Articles

A regulated Third-Party Access (TPA) [1] to district heating networks may be complex, but it is both feasible and beneficial. The proposed concept offers a structured, transparent, and fair approach that supports heat planning while guiding negotiations between network operators and heat suppliers through three clear consolidation phases.

By Dr. Jana Bosse, Senior Expert for Renewable Heat,  Dr. Rita Ehrig, Team Leader for Renewable Heat, Carla Groß, Senior Expert for Energy Efficiency, and Dr. Tim Mennel, Lead Expert for Market Design (dena)

Published in Hot Cool, edition no. 5/2025 | ISSN 0904 9681 |

In most countries, district heating networks are still vertically integrated, i.e., heat generation and heating network operation are in one hand. This is also the case in Germany, where, despite ambitious climate policy targets, the potential for using renewable energies and waste heat has not been sufficiently exploited or developed.

‘One reason for this is the prevalence of budget problems of federal, state, and local governments, which limit the sector’s eligibility for funding.

Opening up district heating networks to new third-party and climate-friendly heat generators (third-party access, TPA) offers a chance for facilitating the decarbonisation of heat supply: It would contribute to improved financing conditions and increase efficiency in the sector.

Heating and cooling account for half of the total gross final energy consumption in the EU [I]. Thus, the importance of measures that can effectively contribute to the decarbonisation of the economy is high. European climate targets for the sector are ambitious: The European Climate Law contains an emissions reduction target of 55% by 2030, reaching climate neutrality in 2050 [II].

District heating has increasingly come into focus in the EU’s transition efforts.

The EU’s Renewable Energy Directive (RED III) has addressed the critical role of district heating in the future energy system. Not only are decarbonisation targets formulated there, but possibilities were also sought to structurally improve the access of renewable heat to the grid:

“Member States shall ensure that operators of district heating or cooling systems above 25 MWth capacity are encouraged to connect third-party suppliers of energy from renewable sources and from waste heat and cold or are encouraged to offer to connect and purchase heat or cold from renewable sources and from waste heat and cold from third-party suppliers on the basis of non-discriminatory criteria” [III].

This approach is crucial because the expansion and transformation of district heating supply requires high levels of investment. A decisive advantage of integrating third-party suppliers is to reduce the operator’s investment burden. District heating supply in individual networks underlies very specific requirements, i.e., in terms of heat quantity, temperature, or pressure, and the need to ensure security of supply at all times.

Thus, the integration of organisationally independent third parties is a major challenge. An appropriate regulatory approach must take into account this special situation as well as the existing national requirements for heat planning and transformation.

Regulated, guaranteed third-party access has so far been the exception in the EU.

In most EU countries, there are currently no unbundling requirements for the sector. Grid operation, system operation, and heat sales are usually carried out by a single company. However, around half of the EU countries allow a regulated third-party access (TPA), which can, in practice, be easily denied by the grid operators. In Denmark, Latvia, and Lithuania, for example, third parties must be granted access to the heating network if the offered heat is cheaper [IV].

Other countries, like Germany, have negotiated TPA. That means heat suppliers and heating network operators must agree on the conditions of network access, and the third-party provider is ultimately dependent on the network operator’s consent. So far, there are a few examples of waste heat integration into district heating networks.

For instance, the BASF chemical company has been supplying waste heat to the district heating network of the town of Ludwigshafen for many years. However, there is also plenty of anecdotal evidence for the denial of waste heat feed-in into existing networks.

District heating networks vary greatly in terms of technology and geography.

One important caveat at the beginning of a discussion of TPA to district heating networks is that it differs from electricity and gas networks: There are good reasons why district heating was not liberalised at the end of the 1990s in the EU, as the latter two sectors were. Both the regional and the technical dimensions of district heating networks fundamentally distinguish them from electricity and gas supply systems:

• District heating networks are typically local, sometimes regional networks, with a spectrum of small networks for villages up to large ones for cities [V]. As there are no intra-regional networks, security of supply issues, as well as problems arising from the crowding out of existing generation capacity, must be dealt with on the local/regional level.
• Several parameters of district heating networks are not standardised and vary from case to case, including the pressure and temperature level, the medium for heat transmission, the topology of the network, as well as its general dimension.

These characteristics have consequences for TPA: Both grid connection and operation of all heat generation assets must be tailored to the needs of the network, requiring dedicated technical solutions. Critically, balancing services, adapted to the specific network and based on flexible generation, must ensure a secure heat supply in case renewable or waste heat is not available.

Consequently, the access of third-party renewable (and climate-friendly) heat to a network cannot be granted universally in the way it is common for renewable electricity, which typically enjoys a right to grid access and feed-in priority.

Apart from technical, there are also legal hurdles to third-party network access: In Germany (and other European countries), district heating networks are subject to municipal heat planning, which today is obligatory for larger municipalities according to the Energy Efficiency Directive (the implementation of heat plans is not, though).

Due to the regional and local nature of district heating networks, heat planning must ensure the matching of supply and demand in a way that is not common in liberalised electricity or gas markets.

TPA only works under certain conditions

Given these ramifications, the first study [VI] into the matter of TPA we conducted led to the following conclusions:

• TPA to district heating networks makes sense in the case of large networks only, and only if third parties can realistically develop the heat sources identified.
• District heating suppliers should remain vertically integrated, continuing to ensure the balancing of supply. In the case of third-party heat supply, the district heating supplier should act as a single buyer.
• TPA must be fully compatible with heat planning, i.e., time-limited openings for the access of renewable or industrial waste heat must be part of the heat network development plan.
• Potential regulated tariffs for third-party generation assets cannot be universal (or technology-specific only) but must be determined specifically for each network.
• Similarly, potential tender procedures must take local specifics into account.

These findings are the prerequisites for our concept of TPA.

The TPA concept for Germany comprises three stages.

The concept developed for a TPA to district heating networks in Germany in our second study [VII] is fully integrated with municipal heat planning, as introduced in 2023. Thus, it directly builds on the heat plan that is assumed to have been published prior to the three stages that constitute the concept (compare Figure 1).

Stage 1: Market survey

Building on the municipal heat plan as well as published technical information of the network, the district heating supplier conducts an open market survey. This provides a transparent overview of the decarbonisation potential, identifying all potential heat suppliers, including renewable heat developers and providers of industrial waste heat. At this stage, only indicative prices for future heat supply are given.

Stage 2: Consolidation of results

An initial selection of proposals submitted in stage 1 eliminates those that are economically or technically infeasible. Based on the selected proposals, the district heating supplier, third-party heat providers, and local authorities develop alternative network configurations: That is, technically and economically feasible generation portfolios, including required network connections and a balancing concept to achieve the decarbonisation targets. As part of the process, the price for the prospective heat generation assets is clarified by the heat supplier [VIII].

Stage 3: Selection of the generation portfolio

If there are several possible generation portfolios, stage 3 involves selecting the optimum solution in terms of the most cost-effective consistent generation portfolio. Competing third-party heat suppliers have the opportunity to adjust their offer. If selected, their assets become special-purpose vehicles, operated based on contracts with a take-or-pay clause.

Figure 1: Concept with three stages

Notably, the concept foresees the creation of a new role: that of a dedicated regulator. The regulator does not set prices or access rights to a network directly. Instead, it accompanies the process from the beginning, ensuring its sound implementation and providing mediation in case of conflict.

A regulated TPA for district heating is complex but feasible and beneficial.

There is no doubt that the organisation of TPA to district heating networks is highly complex. The described concept provides an approach as to how TPA can nevertheless be implemented in a regulated, fair, and transparent process.

The concept supplements the heat planning process and structures the complex planning and negotiation between network operators and heat suppliers in three manageable consolidation phases. In contrast to the status quo, the concept includes both a comprehensive consideration of the locally exploitable climate-neutral heat potential and an objective approach for economic implementation.

Two elements of particular interest for Germany: the initial market survey and the arbitration body

Discussions with German policy makers show reluctance to implement the whole concept. However, two elements appear to be of particular interest for the German district heating sector. First, a structured market survey can help to untap previously undiscovered potential of climate-neutral heat. This could be the decisive factor in involving potential third-party suppliers, who would then take on the role of special-purpose vehicles. This would strengthen the preceding planning process with a view to concrete implementation.

Second, the establishment of a regulatory body with at least supervisory and arbitration functions. This authority should be involved in the pricing process for the heat fed into the grid, as well as a subsequent competitive selection process for the offers, in which the aspects of the grid connection and the security of supply are considered. This function could be integrated into a supervisory and control body that the federal government is planning to set up to monitor consumer prices.

Financial and technical prerequisites are requirements for TPA in other EU countries.

Although the regulatory and planning regimes and practices in other European countries differ from the German example, the present concept complies with key principles in different European countries. As in Denmark, the access of third-party providers must be considered at an early stage in heat planning.

All countries with obligatory TPA follow the principle that integration of independent heat sources can only be achieved when the grid meets specific technical and quality requirements, and the heat price is lower than the grid operator’s heat production costs.

Denmark has introduced the substitution principle for the selection of heat and remuneration [IX]. In Lithuania, standards for the security of supply must also be met by third-party heat suppliers. A public authority for registering and licensing independent heat suppliers exists, for example, in Croatia.

The common advantages of different European TPA approaches are that existing heat potentials are comprehensively investigated, and economically feasible potentials can be seriously considered. In addition, new capital can be tapped by third-party providers, which is urgently needed for the transformation of the heat supply.

Thus, new business models such as specialised or cooperative project and operating companies can emerge. The process not only enables access to the heating market and more competition but also helps to increase transparency in the entire heat supply and pricing.

Market survey is the first step for TPA and highly improves transparency in the heating sector.

The present concept can be applied to other European countries, adapted to the specific legal and local requirements of the respective heating market. In particular, two regulatory elements can be implemented with relatively little effort, which can have a relevant effect on accessibility to the heating market: the preceding market survey in the early planning phase, as well as a lean regulatory authority for supervising a fair and transparent negotiation process.

Overall, more research and collection of empirical data on the topic are needed for the implementation of TPA as a lean, regulated process that opens up new decarbonisation solutions. This will make the heating network market more accessible and transparent.