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District heating and cooling systems have gained rapid prominence in recent times on account of the heightening concerns about greenhouse gas (GHG) emissions recorded in urban areas. According to UN-Habitat, cities are responsible for more than 60% of the world’s GHG emissions and consume 78% of the world’s energy. These systems will prove crucial in managing the energy requirements of buildings in these growing urban spaces, as these systems can serve the energy needs in an efficient and sustainable manner through localized energy dispersion.
Fortune Business Insights states that the global district heating market size stood at USD 173.4 billion in 2019 and is projected to reach USD 204.8 billion by 2027. However, the COVID-19 pandemic outbreak will cause the market to register a low of 1.3% in 2020 and touch a value of USD 175.7 billion.
COVID-19: A Temporary Roadblock for the Market
The COVID-19 pandemic has swept the globe and has delivered multiple shocks to the energy and power industry. The International Energy Agency (IEA) estimates that global energy demand dropped by 6% in 2020, the largest drop in 70 years for this industry. Renewables also suffered, according to the IEA, with the world adding only 167 GW of renewable power in 2020, marking a 13% contraction from 2019 levels. The adoption of these heating systems is also likely to be affected as a result because these systems are being seen as an ideal solution to increase the share of renewables in the final power mix.
High Potential to Accelerate Renewables to Boost the Market
District heating is a technological innovation that involves the use of insulated pipes to deliver heat to multiple end-users from a single source. This technology eschews the need for producing heat in individual spaces, such as homes and universities, enabling a more energy-efficient way of distributing heat. The most prominent advantage of these systems is that they allow the utilization of renewables, facilitating greater flexibility and environmental efficiency. For example, the Drake Landing solar project in Alberta, Canada has been using a solar energy-based district heating system since 2007. In Sweden, where heating is a key energy demand due to the extremely cold climate, these heating solutions are being combined with renewables such as biomass to provide heat to homes and commercial spaces. Thus, these systems can play a unique role in augmenting the adoption of renewables and aid in tackling global warming.
Green Energy Targets to Stoke Adoption of District Heating Solutions
To counter the worsening effects of climate change and global warming and to reduce the rate of Ozone Layer depletion, countries across the globe have set ambitious clean energy targets. For example, the European Union (EU) aims that by 2030 almost 33% of the total energy consumed in the EU must come from renewables. Within the EU, individual countries have also set clean energy targets. Germany, for instance, plans to generate 65% of its electricity from renewable sources by 2030, while Denmark aims at being fossil fuel-free by 2050. Among emerging economies, India and China are leading the way. China, for example, wants to generate 35% of its electricity from renewables by 2030. In pursuit of these targets, many countries are steadily phasing out coal-fired power plants, such as the UK, which aims at producing half of its electricity from renewables by 2025. The decreasing dependence on conventional energy sources has necessitated the deployment of technologies and solutions that can effectively harness the energy from renewables and distribute it efficiently. This will, therefore, create a wide set of opportunities for players in the district heating market.
Promotion of Energy-Efficient Heating Systems by Governments to Fuel the Market
Governments in major economies are proactively promoting the deployment of district cooling and heating systems to speed up the transition towards clean energy sources. In the UK, for instance, the government has initiated the Heat Network Investment Project (HNIP) with an investment of over £300 million over the current decade. Through this project, the government aims at meeting 20% of the country’s domestic hot water needs from district heating by 2030. Similarly, Germany’s Climate Action Program 2030 comprises significant incentives and investments to improve the country’s heating sector. For example, under the program, the government will give tax relief for energy-efficient upgrades to existing buildings. The reason for the renewed interest in energy-efficient heating systems by governments is the ability of these systems to smoothly integrate renewables into their fold and function efficiently. With rising pollution levels in cities worldwide, especially in developing countries, heating and cooling requirements are rapidly evolving, pushing governments to ramp up investments and frame creative policies to boost the development and adoption of sophisticated energy distribution technologies.
Accelerated Urbanization to Intensify the Need for District Heating Systems
As economies continue to develop, urban areas are experiencing unprecedented growth and expansion owing to the vast array of opportunities presented by them. According to the Population Division of the UN Department of Economic and Social Affairs (UN DESA), at present, 55% of the global population lives in urban areas. The DESA estimates that by 2050 urban areas will be home to approximately 68% of the world’s population, with 90% of this increase expected to be witnessed in the emerging economies of Asia and Africa. Rising populations will inevitably create a dire need for housing, which in turn will escalate the demand for heating and cooling solutions. These needs can be met by district heating systems, which can cater to both localized and dispersed energy demands in an efficient manner. Thus, accelerated urbanization trends will favor the growth of this market in the upcoming years.