Decarbonising heat for the future

Current situation and challenges faced

Heat represents a major portion of global energy consumption. Looking at Europe, it accounts for 60% of total energy usage and contributes substantially to greenhouse gas emissions, making up 40% of the continent's total carbon emissions. This reliance on heat is indispensable for various purposes. Residential-space heating accounts for 48% of heat consumption, industrial processes 31%, and commercial and industrial-space heating 21%.

The Nordics are an exception, where the heating sector has been transformed from a high dependence on oil to now being dominated by district heating, heat pumps, electric heating and biofuels. The heating sector has thus made a contribution to decarbonising the Nordic energy system.

At present, the predominant method of heat generation hinges on fossil fuels, primarily gas (42%), oil (11%) and coal (3%). Although renewable heat sources are gradually gaining ground, their current contribution remains relatively modest. Nonetheless, there is a concerted effort to amplify their role in the energy mix, with a collective objective to transition entirely to renewable sources by 2050.

Despite expectations of continued economic growth, the trajectory of heat demand is anticipated to rise moderately until 2050. This increase is influenced by concurrent factors such as energy efficiency initiatives and the effects of global warming. However, amidst this scenario, the widespread adoption of heat pumps emerges as a pivotal technological solution, offering a promising alternative to traditional heating methods.

Heat pumps basically make use of heat already being present in environmental sources (like rivers or even the outside air) or in the form of waste heat from industrial processes or data centers. They therefore do not generate heat, but rather provide heat. Projections indicate that this transition, coupled with increasing electrification of heat sources, will lead to a substantial reduction in the overall fuel consumption, slashing it by 43% from 6,052TWh to 3,450TWh by 2050.

Fuel use and demand in the heat sector of the EU27+3¹  (TWh)

Nearly all utilities and industrial partners strive to phase out gas, oil and coal for heat supply. There is a parallel commitment to curbing greenhouse gas emissions to achieve carbon neutrality by 2050. This monumental shift underscores the collective commitment to combatting climate change and marks a pivotal milestone in the journey toward sustainable heating sources.

Next to the heat supply, the need for cooling will increase. District cooling is a system that centrally produces and distributes chilled water to multiple buildings through an insulated underground network, providing an energy-efficient alternative to individual air conditioning units. This approach reduces energy consumption and carbon emissions by leveraging economies of scale and advanced cooling technologies. The future of district cooling is promising, with potential for significant expansion driven by urbanisation, climate-change mitigation efforts, and the integration of renewable energy sources. However, large-scale adoption faces challenges such as high initial infrastructure costs, the need for extensive urban planning and coordination, and potential disruptions during installation.

Looking ahead

To effectively achieve net-zero targets by 2050, it is imperative to explore alternative heating solutions, regardless of whether the heat production is centralised, through heat networks, or locally produced. The primary consideration when assessing alternative technologies should thus focus on their overall sufficiency rather than fixating solely on a specific option. At both local and global scales, the adoption of alternative heating technologies encounters challenges regarding availability and cost, particularly in achieving a complete decarbonisation of heat networks and local heating devices.

Renewable heat sources and their main challenges

Specific technologies face unique hurdles:

• Electric heat pumps: To accommodate the projected surge in demand for heat pumps, which is expected to increase nearly eightfold by 2050 compared to current levels, there needs to be a corresponding rise in renewable electricity supply by over 2.5 times.
• Green hydrogen, biomass, and solar thermal power: These alternatives necessitate significant resources such as renewable electricity for hydrogen production, sufficient land for biomass cultivation, and strategically located land for solar thermal facilities, often coupled with expensive heat storage solutions.
• Geothermal heat: While promising, it relies on geologically suitable sites, bringing along exploration risks and requiring substantial capital investment.
• Power-to-Heat devices: Even when deployed solely for peak load management, they depend on a steady supply of green electricity.
• Heat storage technologies: When integrated with heat generation systems, they offer a means to balance heat supply and demand across different timeframes, yet typically incurring high levelised costs of heat (LCOH) production.

Therefore, the optimal approach to navigating the challenges of scarcity, technological complexities, and transition costs involves a meticulous assessment of local technological and economic considerations, as well as ensuring security of supply. This assessment can be facilitated through detailed LCOH calculations, encompassing factors such as capital expenditure (CAPEX), operational expenditure (OPEX), fuel costs (including potential costs associated with CO2 emissions), cost of capital, taxes, and potential revenue streams from electricity production.

Parameters impacting Levelised Cost of Heat²

However, it is crucial to acknowledge that future shifts in costs, such as through mass production efficiencies or changes in fuel source prices, may influence overall economic dynamics. For instance, an increased mass production of heat pumps could reduce their CAPEX, hence making them more attractive. Similarly, a broader utilisation of industrial waste heat could become more appealing. Hence, ongoing monitoring and adaptation to evolving cost structures are essential in optimising heating solutions for the future.