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Pricing district heating by marginal cost

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  • Difs, Kristina
  • Trygg, Louise

Abstract

A vital measure for industries when redirecting the energy systems towards sustainability is conversion from electricity to district heating (DH). This conversion can be achieved for example, by replacing electrical heating with DH and compression cooling with heat-driven absorption cooling. Conversion to DH must, however, always be an economically attractive choice for an industry. In this paper the effects for industries and the local DH supplier are analysed when pricing DH by marginal cost in combination with industrial energy efficiency measures. Energy audits have shown that the analysed industries can reduce their annual electricity use by 30% and increase the use of DH by 56%. When marginal costs are applied as DH tariffs and the industrial energy efficiency measures are implemented, the industrial energy costs can be reduced by 17%. When implementing the industrial energy efficiency measures and also considering a utility investment in the local energy system, the local DH supplier has a potential to reduce the total energy system cost by 1.6 million EUR. Global carbon dioxide emissions can be reduced by 25,000 tonnes if the industrial energy efficiency measures are implemented and when coal-condensing power is assumed to be the marginal electricity source.

Suggested Citation

  • Difs, Kristina & Trygg, Louise, 2009. "Pricing district heating by marginal cost," Energy Policy, Elsevier, vol. 37(2), pages 606-616, February.
    • Handle: RePEc:eee:enepol:v:37:y:2009:i:2:p:606-616
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    References listed on IDEAS

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    Cited by:

    1. Song, Jingjing & Wallin, Fredrik & Li, Hailong, 2017. "District heating cost fluctuation caused by price model shift," Applied Energy, Elsevier, vol. 194(C), pages 715-724.
    2. Danica Djurić Ilić, 2020. "Classification of Measures for Dealing with District Heating Load Variations—A Systematic Review," Energies, MDPI, vol. 14(1), pages 1-27, December.
    3. 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.
    4. 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.
    5. Difs, Kristina & Bennstam, Marcus & Trygg, Louise & Nordenstam, Lena, 2010. "Energy conservation measures in buildings heated by district heating – A local energy system perspective," Energy, Elsevier, vol. 35(8), pages 3194-3203.
    6. Sandvall, Akram Fakhri & Ahlgren, Erik O. & Ekvall, Tomas, 2016. "System profitability of excess heat utilisation – A case-based modelling analysis," Energy, Elsevier, vol. 97(C), pages 424-434.
    7. Bonev, Petyo & Glachant, Matthieu & Söderberg, Magnus, 2022. "Implicit yardstick competition between heating monopolies in urban areas: Theory and evidence from Sweden," Energy Economics, Elsevier, vol. 109(C).
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    9. Bonev, Petyo & Matthieu Glachant & Magnus Söderberg, 2020. "Implicit Yardstick Competition," Economics Working Paper Series 2009, University of St. Gallen, School of Economics and Political Science.
    10. Diana Korsakaite & Darius Bieksa & Egle Bieksiene, 2018. "Third-party access in district heating: Lithuanian case analysis," Competition and Regulation in Network Industries, , vol. 19(3-4), pages 218-241, September.
    11. Truong, Nguyen Le & Gustavsson, Leif, 2014. "Minimum-cost district heat production systems of different sizes under different environmental and social cost scenarios," Applied Energy, Elsevier, vol. 136(C), pages 881-893.
    12. Difs, Kristina & Danestig, Maria & Trygg, Louise, 2009. "Increased use of district heating in industrial processes - Impacts on heat load duration," Applied Energy, Elsevier, vol. 86(11), pages 2327-2334, November.
    13. 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.
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    15. Lygnerud, Kristina & Ottosson, Jonas & Kensby, Johan & Johansson, Linnea, 2021. "Business models combining heat pumps and district heating in buildings generate cost and emission savings," Energy, Elsevier, vol. 234(C).
    16. Guo, Xiaodan & Xiao, Bowen, 2022. "How can pricing strategy for district heating help China realize cleaner residential heating?," Energy Economics, Elsevier, vol. 110(C).
    17. 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.
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