District Heating Market

District Heating Market Outlook (2023 to 2033)

The global district heating market is expected to cross a valuation of US$ 340 billion by 2033. In 2023, the market size is estimated to be US$ 198 billion. The CAGR during the forecast period is expected to be 5.6%.

Significant factors which might propel the market growth are:

• Adoption of the latest technologies, which allow the manufacturers to work in coherence with governments to achieve sustainable goals
• Providing decentralized heating across the area of operation
• Making use of renewable sources of energy

The adoption of tough climate goals by governments throughout the world is expected to fuel market growth. In addition, concerns about recycling waste energies are growing, and building energy efficiency standards is gaining traction. This would certainly lead to the deployment of sustainable technology, which is expected to boost demand for district heating systems.

The district heating networks would combine radiant heat with low-temperature supplies (between 40 and 60 degrees Celsius). In addition, new-generation district heating plants would lead to decentralized heat and cold generation by utilizing easily available energy sources.

Modern district heating networks are likely to play a vital role in the market by implementing energy-efficient, environmentally friendly methodologies.

Traditionally, district energy companies have relied on non-renewable heat sources, such as coal, oil, or natural gas. Consequently, the operating cost is entirely reliant on the price of that fuel. However, in the current times, companies are investing in renewable energy sources to generate heat at central units.

Due to the increased usage of heat sources in district heating, it becomes feasible to take advantage of price fluctuations in various types of fuels. A district heating plant is particularly adaptable to heat source selection. It can handle many types of heat sources, including wind and sun, industrial surplus heat, combined heat and power, and boilers.

District heating providers may select the least expensive heat source available. This improves production and supply efficiency. The district heating solutions provide customers with cost-effective and efficient heating services, which contributes to the market's growth.

However, district heating solution suppliers confront issues in delivering heat from the source to end-users with minimal or no heat loss during transport. Heat pipes transferring heat must be well insulated and sturdy, or else the heat generated would be lost.

Asia Pacific is expected to be the leading market during the forecast period. The business trends may be boosted by a rising propensity towards the use of decentralized systems in a variety of commercial and industrial facilities. Increasing initiatives to adopt energy-efficient DH systems are also expected to drive market growth. The demand for district heating systems is expected to be accelerated by ongoing government programs and plans for urban expansion.

Comparison between the Historical CAGR (2017 to 2022) and the Anticipated CAGR (2023 to 2033)

In the current times, a lot of district heating systems operate through non-renewable sources of energy. Owing to this, lots of environment-conscious buyers are seeking suitable alternatives. There has been an increase in customers, as the urgency to achieve sustainable goals has been inculcated on a personal level as well. This can be best explained by comparing the historical CAGR with the anticipated CAGR. While the historical CAGR for the market was 8.9%, the anticipated CAGR is 5.6%. To make up for the expected dip, the manufacturers are now focusing on adopting renewable sources of energy to reduce carbon footprints.

• Short-term Growth: During this timeframe, the market would be trying to make up for the losses incurred due to supply chain disruption. If we talk specifically about Europe, the region has been going through one of the worst oil and gas crises owing to brewing tensions with Russia. Such situations are expected to pose a great threat to market growth.
• Mid-term Growth: During this timeframe, we might get to see a lot of companies experimenting with the idea of operating through renewable energy sources. The intention is to contain carbon emissions. In December 2022, a group of Spanish researchers developed a district heating system that cut down carbon emissions by 80%. The market could witness more such innovations.
• Long-term Growth: This could be the start of an era when district heating systems that run on renewable energy resources are readily available. The manufacturers would be looking to scale up production. This would ensure that the product gradually starts gaining traction.

What are the Limits to the District Heating Market?

A district heating system consists of a heat-producing unit powered by oil, gas, or wood chips, a distribution network of well-insulated pipes, and equipment such as heat exchangers. The investment is primarily to establish a production unit and distributed heating system.

The investment required for a distributed heating-producing unit varies based on its kind. For boilers and renewable heat sources, a significant investment is necessary, whereas excess heat from industries and data centers requires very little expenditure.

Pipe systems for district heating transmission and distribution are critical and need significant investment, as pipes must be of exceptional quality to minimize heat loss. However, district heating solution suppliers are hesitant to spend owing to constantly changing environmental regulations, consequently restricting the district heating market growth.

Nikhil Kaitwade

Principal Consultant

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What are the Emerging Trends in the District Heating Market?

District heating companies are projected to benefit significantly from technological advancements and digitization. Digitalization is driven further by the rapid adoption of modern technology goods and solutions such as smart meters, demand-based heating systems, home automation, and smart infrastructure.

Consumers may have a role in balancing future heating demand by utilizing these options. Rapid advancements swiftly reduce heating costs with increasing efficiency. As new buildings require distributed heating systems, advanced infrastructure developments create considerable potential.

Additionally, modern district heating networks are expected to play a critical role in enabling energy-efficient district heating solutions. These procure heat from various sources, most notably excess heat from industrial processes and a variety of renewable energy sources, depending on their availability.

The new infrastructures offer substantial thermal transfer surfaces and the potential for installing modern district heating systems. Additionally, advanced district heating systems may synergize within existing heating networks to boost efficiency, dependability, and cost-efficiency. As a result, technical developments in the district heating sector are likely to generate considerable revenue for solution suppliers.

Country-wise Insights

United States: Adoption of Green Technologies to Surge the Market Growth

The companies based out in the United States are making use of green energy to operate the district heating system. Most companies are making use of solar energy to operate these devices. The systems that are being developed by them are functioning on the principle of passive solar energy systems. This technology makes use of walls, windows, and floors to collect, store, and release the sun’s energy.

Several companies are utilizing the energy from biomass. These do not produce as much carbon dioxide as fossil fuels. These are much more affordable than other forms of non-renewable sources, as a result of which a lot of manufacturers in the market are investing in them.

United Kingdom: Energy Efficient Systems to Drive Growth

The United Kingdom is meant for being under the grip of extreme cold for a major part of the year. This might surge the sales of district heating devices. The manufacturers in the region have been developing energy-efficient systems, which reduce operating costs. The authorities are incentivizing such companies, which would boost the market share.

The government has been implementing strict regulations to reduce the emission of greenhouse gases. In fact, in most of the developed cities across the United Kingdom, heat networks are essential to achieve net-zero emissions. The low-carbon heating option has led to a lot of stakeholders investing huge amounts in this system.

China: World’s Leading District Energy System Shows Signs of Expansion

China is currently the leading consumer of district energy. The country has been pursuing assertive public policy decisions to elevate cleaner, energy-efficient district energy. In 2015, the country consumed more than 185 million tonnes of coal, which was way higher than the national energy consumption of the United Kingdom. With transitions being made from coal to clean energy, the scope of the market is expected to skyrocket during the forecast period.

The technological developments in the market are also expected to surge the growth. The key players are making use of artificial intelligence to regulate the operation of the district heating systems. The manufacturers are also working on developing advanced automation that would work in synchronization with Artificial Intelligence to increase efficiency and save energy.

Japan: Fourth Generation District Heating to lead the Market

The fourth-generation district heating makes use of a low supply temperature (50-60 0C), which increases the efficiency of the entire system. This is done by integrating renewable energy and waste heat. The diversification of heat sources, which ensures large-scale solar heat utilization and inter-seasonal heat storage, promises higher efficiency.

The manufacturers are harnessing solar energy in particular, as these reduce the dependence on other forms of non-renewable energy sources, which are higher in cost. They are also investing in product innovation to make the operation user-friendly.

South Korea: Massive Projects to Propel the Market Growth

South Korea has been implementing massive projects that deal with district heating. Companies like General Electric have been a part of this project, which reflects the demand for this system. The Anyang district heating plant has been generating 500 megawatts of energy to support heat and power supply in the region.

The existing infrastructures are also being upgraded. A combined CHP plant in South Korea completed a project to improve its output and overall operation. The system was updated with gas turbine technology, which would enhance the reliability of the plant.

Segmentation Insights

Which Source is expected to hold the Dominant Market Share?

Because of its high sustainability and cost-effectiveness, the Combined Heat and Power (CHP) segment is expected to grow significantly. Product demand is expected to be boosted by improved energy supply efficiency and the use of waste heat and low-carbon renewable energy sources.

Favorable regulatory norms for decreased carbon footprints and cost reductions may encourage growth. The industry's acceptance of cogeneration techniques is aided by a paradigm shift towards sustainable heat, power supply, and regulatory goals to improve energy efficiency.

Which Application Segment has the Maximum Growth Potential?

The residential category is expected to be the leading segment. The widespread use of small heating systems and strong real estate investment have boosted the demand for district heating systems in residential buildings.

Increased application of decentralized generators and surging urban population may positively impact the business picture. The demand for district heating systems in the business sector is expected to be influenced by rapid urbanization and industrialization. Increased expenditures in the creation of new manufacturing units and facilities are also expected to surge the growth of the business segment.

Start-ups Aim Big as they Look to Scale using Geothermal Energy

The start-ups operating in the market are making use of geothermal energy systems for district heating networks at scale. They are also making use of innovative business models, which provide a holistic control and monitoring platform. These assist in carbon reductions while operating in a complex heat network environment.

Water-horizon: The start-up has been developing highly innovative renewable energy solutions for industrial heating and cooling applications. It makes use of an industrial transportable thermal battery. The system helps in recovering waste heat from industrial activities, and it stores heat with a high density without any loss of energy.

Manufacturers Focus on Key Aspects: Divest the Unimportant Dealings

The key players operating in the market are now focusing on the more important aspects of the business. At such a time, they are streamlining the operations. Thus, they are divesting the business units, which are not fetching higher profits. Moreover, with supply chains getting affected worldwide, the manufacturers are of the view that investing in the key performance indicators is the best investment. In December 2022, Fortum completed the divestment of Uniper.

Key Market Developments are

• In December 2022, Fortum and KärnfulNext announced to jointly explore opportunities in Sweden for Small Modular Reactors.
• In December 2022, Ewald Woste was elected the new chairman of the STEAG Gmbh supervisory board.

Dominant Players in the Market

Other companies profiled: Shinryo Corporation, Ramboll Group A/S

District Heating Market Segmentation

By Source:

• CHP
• Geothermal
• Solar
• Heat only Boilers
• Others

By Application:

• Residential
• Commercial (College, Office, Government/Military)
• Industrial (Chemical, Refinery, Paper)
• Others

By Region:

• North America
• Latin America
• Europe
• Asia Pacific
• The Middle East and Africa