12th International Symposium on District Heating and Cooling

The <strong>12th</strong> <strong>International</strong> <strong>Symposium</strong> on District Heating and Cooling,September 5 th to September 7 th , 2010, Tallinn, EstoniaSwedish municipalities must, for judicial reasons, limittheir business abroad to sales of services, and to avery limited extent goods. For municipal district heatingcompanies, domestic judicial restrictions are the firstbarriers to overcome before operations in othercountries can commence.Only certain components for production and distributionof district heating are manufactured in a single country,which calls for international cooperation. The SwedishGovernment provides certain but limited support topromotion of district heating business abroad. Forexample, Swedish district heating consultants workabroad but it is seldom followed by goods export.FINANCING THE DH VALUE CHAINFinancing is a large barrier to district heatingdevelopment. DH systems require large investmentsand may have long payback times. The cash flow isnegative for a long time during the establishment of anew DH system. Time horizons are distant, whichstresses financers in our present situation of rapidlychanging conditions. Private companies often focus onshort-term profit and public involvement may benecessary for the deployment, modernisation and longtermdevelopment of district heating systems.District heating is a comprehensive concept for heatfrom source to consumption. Its strength lies inmaintaining the value chain (Fig. 1). This may fit badlyin an exaggerated market context where every little linkof the value chain is organised separately with aninterface of costs and revenues to other links. Afragmented value chain increases interface costs andtotal risk. EU regulations have a tendency to promotesuch fragmentation. Between the links of a fragmentedsupply value chain, many complicated agreements arerequired, which all include risks. It means a larger totalfinancing risk, which raises interest rates and shortensamortisation periods for loans. This implies a mismatchwith the depreciation in the balance sheet due to thelong economical lifetime of district heating versus theshort amortisation time.TWO GENERAL DH BARRIERSTwo general district-heating barriers are related to CO 2emissions and the attempts to reduce these through,for example, reduced energy use. Global warming andbetter insulated houses reduce heating demand and,hence, the advantages of district heating becauseinvestment costs must be carried by less supplied heat.Another general barrier to district heating is the EUemission trading scheme, which favours individualheating because individual CO 2 emissions do not needallowances.TYPES OF DH BARRIERSIn the countries analysed in this project, the barriersare of very diverse nature. The obstacles aredominated by difficulties for district heating itself ratherthan for foreign companies‘ operations in the countries.In the British Isles, it is largely a question ofestablishing district heating as a natural element insociety. In France, it is about large domestic companiesthat may offer superior competition to foreign firms. Inthe Czech Republic, French and other companies fromabroad dominate the DH business but the technicaldesign of district-heating production may hamper DHdevelopment. In Romania, there are several problemswith facilities in bad shape and public bodies that havenot addressed the issues properly.Table I is an attempt to assess how large the variousbarriers are in the studied countries. The table startswith some general conditions. Ownership andorganisation considers if district-heating companies areowned, or DH operations are organised, in ways thatmake it more difficult for Swedish companies to dobusiness. Corruption may be a problem through, forexample, indirect bribes by procurement. National andlocal control encompasses national laws and policyinstruments that are disadvantageous for districtheating, DH price regulations, as well as municipalitiesnot facilitating district heating by planning of newdevelopments. But rules complicating combined heatand power production are included in the CHP line inTable I.Financing is one of the largest barriers to districtheating, primarily because DH schemes give a low rateof return. A fragmented value chain cause contractrisks at several instances. Entrance barriers for foreigncompanies in Table I consider additional difficulties forforeign firms besides the other parameters and thegeneral disadvantage of not being familiar with thedomestic business culture.Some parameters in Table I are related to districtheatingsales. DH competitiveness includes theavailability and price of other forms of heating, primarilynatural gas. Customer relations concern customerattitudes toward district heating, customers‘ andsuppliers‘ perceived insecurity whether they canFig. 1. District heating value chain with heat production, distribution and sales in focus [1]224