Improving District Heating Policy in Transition Economies

“District heating is like the electricity of transition economies,” said Claude Mandil, Executive Director of the International Energy Agency, today in Brussels at the launch of a new IEA study on district heating. “It plays a tremendously important role in the energy systems of these countries and in supplying critical heat to families and factories.” The new book “Coming in from the Cold: Improving District Heating Policy in Transition Economies” analyses district heating systems in Central Europe and the former Soviet Union. It provides policymakers with a guide and explores strategies aimed at improving district heating policies.

A few facts put district heating in perspective and underline why the International Energy Agency has focused on this issue:

• Because up to 70% of families in transition economies rely on district heating, efficient management and organisation of heat supply are important to the energy security and social welfare of these countries.
• Half of all fuel consumption in Russia is for district heating and it accounts for 6% of GDP in Russia at current prices.
• Russia consumes 150 billion cubic metres (bcm) of gas each year for district heating, only 30 bcm less than it exports annually.
• District heating debts threaten to bankrupt many cities in countries where district heating policy has been neglected or where customers don’t pay their bills. In Romania, these debts equal about 0.25% of GDP and reducing them has become a condition of future lending from the International Monetary Fund.

“District heating can make a substantial contribution to a sustainable energy future in Central Europe and the former Soviet Union.” Mr. Mandil added. These systems can save energy and boost energy security, but a stronger policy framework is needed to encourage wise management and investment. With such a framework, district heating systems in former Socialist countries could save the equivalent of 80 billion cubic meters of natural gas a year through generation improvements alone. This is roughly the annual natural gas consumption in Germany. Reforming district heating is also essential for social reasons in cold countries in transition. District heating companies need to become more customer-oriented. Policy makers can help propel them in this direction either through new market mechanisms or an improved regulatory framework.

Coming in from the Cold: Improving District Heating Policy in Transition Economies recommends a concerted effort to improve district heating through policies that encourage consumer-oriented business practices and help ensure a sound balance between supply and demand. If a country decides to regulate district heating prices, an independent regulator, least-cost planning and full cost recovery are essential. When competition is used to set prices, the competition between various heat sources must be fair.

“Countries need a clear policy on district heating, given the significant economic, social and environmental implications of this sector. This is true for IEA member and non-member countries alike if they are to improve their heat supply”, added Mr. Mandil.