IDEAS home Printed from
   My bibliography  Save this article

Calculating the marginal costs of a district-heating utility


  • Sjödin, Jörgen
  • Henning, Dag


District heating plays an important role in the Swedish heat-market. At the same time, the price of district heating varies considerably among different district-heating utilities. A case study is performed here in which a Swedish utility is analysed using three different methods for calculating the marginal costs of heat supply: a manual spreadsheet method, an optimising linear-programming model, and a least-cost dispatch simulation model. Calculated marginal-costs, obtained with the three methods, turn out to be similar. The calculated marginal-costs are also compared to the actual heat tariff in use by the utility. Using prices based on marginal costs should be able to bring about an efficient resource-allocation. It is found that the fixed rate the utility uses today should be replaced by a time-of-use rate, which would give a more accurate signal for customers to change their heat consumptions.

Suggested Citation

  • Sjödin, Jörgen & Henning, Dag, 2004. "Calculating the marginal costs of a district-heating utility," Applied Energy, Elsevier, vol. 78(1), pages 1-18, May.
  • Handle: RePEc:eee:appene:v:78:y:2004:i:1:p:1-18

    Download full text from publisher

    File URL:
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Schramm, Gunter, 1991. "Marginal cost pricing revisited," Energy Economics, Elsevier, vol. 13(4), pages 245-249, October.
    2. Nilsson, K. & Söderström, M., 1993. "Industrial applications of production planning with optimal electricity demand," Applied Energy, Elsevier, vol. 46(2), pages 181-192.
    3. Andersson, M., 1994. "Shadow prices for heat generation in time-dependent and dynamic energy systems," Energy, Elsevier, vol. 19(12), pages 1205-1211.
    4. Della Valle, Anna P., 1988. "Short-run versus long-run marginal cost pricing," Energy Economics, Elsevier, vol. 10(4), pages 283-286, October.
    5. Sherali, Hanif D. & Soyster, Allen L. & Murphy, Frederic H. & Sen, Suvrajeet, 1982. "Linear programming based analysis of marginal cost pricing in electric utility capacity expansion," European Journal of Operational Research, Elsevier, vol. 11(4), pages 349-360, December.
    6. Verbruggen, Aviel, 1983. "Cogeneration -- allocation of joint costs," Energy Policy, Elsevier, vol. 11(2), pages 171-176, June.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Park, Sun-Young & Lee, Kyoung-Sil & Yoo, Seung-Hoon, 2016. "Economies of scale in the Korean district heating system: A variable cost function approach," Energy Policy, Elsevier, vol. 88(C), pages 197-203.
    2. Holmberg, Henrik & Tuomaala, Mari & Haikonen, Turo & Ahtila, Pekka, 2012. "Allocation of fuel costs and CO2-emissions to heat and power in an industrial CHP plant: Case integrated pulp and paper mill," Applied Energy, Elsevier, vol. 93(C), pages 614-623.
    3. Amiri, Shahnaz & Trygg, Louise & Moshfegh, Bahram, 2009. "Assessment of the natural gas potential for heat and power generation in the County of Östergötland in Sweden," Energy Policy, Elsevier, vol. 37(2), pages 496-506, February.
    4. Mezősi, András & Beöthy, Ákos & Kácsor, Enikő & Törőcsik, Ágnes, 2016. "A magyarországi távhő-szabályozás modellezése. A megújuló energiára alapozott hőtermelés
      [Modelling policy options in the district heating sector, with a focus on renewable consumption]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 1149-1176.
    5. repec:eee:energy:v:149:y:2018:i:c:p:105-119 is not listed on IDEAS
    6. Trygg, Louise & Amiri, Shahnaz, 2007. "European perspective on absorption cooling in a combined heat and power system - A case study of energy utility and industries in Sweden," Applied Energy, Elsevier, vol. 84(12), pages 1319-1337, December.
    7. Björkqvist, Olof & Idefeldt, Jim & Larsson, Aron, 2010. "Risk assessment of new pricing strategies in the district heating market: A case study at Sundsvall Energi AB," Energy Policy, Elsevier, vol. 38(5), pages 2171-2178, May.
    8. Wetterlund, Elisabeth & Söderström, Mats, 2010. "Biomass gasification in district heating systems - The effect of economic energy policies," Applied Energy, Elsevier, vol. 87(9), pages 2914-2922, September.
    9. Difs, Kristina, 2010. "National energy policies: Obstructing the reduction of global CO2 emissions? An analysis of Swedish energy policies for the district heating sector," Energy Policy, Elsevier, vol. 38(12), pages 7775-7782, December.
    10. Fahlén, E. & Ahlgren, E.O., 2009. "Assessment of integration of different biomass gasification alternatives in a district-heating system," Energy, Elsevier, vol. 34(12), pages 2184-2195.
    11. Pantaleo, Antonio & Candelise, Chiara & Bauen, Ausilio & Shah, Nilay, 2014. "ESCO business models for biomass heating and CHP: Profitability of ESCO operations in Italy and key factors assessment," Renewable and Sustainable Energy Reviews, Elsevier, vol. 30(C), pages 237-253.
    12. Trygg, Louise & Gebremedhin, Alemayehu & Karlsson, Björn G., 2006. "Resource-effective systems achieved through changes in energy supply and industrial use: The Volvo-Skövde case," Applied Energy, Elsevier, vol. 83(8), pages 801-818, August.
    13. Li, Hailong & Sun, Qie & Zhang, Qi & Wallin, Fredrik, 2015. "A review of the pricing mechanisms for district heating systems," Renewable and Sustainable Energy Reviews, Elsevier, vol. 42(C), pages 56-65.
    14. Bonev, Petyo & Glachant, Matthieu & Söderberg, Magnus, 2018. "A Mechanism for Institutionalised Threat of Regulation: Evidence from the Swedish District Heating Market," Economics Working Paper Series 1805, University of St. Gallen, School of Economics and Political Science.
    15. Johannes Schmidt & Sylvain Leduc & Erik Dotzauer & Georg Kindermann & Erwin Schmid, 2009. "Using Monte Carlo Simulation to Account for Uncertainties in the Spatial Explicit Modeling of Biomass Fired Combined Heat and Power Potentials in Austria," Working Papers 432009, Institute for Sustainable Economic Development, Department of Economics and Social Sciences, University of Natural Resources and Life Sciences, Vienna.
    16. Holmgren, Kristina & Amiri, Shahnaz, 2007. "Internalising external costs of electricity and heat production in a municipal energy system," Energy Policy, Elsevier, vol. 35(10), pages 5242-5253, October.
    17. Henning, Dag & Amiri, Shahnaz & Holmgren, Kristina, 2006. "Modelling and optimisation of electricity, steam and district heating production for a local Swedish utility," European Journal of Operational Research, Elsevier, vol. 175(2), pages 1224-1247, December.
    18. Taillon, J. & Blanchard, R.E., 2015. "Exergy efficiency graphs for thermal power plants," Energy, Elsevier, vol. 88(C), pages 57-66.
    19. Amiri, S. & Moshfegh, B., 2010. "Possibilities and consequences of deregulation of the European electricity market for connection of heat sparse areas to district heating systems," Applied Energy, Elsevier, vol. 87(7), pages 2401-2410, July.
    20. Difs, Kristina & Trygg, Louise, 2009. "Pricing district heating by marginal cost," Energy Policy, Elsevier, vol. 37(2), pages 606-616, February.
    21. Zhang, Junli & Ge, Bin & Xu, Hongsheng, 2013. "An equivalent marginal cost-pricing model for the district heating market," Energy Policy, Elsevier, vol. 63(C), pages 1224-1232.
    22. Holmgren, Kristina, 2006. "Role of a district-heating network as a user of waste-heat supply from various sources - the case of Göteborg," Applied Energy, Elsevier, vol. 83(12), pages 1351-1367, December.


    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:78:y:2004:i:1:p:1-18. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.