Individual ground source heat pumps: Can district heating compete with real estate owners’ return expectations?

Abstract

Technological development has decreased costs and improved the efficiency of heat pumps (HPs). In some cases, heat produced with HPs is already less expensive compared to district heating (DH) systems that have high market shares in many European countries. This has generated a phenomenon in which old customers are leaving DH systems, and new customers are not joining DH even if it is available. The study evaluates the economic performance of alternative heating systems (DH, ground source HP with electricity, and a hybrid of these two) for new buildings in selected city in Finland: residential, office, retail and industrial. The aim of this study is to demonstrate the rationale for property owners to invest in ground source HPs. In addition, the study examines whether DH pricing can be developed to improve the competitiveness against HP systems. The results show that currently, HPs are highly profitable for all studied customer types with current DH pricing models used in selected DH company. However, with new pricing models, the competitiveness of DH improves substantially. In conclusion, we suggest that DH companies renew their pricing models to include several customers segments as well as hybrid heating customers.