District heating


UNEP: District heating energy; Unlocking the potential of energy efficiency and renewable energy.

Who needs to act?

Local governments are uniquely positioned to advance district energy systems in their various capacities: as planners and regulators, as facilitators of finance, as role models and advocates, and as large consumers of energy and providers of infrastructure and services.

When local governments do not have regulatory powers in the energy sector, nor a stake in a local utility, nor the resources to undertake feasibility studies, they can incorporate energy supply or efficiency requirements into planning and land-use policies.

Integrated energy planning and mapping supported by a designated coordination unit or a public-private partnership, is best practice to identify synergies and opportunities for cost-effective district energy systems, and to apply tailored policies or financial incentives.

Who is affected?

Optimising district energy systems ensures efficient resource use. Realisation of the diverse benefits requires working with the end users. Cities pursuing district energy have benefited from identifying synergies with other utilities (water, waste management, transport) and incorporating these synergies into a mutually beneficial business case.


Many cities are aiming to integrate publicly or privately-owned waste heat through heat tariffs that reflect the cost of connection and the backup system to guarantee supply. This is similar to the development of feed-in tariffs for renewable power.

Integrating energy into urban planning leads to the most efficient use of energy and to the optimization of local resources by encouraging mixed-use zoning and compact land use – two of the most important planning tools for encouraging district energy and reducing carbon emissions.

“Wholly public business model”: The public sector, in its role as local authority or public utility, has full ownership of the system, which allows it to have complete control of the project.


“Hybrid public and private” business models have a rate of return that will attract the private sector. In several cities, the public sector is still willing to invest in the project and retain some control. These business models can include:

  • a public and private joint venture where investment is provided by both parties that are creating a district energy company, or where the public and private sector finance different assets in the district energy system (e.g., production of heat/cooling versus transmission and distribution);
  • a concession contract where the public sector is involved in the design and development of a project, which is then developed, financed and operated by the private sector, and the city usually has the option to buy back the project in the future; and
  • a community-owned not-for-profit or cooperative business model where a municipality can establish a district energy system as a mutual, community-owned not-for-profit enterprise or as a cooperative. In this model, the local authority takes on a lot of risk initially in development and if it underwrites any finance to the project.

“Private business models” are pursued where there is a high rate of return for the private sector, and require limited public sector support

Return of investment

The return of investment depends on the project specific conditions. However, a business plan has to be developed. The business plan for a district energy system is very project-specific. It needs to ensure that all of the players involved – including investors, owners, operators, utilities/suppliers, end-consumers and municipalities – can achieve financial returns, in addition to any wider economic benefits that they seek.

Other resources to be used

  • Land use planning
  • Legal requirements
  • National and local utilities which are providing heating and cooling
  • Energy vision and targets of the local authority
  • Building codes

Taxes and tariff regulations

Available tools

Industrial waste heat recovery systems are very complex and they need to be adopted to the company specific conditions, as well as the connection to the district heating system. Therefore, no standard tool can be provided. We suggest to involve in the planning phase an engineering office.

Main steps of implementation

  1. Assess existing energy and climate policy objectives, strategies and targets, and identify catalysts
  2. Strengthen or develop the institutional multi-stakeholder coordination framework
  3. Integrate district energy into national and/or local energy strategy and planning
  4. Map local energy demand and evaluate local energy resources (including waste heat sources, renewable energy sources)
  5. Determine relevant policy design considerations
  6. Carry out project pre-feasibility and viability
  7. Develop business plan
  8. Analyse procurement options
  9. Facilitate finance

Set measurable, reportable and verifiable project indicators

Expected results

  • Greenhouse gas emissions reduction: Rapid, deep and cost-effective emissions reductions, due to fuel switching and to decreases in primary energy consumption of 30–50 per cent (e.g., the district cooling network in Paris uses 50 percent less primary energy).
  • Air quality improvements: Reduced indoor and outdoor air pollution and their associated health impacts, through reduced fossil fuel consumption.
  • Energy efficiency improvement: Operational efficiency gains of up to 90 per cent through use of district energy infrastructure to link the heat and electricity sectors (e.g., Helsinki’s CHP plants often operate at 93 per cent primary energy efficiency).
  • Use of local and renewable resources: Harnessing of local energy sources, including from waste streams, reject heat, natural water bodies and renewable energy. Piloting of new technologies, such as thermal storage, to integrate variable renewables.
  • Resilience and energy access: Reduced import dependency and fossil fuel price volatility. Management of electricity demand and reduced risk of brownouts.
  • Green economy: Cost savings from avoided or deferred investment in generation infrastructure and peak power capacity. Wealth creation through reduced fossil fuel bills and generation of local tax revenue. Employment from jobs created in system design, construction, equipment manufacturing, operation and maintenance.

Contribution to SEAP & indicators

Reduction of greenhouse gas emissions
Increase of the use of renewable sources

How to integrate in SEAP?

Can be included in a SEAP/SECAP as an action to reduce CO2 emissions.

Contribution to SUMP & indicators

no contribution to the SUMP indicators

How to integrate in SUMP?

The construction of the district heating can have a temporary negative impact on urban traffic, this should be considered for mitigation actions in the SUMP.

District heating pipes can have the side effect of warm ups bikes lanes and smelt snow as it has been tested in the Netherlands. Probably it doesn’t make sense to have district heating specifically built for this purpose but when it is already planned this side effect could be taken into account in SUMP.

Lessons learned

Modern district energy systems supply heating and cooling services using technologies and approaches such as combined heat and power (CHP), thermal storage, industrial waste heat, heat pumps and decentralized energy. District energy creates synergies between the production and supply of heat, cooling, domestic hot water and electricity and can be integrated with municipal systems such as power, sanitation, sewage treatment, transport and waste.

Contacts & links

UNEP: District heating energy; Unlocking the potential of energy efficiency and renewable energy.

In this paper, more than twenty case studies are included and the lessons learned from 45 champion cities of district energy use summarised.

The paper is available for download from the resources box on the right.