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New Technologies, Fuels Enhance Viability of $10 Billion District Heating Market

Lux Research

The decades-old alternative to distributed heating can deliver cost gains of up to 74%, depending on specific technologies, fuel mix and climate, says Lux Research

BOSTON, MA – July 29, 2014 – District heating (DH) can deliver cost gains of up to 74% over conventional distributed heating, with benefits varying with technologies, fuels and climate, according to Lux Research. Although the sector is decades old and worth $10 billion annually, efficiency and technical sophistication of systems varies from region to region, with Europe currently leading the way. 

Lux Research predicts that new technologies – coupled with a range of alternative fuels – will enable more efficiencies, lower carbon output, and enhance the economic viability of district heating for a wider range of geographies, notably the Northeast United States, Spain, Poland, South Korea and Japan.

“Despite being a clear winner, district heating systems face structural hurdles. Given the long-time horizon of such a network, it is dependent on future building development – a municipally controlled variable,” said Alex Herceg, Lux Research Analyst and the lead author of the report titled, “Heating for the Future: Identifying Global Hotspots for District Energy.”

“Investment costs of greenfield DH development are high and gap financing for construction is hard to obtain,” he added.

Lux Research analysts evaluated six proven alternative heat generation methods for district heating, and their viability in the continental U.S., the European Union and East Asia. Among their findings:

  • Natural gas has widest application. With incremental gains in combustion efficiency, natural gas-fired DH produces the most consistent total cost of operations (TCO) reductions across all three building types – residential, multi-residential and commercial. Cost savings range between 47% and 74%, better than those derived from biomass and waste-to-energy (WTE). Even in the worst-case scenario, gas-fired delivers savings of 47% for residential whereas WTE slides to 21% and biomass to 27%.

  • Legacy differences determine gains. DH has compelling TCO reductions in regions such as Scandinavia because it displaces high-cost electric heating that, for example, costs $0.40/kWh. Similarly, it is a cost-effective alternative to fuel oil in Japan, Spain and Poland.

  • Renewable mix is best for Asia. In Asia-Pacific, the most promising technologies are Ground Source Heat Pumps (GSHPs), biomass and solar thermal. Each can drive down TCO by 10%-20%. In South Korea, the GSHPs can realize a higher 30% cost reduction while China’s commercial segment alone is viable for Waste-to-Energy (WTE).

The report, titled “Heating for the Future: Identifying Global Hotspots for District Energy,” is part of the Lux Research Efficient Building Systems Intelligence service.