Policy

District Heating – Danish Experiences

Project approval of heat projects in Denmark
The Danish district heating legislation is set out in the Heat Supply Act that regulates the heating sector and provides local authorities (i.e. municipalities) with the power to engage in local heat planning, make decisions on energy infrastructure and on which resources is to be prioritized. The legislation and guidelines to the legislation is developed by the Ministry of Climate, Energy and Building and the Danish Energy Agency, but the actual implementation of the legislation and policies is the responsibility of the local municipalities.

The Danish approach to heat regulation provides a clear division of authority where local decision-makers have full authority over local heat system designs, but they do so by relying on a centralized policy and a technical framework provided by the national level. This ensures that district heating projects are in line with the overall national ambitions with regard to the development of the heat sector, but at the same time the evaluation and decision on a concrete heat project is undertaken by a local authority with detailed knowledge of local urban development, heat demand and any other relevant local considerations.

Main principles of the initial Danish Heat Supply Act from 1979:

  • Local authorities/municipalities are responsible for the approval of new heat supply projects.
  • Local authorities/municipalities have to make sure that the projet with the highest socioeconomic benefits is chosen.
  • Production of heat must, if possible, be produced as combined heat and power.
  • The collective heat supply price must offer consumers prices based on “true costs”, meaning that the heat price cannot be higher or lower than the actual heat production costs.

The zones are as follows:

  • Natural gas supplied through the natural gas grid
  • Decentralised district heating
  • Centralised district heating

Municipal heat project approval
When the owner of a building wants to supply a building with heating or renovate an existing heat unit and the building is within an area or zone dedicated to natural gas or district heat, the supply has to be approved by the municipalities. When a district heating company wants to build new production capacity, a transmission line, or supply a new area with district heating, this also has to be approved by the municipality. The approval process is usually a matter between the district heating company and the municipality but can also involve the natural gas company and a consultant on one or both sides.

The typical process is as follows:

  • First, an initial dialogue between the municipality, the district heating company, the building owner(s), the natural gas company, and in some cases a consultant is accomplished. The purpose and objective of this dialouge is to define the scope of the project and to define the reference project scenario for the analysis.
  • The district heating company then submits the project proposal to the municipality.
  • Then, a 4 week hearing period follows among the stakeholders that are directly affected by the project proposal.
  • An adaptation is made of the project proposal according to comments submitted during the hearing period.
  • City council then approves or rejects the project proposal.
  • 4 week opportunity to appeal for the stakeholders directly affected by the project proposal.
  • Implementation of the project.

When the district heating company or the owner of a building submits a project proposal to the Danish municipal authorities the following documentation has to be included in the application:

  • The proposed project’s relation to other relevant legislation.
  • The project’s relation to other municipal plans e.g. for new development zones or local preservation areas.
  • Description of the area to be supplied and technical specifications of the installation, e.g. capacity, fuels, security of supply, and other technical issues.
  • Time schedule for the implementation of the project.
  • Description and account of the applicant’s consultations with other stakeholders.
  • Economic impact for the consumers, i.e. effect on heat prices.
  • Basic business cost-benefit analysis for the project/heat company economy, but also an analysis of energy-related and environmental aspects.
  • Socio economic evaluation of relevant scenarios.

The main approval criteria is the socioeconomic evaluation and only projects showing the best net benefit to society are prioritized. However, the other information mentioned above is important in order to give the municipality the full picture of the proposed heat project.

A socioeconomic analysis ensures that all societal costs of the heat projects are included and the analysis is always a comparison between two or more alternatives. Taxes are excluded and externalities, such as cost of emissions, are included. The project alternatives are always evaluated over their entire expected technical lifetime. If the technical lifetimes of different technologies are not the same, scrap values or reinvestments are included in the analysis.

So, while companies that invest in energy projects typically make their own internal business case, municipal authorities and district heating companies are only allowed to pursue projects with a high value in socioeconomic cost-benefit analysis.

The socio-economic analysis has to be based on a methodology and on data supplied by the Danish Energy Agency. The data consist of forecasts for future energy prices, costs of emitting certain pollutants, and other considerations that are necessary for a full account of the socioeconomic analysis of a project. By comparing different projects based on comparable data sets, it is ensured that the project showing the best socioeconomically benefits is chosen.

The Danish Energy Agency is responsible for maintaining and providing a national catalogue with data on:

  • Future fuel prices
  • Future electricity prices
  • Externalities
  • Cost and technical specifications of different heat production units

These data help municipalities and heat companies develop accurate cost estimates which strengthen the planning and approval process. However, if the heat company that applies for a project approval has more accurate local data, these data have to be used instead of the data from the Danish Energy Agency. For instance, this is always the case with regards to heat prices, when applying for projects in existing district heating areas.

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