The overall district heating market was valued at USD 177.2 billion in 2020 and is projected to reach USD 205.7 billion by 2027, at a CAGR of 2.4 % from 2020 to 2027. In traditional heating solutions, a specific type of heat source is used, e.g., coal, oil, or natural gas; this implies that the heating bill is fully dependent on the price of a specific fuel. In district heating, heat is produced at central units with several fuel types. With district heating, it becomes possible to take advantage of the price changes on different types of fuels as it uses more heat sources. District heating is extremely flexible when it comes to the choice of the heat source; it can accommodate all heat sources, including wind and solar, surplus heat from industrial, CHP, and boilers. In larger district heating systems, with several heat sources, district heating makes it possible to easily switch from one fuel source to another depending on situations such as price, available heat source, and environmental ambitions.
In district heating, multiple heat sources can be easily used; e.g., natural gas, at one central location, can be used to meet heating requirements in several houses, instead of using individual heating systems. District heating companies may choose the cheapest heat generating source among the available sources. This increases production and supply efficiency; as a result, district heating solution offers cost-effective and efficient heating services to consumers, which, in turn, drives the growth of the said market.
District heating system includes heat generation unit consisting of boiler fuelled by oil, gas, wood chips, etc.; a distribution network of well-insulated pipes for transferring heat to end users; and other equipment such as heat exchanger and heat meters. Establishment of district heating systems requires a large number of investments in infrastructure compared with individual heating supply options. The investment is mainly required for setting up heat generation unit and distribution network.
The investment required for heat generation unit varies depending on its type; in case of boilers and renewable heat source, huge investment is required, whereas if heat is sourced from excess heat from industries and data centres, the investment required is comparatively lower. The pipe systems for transmission and distribution of district heating are crucial and require large investment as pipes should be of superior quality to avoid heat wastage. Apart from high investment, district heating solution providers are sceptical of investing due to continuous changing regulation related to the environment, thereby limiting the growth of the district heating market.
Technology advancement and digitalization are expected to create significant opportunities for district heating providers. Digitalization is further fuelled by the accelerated pace of adoption of advanced technology products and solutions, such as smart meters, demand-based heating solutions, home automation, smart infrastructure, and many others. Through these solutions, consumers can take an active part in balancing future heating requirements. Rapid technological development quickly drives down the heating costs with increased efficiency.
Advanced infrastructural developments, including smart cities and planed constructions, facilitate significant opportunities for district heating solution providers as new buildings require heating systems. New infrastructures have large heating transfer surfaces and feasibility for installing advanced district heating systems. Moreover, modern district heating networks are expected to play a key role in enabling energy-efficient, environment-friendly, and cost-effective district heating solutions as it procures heat from several sources, mainly from excess heat from industries and different renewable sources based on its availability. Advanced district heating systems can also take advantage of synergies in heating networks to increase efficiency, reliability, and cost efficiency. Hence, technological advancements in the district heating sector are expected to create significant opportunities for solution providers.
District heating solution consists of heat generation and distribution as main equipment; the district heating solution providers face challenges in transporting heat from the source to end users with minimum or no loss of heat while transporting. For transporting, heat pipes carrying heat must be properly insulated and robust; if not, it will result in heat loss. Whereas in traditional heating, it does not matter if heat is lost via heating pipes connecting the radiators as it remains within the heating premises. However, losing heat through distribution pipes in district heating incurs a loss of money and heat, which is not economical. Therefore, robust heat exchangers and smart meters are required to reduce or prevent heat loss during heat distribution. Hence, the need for robust equipment for carrying heat poses a challenge for the growth of the district heating market.
The key players in the market are Fortum (US), Vattenfall (Sweden), ENGIE (France), Danfoss (Denmark), NRG Energy (US), Statkraft (Norway), Shinryo Corporation (Japan), LOGSTOR (Denmark), Vital Energi (UK), Kelag (Austria).
The district heating market has been broadly classified into the Americas, Europe, and APAC. The district heating market in APAC is expected to grow at the highest CAGR during the forecast period. This high growth is attributed to the growing urbanization and increasing demand for energy-efficient and cost-effective heating solutions.