Consumer Ownership of Natural Monopolies and its Relevance for the Green Transition: The Case of District Heating

Abstract

District heating is important for the transition to sustainable energy systems. In order to implement district heating, consumers’ trust and acceptance of this technical monopoly structure is necessary. This necessity leads to the question of price regulation and ownership in the district heating sector, since these institutional structures are the measures for creating trust and acceptance. This article is based on a Coasian approach, where information costs and concrete institutional structures are at the centre of the analysis. This approach is applied for the purpose of understanding the role of consumer ownership in the district heating sector. An ownership model which has been shown to be the most efficient in Denmark. Through a detailed empirical case study, it is shown how private commercial companies have avoided the state regulatory monopoly price regulation and inflated consumer prices. The case study also describes how changes in ownership immediately led to price reductions. It is concluded that the consumer ownership model has played a vital role in getting price regulation to succeed and thereby consumers to trust and accept the district heating systems in Denmark. This result is an important contribution to heating policy development as well as monopoly regulation theory.