IDEAS home Printed from https://ideas.repec.org/a/eee/appene/v399y2025ics0306261925012474.html

Design and evaluation of policy schemes supporting waste-heat recovery into district heating networks

Author

Listed:
  • Jerez Monsalves, Juan
  • Bergaentzlé, Claire
  • Pisciella, Paolo
  • Saber, Esmail
  • Keles, Dogan

Abstract

Waste-heat recovery (WHR) offers significant decarbonisation potential for district heating (DH) networks. However, economic barriers limit adoption, highlighting the need for policy incentives that consider DH's cost-driven decision-making. This study formulates a bilevel optimisation framework to determine optimal support incentives that minimise government spending while capturing policymaker-DH interactions. We examine five policy scenarios: WHR operational subsidies, WHR capital subsidies, carbon taxation on existing heating units, and subsidy-tax combinations. These are evaluated across varying decarbonisation targets and consumer cost constraints, using Denmark as a case study. Results show combined subsidy-tax schemes significantly outperform standalone subsidies, reducing the policy cost of 5% DH decarbonisation from 14%–20% of pre-policy heating costs to only 4%, without increasing net consumer costs. This efficiency stems from taxes internalising policy objectives within DH merit-order, preventing displacement of already decarbonised heating sources and avoiding excessive WHR subsidisation.

Suggested Citation

  • Jerez Monsalves, Juan & Bergaentzlé, Claire & Pisciella, Paolo & Saber, Esmail & Keles, Dogan, 2025. "Design and evaluation of policy schemes supporting waste-heat recovery into district heating networks," Applied Energy, Elsevier, vol. 399(C).
    • Handle: RePEc:eee:appene:v:399:y:2025:i:c:s0306261925012474
    DOI: 10.1016/j.apenergy.2025.126517
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0306261925012474
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.apenergy.2025.126517?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Wang, Lifen & Liang, Chengji & Shi, Jian & Molavi, Anahita & Lim, Gino & Zhang, Yue, 2021. "A bilevel hybrid economic approach for optimal deployment of onshore power supply in maritime ports," Applied Energy, Elsevier, vol. 292(C).
    2. Martelli, Emanuele & Freschini, Marco & Zatti, Matteo, 2020. "Optimization of renewable energy subsidy and carbon tax for multi energy systems using bilevel programming," Applied Energy, Elsevier, vol. 267(C).
    3. Wheatcroft, Edward & Wynn, Henry P. & Lygnerud, Kristina & Bonvicini, Giorgio & Bonvicini, Giorgio & Lenote, Daniela, 2020. "The role of low temperature waste heat recovery in achieving 2050 goals: a policy positioning paper," LSE Research Online Documents on Economics 104136, London School of Economics and Political Science, LSE Library.
    4. Bühler, Fabian & Petrović, Stefan & Holm, Fridolin Müller & Karlsson, Kenneth & Elmegaard, Brian, 2018. "Spatiotemporal and economic analysis of industrial excess heat as a resource for district heating," Energy, Elsevier, vol. 151(C), pages 715-728.
    5. Sonja Wogrin & Salvador Pineda & Diego A. Tejada-Arango, 2020. "Applications of Bilevel Optimization in Energy and Electricity Markets," Springer Optimization and Its Applications, in: Stephan Dempe & Alain Zemkoho (ed.), Bilevel Optimization, chapter 0, pages 139-168, Springer.
    6. Xu, Jiuping & Huang, Qian & Lv, Chengwei & Feng, Qing & Wang, Fengjuan, 2018. "Carbon emissions reductions oriented dynamic equilibrium strategy using biomass-coal co-firing," Energy Policy, Elsevier, vol. 123(C), pages 184-197.
    7. Holzleitner, Marie & Moser, Simon & Puschnigg, Stefan, 2020. "Evaluation of the impact of the new Renewable Energy Directive 2018/2001 on third-party access to district heating networks to enforce the feed-in of industrial waste heat," Utilities Policy, Elsevier, vol. 66(C).
    8. Nguyen, Hieu T. & Felder, Frank A., 2020. "Generation expansion planning with renewable energy credit markets: A bilevel programming approach," Applied Energy, Elsevier, vol. 276(C).
    9. Charles D. Kolstad, 1986. "Empirical Properties of Economic Incentives and Command-and-Control Regulations for Air Pollution Control," Land Economics, University of Wisconsin Press, vol. 62(3), pages 250-268.
    10. Billerbeck, Anna & Breitschopf, Barbara & Winkler, Jenny & Bürger, Veit & Köhler, Benjamin & Bacquet, Alexandre & Popovski, Eftim & Fallahnejad, Mostafa & Kranzl, Lukas & Ragwitz, Mario, 2023. "Policy frameworks for district heating: A comprehensive overview and analysis of regulations and support measures across Europe," Energy Policy, Elsevier, vol. 173(C).
    11. Wahlroos, Mikko & Pärssinen, Matti & Manner, Jukka & Syri, Sanna, 2017. "Utilizing data center waste heat in district heating – Impacts on energy efficiency and prospects for low-temperature district heating networks," Energy, Elsevier, vol. 140(P1), pages 1228-1238.
    12. Bürger, Veit & Steinbach, Jan & Kranzl, Lukas & Müller, Andreas, 2019. "Third party access to district heating systems - Challenges for the practical implementation," Energy Policy, Elsevier, vol. 132(C), pages 881-892.
    13. Kelly Bruin & Aykut Mert Yakut, 2023. "The Impacts of Removing Fossil Fuel Subsidies and Increasing Carbon Taxation in Ireland," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 85(3), pages 741-782, August.
    14. Lygnerud, Kristina & Wheatcroft, Edward & Wynn, Henry, 2019. "Contracts, business models and barriers to investing in low temperature district heating projects," LSE Research Online Documents on Economics 101286, London School of Economics and Political Science, LSE Library.
    15. Petrović, Stefan & Colangelo, Alessandro & Balyk, Olexandr & Delmastro, Chiara & Gargiulo, Maurizio & Simonsen, Mikkel Bosack & Karlsson, Kenneth, 2020. "The role of data centres in the future Danish energy system," Energy, Elsevier, vol. 194(C).
    16. Amiri-Pebdani, Sima & Alinaghian, Mahdi & Khosroshahi, Hossein, 2023. "Pricing in competitive energy supply chains considering government interventions to support CCS under cap-and-trade regulations: A game-theoretic approach," Energy Policy, Elsevier, vol. 179(C).
    17. Wei Wei & Yile Liang & Feng Liu & Shengwei Mei & Fang Tian, 2014. "Taxing Strategies for Carbon Emissions: A Bilevel Optimization Approach," Energies, MDPI, vol. 7(4), pages 1-18, April.
    18. Molavi, Anahita & Lim, Gino J. & Shi, Jian, 2020. "Stimulating sustainable energy at maritime ports by hybrid economic incentives: A bilevel optimization approach," Applied Energy, Elsevier, vol. 272(C).
    19. Li, Yanan & Lin, Jun & Qian, Yanjun & Li, Dehong, 2023. "Feed-in tariff policy for biomass power generation: Incorporating the feedstock acquisition process," European Journal of Operational Research, Elsevier, vol. 304(3), pages 1113-1132.
    20. Kristina Lygnerud & Sarka Langer, 2022. "Urban Sustainability: Recovering and Utilizing Urban Excess Heat," Energies, MDPI, vol. 15(24), pages 1-11, December.
    21. Werner, Sven, 2017. "International review of district heating and cooling," Energy, Elsevier, vol. 137(C), pages 617-631.
    22. Zhang, Huan & Duan, Xianglei & Jiang, Jianli, 2024. "Fixed rebate subsidy vs. unit price subsidy: Incentive effect on the biomass power supply chain," Energy Policy, Elsevier, vol. 187(C).
    23. Bühler, Fabian & Petrović, Stefan & Karlsson, Kenneth & Elmegaard, Brian, 2017. "Industrial excess heat for district heating in Denmark," Applied Energy, Elsevier, vol. 205(C), pages 991-1001.
    24. Jerez Monsalves, Juan & Bergaentzlé, Claire & Keles, Dogan, 2024. "Waste-heat recovery utilisation for district heating systems under diverse pricing schemes: A bi-level modelling approach," Applied Energy, Elsevier, vol. 375(C).
    25. Broberg, Sarah & Backlund, Sandra & Karlsson, Magnus & Thollander, Patrik, 2012. "Industrial excess heat deliveries to Swedish district heating networks: Drop it like it's hot," Energy Policy, Elsevier, vol. 51(C), pages 332-339.
    26. Zhao, Ning & You, Fengqi, 2019. "Dairy waste-to-energy incentive policy design using Stackelberg-game-based modeling and optimization," Applied Energy, Elsevier, vol. 254(C).
    27. Paul Christodoulides & Lazaros Aresti & Gregoris P. Panayiotou & Savvas Tassou & Georgios A. Florides, 2022. "Adoption of Waste Heat Recovery Technologies: Reviewing the Relevant Barriers and Recommendations on How to Overcome Them," SN Operations Research Forum, Springer, vol. 3(1), pages 1-21, March.
    28. Jerez Monsalves, Juan & Bergaentzlé, Claire & Keles, Dogan, 2023. "Impacts of flexible-cooling and waste-heat recovery from data centres on energy systems: A Danish case study," Energy, Elsevier, vol. 281(C).
    29. Zhou, Ying & Wang, Lizhi & McCalley, James D., 2011. "Designing effective and efficient incentive policies for renewable energy in generation expansion planning," Applied Energy, Elsevier, vol. 88(6), pages 2201-2209, June.
    30. Persson, U. & Möller, B. & Werner, S., 2014. "Heat Roadmap Europe: Identifying strategic heat synergy regions," Energy Policy, Elsevier, vol. 74(C), pages 663-681.
    31. Pineda, Salvador & Boomsma, Trine K. & Wogrin, Sonja, 2018. "Renewable generation expansion under different support schemes: A stochastic equilibrium approach," European Journal of Operational Research, Elsevier, vol. 266(3), pages 1086-1099.
    32. Edward Wheatcroft & Henry Wynn & Kristina Lygnerud & Giorgio Bonvicini & Daniela Leonte, 2020. "The Role of Low Temperature Waste Heat Recovery in Achieving 2050 Goals: A Policy Positioning Paper," Energies, MDPI, vol. 13(8), pages 1-19, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jerez Monsalves, Juan & Bergaentzlé, Claire & Keles, Dogan, 2024. "Waste-heat recovery utilisation for district heating systems under diverse pricing schemes: A bi-level modelling approach," Applied Energy, Elsevier, vol. 375(C).
    2. Mengting Jiang & Camilo Rindt & David M. J. Smeulders, 2022. "Optimal Planning of Future District Heating Systems—A Review," Energies, MDPI, vol. 15(19), pages 1-38, September.
    3. Jodeiri, A.M. & Goldsworthy, M.J. & Buffa, S. & Cozzini, M., 2022. "Role of sustainable heat sources in transition towards fourth generation district heating – A review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 158(C).
    4. Amir Maghssudipour & Marco Noro & Giovanni Giacomello & Elena Buoso & Giorgia Dalla Santa, 2025. "Unlocking the Economic and Business Potential of District Heating: The State of the Art and a Research Agenda," Sustainability, MDPI, vol. 17(13), pages 1-25, June.
    5. Kristina Lygnerud & Sarka Langer, 2022. "Urban Sustainability: Recovering and Utilizing Urban Excess Heat," Energies, MDPI, vol. 15(24), pages 1-11, December.
    6. Socci, Luca & Rocchetti, Andrea & Verzino, Antonio & Zini, Andrea & Talluri, Lorenzo, 2024. "Enhancing third-generation district heating networks with data centre waste heat recovery: analysis of a case study in Italy," Energy, Elsevier, vol. 313(C).
    7. Shi, Yi & Xu, Jiuping, 2023. "A multi-objective approach to kitchen waste and excess sludge co-digestion for biomethane production with anaerobic digestion," Energy, Elsevier, vol. 262(PA).
    8. Mc Guire, Jason & Petrović, Stefan N. & Daly, Hannah & Rogan, Fionn & Smith, Andrew & Balyk, Olexandr, 2024. "Is District Heating a cost-effective solution to decarbonise Irish buildings?," Energy, Elsevier, vol. 296(C).
    9. Antoine Fontaine & Laurence Rocher, 2021. "Energy recovery on the agenda. Waste heat: a matter of public policy and social science concern," Post-Print halshs-02971862, HAL.
    10. Fabian Bühler & Stefan Petrović & Torben Ommen & Fridolin Müller Holm & Henrik Pieper & Brian Elmegaard, 2018. "Identification and Evaluation of Cases for Excess Heat Utilisation Using GIS," Energies, MDPI, vol. 11(4), pages 1-24, March.
    11. Lygnerud, Kristina & Werner, Sven, 2018. "Risk assessment of industrial excess heat recovery in district heating systems," Energy, Elsevier, vol. 151(C), pages 430-441.
    12. Pia Manz & Katerina Kermeli & Urban Persson & Marius Neuwirth & Tobias Fleiter & Wina Crijns-Graus, 2021. "Decarbonizing District Heating in EU-27 + UK: How Much Excess Heat Is Available from Industrial Sites?," Sustainability, MDPI, vol. 13(3), pages 1-34, January.
    13. Steffen Nielsen & Kenneth Hansen & Rasmus Lund & Diana Moreno, 2020. "Unconventional Excess Heat Sources for District Heating in a National Energy System Context," Energies, MDPI, vol. 13(19), pages 1-18, September.
    14. Somogyi, Viola & Sebestyén, Viktor & Domokos, Endre, 2018. "Assessment of wastewater heat potential for district heating in Hungary," Energy, Elsevier, vol. 163(C), pages 712-721.
    15. Lubjuhn, Sebastian & Venghaus, Sandra, 2026. "Managing conflicting interests in subsidy design: A bi-level optimization approach for heating technology subsidies," Energy Policy, Elsevier, vol. 208(C).
    16. Moreno, Diana & Nielsen, Steffen & Sorknæs, Peter & Lund, Henrik & Thellufsen, Jakob Zinck & Mathiesen, Brian Vad, 2024. "Exploring the location and use of baseload district heating supply. What can current heat sources tell us about future opportunities?," Energy, Elsevier, vol. 288(C).
    17. Martelli, Emanuele & Freschini, Marco & Zatti, Matteo, 2020. "Optimization of renewable energy subsidy and carbon tax for multi energy systems using bilevel programming," Applied Energy, Elsevier, vol. 267(C).
    18. Billerbeck, Anna & Breitschopf, Barbara & Winkler, Jenny & Bürger, Veit & Köhler, Benjamin & Bacquet, Alexandre & Popovski, Eftim & Fallahnejad, Mostafa & Kranzl, Lukas & Ragwitz, Mario, 2023. "Policy frameworks for district heating: A comprehensive overview and analysis of regulations and support measures across Europe," Energy Policy, Elsevier, vol. 173(C).
    19. Lin, Jun & Li, Yanan & Qian, Yanjun & Liu, Guoquan, 2024. "Effectiveness of government subsidies for biomass-based industries: Incorporating the feedstock acquisition process," Energy Policy, Elsevier, vol. 192(C).
    20. Munćan, Vladimir & Mujan, Igor & Macura, Dušan & Anđelković, Aleksandar S., 2024. "The state of district heating and cooling in Europe - A literature-based assessment," Energy, Elsevier, vol. 304(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:appene:v:399:y:2025:i:c:s0306261925012474. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/405891/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.