networks. Together, they provide heat to 374,200 households. The value chain of these district heating systems is currently well-integrated, from production to distribution to customers. In Figure 1, you can see three key parts of the value chain, which will be used later in this article when we link it to prospects.

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Figure 1: Elements of the district heating value chain.

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PLAYERS IN THE VALUE CHAIN

Several companies and organizations are active in the Dutch district heating market—mostly energy utilities, water, and waste companies. Each company generally covers multiple parts of the value chain, as the current heating regulations do not clearly state who should be responsible for which part of the supply chain.

As stated earlier, high-temperature heating networks generally use fossil-based heat sources. Given the high carbon output of these systems, most companies active in the Dutch district heating market have the ambition to transition to systems using lower-carbon (or carbon-free) sources deriving from the earth, water, biomass, or residual heat (data centers).                 

Prospects

Fortunately, we can already see Dutch cities transitioning their current systems to sustainable heating systems. Many of them already published ‘heating transition visions’ for their cities, despite that they’re only obligated to do so before the end of 2021.

For example, the municipality of Amsterdam recently published its heating transition vision (‘Transitievisie Warmte’). They aim to connect 250,000 households in residential equivalent units (= the amount of heat energy required to provide an average home with space heating and hot water) to the existing 70°C district heating network. This district heating network currently supplies 102,000 household equivalents. Additionally, Amsterdam aims to connect 85,000 household equivalents to a 40°C district heating network.

Data centers could play an important role in that as Amsterdam hosts many data centers, being the host of the important AMS-IX internet exchange point. Heat from those data centers will need to be reused, the city recently announced

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Figure 2: Amsterdam heat transition map (Source: Amsterdam Municipality).

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The Amsterdam heating transition vision is one example of district heating systems growing in the Netherlands over the coming years. Some cities that do not have district heating systems yet will create new district heating systems in suitable neighborhoods. The solutions are diverse as every municipality has its own challenges. About 60 percent of the municipalities aim for the use of individual heat pumps, while 40 percent want to develop district heating, mainly with residual and geothermal heat. Affordability remains an issue though.

While municipalities have a leading role, other organizations—such as energy retailers, distribution system operators, and water utilities—will also be affected by policy and regulatory changes and could potentially all play a role in the future value chain.

The future

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Future Dutch district heating system | Regulation

The Heating Law 2.0 is scheduled for January 2022 and will redefine the regulatory framework for district heating systems. And will likely impact municipalities, energy retailers, distribution system operators, and many more.

As part of the on-going development, the Dutch Minister of Economic Affairs and Climate published some preliminary outlines of the regulatory framework in a letter to the Dutch House of Representatives ('Tweede Kamer') in December 2019. Figure 3 shows some of the most important takeaways that were presented.

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Figure 3: Regulatory framework outlines and related prospects.

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Future Dutch district heating system | Value chain

Heating companies will need to accelerate their work in the heat transition due to cities’ need for expanded—or even new—district heating systems. The growth of district heating systems needs to ensure sustainability while serving different types of customers with different needs for heating and cooling.

The designated heating company in a region will have the authority to select one of the options within each part of the value chain—see Figure 4—resulting in the choice between a centralized or decentralized district heating system.

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Figure 4: Value chain prospects with options to choose from.

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Possible prospects and next steps

An outlook of the above-mentioned possible future developments is important for any organization aiming to play a leading role in the heat transition. We believe that there are several implications that such organizations need to take care of.

  • Each heating company’s key challenge is to realize a value chain with heat that is sustainable, secure, and affordable for customers.
  • Existing district heating systems will need to transform based on the regulatory framework in the Heat Law 2.0.
  • Heating companies should collaborate with the municipalities to decide on the best options for the value chain, including the choice of a centralized or decentralized district heating system.

Knowing about these implications doesn’t get you there yet. You should take the following four steps to address them properly.

  1. Consider all available local heat sources and select the ones that can supply heat that is sustainable, at the lowest costs for the (future) district heating system.
  2. Develop a compelling value proposition for the customer while conforming to the new regulated tariffs.
  3. Develop an operating model for the existing heating company that can accelerate the expansion of district heating. Or set up a business plan for a company to join the heat transition as a new heating company.
  4. Consider digital solutions that create a resilient and cost-efficient value chain, through real-time operational performance monitoring and optimization.

Planning your next move. Ready to act?

To reach the goals of the National Climate Agreement, we must act now to transform the current heating system into a sustainable heating system. As a heating company, you should take a look at potential developments in district heating and start taking the steps above to take a leading role in the future Dutch district heating market.

Is your organization a heating company, or are you looking into joining the heat transition? Do you need help taking the next step or finding solutions to your current challenges?

We can support you! We've added a couple of examples below to show you how we are helping growing heating businesses. If you any questions, please feel free to reach out to us directly.

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Figure 5: Our expertise in supporting heating companies to develop district heating.

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Daan van Hameren

Manager – Accenture Consulting, specialized in Energy Utilities


Marjolein ten Haaft

Consulting Analyst – Accenture Strategy & Consulting, Utilities

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