District Heating Tariffs, Economic Optimisation and Local Strategies during Radical Technological Change

Abstract

This paper addresses economic aspects of heat savings in the context of strategic heat planning. The analysis uses the city of Aalborg, Denmark, as a case where municipalisation through a recent acquisition of a coal-fired cogeneration of heat and power (CHP) plant has made an update of a municipal strategic energy plan necessary. Combining datasets on buildings and insulation techniques with economic methods, we investigate how the local district heating tariff can be adapted to improve the conditions for heat savings and support the transition to lower supply temperatures in line with the requirements of future fourth generation district heating systems. The paper concludes that implementing a fully variable heat tariff scheme improves the financial incentive for heat savings, while also making the system development less vulnerable to fluctuations and shortages in capital markets. The paper supplements existing literature on heat savings with novelty in its approach and in its systematic investigation of the interplay between tariff policies and interest rates.