Small, coal-fired district heating systems are a major source of air pollution in Poland. Applying EU regulations would go some way toward solving this problem, write Edith Bayer and Richard Cowart of global energy policy advisors Regulatory Assistance Project (RAP), but more needs to be done. Bayer and Cowart draw four lessons from a new study that looked at practical ways to modernize two small district heating systems in Poland.

Recently, the European Court of Justice ruled against Poland in a case that found that the country had repeatedly exceeded air quality standards for coarse particulates (PM10) in the years 2007 to 2015. Since 2015, the problem has persisted in large part due to the prevalence of coal in the heating sector. While much attention is (rightly) directed at individual coal stoves, an important and largely under-represented sector is that of small, legacy district heating systems. European regulations are steering these systems toward efficient, clean technologies while also calling for much more ambitious renovations of buildings.

Heating is a major contributor to Poland’s air quality woes. Coal supplies more than 80 percent of the heat in the country, burned in a few large district heating systems, several hundred smaller district heating systems, and about 3 million individual coal stoves.

Much of the heat produced escapes poorly insulated buildings. The less densely populated an area, the more likely a building is to be inefficient, and the more likely it is to be heated by inefficient coal. Incomes are also likely to be lower for households outside of bigger cities, making efficiency or heating upgrades more challenging to deliver.

This means that the solutions to Poland’s air quality woes require solutions on many fronts, from insulating buildings to cleaning up district heating systems and individual heat stoves. Several local and national initiatives are underway, including a recently announced program to insulate low-income households. However, there is no strategy for small systems.

Figuring out how to modernize these systems is not a simple task. However, several existing EU regulations already provide some direction.

Small district heating systems pose a particularly thorny problem in the heating landscape. There are more than 400 small district heating systems in Poland, 90 percent of which rely on coal for heat. Most of these legacy systems are decades old, and the owners have only made limited investments to upgrade sources of supply and insulate networks to meet modern standards. This has helped keep the cost of heating down, but it means that big investments lie just around the corner. It raises the question of whether these systems, once modernized, can compete with cheap gas or cheaper—and dirtier—individual solid fuel burning stoves.

The EU regulatory blueprint

Figuring out how to modernize these systems is not a simple task. However, several existing EU regulations already provide some direction.

• For systems under 50 MW, the EU’s Medium Combustion Plant Directive requires compliance with stringent emissions standards by 2025 or 2030, depending on whether derogations apply.
• European state aid guidelines dictate that aid only be provided to systems that aim to be “efficient.” This means that they incorporate 50 percent renewable energy, 50 percent waste heat, 75 percent cogenerated heat, or a combination of such energy and heat. That is, for a district heat system to benefit from state aid, just putting on some scrubbers won’t do the trick.
• Newly adopted rules under the Energy Performance of Buildings Directive will require the development of national renovation strategies to decarbonize buildings by 2050. Priority is to be placed on energy efficiency first, alongside deployment of renewable energy sources.
• Article 7 of the Energy Efficiency Directive calls on energy suppliers, including heat suppliers, to meet cumulative end-use energy savings targets by 2020, further linking energy supply with demand. Negotiations are underway now to extend similar efficiency obligations to 2030.

How are owners of these small district heating systems, including many municipalities, expected to balance these regulatory drivers? A recent study by the Regulatory Assistance Project of two small district heating systems in Poland provides some guidance.

Modernization pathways for small district heating systems – two case studies

The study considers two systems with a peak demand of 20 MW or less. Both are municipally owned and built around a coal-fired boiler—the predominant structure of small Polish district heating systems.

Both systems face competition from natural gas boilers in individual buildings. And both have seen declining sales over the past several decades as buildings have become more efficient—a trend that must accelerate if Poland is to meet its long-term climate commitments.

In the study, one company owns and operates the district heating system and just supplies heat. The other company provides these services too but also delivers energy renovations through an energy services company.

The study’s authors analyze modernization options for the two systems by considering the cost of competitive renewable and energy-efficient heat technologies, the cost of modernizing the distribution networks, and the role of building modernization.

Several conclusions emerge that can be instructive to other small legacy district heating systems facing similar challenges:

• Building renovations are key. To clear the air at an acceptable cost, a building renovation strategy must be part of the solution. Heating costs are expected to rise in Poland. One way to contain the increase in bills is to lower energy waste by investing in renovations. In addition, improving building efficiency allows the system to use smaller, more efficient heat generation and distribution equipment, and avoids creating stranded assets.
• Renewables can compete. Efficient systems and those based on renewable technologies may be able to compete with higher-emission alternatives, including natural gas. In our two cases, air-source heat pumps, biomass, and cogeneration were all cost competitive compared to a conventional district heating plant burning natural gas. Available technologies and costs will depend on local conditions, including the availability of renewable resources such as sun, geothermal, and biomass.
• Networks must be part of the calculation. The existence of a heat distribution network does not mean that it is fit for purpose. Many networks operate at high temperatures, which means they are incompatible with renewable heat sources such as solar or geothermal, which can only operate through low-temperature networks. Many networks are uninsulated or poorly insulated, which leads to expensive heat losses. The high cost of insulating and retooling networks needs to be balanced with reduced losses and opportunities to benefit from integrating renewable energy sources.
• Regulatory reforms are needed. The Polish Energy Act allows district heating companies to recover costs for investments in end-use energy efficiency. A few district heating companies have expanded their business model to include an energy services function that invests in energy efficiency. However, experience in this area is limited, and companies are unlikely to want to invest in a line of business that erodes sales. Poland’s white certificate scheme encourages the cheapest energy savings measures with the shortest payback, which means that building renovations cannot compete. Regulatory reforms are needed to overcome these disincentives to investing in long-term energy savings.

Strategic policies and an “efficiency first” approach can lead the way

The solutions to Poland’s air quality problems require a many-pronged approach that addresses heat sources, large and small, as well as the buildings they are connected to. For small district heating systems in Poland, European regulations and supports should steer decisions in the direction of sustainable, efficient heat sources and energy efficient buildings. However, just following EU guidelines is not enough—Polish policies and Poland’s local governments can and should take the leading roles. This requires a more integrated approach, applying the principle of “energy efficiency first” to lower emissions and avoid overbuilding heating systems. By investing in healthy, warm buildings while rebuilding or replacing aging district heat systems with clean options, small cities can lead the way to affordable heat and cleaner air for all citizens.

A version of this blog originally appeared in Energy Post.