Decarbonisation of heating must accelerate if we are to meet European Union (EU) climate and renewable energy targets and achieve reliable and affordable supply of heat for all. Space and water heating in buildings accounts for around a third of final energy demand in the EU; 25% of this heat comes from renewable and low-carbon sources. By 2030, the share of clean heat will need to grow to at least 43%. Meeting this target requires a 2% year-on-year increase for the next 7 years.

District heating can play an important role in achieving this ambitious goal. It can enable the use of the huge potential of waste, ambient and renewable heat while providing valuable flexibility and storage to the energy system. To take up this role, however, district heating needs to not only be clean, but also efficient and smart. Meeting this twofold challenge — modernising and decarbonising hundreds of district heating systems of varying size across Europe, and shifting areas that currently utilise fossil fuel heat from oil boilers, coal stoves or the gas grid to clean heat sources, including newly built district heat — necessarily includes improving insulation and lowering heating system flow temperatures.

It requires a coordinated policy approach that can effectively align heat planning, decarbonisation of district heating, building renovation and gas grid phase-outs. This paper explores and provides examples of various policy strands that can be used as part of a coordinated approach towards this end. It also proposes a set of guiding principles for clean, efficient and smart district heating for policy makers and regulators at the EU and national level.

• Put efficiency first in the production, distribution, and consumption of heat; this vastly reduces the size of the decarbonisation challenge while lowering costs at the same time.
• Use local heat planning to enhance alignment between developments in heat supply, distribution and demand, including, where relevant, the phase-out of gas grids.
• Give value to unavoidable waste heat. Harness the huge potential of available and unavoidable waste heat through local heat planning and incentive setting, to replace fossil fuels and save consumers money.
• Ensure end-user protection and enable viable business models. End-users should be shielded from potential monopolistic behaviour by district heating operators. A balance needs to be struck between ensuring the economic viability of business models (to attract the necessary investments for decarbonisation and modernisation of district heating systems), affordability of heat and quality of service.
• Reward energy system integration. Through coupling with the electricity sector, district heating can provide much needed flexibility and storage. This potential needs to be recognized and incentivized.