European Technology Platform on Renewable Heating and Cooling

Common Technology Roadmap for Renewable Heating and Cooling

AUTHORS

Javier F. Urchueguía Schölzel, GEOPLAT, ES - Lead AuthorLuisa F. Cabeza – Universitat de Lleida, ESInga.Berre - Christian Michelsen Research, NOEija Alakangas –VTT, FIWalter Haslinger – Bioenergy 2020+, AUPanagiotis Grammelis - Certh, GRDaniel Mugnier - TECSOL, FRGerhard Stryi-Hipp - Fraunhofer ISE, DEPhilippe Papillon – CEA-INES, FR Roland Hellmer - Vattenfall Europe , DE

EDITOR: Secretariat of the RHC-Platform

Renewable Energy House 63-67 Rue d’Arlon B-1040 Brussels - Belgium www.rhc-platform.org info@rhc-platform.org

Manuscript completed in Brussels, © RHC-Platform, 2014This document is available on the Internet at: www.rhc-platform.org

The European Technology Platform on Renewable Heating and Cooling (RHC- Platform) is officially endorsed by the European Commission and its activities are supported by the 7th Framework Programme for Research and Technological Development (GA n. 268205)

DISCLAIMERThe opinions expressed in this document are the sole responsibility of the European Technology Platform on Renewable Heating and Cooling and do not necessarily represent the official position of the European Commission.Reproduction and translation for non-commercial purposes are authorised, provided the source is acknowledged and the Editor is given prior notice and sent a copy.

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Table of contents

1. Introduction: From Vision to implementation…………………………………………………….22. A Common Technological Roadmap to 2020: Clustering of the 4 technology

roadmaps…………………………………………………………………………………………….63. Interconnection between the different RHC technologies and its link to the different demand

profiles………………………………………………………………………………………………234. Societal Benefits of Renewable Heating and Cooling…………………………………………385. Promoting private investments in Renewable Heating and Cooling…………………………49

1. Introduction: From Vision to implementation

1.1The Renewable Heating and Cooling Platform (RHC-Platform)

The Common Roadmap is the latest milestone after a series of other publications of RHC Publication that led the Heating and Cooling sector in the last years from a vision towards an implementation plan.Endorsed by the European Commission, the European Technology Platform on Renewable Heating and Cooling (RHC-Platform) today brings together over 800 stakeholders representing all renewable energy technologies for heating and cooling from industry, research, and the public sector from all over Europe.The RHC-Platform’s mission is to provide a framework for stakeholders to define and implement an innovation strategy to increase the use of renewable energy sources for heating and cooling, and to foster the growth and the market uptake of the relevant industries.The RHC-Platform consists of four Technology Panels which include all renewable heatingand cooling sources and technologies. Acting under the guidance of the respective Steering Committees, each Panel is responsible for collecting and developing stakeholders’ inputs from the respective sectors.The scope and operational structure of the RHC-Platform ensure a balanced and active participation of the EU stakeholders at the appropriate levels, including all interested industries, scientific research organisations, public authorities and civil society.

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Figure x: Structure of the RHC-Platform

1.2 The four RHC Technology Roadmaps: the pillars of the RHC Common Roadmap

Throughout the second part of 2013 and the beginning of 2014, the four RHC panels (solar thermal, biomass, geothermal and cross-cutting) have worked and finalised their own technology roadmaps, investigating implementation measures for the Strategic Research Priorities for each technology. Building up on these efforts in each panel, the ‘Common Roadmap’ aims to be a single shared Roadmap for all Renewable Heating and Cooling technologies presenting an integrated vision of the research implementation priorities.

The common roadmap brings together each roadmap to pinpoint the specific measures for renewable heating and cooling as a whole and how each technology’s needs fit together. It analyzes the benefits of RHC for Europe, for example in terms of energy imports reduction and jobs creation and it will look at how investments in the RHC could be encouraged.

1.3 The previous achievements

The report “Common Vision for the Renewable Heating and Cooling Sector in Europe” 1 is the first official publication of the RHC-Platform. Launched in May 2011, the study identifies major technological and non-technological challenges to the uptake of the RH&C systems and

1 Common Vision for the Renewable Heating and Cooling Sector in Europe: 2020 - 2030 - 2050. European Technology Platform on Renewable Heating & Cooling (RHC-Platform), May 2011. Available at http://www.rhc-platform.org/publications/

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assesses the potential of renewable energy sources to contribute to the European and national energy needs and targets. In 2012 the four Technology Panels of the RHC-Platform the RHC-Platform produced four Strategic Research Priorities for Renewable Heating and Cooling in their respective technology (RHC-Platform, 2012).2 These studies provide stakeholders with a structured view of the potential of cross-cutting technology to enable an increasing share of heating and cooling to be supplied by RES. A comprehensive set of research, development and demonstration priorities was defined to support the decarbonisation of the heating and cooling sectorBased on the work performed by the experts of the four Technology Panels of the RHC-Platform, in 2013 the RHC-Platform launched the Strategic Research and Innovation Agenda for Renewable Heating and Cooling (RHC-SRIA)3, a milestone publication which addresses the short, medium and longer term R&D needs of RHC technology.

The RHC-SRIA identifies state-of-the-art, research objectives and critical targets (eg in terms of performance increase / cost reduction) to realise the potential of RHC technology. It also sets up recommendations for R&D&D funding in the timeframe of Horizon 2020 and in line with the wider EU 2030 Energy and Climate Framework.The implementation of the SRIA technological and non-technological priorities will be crucial towards a strong push for a renewable energy paradigm, providing European citizens with affordable and sustainable heating and cooling.

Further to the RHC-SRIA , the four panels published four respective Technology Roadmaps. By doing that, the RHC-Platform accomplished one more of its core objectives: establishing a detailed implementation plan for the The Strategic Research and Innovation Agenda, defining how the combined spending of public and private resources should be strategically distributed among topics with commercial relevance in the short, medium and long term.

All R&D activities described in this document should be accompanied and supported by 2020, however the RHC-Platform recommends that policy makers allocate the budgets of European and national programmes according to an order of priorities which takes into account the readiness and proven interest of EU industry and research stakeholders to take part in the relevant R&D activities.

The Common Roadmap takes over the work done by the four individual technology Roadmaps and explores the interconnectivity of the different RHC technologies.

2 Available at http://www.rhc-platform.org/publications/3 Strategic Research and Innovation Agenda for Renewable Heating and Cooling. European Technology Platform on Renewable Heating & Cooling (RHC-Platform), April 2013. Available at http://www.rhc-platform.org/publications/

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Figure x

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2. A Common Technological Roadmap to 2020: Clustering of the 4 technology roadmaps

This chapter intends to expose the main aspects of the Technology Roadmaps of the four sectors in which RHC technologies are split within the RHC Platform: solar, bio, geothermal and cross cutting technologies. Our approach is to provide a general view of those technologies that, according to the ideas developed by the different Panels, deserve priorized attention in the 2014-2020 timeframe. To learn more in detail about the many proposed Research and Innovation actions summarized here, the interested reader is strongly advised to consult the individual Roadmaps released by the Panels.

2.1 Solar Thermal Energy

Solar thermal energy, together with the other renewable heating and cooling technologies can be a major source of heating and cooling in Europe. Currently within the European Union there are 28 GWth of systems in operation, generating an estimated 20 TWh of solar thermal energy. This energy generation corresponds to savings of 2.5 MT CO2. In economic terms, solar thermal represents an annual turnover of 2.4 billion euros and 32 000 jobs (FTE).

It is an extremely convenient heating source, based on a simple concept enhanced by cutting edge technology. Thanks to technological progress solar thermal has become not only a better option for more traditional applications, such as domestic hot water production, but also an attractive alternative for new and more advanced applications such as industrial process heat.

Solar heating technology can have a strong impact in the market; however, to unlock its potential, technological development is urgently needed. Therefore, experts from the solar heating and cooling sector have gathered together in the Solar Thermal Technology Panel of the Renewable Heating and Cooling Technology Platform and developed this technology roadmap that would help the sector to provide to the market the solutions to critical societal challenges. These solutions are addressing the retrofitting of existing installation, the new residential market and the industrial process heat.

2.1.1 Solar Compact Hybrid System (SCOHYS)

Solar Compact Hybrid System (SCOHYS) are compact heat supply systems including a solar and a backup heating source (based on bio energy, heat pumps or fossil fuels) with a solar fraction of at least 50% in the case of DHW SCOHYS systems (delivering only domestic hot water) and of a solar fraction of at least 25% in typical Central European applications in the case of combi SCOHYS systems (delivering both, domestic hot water and space heating).The objectives of the SCOHYS roadmap pathway are a solar heat costs reduction by 50%, increased compactness with reduced space requirements and installation time and an improved reliability and performance and it consists of three main R&I actions: single family homes (DHW and combi systems), SCOHYS for DHW in multifamily homes and SCOHYS for DHW & space heating (combi systems) for multifamily homes.

The 2 first actions are divided in an applied research phase and a demonstration phase. The

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R&I actions include research tasks on different components and technical aspects and combine them holistically. In addition, the roadmap identifies actions in the field of enabling technologies, standards and quality, socio-economic framework and legal and administrative aspects. The SCOHYS roadmap pathway and its sub-tasks are shown in Figure .

Figure x: Roadmap pathway for Solar Compact Hybrid Systems (SCOHYS)

2.1.2 Solar Active House

The Solar-Active-House (SAH) is a concept in line with the nearly zero-energy building, where the limited needs for heat (domestic hot water and space heating) are provided by solar thermal systems. The SAH roadmap pathway is focusing on cost reduction as well as optimization and standardization of the technology for Solar-Active-Houses with about 60% solar fraction with the aim, to develop Solar-Active-Houses as competitive solution for nearly zero-energy buildings, which are required by the European Union by 2020.

The objectives of the SAH roadmap pathway are a solar heat costs reduction of SAH with solar fraction of over 60% to the same level of solar heat costs of today’s combi systems with 25% solar fraction and the development of the SAH concept through the development of the design and the construction methods to a standard which can be used by the whole construction sector as nearly zero-energy building concept.

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The Solar-Active-House (SAH) roadmap pathway includes actions for new built single family homes, new built multifamily homes and refurbishment of existing buildings and is shown in Figure x

Figure x: Roadmap pathway for Solar-Active-House (SAH)

2.1.3 Solar Heat for Industrial Processes (SHIP)

The SHIP roadmap pathway includes all industrial applications with process temperatures up to 250°C, means both low and medium temperature applications and is shown in Figure .

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Figure x: Roadmap pathway of SHIP systems

2.2. Biomass

92% of all renewable heat is produced from Biomass. For this reason, bioenergy will play a key role in reducing the greenhouse gas footprint of the heating and cooling sector. Technological innovation is vital to the bioenergy sector in order to ensure that reliable, cost-competitive and environmentally friendly biomass-based heating and cooling solutions are delivered to different types of consumers in Europe. In the Biomass Technology Roadmap, the biomass panel outline a number of actions and investments needed in the short-term (up to 2020) to implement the biomass strategic research priorities. This document places special emphasis on ensuring the commercial availability of reliable, cost-competitive and environmentally friendly bioenergy heating and cooling solutions for different types of consumers.

The Biomass panel recognized the need for the entire value chain (from feedstock to end products) to be taken into account for successful implementation, and so adopted a value-chain approach. This integrates the different research priorities through the entire supply chain from sourcing biomass, its transformation into heat (and electricity), and the logistical aspects needed

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to transport the biomass or energy carrier. The roadmap emphasizes also the need for efficient and sustainable solutions which are vital in gaining public acceptance of biomass as a renewable energy source. The biomass panel recommends the strengthening of current efforts to deliver a clear legislative framework regarding sustainability requirements for biomass used for heating and cooling. This will require a tangible progress towards regulatory consensus as we approach 2020.

The Biomass Technology Roadmap consists of four selected value chains: 1) Advanced fuels replacing coal, fossil oil and natural gas in heat and CHP production (Advanced fuels), 2) cost and energy efficient, environmentally friendly micro and small-scale CHP (Micro and small-scale CHP), 3) High efficient large-scale or industrial steam CHP with enhanced availability and increased high temperature heat potential (up to 600 ºC) (High efficient large-scale or industrial CHP) and 4) High efficient biomass conversion systems for polygeneration.

2.2.1. Advanced fuels

Through the development of standardised and sector-oriented, sustainable advanced biomass fuels (new biocommodities, thermally treated biomass fuels, fast pyrolysis bio-oil and upgraded biomethane), the biomass fuel supply should double when compared to its current use (~110 Mtoe in 2012). This includes the provision of adequate feedstock at competitive production costs and also the provision of adequate feedstock at competitive production costs. Sustainable, innovative and cost-efficient advanced feedstock procurement technologies for different biomass sources need to be developed to meet the quality requirements for thermally treated biomass, bio-oil and biomethane production. The feedstock span of bioenergy supply chains should be broadened through the mobilisation of alternative biomass feedstock resources, such as forest and agricultural residues and wastes. New and advanced fuels, as well as generally broadened biomass feedstock require suited conversion technologies ensuring efficient and environmentally friendly use of the supplied fuels.

Action4 from 2014 - 2020

Feedstock30% reduction in Biomass supply costs for forest biomass and 20-30% reduction for agrobiomass residues through the use of intelligent machinery, and supply chain and logistical optimization.

30% reduction of CO2 emissions in the biomass supply chain (forest biomass)

Bio Oil

Commercial bio-oil production for heating applications, 20% reduced bio-oil costs through process integration and logistical optimizationFull scale bio-oil production with plant availability > 6,500 hrs per annum

Bio-oil upgrading to higher value products demonstrated at industrial scale.

Target of flexible feedstock using forest and agricultural residues and their blendsBio-oil satisfying specifications of new EN standard (for boilers and engines) under development by CEN (mandate accepted 10/2013). New bio-oil grades having improved quality – higher LHV, no solids, good stability, pH > 4.Physical upgraded bio-oil usage in small scale CHP and stationary engines demonstrated;chemically upgraded bio-oil usage in micro-CHP and engines demonstrated (including small scale heating sector)

4 All base values for these KPIs are detailed in the Biomass Technology Roadmap

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Thermally Treated Biomass Fuels

Commercial operation of thermally treated biomass co-firing in more than 50% of coal CHP plants using torrefied biomassProduction Costs reduction by 5 - 10 €/MWh (1.4 – 2.8 €/GJ)Operational hours at full load of 8 000 hours/yearOverall biomass-to-thermal treatment-pellets/briquettes energy efficiencies (based on net calorific value as received) >90%Minimum share of agrobiomass 10%

Development of risk avoiding guidelines and MSDS as a standardised procedure10 to 15% of annual production to have a verified in large scale a quality that can be stored outdoorsProven availability in EU with the trading volume of thermally treated biomass about 1 – 2 million tons.

Upgrading of Biogas to Biomethane

Diversification of raw material for biogas production with an increase of biogas yield of alternative energy crops by 20-30%Increased efficiency of biogas up-grading to up-grading power consumption: Ø 0.15

Cost reduction of biogas upgrading by 10-20%Improvement of load flexibility of biogas CHP systems with part load operability of biogas CHP units > 40%Increase of efficiency of biogas CHP systems by 10-20%80% of all European biogas plants have implemented the use of “waste heat” from their CHP units with GHG savings almost 14 million tons.

2.2.2. Micro and small scale CHP

Small and micro-scale CHP constitute a high energy efficient solution (total - sum of thermal and electrical efficiency > 85 %) for flexible bio-electricity and thermal energy supply. Small and micro-CHP are developed for various applications. Micro-scale CHP are serial products developed for residential scale heating with electricity production (possibly grid independent, typical P < 5 kWe) or as cogeneration systems for small industries, the service sector or in micro grids (base heat for more than 2.000 hours/year, typical P < 50 kWe). Small scale CHPs are plants rather than products for cogeneration in industries, the service sector or DHC (base heat for more than 5,000 hours/year, typical Pel < 250 kW).

Micro and Small Scale CHP

2014 - 2020

50% reduction in Electricity production costs

Minimum lifetime suitable components for bio-oil engines and turbines of 2,000 operational hours

Proven lifetime of 20.000 h (<5 kWel) / 35.000 h / 50.000 h (>50 kWel)

Electric system efficiencies based on solid state technologies of 2%

Electric system efficiencies based on thermodynamic cycles of 7% (<5 kWel )<10% -12% (5 - 50 kWel)12-15 (<250 kWel)

Decrease in Investment costs solid state technologies to 10 EUR/W

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Increase in investment costs thermodynamic cycle technologies to 3.5 EUR/W

Reduce emissions to 1/10 of the specifications in EN303-5 (except for NOx)

2.2.3. High efficient large scale or industrial CHP

In 2010, about 54% of the gross inland consumption of biomass was fed into electricity and/or heating plants, or used in industrial processes. Biomass use in industrial power plants and DHC is expected to roughly double in 2020 through the retrofitting of previous fossil-fuelled as well as new biomass plants. Taking into account the increasing strictness of air quality requirements (in e.g. the IED) and the limited availability of high quality wood resources in Europe, significant R&D efforts are required to develop high-efficient large-scale and industrial multi-fuel systems.High Efficient Large Scale / Industrial Steam CHP

2014 - 2020

New Net nominal electric efficiency34% of in clean wood boilers and 32% in wide fuel mix boilers

Steam characteristics of 600°C / 175 bar (clean wood boilers) and 563°C / 160 bar (wide fuel mix boilers)

Total increase in CAPEX of no more than 10% over current state of the art for new technologies

Electricity production costs reduced by at least 5% in clean wood boilers and at least 9% in wide fuel mix boilers

For Emissions, increase catalyst operating times and reach conformity with IED

30% Ash Utilization

Existing / Retrofit

> 50% Agrofuels thermal share in fuel mixture in wood fired units

Max. 10% reduction from nominal operational electric efficiency

For Emissions, increase catalyst operating times and reach conformity with IED

30% Ash Utilization

2.2.4. Polygeneration

Bioenergy as a storable energy source presents a real advantage when considering its integration in the overall renewable energy system. Besides the production of heating and cooling, CHP (combined heat and power) and CHP-C (combined heat, power and cooling or polygeneration) technologies are able to provide intermittent electricity, balancing both daily and

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seasonal changes in solar and wind electricity production and loads of boilers, increasing plant availability, peak load duration and economy. Depending upon the season, climatic condition and time of day, the primary function of such biomass-fuelled units may change from electricity, heating and cooling to even bio-oil production (polygeneration, for example with integrated bio-oil production).

2014 - 2020

Polygeneration

>90% overall average annual efficiency

Emissions reduced (CO2, CO, NOx and SOx) by half compared to condensing power production

Efficiency in electricity production of > 30% (<10MWe) and > 40% (<200 MWe)

Topic 2014-2016 2017-2020

Advanced fuels (non-residential, industrial and CHP)

Commercial plants for thermally treated biomass

BRDemo

AR

Sustainable and cost efficient feedstock

AR Demo

Full use of the energy content of biogas

AR M

Demo M

Commercial plant for bio-oil

BRDemo

AR

Micro and small-scale CHP (residential)

Thermoelectrics BR AR

Stirling engine AR Demo M

Steam Cycle AR Demo

ORC Demo M

Fuel cell Demo M

Micro gas turbine AR Demo

Gasification +IC AR Demo

High efficient large scale or industrial steam CHP (industrial or CHP)

High efficient large-scale or industrial steam CHP

AR New materials (e.g. for superheat tubes, catalysts, etc)

DemoDemonstrate fuel flexibility and optimal

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with enhanced availability and increased high temperature heat potential

efficiency under variable load at 3-4 CHP units

AR Optimization of boiler design / placement of heat exchange surfaces / leaning techniques

AR Development and testing of suitable co-firing matrices for

problematic biofuels

AR Corrosion control (additives), ash utilisation

Polygeneration (Industrial and CHP)

Energy storageBR

DemoAR

Concept developments AR M

3 Demonstrations in different scales

AR Demo

2.3. Geothermal energy

Geothermal energy has the potential to play a crucial role in our future energy mix: decarbonised, providing affordable energy for the society and allowing competitiveness of European industry. Geothermal H&C can supply energy at different temperatures (low or high temperature), at different load (it can be base load and flexible) and for different demand (heat and cold: less than 10 kWth to tenth of MWth). Geothermal has the potential to be a key energy source both in smart cities and in smart rural communities, based on local resources being able to supply both H&C and electricity as well as solutions for smart thermal and electricity grids via underground thermal storage.

Currently, geothermal energy sources provide more than 4 Mega tonnes oil equivalent (Mtoe) per year for heating and cooling in the European Union, equivalent to more than 15 GW th

installed capacity, where geothermal Heat Pump systems contribute to the largest part. But still the potential is huge for residential and tertiary sectors, as well as for the industry. Following current trends, in European Union (EU-28), the contribution in 2020 may amount to around 40 GWth installed corresponding to about 10 Mtoe. In addition, Enhanced Geothermal Systems (EGS) development, by substantially enlarging the geological areas in which geothermal energy may be profitability extracted, will provide further opportunity for CHP systems.

The technological challenges for an accelerated deployment of geothermal H&C across Europe are to develop innovative solutions especially for refurbishing existing buildings, but also for zero and plus energy buildings, as the system is easier to install and more efficient at low

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BR … basic research (TRL 1)AR … applied research & experimental development (TRL 2, 3, 4 and 5)Demo … demonstration (TRL 6, 7 and 8)M … market-ready (TRL 9)

temperature for both H&C. Secondly, to develop geothermal District Heating (DH) systems in dense urban areas at low temperature with emphasis on the deployment of EGS. Finally, the third goal is to contribute to the decarbonisation of the industry by providing competitive solutions for H&C.

2.3.1 Shallow geothermal technologies

The quantitative development of the European geothermal H&C market in the next ten years is expected to be fuelled mainly through the introduction and consolidation of shallow geothermal systems, with a quite mature market in Sweden and Switzerland and well developed markets in Austria, Norway, Germany and France. In other emerging European markets, a high growth is possible and is expected over the next years (Italy, Spain, United Kingdom, Hungary, Romania, Poland and the Baltic states). The aforementioned mature market countries will see a steady increase, mainly stimulated by sales in the renovation segment, while in all other countries, a significant growth is to be expected. Fast development for geothermal heat pumps illustrates how shallow geothermal energy resources, previously often neglected, have become very significant, and should be taken into account in any energy development scenario.

The main Key Performance Indicators and Objectives for Ground Source Heat Pumps are: SG1. A Seasonal Performance Factor in the order of 5 for 2020.

SG2. A Hellström-efficiency (a measure of the impact of borehole thermal resistance) of about 80% in 2020.

SG3. A further decrease in energy input and reduced costs for operating the geothermal heat pump system.

The interlink between the different proposed actions in the Geo Roadmap and the above listed KPI’s is highlighted in the following table.

R&D Program area title KPI’s TRLGround coupling technologies

Improved vertical borehole drilling technologies to enhance safety and reduce cost of BHE installations - Improved installation technologies and geometries for ground Heat Exchange technology.

SG3 5->6

European-wide Geoactive Structures Alliance.Development a network of laboratories to create 4 testing sites.

SG1, SG2, SG3

5->6

Improved pipe materials for borehole heat exchangers (BHE) and horizontal ground loops. New pipes for higher temperatures. Better thermal transfer fluid.

SG1, SG2 3->4

Systems, integration and environmentCreation of a new European wide database to map conductivities and potential (to 100 m depth) and feasibility of vertical BHE systems

SG3 7->9

Development of geophysical tools for Shallow reservoir potential estimation – enhanced TRT methods for non-conventional systems.

SG3 4->6

Integration of design of the shallow geothermal system and building energy system with regard to optimum thermal use and operational strategy.

SG1, SG3 7->8

System concepts and applications for geothermal large scale and medium scale cooling in warm climates – hybrid systems, new high temp pipe materials and new

SG1, SG2, SG3

3->7

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short term storage materials and concepts.Campaign to support 50 demonstration plantsDevelopment of ground coupling technologies and installation techniques for high capacities through hybrid systems and integration with other RES sources.Campaign to support 50 demonstration plants

SG1, SG3 7->8

Non-technical provisions: measures to increase awareness, harmonization of shallow geo- standards, shallow geothermal installer EU wide training certificate, shallow geothermal Smart City deployment policy along the line of previous projects

8->9

2.3.2 Deep geothermal technologies

Promising areas are the development of smart thermal grids (1st generation) with the building of new district H&C networks (Geothermal District Heating & Cooling, with ca. 5 €-cent/kWh, is one of the most competitive energy technology), optimization of existing networks, and the increase of new and innovative geothermal applications in transport, industry and agriculture.

During the next 10 years, new geothermal combined heat and power (CHP) plants with low temperature installations and Enhanced Geothermal Systems will be developed. The sector forecasts to reach 3-4 GWe in EU-27 of geothermal electricity installed capacity in total by 2020.

A typical EGS plant today has a capacity of 3-10 MWe, but future commercial plants will have a capacity of 25-50 MWe and 50-100 MWth (producing from a cluster of 5 to 10 wells, as nowadays found in the oil & gas industry). CHP installations could provide heating representing 2 Mtoe by 2020 at high temperature, suitable for energy intensive industry. The main KPI’s and 2020 Objectives for Deep Geothermal Technologies are:

DG1. Improved exploration of geothermal resources and creation of a European geothermal resource database, based on the target that not a single project should need to be abandoned after the decision to go ahead with drilling.

DG2. Reduce cost for drilling and underground installations by at least 25 % compared to the situation today.

DG3. Novel, improved production technologies to increase efficiency and reduce operation and maintenance cost by at least 25 %, improve system reliability and energy efficiency of operation, in particular by decreasing energy consumption of production pumps by at least 50 %.

DG4. Innovative solutions and components for improved surface systems for heat uses in DHC (including CHP) and industrial processes, developed with the target of providing optimum heat transfer from the ground system to the distribution system, can increase heat exchange efficiency by 25 % and component longevity in the thermal water circuit by 40 %.

DG5. An Enhanced Geothermal Systems (EGS) design with reliable performance parameters, such as flow rate, temperature and thermal and electrical power, will, ultimately, establish EGS as a technology applicable almost everywhere for both heat and power production.

Related to these KPI the geothermal roadmap has been structured in a number of R&I which are listed below in tabular form, considering, separately, shallow and deep geothermal technologies.

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R&D Program area title KPI’s TRLDeep Geothermal Resources

Create a European Geothermal resource database. DG1 5->7Exploration technologies (geochemical and geophysical exploration campaigns), characterization and assessment of geothermal reservoirs

DG1 3->5

European campaign of slimholes: new technologies & drilling campaign DG1 6->7Deep Geothermal Drilling

Improve current drilling technologies DG2 4->5Develop novel drilling technologies by 2020: in laboratories (by 2015), on site (by 2017), on a demonstration plant (by 2020)

DG2 3->7

New drilling concept: horizontal, multi-wells, closed loop systems DG2 3->5Deep Geothermal Production

Reservoir engineering: Well design & completion, reservoir stimulation and management. DG3 3->7

New Materials: corrosion, scaling DG3 2->3HT/HP tools, high temperature production pump DG3 5->6Surface systems equipment: low temperature systems, heat pumps, turbines, cooling generation (via heat absorption)

DG4 6->7

EGS Flagship ProgramEstablish network of complementary 5-10 European EGS test laboratories. DG3,

DG55->6

Demonstration sites in different geological settings (3 plants of 5 MWe-10MWth), and upscale (1 plant=10 MWe-20MWth & 1 plant=20 MWe-40MWth).

DG1, DG3, DG5

R&D: 3/4->6

Training and education of new geothermal professionals specialized in EGS. DG5

Public acceptance: microseismicity, stimulation, environmental impact, emissions DG5Grid flexibility: Flexible and base load electricity production from EGS plants, test on dispatchability, design regional flexible electricity system.

DG5 D: 3->6

2.4. Cross-cutting technologies

In order to realise the potential of Renewable H&C, it is necessary to exploit synergies among the renewable energy production, distribution and consumption, by investing in “Cross-cutting technology”.

The “Cross-cutting technology” concept represents any energy technology or infrastructure which can be used either to enhance the thermal energy output of a RES, or to enable a greater fraction of the output by the system to be used, or to allow the exploitation of RES which would be difficult or impossible to use in building-specific applications. So Cross-cutting-technology is seen as the key driver to enable the transition towards a RES landscape.

Four key energy technologies have been identified that fit the definition above.

District Heating and Cooling Thermal energy storage

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Heat pumps Hybrid renewable energy systems and priorities with generic impact on RHC

applications in the residential sector

In the next sections, a brief overview of the roadmap for these four key energy technologies is provided.

2.4.1 District Heating and Cooling

District H&C (DHC) provides the broad platform for the integration of RES into the heat market. It increases the overall efficiency of the energy system by recycling heat losses from a variety of energy conversion processes. Heat which otherwise would be unutilised is recovered and used to meet thermal demands in buildings and industries. Renewable sources which otherwise would be difficult to use, such as many forms of biomass and geothermal energy, can also be exploited. By aggregating a large number of small and variable heating and cooling demands, DHC allow energy flows from multiple RES to be combined while reducing primary energy demand and carbon emissions in the community served. So DHC will facilitate the boosting of the 3 other key technologies by integrating them into its grid system.

The District Heating and Cooling roadmap is summarized in x

Research and Innovation Priorities

Predominant type of activity

PriorityTimeline TRL KPI

Large scale demonstration of Smart Thermal Grids

Demonstration2014-2016 47

Cost of heat with 50% renewable decrease from 200 €/MWh in 2012 to 50€/MWh in

2020

Booster Heat Pump for DHC Demonstration

2014-2016

47

The reference sCOP value compression HP increases from 3.5 in 2012 to 5 in 2020 while the heat generation costs is reduced

by more than 30 %Develop and roll-out DHC driven white goods and low temperature solution for domestic hot water preparation

Development/Demonstration

2018- 2020

47The average electricity consumption of

white goods is reduced from 850 kWh/y in 2012 to 153 kWh/y in 2020

Improved, highly efficient substations for both present and future lower temperature networks

Development

2016-2018

36

Substations’ manufacturing cost is reduced from 5.000 to 10.000 € in 2012 to 4.000 to

6.000 € in 2020Average electricity consumption of

substations for residential buildingis reduced from 4.380 kWh/year in 2012 to

2.600 kWh/year in 2020, while the number of “smart substations” has a marketshare

of 80%

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Optimised integration of renewable energy sources in DHC systems and enhancement of thermal energy storage at system level

Demonstration

2018-2020

46

The reference heat cost is reduced from 50-200 €/MWh in 2012 to 40-90€/MWhin 2020, while the energy efficiency of DHC

systems is increased by 10 %

Table x: District Heating and Cooling Roadmap

2.4.2 Thermal Energy storage

Thermal energy storage is the solution for a key bottleneck against the widespread and integrated use of RES, since the renewable supply does not always coincide with the demand for H&C. Numerous technologies in sensible, latent or thermochemical form both in on-site and large scale applications can time-shift renewable energy supply to periods of greatest demand, each of them characterised by different specifications and specific advantages.

The Thermal Energy storage roadmap is summarized in Error: Reference source not found.

Research and Innovation Priorities

Predominant type of activity

Priority Timeline TR

L KPI

Next generation of Sensible Thermal Energy Storages

Development

2014-2016

38

1000 litre tank cost (excluding insulation and VAT) is reduced from 400 - 900 € in 2012 to 300 - 700 € in 2020, while the heat loss is

reduced from 150W – 200W to 56W

Improving the efficiency of combined thermal energy transfer and storage

Research / Development

2018- 2020

36

New fluids for thermal energy transfer and storage allows a reduction of annual electricity consumption for pumping from 75 kWh in 2012 to 50 kWh in 2030, while the energy density is

increased by 30%Increased storage density using phase change materials (PCM) and thermochemical materials (TCM)

Research

2016-2018

28

Stable, micro encapsulated salt hydrate PCM cost reduced from 8 €/kg in 2012 to less than 2

€/kg in 2030Energy seasonal solar TCM storage increased from 60 kWh/m3

system in 2012 to 250 kWh/m3system

Improvements in Underground Thermal Energy Storage (UTES)

Demonstration

2016-2018

46

Energy efficiency increased from 60 %in 2012 to 75% in 2020

Lifetime of the UTES at elevated T increased from 10 years in 2012 to 20 – 30 years in 2020

Optimised integration of renewable energy sources in DHC systems and enhancement of thermal energy storage at system level

Demonstration

2018-2020

46

The reference heat cost is reduced from 50-200 €/MWh in 2012 to 40-90€/MWhin 2020, while

the energy efficiency of DHC systems is increased by 10 %

19

Table x: Thermal Energy Storage Roadmap

2.4.3. Heat pumps and sorption cooling

Heat pumps transform thermal renewable energy available at low temperatures from natural surroundings to heat at higher temperatures. The heat pump cycle can be also used to provide cooling. Heat pumps use aerothermal, hydrothermal and geothermal energy, and can be combined with heat from other RES in hybrid systems (see below). These sources might be renewable in origin or waste energy from industrial processes and exhaust air from buildings. Heat pumps can be highly efficient, although their overall primary energy efficiency depends on the efficiency of the electricity production (or other thermal energy source) they use.

The Heat Pumps roadmap is summarized in Error: Reference source not foundError: Referencesource not found.

Research and Innovation Priorities

Predominant type of activity

Priority Timeline TRL KPI

Cost competitive heat pump kit for houses with existing boiler

Development

2014-2016

47

PER of the heat pump and gas boiler system referred to primary energy increased

from 0.8 (gas boiler only) to 1.7 in 2020Reference average cost of 4-8 kW HP in the range 4-8 kW, including installation, reduced from 6.000 – 8.000 € in 2012 to 4000 – 5500

€ in 2020

Optimisation of thermally driven heat pumps and their integration in the boundary system

Development

2014-2016

47

Reference thermal system SCOP (e.g. for air source) increased from 1.15 in 2012 to

1.4 in 2020Reference specific unit cost reduced from 450 €/kWth in 2012 to 350 €/kWth in 2020

Development of a heat pump for near-zero energy buildings (single family house)

Development

2018- 2020

46

SCOP (for heating and cooling) increased from 3.5 in 2012 to 6 in 2025

Contribution to the production of DHW higher than 40% in 2025

High capacity heat pump for simultaneous production of cold and hot water for heating/cooling the building

Development

2016-2018

46sCOP of air-to-air HP increased from 7 in

2012 to 10 in 2020Refrigerant charge lower than 0.1 kg/kW

Sorption cooling systems driven by hot water at moderate temperature

Demonstration

2016-2018

37

driving temp for absorption today 95°C -> 60°C

Reference sCOP (water cooled) increased from 0.5 in 2012 to 0.8 in 2020

Enhanced industrial compression heat pumps

Development 2018-2020

36 Carnot efficiency increased from 0.3 in 2012 to 0.4 in 2025

Production cost of the heat pump unit

20

reduced from 300 €/kW in 2012 to less than 200 €/kW in 2025

Process integration, optimisation and control of industrial heat pumps

Demonstration

2014-2016

47

Reference sCOP compression HP (at T = 35 K , Tevap = 40 °C) increased from 3.5 in

2012 to 5 in 2020Reference sCOP absorption HP increased

from 1.1 in 2012 to 1.5 in 2020Average system cost reduced from 500-600 €/kW in 2012 to less than 400 €/kW in 2012

Improvement of sorption cooling from renewable energy sources

Development / Demonstration

2018-2020

47

Cost for absorption chiller reduced from 160 €/kWc in 2012 to 100 €/kWc in 2025

Specific weight reduced from 7 kg/kWc in 2012 to 5 in 2025

New concepts for industrial heat pumps

Research

2016-2018

24

Temperature of the delivered heat increased from 100°C in 2012 to more than 200°C in

2020 with a temperature lift higher than 70KPayback time reduced from 5 years in 2012

to less than 3 in 2020Table x: Heat Pumps Roadmap

2.4.4 Hybrid systems

Hybrid renewable energy systems, combining two or more energy sources into a single system, can overcome the limitations of individual technologies. This is true for small scale applications such as heating and cooling systems for single family houses as well as for large scale systems suitable for district heating and cooling or industrial processes. The combination of RES available at different times within the system is especially useful if a more constant demand for heat exists, with the overall efficiency of the system depending strongly on the way the different sources are combined.

The Hybrid systems roadmap is summarized in xError: Reference source not found.

Research and Innovation Priorities

Predominant type of activity

PriorityTimeline

TRL

KPI

Automation, control and long term reliability assessment

Development 2014- 2016

37

Reference system customer price (for Central Europe) reduced from 800 – 1,500 €/kW in

2012 to 640 – 1,200 €/kW in 2020Primary Energy Ratio of a reference system

reduced from 0.8 in 2012 to 0.65 in 2020Increase in the system efficiency as a result of the integration of smart controllers higher than

20% in 2020Next generation of highly integrated, compact hybrid

Development/ 2018-2020

36 Renewable fraction of the reference hybrid system increased to more than 75 % in 2030

21

systems Reference system customer price (for Central Europe) reduced from 800 – 1,500 €/kW in

2012 to 500 – 1000 €/kW in 2025Integration, automation and control of large scale hybrid systems for non-residential buildings

Development/ 2016-2018

46

Primary Energy Ratio of a reference system reduced from 0.8 in 2012 to 0.5 in 2020Average increase to the payback time,

compared with conventional alternatives reduced to 5 years in 2020 and to 1 in 2025

Table x: Hybrid Systems Roadmap

Below are some items of relevance to all types of residential heating and cooling from RES that will help to improve system efficiency and ease of installation. These issues are related to the system level rather than to the single component level. While components often are tested and certified with specific procedures (e.g. the solar key mark for solar thermal collectors), such certification practices and schemes do not exist for overall heating and cooling systems.

Research and Innovation Priorities

Predominant type of activity

PriorityTimeline

TRL KPI

Developing standards for the overall system design and for hydraulic and electrical interconnections of different building components

Development 2016- 2018

Applicable to all TRLs

Installation time is reduced by 30%Material cost reduction for the end-user

of 20% (cfr CCT.3)20% reduction of human interventions

for maintenance / reparation.

Elaborating standards, tests, and benchmarks for system efficiency

Development/ 2014-2016

Applicable to all TRLs

Establishment of harmonised test procedure(s), recognised among

industry, research and standardisation bodies in EU, in order to test different

RHC systemsThe harmonised test procedure(s) should be tested in at least 5 EU

countries by relevant research and/or standardisation bodies

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3. Interconnection between the different RHC technologies and its link to the different demand profiles

The complexity of developing Renewable Heating and Cooling technology is first of all a matter of classification, since, due to the immensely large number of ways and forms heat can be produced, transported, stored and delivered, and the many different profiles of end users, it is difficult to draw exact boundaries between the different technological options. In the RHC Platform, this duality between the need for clarification and identification and the inherent relationship between the different forms of heat was dealt with by means of the constitution of an all-embracing Cross Cutting Panel beneath the three source-oriented solar, bio and geothermal Panels.

The present chapter is intended to clarify the interlink between the technological progress which is needed to further develop the different renewable sources of heat, described in the previous chapter, and the progress needed in the different Cross Cutting technologies (CCT). A clear conclusion from its reading is the fact that progress in some source based technology or CCT alone will not bring the desired results. Both have to go together.

3.1 Interconnection between cross cutting technologies and source oriented technologies

3.1.1 How Solar thermal is linked to Cross-cutting technologies

House owners don’t want to buy heating components like solar collectors, water storage, backup-heater and other equipment, they want to buy a solution for domestic hot water (DHW) and/or space heating and/or cooling (such as Combisystems).

One of the most relevant components for which strong R&I work is required is thermal energy storage (TES). Solar thermal systems solutions require (in almost all cases) a heat store. This is due to the mismatch between solar radiation and heat demand profile, usually a thermal energy storage system is needed to make solar thermal energy useable. Depending on the scale of the mismatch and the desired solar fraction, TES is designed to bridge the gap for only a few hours or days, up to some weeks or months. However, to store solar thermal energy means additional investment costs and additional thermal losses, which are increasing with storage size and duration.

Therefore, the challenge is to achieve a specific goal, which could be low solar thermal heat costs or high solar fraction, with an optimized system design by optimizing collector size, storage volume and other criteria.

Besides, the concept of Solar Compact Hybrid System includes the solar system and the backup-heater in one compact unit. There are already today in the market such system combining solar thermal and heat pumps. This concept can also be enlarged to other technologies, exploring further the hybridization of RHC technologies.

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3.1.2 How Biomass is linked to Cross Cutting technologies

Since the majority of the renewable heat production in the EU is produced and will continue to be produced by biomass, it can be expected that the interactions between the various bioenergy technologies for RHC with CC technologies will be high.

DHC networks throughout Europe often use the heat produced from biomass heating and/or CHP units as a primary supplier. Technologies that improve the management of small and variable heating and cooling demands from customers or minimize thermal losses have a direct impact on the supply side as well, e.g. by allowing more customers to be connected to an existing grid or by allowing a better dimensioning of the supply side during the design phase. Moreover, large-scale demonstration activities of the Biomass Technology Roadmap, such as those of the “High efficient large-scale or industrial steam CHP with enhanced availability and increased high temperature heat potential (up to 600°C)” priority can be coupled with demonstration activities of the CCT Roadmap, e.g. “CCT.17 Large scale demonstration of Smart Thermal Grids”. This way, the efficiency and environmental performance of new or retrofitted large-scale CHP units can be tried in the actual operating conditions of a smart thermal grid for DH.

TES technologies are a common supporting feature of several bioenergy heating systems in the residential or DH sector, mostly for short-term storage. Improvements in thermal energy storage technologies will allow bioenergy heating units to manage their heat production more efficiently, e.g. by avoiding shut-downs or abrupt load changes. For CHP units, this means an increase in their heat output, thus increasing their total efficiency. At domestic scale, sensible heat stores already play a major role today. In combination with firewood boilers, as well as with solar thermal systems, the sensible heat stores are the most diffused elements of residential renewable heating systems and will remain so in the future. Next generation (cost effective and efficient) of sensible TES (CCT.6), but also PCMs and TMs (CCT.8) will be a relevant component for small and micro scale CHPs as well and are highly relevant for consideration in the automation and control system of hybrid energy systems.

Heat pumps are a versatile technology, utilizing low temperature waste heat from various sources. Such low temperature streams are produced by bioenergy heating systems of all scales. The improvements in heat pump technologies will allow for the utilization of such streams and will contribute to the increase of the overall total efficiency. Biomass combustion systems may substitute natural gas in the field of thermally driven heat pumps (CCT.2). Hybrid renewable energy systems include a number of technologies that will allow for the combination of two or more energy sources in a single stream. Since bioenergy is the most common technology for RHC, it can be expected that most hybrid systems will include some type of bioenergy system. For example, “CCT.3 Automation, control and long term reliability assessment” allows for improved load control; this leads to better dimensioning of the capacity of CHP units in the design phase, allowing them to operate as close as possible to full load and

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thus higher efficiencies and lower emissions. A major role of successful deployment of CCT.3 will be for packaging purposes of integrated hybrid renewable energy systems. Pellets burners / biomass micro CHPs may also be an element (first attempts already on-going) of next generation of highly integrated, compact hybrid systems (CCT.5) in order to ensure independence of electricity.

From our Strategic Research agenda, RHC.1 & 2 are absolutely necessary for all RHC technologies at residential scale and may strongly favor packaging solutions, which may gain substantial relevance in the future.

3.1.3 How Geothermal is linked to Cross Cutting technologies

There is a structural link between shallow geothermal technologies and Heat Pumps, since the heat pump is a structural element in any shallow geothermal application, enabling the system to exchange heat between the underground and the building HVAC (Heating, Ventilation & Air‐Conditioning) system. Any progress in HVAC components (better efficiency, lower cost, adaptation to temperatures delivered by geothermal systems) and in particular HP components will thereof benefit the overall geothermal system. Additionally, shallow geothermal applications are often found in combination with other sources of renewable heat. These forms of hybridization (solar – geothermal, air source – geothermal, etc…) play a key role in adjusting the demand profile in many applications to the characteristics of the different heat sources, optimizing the balance between cost competitiveness and efficiency. This is particularly true in high capacity non-residential applications with unbalanced heating/cooling demand, in which the thermal equilibrium in the soil can only be reestablished by means of supplementary heat sources and sinks. Here, the development of optimized hybrid schemes and control appliances is key.

Sensible Underground Thermal Energy Storage (UTES) for low temperature applications (at less than 40 °C), either using groundwater-bearing layers (ATES) or wells into the ground water, or using borehole heat exchanges (Borehole Thermal Energy Storage (BTES)), uses the same type of installation procedures and technologies that make up the core of the shallow geothermal systems. These areas are thus closely interlinked. In the 40-90 °C heat storage temperature range for ATES and BTES systems a breakthrough would be needed that would open up shallow geothermal systems to a wider range of applications in non-residential and industrial areas.

In the DHC sector, there are two relevant technologies that are closely interlinked with the GEO roadmap topics. On the one hand, as mentioned before, technologies using the ground as a vast heat store or sink through UTES, with shallow geothermal technology principles. On the other hand, deep geothermal energy production by means of direct heat supply by thermal water production and reinjection, or also using other technologies like deep borehole heat exchangers (BHE) or heat from geothermal CHP plants. The capacity of such installations can start from about 0,5 MWth (in particular deep BHE) and may achieve values in excess of 10 MWth. The heat could be fed directly into a district heating system, if production temperature

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matches the required supply temperature, or be used as a heat source for large heat pumps (including absorption heat pumps, engine-driven compression heat pumps, etc.). Also cold production is possible with absorption chillers driven by geothermal heat. Further development in DHC technologies (including cascading and storage) will make it possible to use geothermal heat more efficiently.

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3.2 Contribution to application-oriented solutions

As clearly expressed in the Common Strategic Research Agenda of the Renewable Heating and Cooling Platform, there has been an increased effort to structure the Research and Innovation actions increasingly taking into account the point of view of the demand or final users. This makes sense taking into account that from the point of view of heating and cooling demand profile, supply temperatures, costs and relevant technologies, there are markets with completely different characteristics and needs. Four main demand profiles were identified that are meant to cover substantially the most important user groups leading into the proposed classification into residential, non-residential, industrial and district wide (or Smart city) users.

In this subchapter, the different R&I actions will be linked and related to this four application domains to highlight the fact that, from the point of view of technology and research, different solutions and paths have to be found depending on the market and demand profiles to be addressed.

3.2.1 RHC Research and Innovation in the Residential Sector

The needs of the residential market can be divided into two main segments: retrofitting and new built. While the majority of the market needs solutions that can be easily integrated into existing buildings, new buildings require holistic solutions in line with the nearly-zero energy building concept. Today, in Central and North Europe – as well as in many climatic areas in the Southern European Countries - space heating is responsible for more than 80% of the heat demand in residential buildings, less than 20% is needed for DHW heating. Thus, although the space heating demand will decrease due to improved insulation and improved façade air tightness by refurbishment and in new buildings, even if the demand on space heating would be reduced by 75%, still heating demand would be of the same size than the demand for DHW heating.

Contribution from Solar thermal Technologies Today, manufacturers are selling solar systems as units with a high grade of prefabrication. But usually solar heating systems must still be combined with an external backup-heater by the installer on-site in the building. Manufacturers offer solar systems combinable with a huge variety of heating system designs. However, this diversity increases complexity, costs and risk of mistakes at the time of installation and the risk of suboptimal operation due to conflicts between the controller of the solar system and the backup-heater.

This challenge can be solved by the Solar Compact Hybrid System (SCOHYS), which includes the solar system and the backup-heater in one compact unit. SCOHYS will be a compact solution at reduced costs due to simplified design, only one control unit (including both control and monitoring functions), high grade of prefabrication and reduced installation effort. Due to optimized combination of components and prefabrication in a smart way, the performance and reliability will improve.

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In line with the nearly-zero energy building concept, for some time there have been efforts in developing a solar active house (SAH), concept that has been growing in relevance. A relevant contribution of solar energy to space heating requires an increase of the solar fraction per building, which is the share of solar energy on the overall heat demand for DHW and space heating. Today, in Central Europe combi systems for DHW and space heating have a size of typically 10 to 15 m2 collector area and can provide a solar fraction of about 25%, depending on the size and the efficiency of the building and the climate conditions on site. Since in Central and North Europe the level of solar radiation is in winter time much lower than in summer time, a solar fraction close to 100% requires the shift of a significant amount of solar heat generated during the summer to the heating season and the installation of a very large seasonal storage water tank. However, based on improved insulation standards for buildings and improved solar heating technology, the SAH with a solar fraction of about 60% was developed as a good compromise of high solar fraction at acceptable storage volume. In Central Europe a typical single family SAH needs a collector area of 30 to 40 m2 and a water storage tank of only 5 to 10 m3. More than 1300 of such Solar-Active-Houses are already built.

The final goal of the solar sector is to provide SAH at low solar heat costs. The SCOHYS and the SAH roadmap pathways are different paths to achieve this goal by 2030.

Figure x show the SCOHYS roadmap pathway (SCOHYS roadmap (rm)) and its result (cost reduction by 50% for the same solar fraction) and SAH roadmap pathway (SAH rm) and its result (increased solar fraction at the same solar heat costs) for the year 2020 in the solar fraction to solar heat cost diagram. Based on the technological progress beyond 2020, until 2030, the goal of a Solar-Active-House with low solar heat cost and high solar fraction can be achieved.

Figure x: Solar heat costs for different applications in 2013, 2020 and 2030 (the fields with year dates stand for the average heat costs at that year) and the result of the SCOHYS and SAH roadmaps regarding solar heat cost reduction and solar fraction increase for residential applications (costs for typical systems in a specific area, Central Europe), SAH 2030 represents the roadmap between 2020 and 2030.

Contribution from Biomass Technologies Biomass based technologies can serve almost any residential application either as individual biomass only solution, or as part of

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hybrid packages providing heat, hot water and ventilation and air conditioning / cooling to residential buildings. As for solar thermal (and probably all other RHC technologies) the development of package solutions reducing the diversity of system solutions and reducing the potential for mistakes in the practical installation of the systems is a main requirement for technical solutions for the residential RHC sector. Whilst firewood will remain the most relevant fuel for the individual room heating systems, upgraded and new fuels will gain importance in automatically fired boilers and stoves.

In the existing building stock the most relevant short term markets and applications are the modernization of the existing stock5 of individual biomass room heating appliances and biomass boilers, as well as the substitution of existing oil boilers in the existing building stock. Whereas the former measure must lead to a substantial increase in resource efficiency and decrease of environmental impacts, the latter is a substantial contribution to saving GHG emissions. Both measures should be demonstrated in a real-life environment to guide respective policy measures. The biomass technology solutions required are advanced residential scale biomass combustion appliances, possibly equipped with secondary measures to reduce emissions. Moreover, upgraded standardized refurbishment sector fuels with characteristics tailored for low PM emissions need to be available and heat demand driven micro CHPs shall be developed to be integrated into the existing building stock.

The biomass based technology solutions for the are widely identical with the solutions for the existing building stock. For single family homes nominal capacities of offered technologies are lower and solutions for low temperature heating systems are introduced by flue gas condensation technology. Biomass based technologies will particularly be attractive for multi-family buildings with biomass boilers and biomass micro-CHPs providing the base heat and hot water demand either as individual systems or in hybrid packages with other RHC technologies.

In the new building market, biomass technologies will serve the new building market mostly with back up technologies (individual room heaters, possibly with water heat exchangers, in any case with advanced heat storage opportunities) or with base load supply technologies (in case of multi-family homes or a number of flats connected with a micro-grid). The latter is offered by boilers or micro-CHP technologies. As far as pre-fab buildings are concerned biomass burners are a component of hybrid HVAC packages developed around the heat storage as central and enabling technology component.

Contribution from Geothermal technologies In the residential sector, the main geothermal technology to cover heating and cooling demand is the shallow geothermal heat pump system. This technology is suitable for small, individual houses as well as larger multi-family houses or groups of houses. Capacities range from under 10 kW th to over 500 kWth. The depths of geothermal heat exchange ranges from a few meters to more than 200 m, depending upon technology used, geological situation, demand profile, and other design considerations. Geothermal heat pumps can deliver all thermal energy required for living: space heating and

5, including harvesting, transport and biomass processingmore than 50% of existing installations is more than 15 years old.

29

cooling as well as domestic hot water (DHW).

For space cooling, in certain regions with moderate climate, direct cooling from the ground via cooling ceilings etc. is possible, allowing for space cooling with minimum energy input. In warmer regions with higher cooling demand, the heat pump can be used in cooling mode. For well-insulated houses with a forced ventilation system, geothermal energy can contribute to pre-heating or pre-cooling ventilation air while it passes through intake pipes buried in the ground.

The R&I actions more directly addressing the European residential geothermal sector are based on the objectives and KPI’s related with shallow geothermal technologies, mainly, increasing the efficiency of systems (new materials, better integration and design), allowing a better characterization of suitable areas and applications and decreasing installation costs through different techniques (improved drilling or other types of heat exchangers, such as geoactive building structure elements). Like in many other areas, a special mention has to be done to the development of measures to increase awareness, harmonization of shallow geo- standards, shallow geothermal installer EU wide training certificate, shallow geothermal Smart City deployment policy along the line of previous projects.

Contribution from Cross Cutting technologies All priority I actions in the residential housing are seen as development activities. Heat pumps advance should focus in developing cost-competitive heat pump kits for houses with existing non-electrical boilers, an essential tool for refurbishment of existing European housing stock, and in the optimisation of thermally driven heat pumps and their integration in the boundary system to support the market penetration of such equipment, enhancing the efficiency and the long-term stability and by reducing their size, weight and cost. Within the development of new generation hybrid systems, special attention should be paid to the automation and control of systems; the scope of this research should be to develop an integrated control platform with the necessary technical developments on control monitoring and automation to improve the quality of the systems. Finally, development on sensible thermal energy stores should focus on significantly reducing heat losses, increasing exergy efficiency, efficient charging and discharging characteristics and high flexibility to adapt it to and integrate it in existing buildings with limited space for storages. The need for standards in design and implementation is greatest. End users here do not have sufficient knowledge to judge design and implementation quality. Standards and standardised test procedures need to be developed to ensure renewable heating and cooling systems are satisfactory in all aspects.

As priority II, research is needed to increase storage density using phase change materials (PCM) and thermochemical materials (TCM) in order to enable the implementation of TES in applications with less available volume and to enable the cost-effective long-term storage of renewable heat.

In the long term, with priority III, the development of a heat pump for near-zero energy buildings (single family houses) is expected; this aims to the development of a small capacity reversible heat pump (around 3-4 kWth), with low cost, easy installation, operation and maintenance for

30

the new low-energy consumption houses of the EU with optimal integration with the ventilation heat recovery, cooling, dehumidification and domestic hot water production. Development and demonstration efforts should be put into developing compact/prefabricated hybrid systems with improved efficiency, inexpensive and simplified installation to reduce damage, and adapted to the various configuration of heating systems and climates. Finally, further development and improvement of fluids that combine the heat transfer function with thermal energy storage is outlined; these will lead to smaller required storage volumes, an increase in heat transfer efficiency and a reduction in auxiliary energy for pumping.

3.2.2 RHC Research and Innovation in the Non-Residential Sector

Non-residential or service buildings require in general a different approach compared to residential buildings due to two main differentiating aspects: the demand profile is substantially different and includes under circumstances large cooling loads (even in Northern or Central European buildings) and systems tend to be much larger and highly integrated, whereby hybridization of different technologies, as well as CCT concepts are usually widely applied. The complexity in the design and installation of such systems is higher and, safety requirements are more demanding (e.g. by dealing with steam in the system in the case of solar thermal applications).

Contribution from Solar Thermal technologies Developments in solar heating and cooling solutions for residential buildings are also relevant for the non-residential sector. The service sector requires larger solar thermal systems, which allow economies of scale but also imply customized planning. The efficiency of the solar thermal system depends a lot on the demand curve and the temperature requirements, e.g. solar thermal systems are well suited to supply the high volume of hot water consumed during the whole year by hotels, hospitals and homes for elderly people.

Solar cooling solutions for stronger requirements, as it is the case for the non-residential sector, are also a good option. Even more considering that most of the demand for cooling in the service sector is currently supplied by electrical systems, causing problematic consumption peaks already today. Thermally driven cooling technologies constitute promising alternatives and are set to play a key role in the efficient conversion of energy in the field of building airconditioning and refrigeration, especially in southern Europe. Today, these technologies are used largely in combination with waste heat, district heat or co-generation units. Thermally driven cooling cycles can be efficiently run with solar thermal energy too, thus producing solar airconditioning and refrigeration. In climates where cooling is not required all year round which constitutes the majority of European areas, these systems can be used for cooling in the summer season and for space / DHW heating out of the cooling season.

R&D priorities for solar heating and cooling systems in non-residential buildings aim at simplifying installation, improving integration, increasing stability, reliability and long-term performance to lead to cost competitive solutions. The identification of the best applications and cases suited for solar cooling and heating in non residential sector will be decisive. The

31

improvement of thermally driven cooling components deserves special attention.

Contribution of the Biomass technologies Small scale CHPs and fuel flexible boilers shall be developed for reliably providing the base heat loads for non-residential buildings, services and grids for a relevant time span of the year under competitive conditions. In the field of non-residential buildings these may be integrated into smart package solutions with other RHC technologies. Specific high temperature applications shall be identified to allow for tailor-made biomass technology developments and a proper segmentation of the heat market amongst the RHC technologies. Thermal (biomass based) cooling technologies shall be developed for applications where this is deemed to be economically competitive. The bigger the application, the more relevant will be the supply chain management of either locally available fuels or of retailed upgraded fuels.

Contribution from the Geothermal technologies In the services sector, shallow geothermal energy systems (ground source heat pumps or underground thermal energy storage) is the most relevant technology, ranging in capacity from some 10 kWth for small businesses or offices, to 1 MWth or more for larger projects. The ability to provide both heat and cold is the major asset for shallow geothermal technologies in this sector. Systems will generally be more complex than those for the residential sector, and the geothermal system in most cases will be combined with other technologies, creating hybrid systems. In the case of shallow geothermal systems, the economy of plants is usually better, as a significant demand for cooling adds to the running time of the system, and also scale effects reduce specific first cost to less than 70 % of the specific cost of smaller, residential systems. Generally less than 50 % of the cost goes into the underground works on these shallow geothermal installations.

From the point of view of research, there are a number of programs in the geothermal roadmap specifically addressing non-residential applications, such as areas dealing with larger systems (development of solutions for cooling and high capacities) and programs which emphasize design, integration and also the use of shallow geothermal Aquifer systems (ATES technologies) which are mostly suitable in larger applications.

Also deep geothermal energy (i.e. from boreholes deeper than 400m, or from high enthalpy geothermal resources) might be applicable in cases with higher heat demand (thermal spas, large offices, hospitals, etc.).

Contribution of Cross Cutting technologies Development with priority II is needed in the non-residential sector. First, development of a high efficiency, high capacity heat pump solution for heating and cooling of buildings with simultaneous production of hot water for space-heating and chilled water by automatically changing the refrigerant circuit in order to reject/take the necessary heat to/from the air or water from a geothermal loop(air and water versions of the heat pump). Additionally, the heat pump should preferably employ a low GWP refrigerant and offer competitive cost, high reliability, optimized control and easy integration with other systems. Second, integration, automation and control of large scale hybrid systems for non-residential buildings are needed. Finally, development of sorption cooling systems driven by

32

hot water at moderate temperature, for instance solar is needed. In this case the expected outcome includes the development of optimized solutions for the heat rejection, fully reliable and automated operation, and easy integration with other systems.

3.2.3 RHC Research and Innovation for Industrial applications

The heat demand for industrial applications in the EU was estimated by IEA to be 165 Mtoe in 2010. Most of this demand is covered by well-established fossil-fuel based systems, resulting in significant impact on the greenhouse gas emissions of the industrial sector. From the point of view of research, RHC technologies for industrial applications have very specific characteristics since the delivery temperatures vary completely from case to case, being much higher than in the building related sectors in many of the most relevant applications.

Contribution of the Solar Thermal technologies Solar Heat for Industrial Processes (SHIP) is currently at a very early stage of development. Less than 120 operating SHIP systems are reported worldwide, with a total capacity of over 40 MW th (>90,000 m²). Most of these systems are pilot plants with a relatively small size. However, there is great potential for market and technological developments, as 28% of the overall energy demand in the EU27 countries originates in the industrial sector, majority of this is heat of below 250°C.

Solar industrial process heat costs depend to a great extent on the type of application and especially on the temperature level needed. Up to now, several solar thermal process heat systems are realised in Europe with heat costs between € 38 and € 120 per MWh.

According to a study (Ecoheatcool 2006), around 57% of the total industrial heat demand is required at temperatures below 400°C and 30% at temperatures below 100°C. The heat demand below 100°C could theoretically be met with SHIP systems using improved and adopted current technologies, if suitable integration of the solar heating system can be identified. With R&I and technological development, more and more medium temperature applications, up to 250°C, will also become market feasible. The objectives of the SHIP roadmap pathway are the achievement of cost optimal SHIP systems and its integration in relevant industrial applications, as well as the development of next generation SHIP systems with increased solar fraction and its adaptation to industry machinery standards (including new ways to feed in solar heat into the industrial processes).

In several specific industry sectors, such as food, wine and beverages, transport equipment, machinery, textiles, pulp and paper, the share of heat demand at low and medium temperatures (below 250°C) is around 60% (POSHIP 2001). Tapping into this potential would provide a significant solar contribution to industrial energy requirements.

Contribution of the Biomass technologies Biomass covers almost 12% of the industrial heat demand, being therefore the most important renewable energy form for the sector. Its main advantage lies in its being a well-established technology, capable of providing heat at all temperature levels. In addition, certain types of biomass heat are cost competitive with the fossil fuel alternatives, even without the need for subsidies.

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Large-scale biomass heat units for industrial applications are already capable of reaching high thermal efficiencies; therefore, the RHC Platform highlights the importance of promoting large-scale biomass CHP units for industrial applications, since they can produce bio-electricity, an important value-added product, with a lower subsidy level compared to biomass power plants. The advantage of the industrial CHP units is the presence of an existing heat market which in many cases is not subject to seasonal demand variations, as is the case with DH networks. In addition, large-scale industrial units have a higher degree of fuel flexibility, which will allow for the mobilization and effective utilization of biomass resources that remain mostly unexplored, such as many types of agricultural residues.

R&D needs for industrial biomass applications are targeted towards increasing the fuel flexibility as well as increasing the electrical efficiency component of the total CHP plant efficiency. Furthermore, large-scale applications will require new technological solutions for reducing the environmental impact of biomass-to-energy schemes, e.g. through the reduction of gaseous pollutants, as well as the identification of new utilization routes for process residues, such as biomass fly ash.

Contribution of the Geothermal technologies Geothermal energy can provide heat in the low temperature range (less than 95 ºC including cooling) and, because geothermal energy has definite base-load characteristics and is always available when required, it matches perfectly with stable demand patterns of most industrial processes. The annual full-load hours can be rather high, and thus the return on investment for the geothermal installation favourable. In this form, geothermal heat is already used in agriculture/aquaculture (e.g. greenhouses), drying processes in the food industry, etc.

Another geothermal technology useful for industrial applications is underground thermal energy storage (UTES). In particular UTES at 40-90 °C can directly supply heat for low temperature industrial needs such as batch processes or seasonal industries (e.g. sugar refineries), where periods of heat (and/or cold) demand are followed by phases of inactivity.

Geothermal heat can also be used as operating energy for absorption chillers, to supply cooling to industrial processes. R&D priorities for UTES and absorption cooling are included among the cross-cutting technologies presented in this Chapter.

In the medium temperature range (95-250 °C) geothermal energy can provide heat above 95 °C from deep geothermal resources and from high-enthalpy geothermal resources. High enthalpy resources, some of which show temperatures over 250 °C, are used almost exclusively for electric power production. Use of the heat for industrial purposes is also feasible. R&D will be required to provide for the right matching and adaptation of the geothermal heat source to the specific characteristics of the industrial process concerned.

For the heat source as such, most R&D needs are the same as for deep geothermal in DHC, as long as temperatures below about 120 °C are considered (cf. Chapter 5). As the temperature of the geothermal fluid increases, other problems need to be solved, like degassing of the fluid

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(pressure control), corrosion, and insufficient pump technology.

Important to mention here is also the possibility of using Enhanced Geothermal Systems (EGS) to feed the heat requirements of many industrial processes or DHC in combination with electricity production (cogeneration or poly-generation).

All these developments require the support for a range of R&I actions and programs to enlarge our understanding of deep geothermal resources (mitigating the financial risks inherent in these types of projects), improve and decrease the cost of deep drilling, improve also the surface systems and the launch of EGS flagship program to demonstrate the possibilities of this technology on a wide scale.

Contribution of the Cross Cutting technologies Demonstration activities as priority I are needed for process integration, optimisation and control of industrial heat pumps. The work should focus on the development and demonstration of electrically and thermally driven heat pumps in individual industrial applications as well as in combination with district heating and cooling networks including thermal energy storage.

As priority II, demonstration activities to improve Underground Thermal Energy Storage (UTES) are encouraged (in the same context as mentioned in the geothermal program). Improvement should address system concepts and operational characteristics of UTES systems, investigation of optimum integration of UTES into industrial processes and DHC systems. Research on new concepts for industrial heat pumps should look for exploring alternative thermodynamic cycles for heat-pumping and heat-transforming for different industrial applications, with the goal to increase the operating window of industrial heat pumps so that they can deliver heat at medium pressure steam levels (around 200°C).

Priority III activities are the development of advanced compression refrigeration cycles based on novel working fluids for use in medium temperature industrial applications (condensation temperatures up to 150 °C and evaporation temperatures up to 100 °C), and the Improvement of sorption cooling from renewable energy sources. In this last topic Development is required for conversion technology for heat into cold adapted to the characteristics of the renewable resource, e.g. to improve efficiency of low-temperature absorption chillers and decrease the necessary source temperature to activate the chiller.

3.2.4 RHC Research and Innovation for DHC/Smart cities

Cities and districts concentrate most of the European demand for heating and cooling for residential and non-residential uses and it is clear that the extension and deployment of District Heating Systems will play a key role in reaching the objectives of an increased use of RHC resources instead of fossil fuels. In DHC applications the issues of cost, integrability and flexibility as well as storage are primary and RHC technologies must still evolve substantially to become a suitable choice in many cases.

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Contribution of Solar Thermal technologies In Europe there are around 195 large-scale solar thermal plants for heating and cooling (≥ 500 m²; 350 kWth) in operation with a total installed capacity of approximately 320 MWth. The largest plants are located in Denmark with more than 25 plants exceeding 7 MWth (10,000 m²) of capacity, while the largest as an installed capacity of 23.3 MWth (33,300 m²). These large-scale systems are mainly used for solar district heating which, in most countries, is a small and undeveloped niche market.

Solar heat costs for district heating systems vary a lot from about € 40 to € 190 per MWh, depending on the existing district heating infrastructure, e.g. due to the high share of district heating in Denmark the costs to connect solar thermal systems is low. The solar fraction has an impact on system’s cost, which will be relatively lower if no additional hot water storage is needed for the solar system at small solar fractions and higher in solar thermal district heating systems with significant solar fraction and a very large central hot water storage of several thousand cubic meter water content.

Only 1% of the solar collector surface is currently connected to district heating systems, but a couple of central pilot solar heating plants with seasonal storage - mainly built in Scandinavia and Germany - have proved that these types of system can reach high solar fractions (approximately 50%). With the expected growth of district heating systems in densely populated urban areas, solar thermal systems will be able to cover a higher share of the heating demand in urban areas.

Contribution of Biomass technologies Sustainable, innovative and cost-efficient advanced fuel feedstock supply, High efficient large-scale or industrial steam CHP with enhanced availability and increased high temperature heat potential (up to 600°C), High efficient biomass conversion systems for polygeneration…

To be developed – Contribution to follow ASAP, time constraints have dictated here unfortunately.

Contribution of the Geothermal technologies Deep geothermal energy production is the relevant technology in this sector, mainly with direct heat supply by thermal water production and reinjection, but also using other technology like deep borehole heat exchangers (BHE) or heat from geothermal CHP plants. The capacity of such installations can start from about 0,5 MWth (in particular deep BHE) and may achieve values in excess of 10 MWth. The heat could be fed directly into a district heating system, if production temperature matches the required supply temperature, or be used as a heat source for large heat pumps (including absorption heat pumps, engine-driven compression heat pumps, etc.). Also cold production is possible with absorption chillers driven by geothermal heat. Take advantage of further development in DHC technologies (including cascading and storage) will make it possible to use geothermal heat more efficiently. These technologies are not only suitable in combination with DHC networks, but can also be used for large individual buildings in the services sector or for industrial purposes.

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From the point of view of R&I actions needed, progress in geothermal DHC systems shall benefit from all the measures mentioned in the context of industrial applications.

Contribution of the Cross Cutting technologies All applications, including DHC and smart-cities, will benefit from priority I actions such as the large scale demonstration of smart thermal grids. Advanced district heating and cooling systems must be developed that are able to deal with both centralised and decentralised, hybrid sources (e.g. solar thermal, biomass, geothermal, heat pumps, waste heat, waste-to-energy, excess renewable electricity, storage). In addition, smart metering and load management systems are needed for the integration of thermal and electrical grids into a liberalised energy market. Such smart thermal grids have an important potential to meet the load balancing needs of combined heat and power production in a liberalised market for electricity. Also demonstration of electrically driven industrial heat pumps in district heating and cooling networks has been highlighted. Heat pumps are used to upgrade heat from low temperature sources to temperatures high enough for direct use in a DH network.

As priority II, development of improved, highly efficient substations for both present and future lower temperature (below 70 ºC) networks, looking at harmonizing substations standards, reducing materials cost, investing in the automation of manufacturing methods, and achieving good performances. DHC networks need new harmonised EU standards for the overall system design and for hydraulic and electrical interconnections of different building components.

A topic with priority III is the demonstration projects to show the feasibility of using in-house appliances which directly use thermal energy from the thermal district energy system, including an evaluation of different possibilities of DHW preparation (e.g. additional heating or direct heating without storage) considering the local energy systems framework needs to be made. Finally, further research activities at demonstration level are needed to allow DHC networks to efficiently integrate all types of RES without jeopardising the quality of the service provided to the consumers.

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4. Societal Benefits from Renewable Heating and Cooling

Current trends in energy supply and use are unsustainable from the economic, environmental and social point of views. Heating and cooling, representing today nearly half of the European Union’s final energy consumption, is not an exception. According to EURO¨//STAT,6 in 2011 gas accounted for 42.8% of the fuel mix for heating in the Union, while petroleum and derived products of some 6% and coal and peat 28%. As a result, the sector is a major contributor to the costly fossil fuel imports into Europe as well as to high greenhouse gas emissions.

This trend, however, could be reverted with countless benefits. The RHC Common Vision has shown how in 2020 over 25% of heat consumed in the EU could be generated with renewable energy sources. The large majority of renewable heating will still be produced from biomass sources, although alternatives will gain ground. Increased requirements on the energy performance of buildings make the use of renewables necessary for new buildings, both onsite or nearby, and push the growth of geothermal, solar thermal, and biomass, including through district heating networks, as well as of geothermal, aerothermal, hydrothermal heat pumps. These technologies will benefit from reduced investment cost at given or even increasing efficiencies. Improved thermally driven cooling systems (e.g. from solar or heat pump technologies) could make it possible to cover around 5% of cooling demand from the service and residential sectors by 2020.

This chapter explores some of the short-term societal benefits resulting from the implementation of the present Common Roadmap and thereby from a greater development of RHC technologies.

4.1 Saving EUR 21.8 billion annually in reduced fossil fuel imports

Security of energy supply was the main driver of the EU’s energy policy in the mid-1990s in the move towards renewable energy. This concern has further increased over recent years as domestic conventional gas production in EU Member States, mainly originating from mature production basins, has decreased by 25% over the last decade. In the same period the overall EU gas consumption has increased by 10%7. As shown in Figure X overleaf, the result has been a steadily increasing dependency rate for natural gas from 47.1% in 2001 to 65.8% in 2012. Without additional measures imports will continue rising dramatically.

6 EU Energy in figures, Statistical Pocketbook 2013,7 European Commission, “Member States’ Energy Dependence: An Indicator-Based Assessment”, Occasional Papers 145, April 2013, p. 14.

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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

10

20

30

40

50

60

70

80

47.150.9 52 53.6 57.1 60.3 59.5 61.7 63.4 62.1

67.1 65.8

Natural gas dependency rate, EU-28, 2001-2012 (%)

Source: EUROSTAT

Repeated crises, such as the 2006, 2008-9, and 2014 Russia-Ukraine’s gas disputes, and the 2011 war in Libya, clearly demonstrate the limits of Europe’s energy dependency. Such a dependency contributed not only to weaken the EU’s geopolitical influence on the international arena but fuelled the dramatic GDP-leakage with the EU Member States having spent €545 billion or 4.2% of their GDP on importing fossil fuels in 2012 alone.8

A very significant part of that imported fuel is used in the form of natural gas and heating oil for heating the continent’s houses, service spaces, and offices or for industrial purposes. 9 In these sectors, however, readily available renewable energy solutions, combined with energy efficiency measures, are a practical and versatile option to alleviate fossil fuels dependency. According to the European Commission, the avoided costs of imported fuels, replaced by biomass used for heating -most of which domestically produced, already amounted to € 12.2 billion in 2010.10

In 2012 the consumption of heating and cooling from renewable energy in the EU amounted to 82.4 Mtoe representing 15.6% of the total heat consumption11. According to the National Renewable Energy Action Plans (NREAPs), in 2020 RHC will make a total contribution of 111.2 Mtoe, or 21.4% of the total heat consumption projected for that year. Assuming this additional renewable energy consumption substituted imported natural gas, the EU would reduce its fossil fuel imports from third countries by the equivalent of 28.7 Mtoe annually from 2020. With current

8The EU has a strong trade deficit in trade in energy products with non-EU countries, which reached EU 421 billion (3.3% of EU GDP). Exports in this category amounted to € 124 billion. European Commission, Directorate-General for Economic and Financial Affairs, “Energy Economic Developments in Europe”, European Economy 1/2014, (2014a), p.112.9 Natural gas is mainly used two sectors, i.e. ~ 40% for heating of buildings (185 Bcm) and ~ 30% in industrial processes (142 Bcm) and to a lesser extent in power plants (~ 25% or 112 Bcm)10 European Commission (2014a), p.11611 EUROSTAT, SHARES 2012.

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average import prices ($11.5/ MMBtu or EUR 8.4/MMBtu)12, this would save the EU some EUR 9.6 billion.

However, it is worth highlighting that the NREAPs are less ambitious than the RHC Common Vision, according to which in 2020 it would be possible to generate 148 Mtoe from RHC technologies representing 25% of the total heat demand. By the end of this decade we could therefore produce some additional 65 Mtoe from RHC compared to 2012. By applying the same assumptions as above, the EU could save every year as much as € 21.8 billion in reduced fossil fuel imports compared to the year 2012.

The results of the NREAPs and RHC Common Vision scenarios are depicted in Figure XX below: The evidence is overwhelming:  RHC technologies, together with energy efficiency, stand out as a key factor to ensure security of energy supply, reducing foreign energy dependency.

2012 20200.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

510

515

520

525

530

535

540

545

550

82,4 Mtoe

111,2 Mtoe

148,83 Mtoe

Avoided fossil fuel imports caused by RHC

RES H&C NREAPsRES H&C Common VisionFossil Fuel Imports (bn EUR/y) NREAPsFossil Fuel Imports (bn EUR/y) Common Vision

RHC

cons

umtio

n in

Mto

e

Gas i

mpo

rts i

n EU

R bn

/y

4.2 Providing affordable and stable solutions to the consumer

According to European Commission’s analysis, the price of electricity and fossil fuels has been rising over the last years and are set to increase dramatically in the next decades. Industrial and household natural gas prices have been rising between 2004-2011, aside from a decreasing trend between 2008 and 2009. In percentage terms, average household gas prices have increased by 77% over the same period against 50% for electricity, whereas average industrial process have more than doubled against a 53% increase in industrial electricity prices. In

12 In January 2014; Source: World Bank.

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households almost all Member States experienced an increase in the price of natural gas,13

increasing the latent problem of energy poverty.

Under a business-as-usual scenario fossil fuels and electricity will become even more expensive in the future: between 2010 and 2020 oil and gas prices for heating will increase by 38% and 47% respectively, while average electricity prices are projected to increase by 31 per cent in real terms between 2010 and 2030, from 131 to 172 €/MWh.14

Against this background RHC technologies are the solution against volatile and costly alternatives and will provide stable and affordable options to European consumers. Unlike the case of electricity, however, it is very complicated to compare the cost of heat supply technologies as costs of the same technology can greatly vary depending on the following factors:

Heat (or cold) load required: depending on factors such as climate, temperature level desired (low, medium, or high temperature), building insulation and other;

Predominant heating system, heat distribution system and energy supply infrastructure; System lifetime and performance under required operating conditions; System acquisition and operating costs; Fuel costs; Requirements and costs of backup energy sources.

For this reason, a range of levelised costs of heat supply (LCOH) is considered to be a more acceptable option. Indeed, one of the most recent and accurate attempts to compare the costs of heat supply technologies was carried out following this approach in the 2011 Special Report of the IPCC on Renewable Energy Source and Climate Mitigation (p. 10). The results15, adapted and converted into Euro, are available in Figure XX overleaf and clearly show that currently available RES H&C technologies are already competitive today with fossil fuel alternatives.

Nevertheless, the LCOE approach does not often capture the specificities of the heat sector. However the reality is more complex. Here it is the consumer, in combination with the installers, planners and energy consultants, who makes the choice, not only on when to make use of a service (as for electricity), but also regarding the technology and, if applicable, the fuel to be used. For this reason, “energy price” and “return on investment” appear to be more appropriate concepts in the heat sector. Similarly to the LCOH however, it is difficult to compare the return on investment of different heat supply technologies on a European scale.

13 European Commission, (2014a), pp.58-5914 European Commission, “Impact Assessment on energy and climate policy up to 2030”, SWD(2014)15, (2014b), pp.28-29.15 For solar thermal it was instead used data from the SRIA RHC, p.15.

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Figure XX: Range in levelised cost of heat supply EUR/GJ for selected commercially available RHC technologies in comparison to recent non-renewable energy costs. Source: Own adaptation based on Special Report of the IPCC on Renewable Energy Source and Climate Mitigation 16 and for solar, on the Strategic Research and Innovation Agenda, 201317.

It is nevertheless worth highlighting that the cost of producing energy and its value are still largely disconnected entities in the current business environment. Energy market price signals remain distorted in favour of fossil sources. This is even truer when comparing heating and cooling technologies. Indeed, in many EU Member States there is some level of state intervention to satisfy different distributional preferences in industrial and societal policies. Additionally, it should be noted that ninety per cent of the heat sector is made of installations below 20 MW and is therefore outside the EU Emission Trading Scheme, while in most EU countries there is not any carbon price in non-ETS sectors. The main consequence is that the end-user price of conventional sources of energy is always lower than the real costs to society.

In summary, the cost of fossil fuels increases and we still have to take into consideration their external costs, (emissions, pollution, etc.) This means that RHC technologies are already competitive and give consumers more sustainable and affordable solutions to their thermal needs against the growing volatility of fossil fuels. Therefore a real level playing field, which would show this, is asked for. Concrete policies, for instance in terms of taxation, increased awareness and adequate Research, Development and Innovation resources allocated to the priorities identified by the European Technology Platform on Renewable Heating and Cooling

16 All parameters used for the calculation of the range in LCOH for heat supply technologies available on page 1010 of the IPCC report on Renewable Energy Source and Climate Mitigation, 2011.17 ftp://ftp.cordis.europa.eu/pub/etp/docs/rhc-sra_en.pdf

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Range Oil & Gas based heating cost

will make RHC technologies even more competitive. As a result European consumers will benefit from stable and affordable RHC solutions as opposed to increasingly volatile and costly alternatives.

4.3 Creating local jobs and fostering European competitiveness

A 2009 study by HSbc18 concluded that the three most promising sectors in terms of social return, job creation and relevance to the economic recovery are renewable energy, building efficiency and sustainable vehicles. From a societal perspective, the RHC industry offers a variety of high-quality jobs in very different technologies, bringing immeasurable benefits, including in areas such as construction that have been hit hardest by the crisis.

Based on a wide review of studies, mainly taken from the 2013 report “Renewable energy and jobs” by the International Renewable Energy Agency it is possible to estimate the following figures in terms of direct and indirect jobs:

Estimate of direct and indirect employment in the RHC sector (thousands jobs)Sector Germany Spain Other EU Total EU

Biomass and biogas

(including for electricity)

107 40 198 345

Geothermal (including for electricity)

14 0.3 37 51.3

Solar Thermal 11 1 20 32Heat Pumps (excl. geoth.) (source: EHPA, 2014)

- - - 31.6

Total 131 41.3 255 459.9Table XX: Estimate of direct and indirect employment in the RHC sector. Source: IRENA, EHPA19

With a greater development of RHC in the next years, these numbers are expected to grow substantially. The heating and cooling demand in Europe is mostly decentralized, be it for residential, commercial or industrial use. Due to the particular characteristics of thermal energy, the supply needs to be available locally, on-site or nearby. This is already the case today with conventional technologies. Likewise, RHC solutions need to be decentralised, meaning that they are installed on-site or nearby. This means that a relevant part of the investment is related to the lower end of the value chain, in activities such as commercialisation, installation and maintenance.

Even when the equipment used in RHC solutions is not produced locally, its installation has an important impact on the local economy, thus redirecting part of the funds used for energy imports (from other countries or even other regions of the country) towards job creation at local

18 HSbc, A Climate for Recovery. 25th February 2009.19 IRENA, Renewable energy and jobs, 2013.

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level. Another important aspect to consider is that, as most of the market is residential, support mechanisms have an almost immediate impact in terms of private investment, reduction of the energy consumption and of CO2emissions, besides job creation.

Renewable energy sources are also the only indigenous sources in which the EU has a competitive advantage. Europe is leader in the manufacturing and design of RHC technologies and at a global level its main competitive strength is the high quality of its technologies. The following sections provide an overview for each RHC segment.

Biomass:

The EU, together with the United States and Brazil (mainly for ethanol), is a dominant producer and employ the largest number of workers in the sector (345 thousands according to IRENA). As agricultural and forestry operations play a large role in the sector, bioenergy can support rural economic development as cultivation and harvesting biomass feedstock indeed requires large numbers of people.

To date, technically reliable, sustainable and economically attractive biomass heat solutions exist. Biogas and solid biomass can already provide heat at temperatures above 250°C at costs competitive with fossil fuel alternatives. In the coming years, these solutions will continue to improve and new solutions should also be available so as to cover the different consumption types. With biomass supply set to increase significantly by 2020, a sustainable, innovative and cost-efficient advanced biomass feedstock supply will bring reductions in supply costs and a decrease in production costs.

The EU is a global leader in biomass technologies and provides a wide range of high quality biomass combustion installations with high efficiency, controlled and clean combustion and automated operation and modulation both for domestic and commercial uses. Through a permanent commitment in innovation and R&D the European biomass industry keeps improving the quality of the products that are put to the market. As an example, the most performant EU biomass boilers and stoves can reach 90% energy efficiency today with very low levels of emissions (NOx, SOx and particulate matters).

Solar Thermal:

China is by far the world leader in solar hot water, representing 65% of the total installed capacity in operation, which amounted to 234.6 GWth by the end of 2011.20 Europe, with an installed capacity of 39.3 GWth represents 16.7% of the total. Even though China is by far the largest market and the largest manufacturer, the European solar thermal industry is seen in the world as a technology leader with strong capacity of innovation. From 1995 to 2010, the sector reached a learning curve of 23%. Several innovations on manufacturing process, i.e., welding, have helped to reduce manufacturing time and costs, while enlarging the raw materials options (now both copper and aluminum are widely used in the sector). In terms of capacity, the European sector has invested in counter cycle, meaning that there is enough capacity to address a steep rise on demand for collectors. While its traditional market is the preparation of

20 Solar Heat Worldwide: Markets and Contribution to the Energy Supply 2011. Edition 2013

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domestic hot water for the residential sector, large applications for district heating or industrial process heat have seen significant growth. For instance, in Denmark the solar thermal capacity installed for district heating reached 196 MWth, with almost one third installed in 2012 alone.

The European market reached a turnover of 2.4 billion EUR in 2012 (ESTIF 2013) and IRENA estimates more than 30 thousand workers direct and indirect employed in the sector. Depending on the markets, approximately half of the turnover is downstream of the value chain, pushing for the creation of local jobs in planning & design, commercialization, installation and maintenance, while over 80% of the market is supplied by European manufacturers.

Geothermal:

With 1.2 million units of GSHP installed, Europe is the world leader, in terms of installed capacity, in the shallow geothermal market. It is also leading in innovation such as in underground thermal energy storage. Main competitors are for heat pumps manufacturers in China and the USA.

With more than 200 geothermal district heating systems in operation, Europe in also the global leader for geoDH where global competition exists mainly for heat exchangers and pipes. Regarding direct uses, even though this geothermal sector started in Europe, China is now leading the market due to the large demand there. Last but not least, EGS plants are only in operation in Europe up to now, whereas research projects are on-going in the U.S. and Australia.

In the EU, geothermal employment appears to be fairly stable at about 50 thousand direct and indirect jobs, mostly in heat-related applications (EurObserv’ER, 2012). As geothermal technologies are site specific (geology is different all over Europe) and capital-intensive, many geothermal companies have developed customised products (example: drilling rigs manufacturers). It is expected that the factories and the jobs created will remain local and cannot be exported, e.g. to China. The sector will move from a geological approach to an engineering approach where systems can be replicated but can hardly be industrialised. It is estimated that 85% of the geothermal value chain in Europe is local and it is planned to remain as such. Because of the nature of the work, we can assume that construction and O&M cannot be relocated, meaning that they are “European” jobs. Regarding equipment (rigs, turbines), the number of large manufacturers is not forecast to boom internationally.

Heat Pumps:

European heat pump manufacturers are often technology leaders. Value chains are increasingly becoming global: On the one hand, development is done for the European and for the world market, on the other hand sourcing is taking place on the global level.

An increasing market penetration of heat pumps will lead to more employment. Trying to estimate the total required employment to manufacture, install and maintain the European heat pump market (only aero- and hydrothermal) reveals that approx. 31.600 people are working full-time within the heat pump business (Source: EHPA 2014). It is known that the very large majority of these installed heat pumps are also manufactured in Europe. In any case, this is a

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moderate estimation, as many employees are not working full-time on heat pump technology. Hence, the total amount of employees in this segment is certainly larger.

A large part of the employees necessary are already active in the heating sector. As such, an up skilling of the workforce towards knowledge necessary to plan, install and maintain heat pump technology is necessary. This requires in particular a better understanding of a buildings energy demand and the influence of climate differences and user behaviour on the performance of the whole system. The majority of employers are local to Europe, as development, manufacturing and installation are located on the continent.

The European Industry has heavily invested in research and development as well as in education activities of the work force. Recent legislation such as Ecodesign for heaters and the F-gas regulation require more intense efforts: systems can and will be optimised, heating systems will have to be integrated into the larger energy landscape, in particular integrating renewable electricity via improved controls and new refrigerants have to be developed. It requires in particular new lab capacity for the development of low GWP refrigerants, components and systems.

The European industry and the EU research arena are prepared for future market growth: it has invested in laboratory and manufacturing capacity over the past three years and is ready to continue to do so. This engagement should encourage further public funding.

District Heating and Cooling:

District heating has been well established in Europe for decades, and a large manufacturing sector - comprised of a diverse mix of local SMEs and global industrial players – has grown up around it. Europe remains the clear world leader within the global district heating and cooling sectors, both as regards overall network design, performance and management, and with respect to technical components within systems and at the level of the interface with buildings. European know-how and products are exported to facilitate the development of DHC networks around the world, particularly in China and Russia.

Continued investment in R&D, both by operators within the sector and via the public sector, will help ensure that this leadership position is maintained. It is expected that district cooling will cover an important share of the cooling demand in the incoming decade in Europe, but not only, with huge potential for penetration in new developed countries, like Brazil, India, etc.

4.4 Reducing pollution and carbon emissions

European citizens will more and more live in urban centres. Increasing the share of RHC in the EU fuel mix will be an important alternative to help improving the urban environment conditions. Indeed, a reduction in emissions of pollutants such as nitrogen oxides, sulphur dioxide, heavy metals, etc. from reduced fossil fuel consumption has significant positive impacts on human health and lowers costs for air pollution control with benefits being disproportionately larger in lower income Member States expressed as a % of GPD.21

21 European Commission, (2014b), p.126-127.

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In addition, it will also result in efficiency gain and significantly lower greenhouse gas emissions, including carbon dioxide and methane.22 For instance, calculations of the European Heat Pump Association (EHPA) show that heat pumps alone can already save up to 65% of CO2 emissions, compared to a standard gas-condensing boiler.

With regard to the carbon abatement potential in the next years, it is not possible to say exactly how much RHC will contribute to reducing emissions. This is because the level of fuel substitution between coal (mainly cogeneration), natural gas, and heating oil is unknown yet. However, the extent of the effect of greater RHC deployment can be estimated by multiplying the additional amount of RHC by the EU average fossil fuel comparator for heat, set by the EC 2010 Report on biomass sustainability in 87 gr CO2eq./MJ heat (assuming renewable technologies are carbon neural in their generation/ combustion phase).

Based on EUROSTAT data and own calculations, it is estimated that in 2012 the additional RHC compared to 2005 levels contributed to reduce the annual carbon emissions by 101.2 MtCO2. eq. Considering the additional RHC provided for in the NREAPs between 2011 and 2020, it can be expected that in 2020 RHC will contribute to reduce the annual carbon emissions by some 200 MtCO2 eq. compared to 2005 levels.

This contribution is already significant. However, if the RHC generation in 2020 were in line with the RHC Common Vision (148 Mtoe), the potential annual carbon emission savings compared to 2005 levels would be much greater: about 343 MtCO2 eq. in total or 143 MtCO2 eq. more compared to the NREAPs scenario. The results of this investigation are illustrated in Figure XX below.

*EUROSTAT, **NREAPs, *** RHC Common Vision

Though impossible to calculate with currently available information, it would be worth assessing the abatement costs as well as the monetised health benefits from fuel substitution in the

22 Methane (CH4) is a potent greenhouse gas, per unit more than carbon dioxide. Methane emissions in the atmosphere are on the rise, according to the IPPC, including from leakage from natural gas systems.

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heating and cooling sector (industry, residential and non-residential) compared to other sectors such as electricity or other options like deep renovation of buildings.

In conclusion, as pointed out in the European Commission’s Energy Roadmap 2050, RHC is undoubtedly vital to decarbonisation23. This is why EU and national research and other policies should not only focus on electricity or demand reduction, for instance within buildings. A key policy objective should be to identify and encourage an optimal balance between decreasing demand and rendering the supply more sustainable and efficient with RHC technologies.

Decarbonising our energy sector should not be regarded as a burden, but rather as an opportunity for Europe’s sustainable growth and industrial renaissance alike. Policy-makers should look at the overall benefits to society as clear pledges on RHC and energy efficiency will substantially alleviate EU’s energy dependency, while improving our balance of trade, creating a significant amount of new local jobs and ensure stable and affordable energy prices to our consumers and industries.

23 European Commission, Energy Roadmap 2050, COM (2011) 885, 2011, p.11.

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5. Promoting private investments in Renewable Heating and Cooling

5.1.1 Introduction

In order to pursue the EU objective of decarbonising the heating and cooling sector, there is a clear need for more resources. The Strategic Research and Innovation Agenda (SRIA)24

estimates that over the period 2014 - 2020, on average 576 mln Euro should be allocated annually to RHC research and innovation activities. The resources are expected to be committed respectively by the private sector (60%), European Commission (20%) and Member States (20%). For private sector, this means 347 mln Euro each year. Attracting private investors is essential to decarbonise the heating and cooling sector and public intervention is equally vital for accelerating and mobilising private financing.

How to leverage private investments in RHC technologies in Europe? And how to encourage private investors to dedicate more attention to the European RHC sector at large in order to make it grow, reduce the cost of technologies and enhance system performances? This chapter aims at providing a framework to address RHC investments aspects by highlighting its benefits and analyzing the constraints and the barriers that often prevent private actors from allocating more funds in the RHC industry.

Further to that, the chapter offers suggestions to improve the investment-grade scenario for RHC industry aimed at policy-makers, RHC market actors and any person or institution involved in the design and implementation of policies to promote RHC. Special focus is given to financial schemes supporting RHC innovative technologies.

It is important to underline that the heterogeneity of the technologies and market conditions involved is so broad and the related value chain so complex that it is very challenging to provide a framework valid for all EU Member States and for all technologies. The aim of the present chapter is rather to offer general guidelines that would still need more specific analysis in a given context.

5.1.2 Benefits of Renewable Heating and Cooling for investors

The low yields in the traditional investments, such as corporate bonds issued by large companies, government bonds and mortgage bonds have become the major problem of institutional investors such as insurance companies, pension funds, etc. They can no longer achieve the expected returns of the investors from the risk-return profile that they have created in the past. Also, government bonds are not always the safe heaven known from the past.

These altered conditions are the base for consideration of alternative and forward- thinking investment results. Renewable Heating and Cooling entail substantial asset values. Investors can benefit from technically well controlled planning and implementation, (and?) even long-term 24 Strategic Research and Innovation Agenda for Renewable Heating and Cooling. European Technology Platform on Renewable Heating & Cooling (RHC-Platform), 2013. Available at http://www.rhc-platform.org/publications/

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returns and fixed long term prices (for production and depreciation). Compared to other conventional heat sources, RHC plants possess lower need for maintenance, lower risks when in operation and low variability of the costs of the plant. Many RHC technologies are already quite mature and, with the exception of biomass heating, they are not exposed to any fuel price risks, e.g. for purchasing oil or gas. These characteristics may be attractive for pension funds, which are increasingly looking for “real” asset classes which can deliver steady, preferably inflation-adjusted, return.

Additionally investors may get concerned about the gas supply or the gas price and the subsequent energy dependency of some EU countries to ensure residential and non-residential heating. In this context, RHC offer a more reassuring scenario where security of supply is guaranteed thanks to stabile and endogenous heat sources and dependency on unstable external suppliers is considerably reduced.

Investing in RHC is directly beneficial for the economic growth & healthy environment. The high demand and political pressure for increased efficiency and CO2 reductions and the increasing attention of the investors’ community to socially responsible indicators, environmental, social and corporate governance principles, transparency and disclosure rules make them even more interesting.

Renewable energy technologies for the production of heating and cooling are today viable solution in the market, in particular for the most traditional applications for heat demand, such as domestic hot water preparation and space heating for the residential sector. Though, these technologies will play a vital role in the coming years, in the transformation of our energy system, providing decentralized, clean, secure and effective solutions. For instance, they are central to the implementation of the Energy Performance of Buildings Directive, as they constitute an essential element of the Nearly Zero-Energy Building. As described in this Roadmap, research & innovation will play an important role in bringing these technologies further ahead towards the future requirements of the market of new/deeply renovated buildings, from a technological perspective. Research & innovation is required also to have renewable heating and cooling technologies positioned as main market solutions for replacement and retrofitting of existing systems.

These solutions need to compete in the market with low cost (and often still subsidized) fossil fuels, often offering lower upfront investment costs but higher lifecycle costs. Indeed, for consumers and investors, the competitiveness of RHC solutions should become more obvious when the analysis is based on life cycle costs. In this respect the concept of cost optimality introduced by the EPBD is very relevant for renewable heating and cooling technologies.

The specificities of this sector require tailored solutions. In order to promote a higher level of investment in these technologies, it is important to translate its potential and specificities into a formula that can be understood by investors in general.

5.1.3 Investments and market barriers

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Given the increasing interest from inventors for this type of investments, it is legitimate to wonder what barriers are hindering the scaling up of private financing in RHC.

Regulatory instability. As the RHC are highly dependent on a stable and predictable policy framework, part of the problem relies in a lack of clarity and consistency in commitments from policy-makers. These uncertainty increases the risk and consequently the cost of these investments, whose returns must be commercially competitive with existing investments in more polluting technologies.25

Lack of Investor capability and shortage of data. Given the relative immaturity of green capital markets compared to traditional energy markets, investors may lack adequate expertise or even confidence in the RHC sector. Capital investment into RHC cannot be valued by a pure investment specialist, the liquidity (marketability) of the investment is very limited and therefore the evaluation according to the standard investment of insurance companies and pension funds is still difficult. Most institutional investors do not invest in sectors that do not provide years of track record on performance data. The consequence for these aspects is that higher risks are included in project evaluations requiring a higher return on investment to compensate for the risk.

Market fragmentation and scale problems. It can be challenging to find the company that deal holistically with the issue of implementation and also build up the network to of (several) manufacturers, planners and handicraft to realize the investment. Mobilising funds can be hard due to the small size of a particular installation (e.g. solar thermal collectors or modern biomass heating systems at household level). Transaction costs and assessment and monitoring of energy savings are complex and thus proportionally more expensive than in bigger projects.

High upfront costs. Renewable energy technologies such as solar thermal and geothermal energy have low running costs but require a high upfront investment, compared to conventional technologies. The decision of whether to go for a new RHC investment is closely linked to the cost of available capital and this is particular challenging for private home-owners and small business owners. Most subsidy programs are dedicated towards SMEs and municipalities. Outside these groups major investors need additional investment sources and subsidies as well to overcome the high upfront costs.

Diverging investment criteria and split incentives A classic example is the ”landlord‐tenant problem”, where the landlord provides the tenant with a heating system but the tenant is responsible for paying the energy bills; similarly incentives diverge between the real estate developer and the buyer/owner.

Not inclusion of externality costs. Tariffs from traditional energy sources often do not include externality costs, e.g. carbon emissions, pollution, gas infrastructure, etc..

25 For examples, see discussion on social tariffs and carbon price in chapter 4.

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As example, Deloitte’s 2012 report addressing the attractiveness of investment in biomass projects identified 5 obstacles. 26 These were regulation – the need for long term confidence in the stability of the incentive regime, fuel availability – long term contractual arrangements between bioenergy plants and suppliers do not allow market liquidity, sustainability credentials – the need for biomass to be sustainably sourced with an overall lower carbon footprint than fossil fuels, supply chain – investment in biomass handling, logistics, port and rail facilities will be critical, financing – biomass projects must offer attractive ROI to potential investors.

5.2 Analysis on promoting private investments in RHC

The second part of the chapter gives some indications on which actions could be carried by policy-makers, public financial institutions, RHC stakeholders and investors’ community to remove or weaken some of the barriers presented and accelerate the scaling up of private investments in RHC. This part is organized according to two main sections. While the first section addresses proposed changes at policy level, the second tackles financial aspects more directly via investment schemes. As it will be seen through the text, challenges and therefore resolutions on large scale such as utilities and district heating and cooling and the challenges for smaller and residential scale are much different. Special focus is given to financial schemes supporting RHC innovative technologies.

5.2.1 Analysis related to the policy framework Support a stable investment environment. The best way to mobilise private finance is to create a long-term stable investment and regulatory environment in order to boost investor confidence. This is indeed one of the scope of the Common Roadmap and the previous publications of the RHC-Platform: giving long-term objectives paves the way to mobilising private (and public) investment. A framework of economic support policies should be permanent and internationally harmonized. Long-term support strategy, consisting of a financial incentive scheme and suitable flanking measures (especially awareness raising, training of professionals) has shown to have the highest impact on market growth.

The ultimate goal for institutional investors is to have success with such an investment product by ensuring that their customers (private investors) have long-term financial security and also contribute to an environment worth living for their children. There are already examples of joint investments of Energy Provider and pension funds in the Netherlands, based on these considerations. For example RHC District Heating and Cooling Investments have been more and more common practice for pension funds and other large scale investors over the last couple of years. Now interest starts to materialize in investments in energy infrastructure and DHC grids in particular. ELES, the 3rd largest District Heating Network in The Netherlands from RWE AG /

26 Deloitte, Knock on Wood, Is Biomass the Answer to 2020 (2012).http://www.deloitte.com/view/en_GB/uk/industries/eiu/89c42e2e281ca310VgnVCM3000003456f70aRCRD.htm

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Essent has been taken over by Dutch pension fund service provider PGGM and Dalkia in December 2013.27

Improving risk perception and addressing lack of knowledge. As previously discussed, risks in RHC are in many cases perceived higher than what they are in reality. Performance data over investments are becoming available thanks to pioneer investors and are contributing to narrow the gap between reality and risk misperception) There is a need to address lack of knowledge by improving data flows and understanding of sustainable energy investments by e.g. banks, financial institutions or investors. Some examples of recommended actions are for example establishing networks between finance, RHC industry and technology providers and fostering training for banking and insurance company agents related to RHC technologies to support the development of appropriate financing products. For example, Sustainability, Energy Efficiency and Carbon emissions should be fully integrated into the investment processes of investors and consultants. It would be also beneficial to develop a pipeline of flagship projects and model innovative financing solutions to gain investors’ confidence and enable standardization and aggregation.

Standardization aspects Markets would gain from more harmonization and cross compliance and from strengthening energy performance certificates, energy codes and legislative enforcement. However, if the indicators that are implemented are too complex, the danger is that the certification process becomes too demanding, costly and difficult to manage making it unattractive for users. For example the market penetration of efficient hybrid systems could be supported by improving energy performance labels, which should be required for all new heating and cooling systems in the EU by 2020. The information provided should not only include the relative efficiency, but also the annual running cost, greenhouse gas emissions and the expected system lifetime.28

In the case of biomass, uncertainty for investors has been created by discussions on different sustainability requirements as companies realize that they may in future need to comply with requirements and criteria that are unknown today. The recent move of the European Commission to harmonize sustainability criteria at EU level sends a strong signal to ensure the regulatory certainty needed by the bioenergy industry. A harmonized proposal would facilitate trade and investment, and for this reason a widely accepted framework on the sustainable production of biomass for energy, material use and other purposes needs to be established.

27 The portfolio of assets (ELES - Essent Local Energy Solutions) comprises 64 heating networks all over the country, spanning 1,950 kilometers, along with a number of RWE Generation Nederland's medium-size units and services. The networks serve more than 62,800 households and 1,240 business customers. ELES posted 2012 revenue of €135 million. The business will be owned by PGGM (80%), the country's second-biggest pension fund service provider (EUR 153,5 billion in assets under management), and Dalkia (20%).

28 Strategic Research and Innovation Agenda for Renewable Heating and Cooling. European Technology Platform on Renewable Heating & Cooling (RHC-Platform), 2013. Available at http://www.rhc-platform.org/publications/

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Development of frameworks for the standardization and benchmarking is important also on the financing side: standardization of measurement and verification for project evaluations will reduce risk perception, increase reliability and certainty. Measurement and verification approaches in the different European countries should be assessed in order to harmonise calculation methodologies.

5.2.2 Analysis related to the investment framework - Overview of financial instruments and business models

There is a large variety of financial instruments and business models that can be used to support RHC deployment. The combination of these instruments varies largely from country to country and from technology to technology. However, besides the type of financial incentive scheme, it is always vital to focus on the quality of its design and implementation, the correct setting and fine-tuning of the scheme to adapt them to the specific situation. Key quality aspects of a financial instrument are its continuity (no “stop and go”), the coherence of the parameters, clear target, quality criteria, monitoring and evaluation system, the simplicity of the application and payment procedures and flanking measures.

Most used and current financial support instruments available in some European States for RHC technologies comes in the form of investment grants and tax exemptions while financial incentives such as soft loans are less available. 29 Generally these types of incentives are funded out of government budgets:

Grants. A grant is a direct support to investment provided by a public authority and can be offered either to the developers or to the manufacturers, thus reducing their investment costs. This is a very common type of support and it has been, provided in a number of European countries by local, regional and national governments. As the budget is limited, the number of acceptable applications must be limited, either on a first-come-first served.

Besides these above mentioned grants, which focuses on the investment angle, grants can actually also provide cash payments based on the energy generation basis. These types of subsidies are rather based on the total installation performance. These scheme incentives more performing plants and ensures that renewable heat is actually generated.30

Fiscal incentives. Differently from a grant, a fiscal benefit such as a tax reduction has the benefit of not being tied to a limited budget there can be no limit on the number of accepted applications. On the other hand, a reduction in tax leads to a benefit only one or two years later

29 See Ecofys, Fraunhofer ISI, TU Vienna EEG, Ernst &Young, Financing Renewable Energy in the European Energy Market (2011). http://ec.europa.eu/energy/renewables/studies/doc/renewables/2011_financing_renewable.pdf 30 Renewables for heating and cooling IEA-RETD (2007). https://www.iea.org/publications/freepublications/publication/Renewable_Heating_Cooling_Final_WEB.pdf

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and therefore does not solve the problem of advancing high upfront. Tax credits are mostly suited to close-to-the-market innovations.

However, as public funding is limited, it is critical nowadays to make greater use of financial instruments that leverage private sector investment. New instruments should not only look at governments, utilities and banks which are experiencing constraints in capital investments but should enable lower cost of-capital financing particularly from institutional investors (such as pension funds and sovereign wealth funds) in order to create a scale effect. Grant resources are scarce while financing needs have grown, a situation which is being exacerbated ensuing from the fall-out of the financial and economic crisis. These circumstances call for finding more efficient ways of using available resources and for reaching higher "leverage effect" where public resources attract and multiple private lending. There are interesting financial instruments both a at equity and debt level that can incentives this leveraging:31

Credit enhancement measures. Credit enhancement is the improvement of the credit profile of a structured financial transaction, with the effect of lowering the risk and the cost of an investment. For example, first-loss facilities and guarantees which can be provided by financial institutions to reduce the risks for banks by covering part of the risk of payment default by lenders. This mechanism operates as a tool of by splitting the debt of the project company into slices; a senior and a subordinated tranche. By providing the subordinated tranche (in the form of a loan or a guarantee), the financial institutional reduces the risk and consequently enhances the credit quality of the senior tranche, easing its issuance in the capital market. These mechanisms are very much used but often they are not tailored to the RHC market.

Financial assistance in the form of low-interest loans, long-term loans, and/or loan guarantees are also efficient in lowering the cost of capital. Loans are well suited to finance lower cost, potentially profitable innovation carried out by large companies.

Bonds. At debt level, green bonds may be an interesting instrument to attract institutional investors. Ordinary bonds already represent the dominant asset class of pension funds from OECD countries, accounting for 50% of total assets on average. For example, the World Bank has issued over $3.3 billion in AAA-rated green bonds through 51 transactions and 17 currencies since 2008. Other examples include the EIB, which has issued €1.15 billion in climate awareness bonds. These figures represent a drop in the ocean for the bond market. However there is a margin for scaling up green bonds issuances. As these mechanisms are relatively liquid and generally carry a low risk, they may match the long-term return requirements of pension funds and other institutional investors. As investors need scale and clarity, the green bonds market should look at forms of aggregation for small-size RHC projects (for example via project bundling and pooled project financing) to solve scale problems, agree on clear standards that can be certified by third party organizations and improve dialogue with rating agencies. Policy-makers could encourage Development of securitization models and rating models to enable access to secondary markets.

31 See also The Energy Efficiency Financial Institutions Group (“EEFIG”), Energy Efficiency – the first fuel for the EU Economy, How to drive new finance for energy efficiency investments (2014).

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Equity Investments in Renewable Energy and Efficiency Funds. At equity level, Policy makers could support dedicated funds suitable for RHC technologies and provide access to project development services for innovative financing solutions. These instruments have a high leverage effect and limited need for public funding.

Funds of funds. Again at equity level, a significant proportion of investment in RHC innovation could be achieved via fund of fund structures. This model implies a top-level fund –partially sustained by public sources - investing in renewable energy funds, which in turn invest in projects and early-stage companies developing energy innovative technologies. The intermediate funds should receive financing also from other private investors. The public equity provided should make up only a small share of all financing for each intermediate fund but enough to reassure private investors that they are not ‘alone in the game’.

Further to these financial schemes, several business models needs consideration:

Energy Service Companies (ESCOs) models. An energy service company (ESCO) provides a broad range of energy solutions including designs and implementation of energy savings projects, retrofitting, energy conservation, power generation and energy supply. ESCO models are particularly interesting for existing and new, large commercial, residential and public buildings. 32Within the ESCO sector, it is possible to distinguish between two fundamentally different business models:

1) Energy Supply Contracting (ESC): In this model An Energy Service Company (ESCO) measures for renovating RHC are financed by the ESCO which is paid from the services of energy supply in the contractual period. The focus of the ESC service model is on the efficiency of the energy supply while providing security of supply.

2) Energy Performance Contracting (EPC): An ESCO guarantees energy cost savings in comparison to a energy cost baseline. Whereas ESC is based on a business model that guarantees energy supply, EPC is a business model for energy savings. For its services and the savings guarantee the ESCO receives a performance based remuneration.

District Heating and Cooling (DHC) as financial instrument Monetary advantages for district heating and cooling compared to decentralised RES (economy of scale, logistics etc.) as DHC generation could be located in areas apart from the customer’s premises. DHC doesn’t need secondary assets like some RES (solar+gas; air-source heat pump+electrical heater, etc.). District Heating and Cooling (DHC) has proven its benefits in terms of sustainability and primary energy efficiency. This technology has an important role in the transition phase towards RES as DHC is open for heating and cooling generation from diverse energy sources. That is the reason why DHC is an existing business model to serve the request for up scaling RHC investments into a size interesting for institutional investors.

32 ECN, IEA-RETD, Business models for renewable energy in the built environment (2012).

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With the advent of low-energy houses, each customer will consume less heat and some consumers will produce their own heat. All these aspects will lead to a new way of operating the networks, allowing less investment in the production side and a smoother delivery flow, for the benefit of the energy system and its customers. The DHC industry needs to adopt new business models to remain profitable even if less heat is sold. These new models should incentivize energy savings, delivering capacity and flexibility vs. delivering energy and more in general support the integration of strategic thinking and sustainability objectives in decision making processes. 33

There are a number of solutions that can particularly interesting to small residential and commercial buildings:

Property Assessed Clean Energy (PACE). PACE financing allows property owners to borrow money from a local government to pay for renewables and efficiency measures. The amount borrowed is typically repaid via a special assessment on property taxes over a period of 15 to 20 years through an increase in their property tax bills.

Business models for rental market In order to overcome landlord‐tenant problem”, where the landlord provides the tenant with a heating system but the tenant is responsible for paying the energy bills, a change in legislation could allow building owners to pass on the cost of the investment to the tenant through a rent increase. The cost reduction in the energy bill should be at least the same as the rent increase for the tenants. This model has the advantage to work well for existing buildings where as building codes tend to be limited to new buildings and substantial renovations.34

On-Bill Repayment. The On-Bill Repayment business model foresees that the utility provides capital to a home owner for RHC installations by having them repaid in the energy or tax bill. Track record of customer payments with utilities and tax authorities have low default rates compared to other consumer finance.

33 Strategic Research and Innovation Agenda for Renewable Heating and Cooling. European Technology Platform on Renewable Heating & Cooling (RHC-Platform), 2013. Available at http://www.rhc-platform.org/publications/34 idem

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