Impacts of earlier natural gas phase-out & heat-saving policies on district heating and the energy system

Decarbonizing the district heating sector is essential for an affordable energy transition. Decarbonization strategies focusing on the interaction between power sector, individual heating technologies, heat-saving measures, and district heating expansion are missing in literature. We use energy system investment optimization to analyse the impact of decarbonization policies on district heating by comprehensively modelling the above-mentioned interaction across power and heating sector, and within the heating sector. We model decarbonization policy scenarios of massive investment into heat-saving measures and an earlier natural gas phase-out by 2030. Using Denmark as a case study, we identify policy-driven investments into heat-saving measures as non-optimal. Our results indicate that district heating expansion facilitates an earlier natural gas phase-out, which is a viable policy that inflicts only 0.07% extra system cost compared to a scenario with only net-zero emission targets. Furthermore, we find that decarbonized district heating sector has a very high reliance on industrial excess heat, biofuels, and electrification. A biomass tax reduces the high utilization of raw biomass and promotes its more sustainable use in carbon capture and storage. Our results show a cogeneration capacity reduction, which poses a challenge to the business model of conventional Danish district heating companies.