investing in energy efficiency in buildings with district heating sergio tirado herrero diana...
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Investing in energy efficiency in buildings with district heating
SERGIO TIRADO HERRERODIANA URGE-VORSATZ
Central European University (CEU)Department of Environmental Sciences and Policy Center for Climate Change and Sustainable Energy Policy
Cohesion Policy – Investing in energy efficiency in buildingsBrussels. November 29-30, 2011
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Diverging perspectives in an evolving EU A CLEAN, EFFICIENT, CHEAP TECHNOLOGY
• Up-to-date heat production plants and distribution systems• Cogeneration and renewables (e.g., biomass)• Lower costs per kWh• Lower GHG emissions• Low-carbon solution promoted in Member States with potential (e.g., UK)
Spittelauer DH plant (Vienna) / Source: www.hundertwasser.at
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Diverging perspectives in an evolving EUAN UNDESIRED LEGACY
• Less cogeneration, sometimes heat-only plants based on polluting fuels (e.g., coal, Poland)• Obsolete distribution systems inefficient and building stock • Inadequate metering• Inflexible flat rates• Cost burden
Coal heating plan in Wieluń (Poland) / Source: Wikipedia
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Diverging perspectives in an evolving EU AN INDUSTRY WITH AN UNCERTAIN FUTURE?
Directi
ve 2010/31/E
U on the energy
perform
ance of b
uildings (
EPBD)
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The paper• Aim
– Explore key issues for successful investments– Raise questions about the future of the DH sector
• Scope– Focus on residential buildings in Central and Eastern
Europe (CEE); discussion relevant to other contexts • Research questions
– What cost burden imposes on consumers?– How deep to retrofit? – Reasons for public sector involvement?– Are technical solutions enough?– What is the future of DH in a low-energy
buildings’ EU?
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A cost burden on consumersPer unit price of DH vs. other heat sources in Western Europe
Source: Euroheat and Power (2011)
GERMANY
DH
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A cost burden on consumersPer unit price of DH vs. other heat sources in Western Europe
Source: Euroheat and Power (2011)
AUSTRIA
DH
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Annual domestic heating costs (€ per year, 2009)
-
200
400
600
800
1,000
1,200
1,400
1,600
Per
hhol
d
Per
capi
ta
Per
100
sqm
Per
hhol
d
Per
capi
ta
Per
100
sqm
Per
hhol
d
Per
capi
ta
Per
100
sqm
Per
hhol
d
Per
capi
ta
Per
100
sqm
ALL TYPES
SINGLE FAMILY
PANEL TRAD. MULTI-FAMILY
A cost burden on consumersActual DH costs in Central and Eastern Europe
Source: Household Energy Use survey (2009) – KSH and Energy Centre
HUNGARY
Average size of the dwelling (sqm.)
0
10
20
30
40
50
60
70
80
90
100
ALL SINGLEFAMILY
PANEL TRAD.MULTI-FAMILY
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The inherited legacyVERTICAL LOOP – ONE PIPE SYSTEM
• Lack of individual metering nor temperature control • Inability to disconnect individual apartments• No fuel poverty-related health impacts, i.e., excess winter mortality and morbidity
Source: Sigmond (2009)
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A hidden fuel poverty typeEffects on welfare
0%
5%
10%
15%
20%
25%
30%
35%
All Urban DHpanel
All Urban DHpanel
All Urban DHpanel
% o
f h
ou
se
ho
lds
Twice the median
Median 30% lowest income
Energy exp. > food exp.2008
Decreased consumption of other domestic goods and services
30% of the Hungarian households living in panel buildings spend more on energy than on food and non-alc. beverages
Source: Tirado Herrero and Urge-Vosatz (2011)
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A hidden fuel poverty type • Arrears and indebtedness to DH providers
– In Budapest III, indebtedness to DH companies is often so high that it cannot be managed by the municipality’s debt relief services.
– In Lithuania, over 15% of all DH users are indebted to heat providers (2000-2010)
• Affects the performance of DH companies– Maintenance and upgrading of the network
• Potential wider economic effects– In Romania, reducing DH debts became a condition for
IMF lending
LITHUANIA
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0
100
200
300
400
500
600
700
80020
10
2020
2030
2040
2050
2060
2070
2080
2090
2100
MEU
R201
0 pe
r yea
r
DEEP - Annual programme costs
DEEP - Annual energy savings
MID - Annual programme costs
MID - Annual energy savings
BASE - Annual programme costs
BASE - Annual energy savings
How deep to go?Deep and mid retrofits of prefab panel buildings in Hungary
Ramp-up period
Learning factor
Increasing energy prices
2nd round retrofit + programme management costsPrivate costs vs. benefits
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Additional argument for deep retrofitsThe lock-in risk
0123456789
1020
10
2020
2030
2040
2050
2060
2070
2080
Tota
l spa
ce h
eatin
g en
ergy
use
(T
Wh/
year
)
BASE
MID
DEEP
58% lock-in risk
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Arguments for public sector involvement
• Barriers to energy efficiency investments– Shared ownership of buildings with DH– Transaction costs
• Social benefits of ener. efficiency investments– Avoided GHG emissions (CO2, CH4 and N2O )
• Social (external) cost of carbon: IPCC (2007)
– Avoided non-GHG emissions (NOx, SOx, PM)• External cost of emission of pollutants: NewExt project
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Social cost-benefit analysis
0
100
200
300
400
500
600
700
800
900
1,00020
10
2020
2030
2040
2050
2060
2070
2080
Cost
s an
d be
nefit
s (M
EUR2
010
per y
ear)
Total investment costs
Total energy savings
Total CO2 avoided
Total SOx emissions avoided
Total NOx emissions avoided
Total PM emissions avoided
Total benefits
0
100
200
300
400
500
600
700
800
900
1,00020
10
2020
2030
2040
2050
2060
2070
2080
Cost
s an
d be
nefit
s (M
EUR2
010
per y
ear)
Total investment costs
Total energy savings
Total CO2 avoided
Total SOx emissionsavoided Total NOx emissionsavoided Total PM emissionsavoided Total benefits
Difference between energy saving benefits and external benefits
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Additional co-benefits• Net employment creation
– In HU and PL, tens to hundreds of thousands additional employments have been forecasted for deep retrofits (Tirado Herrero et al., 2011)
• Reduced energy dependency • Fiscal effects
– Increased government revenues (i.e., income tax and VAT) and reduced unemp. & social expenses
• Increased market value of properties– +12% premium for A-labeled properties in Holland
(Brounen and Kok, 2010)
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
KAZI
NCB
ARC
.
GYŐ
R
MIS
KOLC
SZO
MB.
HEL
Y
AJK
A
KECS
KEM
ÉT
PÉCS
VESZ
PRÉM
DEB
RECE
N
BUD
APE
ST
TATA
BÁN
YA
KAPO
SVÁ
R
DU
NA
ÚJV
.
NYÍ
REG
YH.
SZO
LNO
K
SZEG
ED
SZ.F
EHÉR
VÁR
SOPR
ON
Share of heating chargesShare of basic charges
HU
Are technical solutions enough?Large fixed costs and structure of DH tariffs
Variable costs- fuel
Fixed costs- capital- maintenance- labour
Budapest
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Are technical solutions enough?Large fixed costs and structure of DH tariffs
(1,000)
(500)
0
500
1,000
1,500
2,000
2,500
3,000
0 10 20 30 40 50 60 70
Time horizon (years)
NPV
@ 4
% d
isco
unt r
ate
(MEU
R201
0)
BASE to MID
BASE to DEEP
Large positive NPV from 2040 onwards
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Are technical solutions enough?Large fixed costs and structure of DH tariffs
(1,500)
(1,000)
(500)
0
500
1,000
1,500
2,000
0 10 20 30 40 50 60 70
Time horizon (years)
NPV
@ 4
% d
isco
unt r
ate
(MEU
R201
0)
% of energy savings realized as household heating costs reduction
80%
70%
60%
50%
40%
BASE to DEEP
Negative net present values
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Are technical solutions enough?Improving the conditions under which DH is served
• Individual meter-based billing– Incentive to save energy at household level– Conventional fuel poverty effects, i.e., inadequate
thermal comfort levels• Competition between heat sources
– Lower prices– Household’s right to disconnect and switch
• Independent, capable regulators
Source: OECD/IEA (2004); Tirado Herrero and Urge-Vosatz (2011)
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The future role of DHin a low energy buildings’ EU
• (?) Economic viability of the DH sector when low or nearly zero energy buildings become the norm– Fixed costs and obligation to remain connected
• Denmark– “Some of the houses being built today are so well
insulated and energy efficient that it is not worth connecting them to district heat” (DAE, 2005)
• Norway– The obligation to remain connected to DH networks is a
barrier to low-energy residential buildings (Thyholt and Hestnes, 2008)
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Conclusions• Cost burden (in CEE Member States)• Deep retrofit of buildings with DH
– Maximizes energy and carbon savings, co-benefits• Sub-sector specific obstacles
– Fixed costs, rigid tariff system• Improved conditions for DH provision
– Individual billing, competition, right to disconnect• Uncertain future of the DH sector
– Economic and labour implications• EXIT STRATEGY for the DH industry
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