Study advises levy or charge for district heating expansion

23.07.2024

Prognos has once again examined the financial requirements for the expansion of district heating on behalf of the association. Costs have risen significantly since 2020.

The investment requirements for district heating have increased significantly since 2020. This is the conclusion of a study conducted by management consultants Prognos for the Efficiency Association for Heating, Cooling and CHP (AGFW) and the Association of Municipal Enterprises (VKU). "Compared to the original study, the investment requirement will increase by 10.6 billion euros by 2030," according to a joint statement by the associations.

The necessary investments currently add up to 43.5 billion euros by 2030, or around 6.2 billion euros per year, according to the new edition of the Prognos study "Perspectives for district heating". Four years ago, the researchers came up with a figure of 32.9 billion euros. "The results continue to show that the rise in construction costs will also have a significant impact on the investments required for district heating," concludes the 2024 study.

Politicians want to increase the proportion of district heating from renewable energies and unavoidable waste heat to 50 percent by 2030. At least 100,000 new buildings per year are to be connected to the district heating network. In this way, the federal government aims to reduce CO2 emissions by 65% by 2030 compared to 1990 levels. Germany wants to be completely climate-neutral by 2045.

Of the 43.5 billion euros in total costs that have now been determined, almost 60 percent of the investments are for the expansion and extension of heating networks, the study continues. The remaining 40 percent is accounted for by investments in systems for generating renewable heat. Added to this is the integration of "unavoidable waste heat" from industrial operations, which should not be released into the air in future, but rather heat up the heating networks.

Increased costs mean more funding

The increased costs are also accompanied by an increased need for subsidies. "The annual requirement for investment cost subsidies and operating cost subsidies is around 3.4 billion euros by 2030," the study states. This figure is significantly higher than the budget funds committed to date. There is therefore an urgent need for action here.

In this context, the AGFW and the VKU emphasize that the "Federal Funding for Efficient Heating Networks" (BEW) introduced for this purpose is good in terms of content, but underfunded. The BEW is limited until the end of 2028 and only has a total budget of 3.5 billion euros. "This is nowhere near enough for the heating networks to make their contribution to achieving the climate protection targets."

The study suggests that the necessary funds should not be acquired via the federal budget, but via a levy or charges on energy. The examples of the Combined Heat and Power Act and the Renewable Energy Sources Act show that "this type of financing offers a high degree of reliability and ensures investment security".

According to the study, it is already apparent that the discussions surrounding the BEW's funding are unsettling district heating companies. They are therefore "hampering urgently needed investments in district heating".

However, the associations point out that politicians have certainly recognized the problem and have reacted. "The BEW must therefore be provided with sufficient funding and the KWKG must be extended," says AGFW Managing Director Werner Lutsch. This is precisely what the economic and construction ministries agreed with the energy and district heating industry associations at the district heating summit in June 2023.

The challenges for district heating companies up to 2045 remain enormous. The number of residential buildings supplied with district heating is expected to increase from the current 1.3 million to 3.6 million by then. "This is equivalent to around 14 million residential units being supplied with district heating in 2045 and corresponds to the target value set in the declaration on the district heating summit on June 12, 2023," the study states.

Demand for district heating will increase from just under 110 billion kWh to 166 billion kWh in 2045, according to the updated Prognos forecast.

The 2020 update of the study "Perspectives for district heating - expansion and conversion of urban district heating as a contribution to a socio-ecological heating policy" can be downloaded from the AGFW and VKU websites.

Author: Stefan Sagmeister
Source: Energy & Management Powernews