by Linda Bertelsen
Green Business and black bottom lines

Digitalization drives operational and financial sustainability.

As the complexity of district heating continues to increase, digitalization provides an even stronger basis for decisions, making it a necessity for utilities to deliver both green business and black bottom lines. Front runners have already delivered measurable results from data-driven value creation throughout the value chain.

By Steen Schelle Jensen, Head of Business Development – Heat/Cooling, Kamstrup

In many district heating utilities, finances are under pressure from decreasing revenues as winters get warmer and buildings become more energy efficient. However, if district heating is to remain relevant and assume its position in the future integrated energy system, utilities must offer low prices and attractive offerings to end-users.

Supplying district heating against this paradoxical backdrop while delivering on the green transition requires true business excellence and continuous improvement, which is a massive task for any utility. But it also holds potential savings that are key to future-proofing district heating. This article explores that potential concerning four main business issues – and how
digitalization enables utilities to unlock it.

Improving the security of supply

The core of security of supply is just that: ensuring a reliable supply to your end users of the heat you produce. But being able to document what you have delivered is only the result.

Ultimately, security of supply is about getting to the point where you can also measure and optimize the very process and flow of heat. Where are the bottlenecks? How is the heat distribution throughout the network? How fast can you detect incidents? And the savings potential in running production closer to the limits is enormous.

To further explore the optimization possibilities, Kamstrup recently joined forces with Norfors Utility and smart bypass supplier Frese in a collaboration to create the optimal balance in the network. This included considerations on utilizing capacity in the best possible way, running closer to the limits, lowering temperatures centrally, and compensating for it locally, when necessary, e.g., with a smart bypass.

Utilities can also benefit from using data for complex decisions on network maintenance and expansion, which make up 12% of the costs. Digital twins (e.g., based on frequent meter data) enable utilities to monitor the performance of the pipes underground. This allows better utilization and renovation planning of existing assets so utilities can potentially avoid or defer heavy investments in this area. For instance, Aars District Heating uses data-driven analytics to find the network’s weakest links and prioritizing renovation efforts based on where it will have the most significant impact.

Results so far include reducing annual heat loss by 7.8 MWh per consumer in one area by replacing poorly performing service pipes.
Furthermore, they have gone from 200 to 16 bypasses and subsequently lowered the return temperature by about 3°C.

Also, comparing the actual network load and capacity to its design criteria reveals how well they match so utilities can extend the current infrastructure’s lifetime and optimize dimensioning and planning of new networks to avoid expensive oversizing.

”The project establishes that data-driven temperature regulation has the potential to reduce forward temperatures by an average of 3-10°C, resulting in an annual savings potential of EUR 32-106 million in the district heating sector. Moreover, data driven temperature optimization enables several other opportunities such as better integration of heat pumps in the district heating network and additional savings potential if the regulation of temperature and pressure levels is split into different zones.”

Figure 1: Average allocation of costs in a Danish district heating utility

Transparency drives cost-efficiency

First and foremost, improving cost-efficiency is about seeing the basis for optimization in your system – and knowing how to act accordingly. For instance, smart meters allow utilities to ease and streamline administration, billing, and customer support, accounting for up to 5% of an average Danish utility’s costs (figure 1).

By digitalizing system operations, you naturally also get a higher degree of transparency in your expenses, enabling you to target optimization efforts across the entire business. Several utilities have already generated significant savings from increased digitalization.

Greater Copenhagen utility, HOFOR, supplies heat to approximately 35,000 buildings. Half of them are large multi-family buildings with a high heat demand, and HOFOR estimates that 50% of the heat installations are operating poorly.

In other words, they return the district heating water with a temperature that is too high instead of utilizing the energy more efficiently. According to HOFOR, lowering the return temperature by 3 °C, as a result of eliminating faulty or misadjusted heat installations will create annual savings of EUR 15 million.

Another example is Assens District heating that is reaping the benefits of the utility’s investment indigitalization. Remotely readmeters, frequent data, and targeted analytics enabled them to lower their forward temperature by 6-8°C, cut pipeline losses by 14.5%, and reduce annual heat production by 2.5%.

Monitoring the exact temperature, flow, and pressure throughout the distribution network has allowed them to continuously digitalize and optimize their network and operations, resulting in a return on investment of only 4-5 years.

Green transition requires low temperatures

Low supply temperatures are necessary to integrate more renewable energy sources which impacts costs significantly. Studies show that cost reduction gradients for renewables and recycled heat, like geothermal, solar, or industrial excess heat, are a factor 6-7 more cost-sensitive than energy sources that are burned, like traditional waste and biomass (figure 2).

Figure 2: Cost reduction gradients per fuel type

In other words, with a heat supply based on clean energy sources, utilities generate much higher savings for every degree they lower their temperatures. This makes low-temperature district heating a prerequisite for a cost-effective green transition.

As mentioned, one way to reduce temperatures is through more efficient temperature management on the supply side, including optimizations based on actual conditions out by the end users instead of assumptions or fixed network metering points, e.g., in wells. This requires utilities to tie the entire chain much closer together from production to buildings, so you know the demand and forecasts and can operate accordingly.

Low temperatures naturally also generate savings from less heat loss in the network, accounting for 11% of an average Danish utility’s costs (figure 1). DTU studies state that lowering temperatures can deliver as much as a 20% reduction of heat loss.

Finally, there are significant savings in handling the increasing complexity of multiple heat sources and fluctuating production in an energy system where district heating connects the different sectors. Here, data provides the basis for utilities to continuously balance production and consumption in the best and cheapest way possible – e.g., forecasting when to produce, sell, or use electricity based on electricity prices. Or deciding when to overproduce thermal energy to store in buildings and the distribution network. Electricity prices will fluctuate even more in the future, so the consequences of misjudgements due to wrong or inaccurate information will be very costly. Ultimately, the more data you have, the better your basis will be for making the right decisions.

Enhancing customer attraction

There are different ways to improve end users’ perception of district heating as an attractive product. But all of them revolve around customer closeness and digitalization as a crucial lever. It could involve expanding your product portfolio with new offerings and services – possibly defined by whether a customer prefers heat that is green, convenient, or low-priced. Or it could be optimizing your price models to accurately reflect both the energy used and the capacity available to ensure fair earnings.

This requires that you be in complete control of your network, so you know the exact risk you take on as well as the potential you can unleash. But that also allows you to propose the ideal offering because when you know everything in your system, you can take more responsibility and extend customer relations.

Næstved District Heating, did precisely that by adopting a business model offering to take full ownership of their customers’ heat installations and using digitalization to monitor performance. Not only is the leasing agreement very attractive, but Næstved has effectively moved the entire population to lower, and more uniform forward temperatures plus eliminated the highest return temperatures (figure 3).

Figure 3: Temperature optimization in Næstved District Heating

The next step could be business models that tie together flexibility in the buildings (e.g., in relation to peak shaving) with the production link allowing utilities to continually balance the district heating system across the entire value chain. Peak load is costly compared to baseload, and digitalization plays a vital role in evening out supply and demand and enables the necessary control and planning.

It’s time to know

Navigating the complexity of operating a district heating system today is one thing, but it only becomes more volatile as it becomes a piece in a much bigger puzzle. For utilities, the goal remains to produce, manage and distribute energy as efficiently as possible – but efficiency requires transparency that you can translate into actionable knowledge. This makes smart meter data and digitalization the foundation for fulfilling district heating’s full potential as an attractive and cost-effective heat source and the cornerstone of an integrated and truly intelligent energy system.

Fortunately, there are already solutions on themarket designed to solve the challenges in different parts of the value chain. And as the examples above reflect, close collaboration between utilities and suppliers leads the way for district heating that is sustainable in every way.

For further information please contact: Steen Schelle Jensen, ssj@kamstrup.com

“Green business and black bottom lines” was published in Hot Cool, edition no. 2/2021. You can download the article here:

meet The Author

Steen Schelle Jensen
Head of Business Development – Heat/Cooling Solutions, Kamstrup