Utilities are relying on existing district heating networks

July 23, 2026

Source: E & M powernews

Municipal utilities and energy providers are continuing to drive the expansion and retrofitting of their heating networks. At the same time, an analysis reveals gaps in skilled labor, products, and digitalization.

Many energy suppliers are working to expand their heating business to offset declining sales and revenues in the gas sector. In doing so, they are relying primarily on existing infrastructure: 90 percent intend to expand their existing heating networks, and 81 percent plan to increase network density. Forty-three percent plan to build new district heating networks, while 48 percent plan to develop smaller local heating networks and neighborhood solutions.

These findings come from the industry analysis “Heat Transition – Utilities in Transition.” PSVDL Consulting, a management consulting firm based in Grünwald near Munich, surveyed a total of 22 energy cooperatives, municipal utilities of various sizes, and supraregional utilities for this study beginning in July 2025.

According to the report, companies are further along in decarbonization than in physical network expansion. Forty-six percent have completed their transformation planning, while another 41 percent are preparing or working on it. Implementation is usually carried out in stages so that utilities can adapt their plans to new conditions.

According to PSVDL, about two-thirds of the companies surveyed operate networks with temperatures exceeding 90 degrees Celsius. This makes it particularly difficult to integrate lower-temperature heat sources and to use large-scale heat pumps economically. Currently, 72 percent use natural gas as a bridge technology. Waste heat follows at 52 percent, with biomass and biogas each at 43 percent.

In the future, many respondents intend to rely primarily on large-scale heat pumps, often in combination with waste heat or ambient heat. To this end, they are planning lower network temperatures, modernized building connection stations, and large-scale thermal storage systems. Green hydrogen also plays a role for some of the companies. However, gas systems designed to be “H2-ready” would often still require costly retrofitting for the fuel switch, writes PSVDL.

Skilled Workers Pose a Greater Obstacle Than Financing

Among those surveyed, a shortage of skilled workers is considered a barrier significantly more often than access to financing. For district heating networks, 53 percent view the availability of skilled workers negatively, while for decentralized heating solutions, the figure is 69 percent. Access to financing is viewed negatively by 21 percent for heating networks and 13 percent for decentralized heating solutions.

PSVDL also cites lengthy approval processes and limited civil engineering capacity. According to the consulting firm, whether new heating networks are financially viable depends heavily on the connection rate. The study’s authors therefore consider an approach similar to that used for fiber-optic expansion to be sensible: housing companies, commercial enterprises, or public institutions first secure a portion of heat sales as anchor customers. Afterward, utilities approach additional customers along the route. Municipalities can coordinate construction work or purchase heat themselves.

The study’s authors have observed little momentum so far in decentralized heating offerings. Heat pump and neighborhood-based solutions are at the forefront, with energy contracting being the most common sales model. Service offerings in which customers purchase heat or a specific temperature level rather than a system play hardly any role. PSVDL attributes this reluctance to uncertain regulations and future funding. In the case of small-scale systems, utilities also compete with specialized, supraregional providers.

Respondents also see room for improvement when it comes to digitalization. Thirty-four percent rate their own progress positively, while 37 percent rate it negatively. Depending on the business area, 70 to 85 percent still see moderate to very high potential. Eighty-nine percent of the surveyed heating network operators already use system monitoring and the digital management of network, system, and geographic data either fully or partially. Active, data-driven control is less common.

PSVDL identifies a step-by-step approach, collaborations with municipalities and service providers, and the development of sensor technology, data, and digital processes as suitable strategies.

The 43-page industry analysis“Heat Transition—Utilities in Transition”is available for download on the PSVDL Consulting website.

Author: Davina Spohn