District Heating as a Secure Heat Supply—A Question of Regulation

Abstract

The trend in the district heating industry is toward increased privatization and openness to competition, which bring with them other phenomena associated with civil law, such as bankruptcies. Vingåker was one of six Swedish municipalities whose district heating companies went bankrupt in 2004. The bankruptcy caused major disruptions in Vingåker, not least as a result of the unregulated legal framework that has long prevailed in the area of district heating, where there is essentially no consumer protection. A distinguishing feature of Vingåker, and one that may be assumed to apply to other smaller municipalities as well, is the fact that the municipality was the totally dominant customer in the district heating system. In its negotiations, the municipality was able to exploit this position of strength by refusing to pay the district heating price set by the trustee in bankruptcy while still continuing to have district heat delivered. At the same time, the case of Vingåker also shows that, in their procurement processes, municipalities need to conduct a thorough analysis of the ownership structures of the bidding companies, and determine the extent to which each company is established in the industry. Yet another lesson to be taken from this case is that changes in external factors such as fuel costs and taxes, which are difficult for local actors to influence, create a need to draw up short-term contracts that allow for adjustments in the district heating rates.