How to ensure security of heat supply and at the same time decarbonise district heating? The Polish case-study

Regulations dedicated to the transformation of district heating sector are one of the key areas of the “Fit for 55” package being at the very moment discussed in the EU institutions. At the level of the European Union as a whole, the district heating sector satisfies approximately 13% of heat demand, however its role in densely urbanized areas is far more important since it cannot be replaced by any other form of providing heat and warm water with required characteristics.

For Poland this issue is of key importance, since heat from large-scale district heating network is used for heating purposes in 40.4% of households, which translates to , 6 million families. With such a scale of district heating usage, every aspect of regulation is of great importance in the context of the need to ensure adequate supplies and conduct a capital-consuming investments to complete the transformation of this sector.

Local specificities should be considered

District heating is one of the main sources of heat for the Poles, and the Polish district heating sector is one of the largest in the European Union. I In 2020, a number of heating degree-days in Poland, which reflects the scale of heat demand in heat systems, was approximately 9% higher than the EU average. Especially, metropolitan areas are heated and supplied with heat for domestic hot water by large district heating systems with high generation capacities. Dividing large district heating systems into smaller ones, especially in large cities, implies a number of technical, logistical, formal and legal challenges being impossible to overcome at this moment. Those include, but are not limited to, difficulties in acquiring land for the development of distributed renewables, a technical overhaul of existing infrastructure, adapting building service systems to operate on low-temperature parameters, formal and logistical issues associated with the performance of network investments, including the arrangement of ownership, services, land, etc., and a need for necessary expansion of electricity infrastructure. Furthermore, there is a shortage of RES technologies that could ensure on a wider scale that temperatures of the medium supplied into the network are sufficiently high. Reducing the temperature on the receiving side of district heating systems requires large capital expenditures and is not feasible in a reasonable and responsible manner within a few years. Despite the development on hybrid systems, in which central generating units will be supplemented by renewable heat sources (ground-source heating, solar panels, heat pumps, etc.), still their applicability is limited. Those challenges prove that the one-size-fits-all approach does not work for district heating and it should not be the a way to address challenges identified by “Fit for 55” agenda.

Multi-variant economic analysis of transformation costs

The Polish Association of Combined Heat and Power Plants (PTEZ) carried out an analysis to estimate the costs of transformation of the district heating sector based on the Commission’s proposal to revise the Energy Efficiency Directive. The model used in analysis is based on detailed macroeconomic, market and technology assumptions for reference heat markets for the period of 2022-2050. Four technology options are proposed for each market to meet the new definition of an efficient district heating and cooling system. As a result, the model allows to determine the most cost-effective option for each heat market considered based on variable costs of production. – Our analysis showed that adapting the Polish district heating sector to the requirements proposed in the draft regulations of the Fit for 55 package will cost, in total, at least EUR 61,56 billion to EUR 91,11 billion in capital expenditures to be incurred in the prospect to 2045 for the transformation of the district heating sector, with a significant portion of capital expenditures needed to be spent as early as 2026 – capital expenditures of EUR 32,22 billion to 55,56 billion – Wojciech Dąbrowski, President of the Management Board of the PTEZ and of the PGE Group, points out. – A deluge of so many large-scale investments in such a short period of time throughout the country may generate problems with the physical feasibility of the works, as well as may cause an increase in the cost of investment implementation – CEO Dąbrowski added.

Key recommendations

– The analysis proved that in order for the transformation to be carried out in a rational manner, final EU regulations must take into account local conditions of each Member State. A shift from district heating towards other appliances in Poland would be economically and technologically unjustified, and would lead to the risk of a lack of supply to millions of end users, especially living in the multi residential buildings – CEO Dąbrowski points out.

The key recommendation is, taking into account the size of the capital expenditures to be incurred for adaptation of only the generation infrastructure to the requirements of the proposed revision of the EED in the 2026 perspective at the level of EUR 17,78 billion to EUR 33,33 billion, to postpone the application of a new direct emission criterion of 270 g CO2/kWh for high-efficiency cogeneration by January 1, 2030. Otherwise, necessary transition costs are highly likely to prove socially unacceptable – it should be pointed out that this is not the only area that will requires high capital expenditures in the nearest future.

Alternatively, this indicator should only apply to new and significantly retrofitted cogeneration units as proposed in the Council’s position.

Furthermore, if all investments in new units were to be made by January 1, 2026, they would have to be at an advanced stage of the investment process by that point. The availability of equipment, materials and contractors for so many projects in such a short timeframe can also be a very significant problem. The earlier entry into force of this new emission criterion would not speed up investments, since the phase out of the existing units needs to be synchronised with commissioning of the new capacities capable to deliver adequate heat supply.