Sustainable local and district heating networks in Germany: background and development

Heat transition: 100,000 buildings per year to receive a new district heating connection in the medium term

District and local heating networks play a central role in the heating transition in Germany and the associated switch from fossil fuels to renewable energy sources. According to a recent report by Prognos AG on the study „Perspective on district heating - expansion and conversion of urban district heating as a contribution to a socio-ecological heating policy“ (2020) on behalf of the District Heating Working Group (AGFW) and the Verband kommunaler Unternehmen (VKU), around 43 billion euros will have to be invested in the expansion and conversion of district heating by 2030 in order to achieve the climate targets. The most important facts and figures on this topic are summarised below

Local and district heating networks: Definition and characteristics

Local and district heating: definition, facts and figures
Heating networks can initially be differentiated on the basis of their size and supply area:

Local heating networks are generally smaller, local networks in which energy is supplied via several heating centres on site. Classic local heating can be found in both rural and urban areas. A nearby centralised heating plant supplies individual buildings with heated water via pipelines, where it is used for heating or as hot water. The heat comes from fossil and/or renewable energy sources. Classic local heating is considered superior to individual heating of buildings in terms of economy and environmental friendliness.

District heating networks, on the other hand, are often large networks to which numerous consumers (customers) are connected. These networks are often fed by waste heat from large power plants or large heat pumps (or with their help). They currently cover around 8 % of German energy demand and around 15 % of heating demand.

Heating networks: distinguishing technological features
Irrespective of their size or their distance from the consumer/supply area, heating networks can generally be divided into different generations with different characteristics (different flow temperatures, type of heat source):

Third generation heating networks
These are existing networks that use pressurised water with a flow temperature of 100 °C. The disadvantage of this technology is the high water temperatures, which result in considerable heat losses.

Fourth generation heating networks
They require a flow temperature of approx. 70 °C, which not only reduces heat losses accordingly, but also enables the utilisation of renewable heat sources (such as geothermal energy or industrial waste heat).

Fifth generation heating networks
These are referred to as cold local heating networks (also known as low-temperature or anergy networks) and run at temperatures of up to 30 °C. They enable the provision of heating and cooling in just one network. Within a „supply district“, for example, it is possible to divert waste heat from buildings with a cooling requirement in order to heat buildings with a heating requirement. The cold local heat is generated from one – or several – regenerative heat source(s) with several decentralised heat pumps (within the building or property to be supplied). Heat networks of this generation are considered particularly suitable for combination with heat pumps.

Development of the heating structure: housing stock and energy sources used (as at January 2021)

Political background and current status

Political background

Based on the Gebäudeenergiegesetzes (GEG) and the associated municipal heating planning, heating networks are to be further decarbonised rapidly by 2030. „By 2030, the proportion of district heating generated from renewable energies and unavoidable waste heat is to be increased to 50 %“, recapitulates the District Heating Association AGFW in a press release dated 22 July. „In addition, at least 100,000 new buildings are to be connected to district heating every year in the medium term. These targets are necessary to achieve the climate targets. By 2030, emissions nationwide are to be reduced by 65 % compared to 1990 levels.“

Data situation: energy sources, expansion, investment requirements
According to data from the Bundesverbands der Energie- und Wasserwirtschaft (BDEW) on the heating market in 2023, the proportion of heating systems in Germany powered by district heating was around 15 % last year. Around 70 % of heating energy came from oil or gas.

The Statistisches Bundesamt (Destatis) and the BDEW determined the following preliminary (partially estimated) data on the district heating market for the past year (as of December 2023) In Germany last year, there were therefore475 Betreiber von Fernwärme-/Kältenetzen,

626 district heating generators,

54 heat storage operators,

590 district heating suppliers,

3800 local heating and neighbourhood network operators and

an increase in investment in the district heating/cooling supply of 9.5 % (from 2.1 billion to 2.3 billion euros.

Pipes are ready for the laying of a district heating and cooling network

The investment requirement for the expansion of district heating by 2030 determined in the current Prognos AG report was 10.6 billion euros higher than in 2020 – the report at the time forecast necessary investments of around 33 billion euros.

This was due to the „delayed entry into force of the Bundesförderung für effiziente Wärmenetze (BEW) in autumn 2022“ according to the AGFW in its statement on the current data situation on 22 July. In the remaining seven years (until 2030), the annual funding requirement will increase to around 3.5 billion euros. „The report highlights the high investment volume that the industry will have to cope with in the coming decades“, said AGFW Managing Director Werner Lutsch. „A suitable funding framework is a key prerequisite. The BEW must therefore be provided with sufficient funding and the Kraft-Wärme-Kopplungsgesetz (KWKG) must be extended [...]“

Piped heat supply in Germany: The share of renewable energies was 19.9 % in 2023 (as of April 2024)

3. Need for action remains at various levels

Reliable state funding required for greater investment security
„The discussions about the funding of the Bundesförderung für effiziente Wärmenetze (BEW) are causing uncertainty among district heating companies and slowing down the urgently needed investments in district heating“, concludes the latest Prognos report.

In order to meet the climate targets by 2030 and 2045, the provision of an annual subsidy of 3.5 billion euros is therefore essential. At the same time, a follow-up regulation for the BEW, which ends in September 2028, must be created.

The paper also refers, among other things, to persistent obstacles already outlined in 2020 – such as in planning and approval procedures or the provision of land. This would delay the rapid expansion of heating networks.

Cold local heating networks: tapping into the potential of unutilised renewable energy sources

Experts point to the great potential of as yet untapped renewable energy sources in the low-temperature range that could be utilised in the future to supply cold local heating.

Local heating networks are often fed from geothermal, aqua and solar thermal energy, ambient air, groundwater or ice storage. Biomass or waste heat (from data centres, industry or waste water) are other possible sources.

As part of ongoing „kommunale Wäremplanung“ (municipal heating planning), it is planned to analyse the potential of all energy sources available at the supply location in advance, to evaluate them and to take them into account when expanding the heating networks locally.

The „AVBFernwärmeV“ should take account of the heating transition
At the „Fernwärmegipfel“ (district heating summit) in June 2023, the participating associations and stakeholders from politics and industry issued a joint declaration in favour of bringing the amendment to the ordinance on Allgemeine Bedingungen für die Versorgung mit Fernwärme (AVBFernwärmeV) to a swift conclusion. The 1980 ordinance essentially regulates the rights and obligations of heating customers and suppliers in heating supply contracts and is no longer considered up-to-date in its current form.

Among other things, there were calls to increase investment incentives: These should be better harmonised with the „contract design for both heating network operators and building owners: inside and consumer: inside rights should be strengthened“. It also states: „The signatories are in favour of an adequate and legally secured funding and financing framework for the expansion of the heating network, including the funding of house connections.“

Around a year later, on 30 July, a new draft bill for the amendment to the AVBFernwärmeV was published, which does not continue the content of the previous one from 25 July 2022 and brings the ordinance up to date, taking into account fundamental points of criticism.

Among other things, a differentiated system is intended to create a balance between planning and investment security for suppliers on the one hand and the legitimate interests of heating customers on the other. At the same time, stricter requirements apply to price adjustment clauses, which should ensure greater transparency for customers in future.

Consumer advocates praise the new draft, but still see room for improvement in some areas. For example, Thomas Engelke, Head of „Team Energie und Bauen“ at Verbraucherzentrale-Bundesverband, suggests that consumers could be protected from black sheep by central price monitoring (which has been lacking to date). BDEW Managing Director Kerstin Andreae, on the other hand, welcomes the fact that the maximum price is not regulated. „It is good that the draft bill does not include a price cap. This would be a major intervention in the market.“