Europe District Heating Market Size, Share & Industry Analysis, By Heat Source (Coal, Natural Gas, Renewable, Oil & Petroleum Products, and Others) By Plant Type (Boiler, CHP, Heat Pump, and Heat Accumulators), By Application (Residential, Commercial, and Industrial), and Country Forecast, 2024-2032

The Europe district heating market size was valued at USD 132.35 billion in 2023. The market is projected to grow from USD 134.14 billion in 2024 to USD 163.52 billion by 2032, exhibiting a CAGR of 2.51% during the forecast period.

District heating is a centralized heating system that provides heat to multiple buildings from a single source. In this process heat is generated at a central plant and then circulated through a network of insulated pipes to buildings. The heat is then utilized to provide space heating and hot water to the buildings. It has numerous benefits over specific heating systems, such as cost savings, energy efficiency, and others.

The Europe district heating market was negatively affected by the COVID-19 pandemic's outbreak due to the temporary shutdown of commercial and industrial spaces. These sectors also faced supply chain disruptions and a shortage of workers due to stringent government regulations regarding mobility and lockdowns.

The pandemic also alarmed the governments of different countries to focus on renewable and sustainable sources of energy, which would provide a positive outlook to the market. For instance, according to the European Geothermal Energy Council, 14 new geothermal district heating and cooling systems were commissioned in Europe in 2021 after the slowdown of the COVID-19 pandemic. 

Europe District Heating Market Trends

Digitalization of District Heating Systems is a Key Trend in the Market

The adoption of digital technologies has changed the industry in Europe by allowing increased dependability and efficiency of these systems. Digitalization comprises the utilization of sensors and smart meters to optimize and track the operation of these systems. One major advantage of modifying heating systems is enhancement in energy productivity. Digital technologies allow real-time tracking of energy utilization, enabling operators to identify and address incompetency in the system. For instance, sensors can determine leaks in the system, while data analytics can enhance the operation of pumps and boilers. This might lead to substantial energy savings and minimize greenhouse gas release. Another advantage of digitalization is that it allows predictive maintenance, enabling operators to identify major faults before they occur and take proactive steps to avoid system letdowns. This can aid in decreasing downtime, boosting system productivity, and improving customer satisfaction.

In addition, digitalization permits considerable customer engagement. Smart meters and other technologies enable customers to track their energy utilization in real time, allowing them to make informed decisions regarding their energy utilization and minimize their energy bills. This can aid in building confidence and engagement between solution providers and consumers. Siemens is one of the companies that provide digitalization solutions for district heating. It offers a digital district heating substation that makes heat flows transparent. In addition, SAMSON is one of the companies offering digital district heating solutions. It offers SAM District Energy, a web-based solution for optimizing, controlling, managing, heating, and cooling systems.

Furthermore, in 2023, Veolia, in partnership with Sheffield City Council (U.K.), started implementing Artificial Intelligence to enhance Sheffield’s District Energy Network’s efficiency. The AI system utilizes a data-driven thermohydraulic modeling tool, with the goal of decreasing peak loads by ~20% and boosting heat delivery by ~25%. Through analyzing real-time data and forecasting demand and weather conditions, the technology improves network performance.

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Europe District Heating Market Growth Factors

Rising Demand for Sustainable and Energy-Efficient Heating Solutions is Propelling Market Growth

The solution provides numerous advantages over conventional heating systems, improving reliability, reducing greenhouse gas emissions, and enhancing energy efficiency. In recent years, there has been a rising awareness of sustainable energy solutions with the aim of lowering the impact of greenhouse gas effects. These systems can potentially contribute to the operation by utilizing various types of low-carbon energy sources and renewables, such as waste heat from industrial processes, geothermal, and biomass. By utilizing these sources, these systems can considerably reduce greenhouse gas emissions and assist in lessening the effects of climate change.

In addition to the environmental advantages, the solution provides economic advantages. These systems can be more profitable than conventional heating systems, specifically in densely populated regions with a high demand for heating. By utilizing a central heating system, the providers can accomplish economies of scale and lessen the cost of delivering heat to consumers. This can lead to improved affordability and lower energy bills for customers.

The government is offering support for the adoption of energy-efficient and sustainable solutions for district heating deployment. It provides grants, subsidies, and incentives for renewables integration. For example, in August 2022, the European Commission accepted an USD 3.70 billion plan to encourage green district heating based on renewable energy and waste heat in Germany. This plan aims to reduce carbon emissions and meet climate change goals.

Focus on Energy Efficiency and Decarbonization is Augmenting Market Growth

Strict environmental regulations and initiatives, such as European Climate Law, Green Deal, 8th EAPs (Environment Action Programmes), and others, framed by the governments of the regional countries and European Unions for curbing carbon emissions and fostering sustainable energy practices have resulted in the rapid expansion of the market in Europe. These regulations set goals for reducing greenhouse gas emissions, promoting renewable energy integration, and improving overall energy efficiency standards. For instance, in 2020, the European Commission increased the 2030 target for GHG emission reduction to at least 55% instead of the previous 40% reduction. In addition, a deal was reached during the COP28 UN Climate Change Conference in Dubai in 2023 to accelerate emission reductions toward net zero by 2050. This includes an agreement to transition away from fossil fuels and to reduce global emissions by 43% by 2030. Therefore, these systems have gained prominence as a preferred solution due to their capacity to align with these regulatory requirements.

RESTRAINING FACTORS

High Initial Capital Investment Could Hinder Market Expansion

A major restraining factor for the market is the high upfront expenses for installing these systems. Compared to individual heating systems, which can be installed on a building-by-building basis, these systems need a substantial investment in infrastructure, comprising the network of pipes to distribute heat and the construction of a centralized heat generation plant.

According to the International Energy Agency, the expected investment in district heating pipelines in Europe in 2019 was USD 5.8 billion. Building a district heating capacity requires high initial investments, as installing a secure transmission and distribution network is expensive. The insulated pipes and their underground laying require a significant investment, which is a major obstacle for investors. In addition, the lack of the required infrastructure and the availability of other economical options for space heating and water heating can hamper the Europe district heating market growth.

Europe District Heating Market Segmentation Analysis

By Heat Source Analysis

Renewable Heat Sources Driving Transformation in This Market

Based on heat source, the market is categorized into coal, natural gas, renewable, oil & petroleum products, and others. The renewable segment dominates and will be the fastest-growing segment in the forecast period. The segment’s growth is supported by the growing utility of renewable heat sources, such as solar thermal, geothermal, and biomass, producing heat for these systems and substituting outdated fossil fuels such as gas and coal. According to the International Energy Agency (IEA), Europe presently leads renewables incorporation in district heating. It has around 25% of its district heat supplies from renewable sources. Specifically, high rates are noticed in Iceland, Sweden, Austria, Denmark, Lithuania, Estonia, and Latvia, where renewables fuel more than 50% of district heat. In addition, Veolia has opted for the final choice with an investment of USD 1.7 billion by 2030 to discontinue coal usage in Europe, specifically in the district heating they operate. Strategic investments in Přerov in the Czech Republic, Braunschweig in Germany, and others, are working to phase out the coal utilization in Europe district heating.

Furthermore, according to the International District Energy Association, in February 2024, the city of Szeged in Hungary expanded its geothermal heating capacity by completing a new geothermal heating system in the Sziler district. The project replaces ~2.2 million cubic meters of natural gas, resulting in the reduction of 4,482 tons of CO2 annually in the Szeged. The Hungarian Ministry of Construction and Transport announced the completion of this project, which required a budget of approx. USD 6 to 6.5 million. The geothermal system involved drilling a ~2000-meter production well and two slightly shallow injection wells. Water from the production well passed through a heat exchanger, with the secondary fluid going to the Felsovaros I heating plant. In addition, the new heating system can cater to other heating districts through existing transmission lines.

By Plant Type Analysis

Progressive Usage as an Option to Conventional Fossil Fuel-based Plants is fueling the Heat Pump Share in the Market

Based on plant type, the market is divided into boiler, CHP, heat pump, and heat accumulators. CHP holds the dominating position and the largest Europe district heating market share owing to the European Parliament’s s targets to attain a 55% cut in greenhouse gas emissions by 2030, and attaining carbon neutrality by 2050. In addition, Europe currently produces 700 TWh of CHP power which is mostly from steam turbines and combined cycle gas turbines. Thus, the high presence of CHP in the region is also attributing the market growth.

The heat pump segment is expected to grow at the fastest rate during the forecast period. Heat pump plants are progressively being utilized in these systems as an option to conventional fossil fuel-based plants. The principal factor for this shift is the rising awareness of the requirement to lessen greenhouse gas emissions and improve energy efficiency in the heating sector. For instance, according to the International Energy Agency (IEA), in Europe, ~3 million heat pumps were sold in 2022, a growth of around 40% compared with the previous year. According to IEA, Russia’s invasion of Ukraine increased this trend as electricity prices and natural gas increased substantially, encouraging customers to switch to heat pumps, which offer much higher efficiency than traditional heating methods.

By Application Analysis

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Residential Segment to Dominate Due to Focus on Sustainability and Energy Efficiency

On the basis of application, the market is divided into residential, commercial, and industrial. The residential segment is expected to dominate the market during the forecast period. The rising focus on energy efficiency and sustainability in the residential sector propels the demand for these systems. Furthermore, installing these systems in existing residential buildings is relatively simple and does not need huge underlying changes. This makes it an attractive choice for the residential sector looking to reduce its energy costs and carbon footprint.

For instance, according to the International District Energy Association, in 2023, the largest heat pump system in Europe was commissioned in Vienna. In Vienna's Simmering district, three large heat pumps have been put into operation. It will supply heating for ~56,000 households in the Austrian capital by utilizing thermal energy extracted from purified wastewater. The goal is to double the capacity by 2027. Heat pumps have become increasingly recognized as a vital technology for the future of heating in Europe.

The commercial segment also holds a notable share of the market as several offices, educational institutions, hospitals, and other commercial entities rely on district heating systems to meet their heating demands. Moreover, it allows these establishments to streamline their energy usage, reduce operational costs, and adhere to sustainability targets.

Country Insights

By country, the Europe district heating market is divided into Germany, Austria, Switzerland, the U.K., Poland, Netherlands, Finland, Denmark, Sweden, Norway, and the rest of Europe.

Poland has the largest share of the European market. The push toward decarbonization is resulting in a shift toward the solution in Poland. For instance, in 2022, DP bagged Poland's biomass district heating project. An agreement was inked between SBB Energy and OPEC Grudziądz for the execution of a 12.5 MW boiler at the heat & power plant in Grudziądz, with DP providing the fuel to stack – comprising an innovative fuel yard for handling local boiler auxiliary, sourced straw wastes, and flue gas treatment.

Germany is one of Europe's biggest and most developed markets and is expected to grow in the coming period, propelled by the phase-out of coal-fired power plants, increasing interest in energy-efficient heating solutions, and other factors. In August 2022, the European Commission accepted, under EU State aid regulation, a USD 3.13 billion German plan to boost green district heating based on waste heat and renewable energy. The action will add to the execution of Germany‘s National Energy and Climate Plan and the EU’s essential goals relating to the EU Green Deal, specifically the EU’s 2050 climate change target.

The U.K. is also one of the major markets in Europe and in February 2023, it opened a USD 33.65 million heat network support program. This scheme focuses on old and unproductive heat networks to produce inexpensive energy and decrease carbon emissions for numerous homes across Wales and England. Through the newly launched heat network efficiency plan, out-of-date equipment will be developed with energy-efficient substitutes, such as underfloor heating controls, pipe insulation, and replacement pumps. In addition, in March 2023, in the U.K., the Energy Security Bill introduced a heat networks regulation to allow heat zoning. The Climate Change Committee has projected that ~18% of the country's heat consumption could be met through heat networks by 2050.

The Netherlands is also expected to expand at a noteworthy growth rate during the forecast period propelled by the rising trend of renewable energy-based solutions. For instance, in December 2022, QTS's Groningen data center contributed to district heating in the Netherlands. This data center in Groningen has been associated with the Dutch city's latest district heating project.

Denmark is also one of the important countries in Europe and is striving to achieve carbon neutrality goals. For instance, according to IEA, the city of Aarhus in Denmark unveiled plans for Europe’s largest geothermal district heating facility at the beginning of 2022, with partial operation by 2025. In addition, in March 2023, Denmark's parliament passed legislation to bolster geothermal energy by enacting a law that exempts geothermal heat projects from the existing price regulations.

List of Key Companies in Europe District Heating Market

Veolia Plants Achieve an Eco-friendly Transition by Launching Renewable Technologies

Veolia has extensive mastery in creating, constructing, possessing, managing, and preserving district heating and cooling systems globally, with an ongoing collection of more than 60 networks. It has comprehensive in-house capability, from the preliminary feasibility stages to running and maintaining resources, including a gifted pipework team, call center, and customer service and departments. Veolia plants accomplish an eco-friendly transition in cooling and heating services by executing low-carbon and renewable technologies, such as heat retrieval from industrial heat, data centers, and wastewater resources.

• On April 08, 2022, Veolia announced that it will initiate two new district heating projects for developing local, sustainable, and low-carbon energy sources. In Finland, the company is launching the world's largest biorefinery project that will produce CO2-neutral bio-methanol from the pulp manufacturing process. In addition, the Group is collaborating with Waga Energy to inaugurate the largest biomethane production unit aimed at recovering biogas from a non-hazardous waste landfill in France.

LIST OF KEY COMPANIES PROFILED:

• General Electric (U.S.)


• Engie (France)


• Dall Energy (Denmark)


• Helen Group (Finland)


• Uniper (Germany)


• FVB Energy Inc. (Canada)


• Statkraft (Norway)


• Alfa Laval (Sweden)


• Danfoss Group (Denmark)


• Veolia (France)


• Ramboll (Denmark)

KEY INDUSTRY DEVELOPMENTS:

• December 2023: The Acorn Partners, including Storegga, Shell U.K Limited, Harbour Energy, and North Sea Midstream Partners, signed a MoU with Uniper, a global energy company with over 22GW of generation capacity in Europe. It is working on plans to integrate post-combustion carbon capture technology into as many as three units at its Grain power station, a 1,326MW Combined Cycle Gas Turbine (CCGT) plant situated on the Isle of Grain in the South East of England.


• November 2023: GE Vernova’s Gas Power business secured two orders from EnBW to provide H-Class natural gas-fired combined cycle power generation equipment for EnBW’s Combined Heat and Power (CHP) power stations in Germany. These CHP plants are projected to deliver ~1,340 megawatts to the national grid, the same as needed to power ~2.4 million houses.


• April 2023: Dall Energy, a player active in the booming biomass-based heating market, secured ~USD 10.8 million in equity investment from Eiffel Essentiel. The funding aims to enhance execution capabilities and speed up the company's growth.


• February 2022: the GE-Powered Anyang District Heating Plant added 500 MW to support the stable supply of heat and power in the Anyang region of South Korea.


• October 2021: GE secured an HA gas turbine order for the Naepo District Heating Plant in South Korea. GE’s highly efficient and innovative 7HA.02 gas turbine technology is offering around 500 megawatts to the national grid and steam for district heating for ~100,000 citizens of Naepo City.

REPORT COVERAGE

The report provides a detailed analysis of the market and focuses on key aspects such as prominent companies, product/service types, and leading product applications. Besides this, it offers insights into the market trends and highlights key industry developments. In addition to the factors above, the report encompasses several factors that have contributed to the market's growth in recent years.

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