Optimizing the Transition: Decarbonization Pathways and Technology Integration Strategies for District Heating in the Future Energy System

Heating represents half of the global final energy consumption and district heating is recognized as a sustainable solution to decarbonize the heating sector. This thesis presents an in-depth analysis of decarbonization pathways for the district heating sector, including the assessment and mitigation of the impacts associated with integrating key technologies. The district heating sector faces a number of challenges related to adopting the transition pathways in response to the changing policy scenarios and developing strategies for the efficient integration of key technologies, especially heat pumps and excess heat, to facilitate decarbonization and mitigate risks arising from these key technologies integration. Furthermore, there is a demand for improved decision-making tools in local planning, especially in Denmark, that are better aligned with local needs and contexts. This thesis focuses on the district heating sector in Denmark.

This thesis develops and implements quantitative energy models to evaluate and develop a better understanding of these challenges. The thesis extends an energy system model for Denmark and neighboring countries, with a comprehensive representation of the district heating sector to evaluate the role played by the district heating in the future decarbonization of the energy sector under new policy targets about reducing reliance on imported natural gas and ambitious energy renovations to reduce heat demand. A nonlinear model has been designed to optimize the allocation of energy renovation subsidies to maximize heat savings. This model also serves to evaluate the discrepancy between national-level estimations and their impact on local policy decisions, highlighting the need for better policymaking at the local-level.

To build on the analysis, incorporating large-scale heat pumps into district heating is approached through a multi-stage stochastic optimization model that accounts for the uncertainties in sequential power market prices. This model considers day-ahead, intraday, and balancing market dynamics and prices in the potential impact of a high share of renewable energy on power price volatility. Additionally, the model takes into account the district heating operator's risk preference. Finally, the thesis implements a multi-stakeholder cash flow analysis to understand the integration of excess heat in district heating from the perspective of diverse stakeholders involved. The cash flow analysis determines the positive business models for all the stakeholders based on the ownership structure, which refers to the project's capital cost sharing among different stakeholders.

The thesis finds that expanding the district heating sector facilitates the earlier phase-out of natural gas by 2030 from the Danish energy system, which is found to be a viable policy target as it inflicts only 0.07% extra cost compared to a scenario with only net-zero emissions targets by 2050 but without restriction on earlier natural gas phase-out. The district heating expansion facilitates earlier natural gas phase-out. Biofuels, industrial excess heat, and electrification via heat pumps play important roles in the decarbonization strategy. However, ambitious policy targets for energy renovations are not optimal in an energy system with an already very high penetration of district heating. The thesis also validates the state-of-the-art heat demand estimates at the national level, which local energy planners widely use. However, it is found that such estimates present a wrong picture of the heat demand of houses in the case-study municipality of Lyngby. The thesis quantifies, via a nonlinear energy renovation model, that an energy renovation subsidy scheme based on such estimates leads to about 60% misallocation of the total subsidy budget.