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Survey: District heating systems are the key to the energy transition—deterioration would be costly for society

25.11.2022 / Last updated 08.02.2023 15:28

According to a recent survey by AFRY, the Finnish district heating system is the cheapest and most effective way for society to combine different energy flows and promote the transition to a carbon-neutral society in urban heating. District heating, which enables sector coupling, can overcome the challenges brought on by the increase in variable electricity generation in a way that is not possible using other heating systems. Reducing the role of the district heating system as a result of intentional policies and subsidies that distort competition would be costly for society and consumers.

A survey conducted by AFRY and commissioned by Urban Energy Finland examined two different development paths leading to carbon neutrality and their cost effects. In the first scenario, district heating is central to the transition to carbon neutrality. In the second scenario, 50% of district heating customers switch to individual heating by 2040.

In the latter scenario, demand for district heating decreases significantly. At the same time, the less electricity is generated, as electricity is generated concurrently with district heating in combined heat and power plants. The survey indicates that in the area of Urban Energy Finland, there would be a reduction of up to one terawatt-hour of electricity generated in 2040 compared to the scenario where district heating remains central. This amount corresponds to 1.5% of the current electricity generation in Finland or to the electricity generation of approximately 125 wind power stations.

This survey was commissioned due to the concern about the future of this highly adaptable and socially cost-effective energy system. The share of the member firms part of Urban Energy Finland accounts for over 40% of all district heating in Finland, so the results of the survey are reflective of the whole country.

Now is the right time to draw attention to the role and importance of Finnish district heating as a cost-effective means of ensuring security of supply and the energy transition in society, and especially in urban areas. An energy system that has been run down once cannot be easily restored—this has been evident throughout Europe during the energy crisis. This critical error should be avoided in the case of district heating before it’s too late,” states Aku Aarva, Executive Director of Urban Energy Finland.

AFRY’s survey shows how the increase in individual heating increases electricity consumption, which is challenging in terms of the sufficiency of electricity supply. The electricity consumption of individual heating systems is centred on hours where electricity demand is already high. Shifting to individual heating solutions would mean that in Urban Energy Finland’s area, the capacity of the electricity network would need to be increased by about 1,400 megawatts.

A variable wind-based electricity system needs to have concurrent predictable electricity generation. The advantage of electricity generated in connection with district heating is that the electricity is generated exactly when the demand is at its highest.

Both scenarios, district heating modernisation and individual heating solutions, lead to carbon neutrality. The advantage of generating district heating is the possibility for a reduction in additional emissions: The capture of carbon dioxide resulting from biomass combustion will enable a carbon-negative heating sector when the carbon sink into reforestation is taken into account. The difference between the scenarios for negative carbon dioxide emissions is as much as 1.5 MtCO2. This corresponds to 3% of Finland’s carbon dioxide emissions.

Achieving Finland’s carbon neutrality objectives also requires significant investments and modernisations from the member companies of Urban Energy Finland. The accelerated transition away from Russian energy has accelerated the timetable, but we are still talking decades when it comes to investments. According to the survey, the weakening of the existing district heating networks would increase the need for investment in the area of municipal-owned Urban Energy Finland by EUR 2.3 billion. Is there any sense in that?

Investments should be diverted into what is most efficient for society. In an urban environment, the most efficient thing, according to the survey, is district heating,” emphasises Aku Aarva, Executive Director of Urban Energy Finland.

As a result of fuel-related costs and subsidies for heating, the existing district heating system is at risk of losing its ability to be competitive, which means that the role of district heating as an urban heating source could be significantly reduced. Such a development would have significant adverse effects on the energy system as a whole and on achieving Finland’s carbon neutrality objectives.​

“The scenario described in the survey of the deterioration of the district heating system may become a bitter reality if the situation is ignored. Technology-neutral support schemes, climate and environmental programs, and measuring the emissions of different generation methods at a regional level instead of using national averages would be important steps to take to achieve market-based regulation and policies.

The purpose of this survey is to stimulate discussion and to promote rational decision-making. I don’t want to look back in the 2040s, with a crumbling district heating system in ruins, and say ‘I told you so,’” concludes Aku Aarva, Executive Director of Urban Energy Finland.



Aku Aarva
Executive Director
Urban Energy Finland
+358 41 432 6510

Urban Energy Finland
Eteläranta 10
FI-00130 Helsinki, Finland
energiakaupungit.fi | LinkedIn

Urban Energy Finland is a national and EU ambassador for thirteen urban energy companies. We promote open and transparent competition that provides consumers with the most cost-efficient and environmentally friendly energy solutions. We are at the core of the energy transition.



Niklas Armila
M: +358 40 500 6359

Jaakonkatu 3 (P.O. Box 4)
FI-01621 Vantaa, Finland
afry.com | LinkedIn

AFRY Management Consulting offers world-class consulting and advisory services covering the entire value chain in the energy, forest industry, and bioindustry sectors. Our energy services are the leading provider of strategic, commercial, regulatory. and political advice for the European energy market. Our energy team of over 250 experts provides unrivaled expertise in a rapidly changing energy market.