Why a municipal heat company makes sense
Creating a municipal heating company harks back to a time when local governments were primarily responsible for essential services such as energy, clean water, and many other utility services. At that time, these publicly owned enterprises operated with clear societal goals: to serve and benefit the population they were established and owned by. A return to this is the right approach for providing residents with sustainable and affordable heating – now and again.
The Dutch national government has initiated the rollout of two new laws, WcW (Wet Collectieve Warmtevoorziening) and WgiW (Wet Gemeentelijke Instrumenten Warmtetransitie), which place the responsibility for transitioning away from natural gas for heating homes squarely on the shoulders of the municipalities. Luckily, municipalities are best suited to lead this transition.
Without the municipality acting as a central authority to initiate and coordinate efforts, there is a risk of fragmented projects that fail to connect to a larger, more efficient, more renewable and more integrated district heating network. This is evident in the Netherlands where efforts from many different actors to decarbonize individual neighbourhoods through district heating has proved expensive and can be shown to be ineffective. Developing a plan for a whole city and then connecting each neighbourhood, phase by phase, is the most sensible and proven method. This, in essence, is the road to success for district heating in Denmark and other Scandinavian countries. This approach keeps profits local while enabling the municipal heating company to develop the skills and knowledge needed to become progressively better at building, managing and expanding district heating networks. While the initial projects may be challenging for municipalities, they can develop strategies and improve efficiency. Ultimately making previously unfeasible cities and towns viable for district heating.
“Municipal heating companies have the
vision, stability and flexibility necessary to
plan decades ahead.”
Socialisation
The municipality is well positioned to balance affordability, sustainability, and the number of connections. Easier-to-connect areas can generate revenues and learnings that help expand the network to more challenging areas, ensuring broader access through socialization. Additionally, as a democratically accountable institution, the municipality can easily be held accountable by the public.
The municipality has a vested interest in providing sustainable district heating to as many residents as possible, an objective that aligns with the operational model of a municipal energy company.
Strategic planning
Municipal heating companies have the vision, stability and flexibility necessary to plan decades ahead. This ability to develop holistic, long-term strategies provides clarity for key stakeholders, including housing corporations, residents, business, distribution system operators (DSOs), energy producers, and construction companies on when and where district heating networks will be expanded. Additionally, areas that will not be connected can invest in alternative solutions, while DSOs can adjust their infrastructure planning accordingly. It also means that inhabitants who are not in a district heating designated area get clarity. These inhabitants can then invest in other solutions, like individual heat pumps. The municipality can support these efforts with other policy tools.
Complexity
Developing fully integrated district heating systems with multiple and diverse heat sources, storage solutions, and other cost-saving measures is a complex process that requires technical expertise, financial insight, and strategic planning. For municipalities, gaining firsthand experience in this process is invaluable as the knowledge acquired can be applied to future projects and expansion phases across the region.
Once a district heating network has been established, the municipal energy company can continue re-evaluating areas that were previously not feasible, as circumstances change. For instance, a company that can provide residual heat may want to settle nearby, or recent research might show that the area has significant potential for geothermal energy – the options are numerous and need time to evolve. Developments like these can make the business case for district heating in these areas feasible, or can even bring the price down. The new company might be able to deliver more heat than for just the designated neighbourhood, and can become baseload provider for several areas. In these circumstances, connecting this new area, which was once unfeasible, is not just feasible but positively affects the price for all inhabitants connected to the network.
Commercial perspectives
While commercial companies have been successful in the past in creating district heating networks, their goals often do not align with the objective of bringing sustainable heating to as many inhabitants as possible, ensuring no one is left behind, and meeting climate targets. Commercial companies are solely interested in neighbourhoods with high profit potential. Once all profitable areas are connected, they lack the incentive to expand further, leaving remaining neighbourhoods without viable solutions. As a result, the transition becomes fragmented, severely threatening the overall goal of providing sustainable and affordable heat to as many residents as possible.
A municipal company, however, can use surpluses from profitable neighbourhoods to connect less profitable ones – democratising heating for the entire city. This socialization is precisely why a municipal energy company is preferred as it enables a phased approach to connecting entire cities over time, rather than allowing private companies to develop only the most lucrative areas and leaving the rest behind. When private companies develop the most lucrative areas, the revenue will be profit for the companies’ stakeholders, instead of an investment for the next phase, meaning the left behind areas will be even harder to decarbonise.
Moreover, commercial companies do not readily share the lessons they learn with municipalities, making it harder for local governments to access and apply this knowledge to future projects. As a result, commercial companies not only hinder municipal heat companies from using socialization to connect as many homes as possible but also mean that the municipal heating companies cannot learn and refine their approach.
Cooperatives
Cooperatives have led a lot of successful district heating companies in Denmark, and are a good way in which local initiatives can decarbonise their heating. However, in Denmark, there is a lot of knowledge on the creation of district heating companies, easy access to finance through the Kommunekredit, where district heating is considered a safe investment. There are a lot of supporting institutions with decades of experience. The Netherlands currently lacks many of these institutions which make cooperatives so successful. In the Netherlands, these projects are considered high-risk.
One of the most important lessons from Denmark is to think big and start small. The municipal district heating company needs to first take charge and learn, before it can help cooperatives. This is not to say that cooperatives won’t play important roles in district heating in years to come because, with the right support, they can be very successful. Municipal heating companies can focus on decarbonising the bigger cities which is hard for cooperatives to achieve, helping them achieve their climate goals
Municipal leadership
The complexity of developing district heating in the Netherlands requires integrated planning to ensure success. A municipal heating company with easier access to resources, such as funding and expertise, should take the lead. By starting in locations with the highest potential, the municipal heating company can gain valuable experience and refine its strategies. It can focus on decarbonising the bigger urban areas, which are hard for cooperatives to achieve, helping them achieve their climate goals. In later stages, when cooperatives seek to develop district heating networks in collaboration with the municipal heating company, this can be a viable scenario.
Once the municipal heating company has successfully completed several projects, learning key lessons in technical, financial, operational, and regulatory aspects, as well as stakeholder management, it can begin supporting cooperatives in navigating the complexities of district heating. With its accumulated experience, the municipal heating company can act as a facilitator, helping cooperatives access financing, expertise, and key stakeholders. While neighbourhood-level initiatives are valuable, they must be part of a well-coordinated, municipality-led plan to ensure long-term success and fairness.
