Decarbonising district heating: untapped potential for Europe

District heating as a multi-technology solution is currently underutilised for Europe to meet near-term decarbonisation goals affordably, highlights a recent study launched by Wärtsilä Energy.

The study, conducted by economic consulting firm Compass Lexecon, shows that modernising the district heating sector could cut EU carbon emissions and scale renewable energy use significantly by transitioning away from inflexible coal-fired systems.

The study identifies and analyses various revenue streams for combined heat and power generation – particularly CHP engines – using gas and examines relevant European regulatory framework and future trends affecting these revenue streams.

It also includes country-specific case studies with insights into national regulatory and market environments.

“District heating has untapped potential in Europe to be a profitable pathway to net zero,” says Igor Petryk, Market Development Director at Wärtsilä Energy.

“It is more than just heating homes – it is about enabling renewable energy growth, offering flexibility, and creating a viable solution for coal-dependent countries transitioning to cleaner energy.”

The findings suggest that flexible district heating technologies, such as CHP engines, can contribute to the integration of increasing renewable energy supply and accelerate the phasing out of fossil fuels. In Poland, Wärtsilä’s modelling shows that by coupling district heating and power systems the country could save €3.8 billion over the next decade, reducing annual CO2 emissions in its coal-dominated power sector by 57% by 2032.

CHP engines and heat pumps emerge as the key facilitators for efficiently integrating Poland’s expanding Renewable Energy Sources (RES) capacity.

Petryk adds: “Combined heat and power engines and other flexible technology like heat pumps optimise energy use. They dynamically select between heat and power production technologies to adapt to market prices, maximising economic returns.

“For example, when renewable energy is abundant, heat pumps and electric boilers absorb the extra energy. When solar and wind are low, CHP engines produce heat for cities and power for the grid. This two-way balancing keeps energy supply reliable.”

The Compass Lexecon study further highlights the flexibility of the CHP engine technology compared to traditional gas turbines, allowing it to react more efficiently to fluctuating electricity supply and volatile prices.

This advantage has been observed in case studies globally, where flexibilities procured by grid operators need to be made available within only 5 minutes or less. The ability to provide such short-term response can provide a significant revenue stream for CHP engines, thereby reducing heat costs while also improving power system stability.

As Europe continues to focus on decarbonising its energy systems, district heating stands out as a robust, flexible multi-technology solution to address both climate change and energy efficiency challenges.

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While EU regulations, such as the Energy Efficiency Directive, set the framework for decarbonisation by promoting the shift to renewable and low-carbon energy sources, national policies and transpositions of EU policy remain crucial in creating the regulatory frameworks that support investments into district heating.

With the right policy frameworks and flexible technology investments, district heating can play a pivotal role in ensuring a sustainable and affordable energy future.

To learn more and download the study, visit Decarbonising district heating – A profitable pathway to net zero.