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District Heating and Cooling

Annex XIV Project 03

The Research / IEA DHC Annexes / 2023-2026 / Annex XIV / Annex XIV Project 03

Financial frameworks’ impact on district heating

Project summary

We provide authorities, investors, and the scientific community with the foundational studies for understanding sustainable finance’s role in increased district heating (DH) deployment, by analysing fundamental structures within DH finance, and by development of sustainable financial frameworks for key DH market types. We do so in an experienced four-country consortium (Belgium, Denmark, Germany, and Sweden). DH is a cost-effective and sustainable technology, but its widespread adoption can be limited due to financing challenges.

DH projects are typically large-scale and require significant upfront investment, making it difficult to secure financing, particularly on the private side. Mainstream financing mechanisms to attract private capital are in many cases not suitable for DH yet. For this reason, the development of DH has historically relied heavily on public financing, such as grants, loans, and guarantees, particularly in countries with a strong tradition of public ownership and control of energy infrastructure.

Finance’s importance thus lies in its ability to make or break DH projects, and in the increased European focus (Green Deal, Sustainable Finance Strategy and the Taxonomy). Finance overlaps the business models, ownership aspects and tariff structures described in IEA DHC’s call. Three main needs describe the project: 1) Since DH finance is poorly described in research and practice, we need to establish a foundation by qualitatively structuring existing knowledge. 2) Further, we need to quantitatively understand financing conditions – interest rates and similar – as this is the prerequisite for subsequent quantitative analyses. 3) Finally, we need to quantitatively understand the DH deployment impact of finance, so we can develop suitable financial frameworks.

The analyses deliver financial classification, concrete maps and energy system analyses, which helps policymakers and investors prioritise financial solutions to DH deployment barriers.

Target audience and specific issues

  • researchers in the field of sustainable finance, energy economics and engineering,

  • DH industry representatives and utilities, public authorities, private and public investors and funds,

  • Policy makers at national and EU level, national associations in the field of DH;

  • Energy communities and citizens, and the broader public to raise awareness about the importance and potential of green finance for DH.


  • Objective 1 is to understand and define DH as an asset class, by classifying the various investment components into an asset class structure that is standard in the investor community. Investors tend to hold portfolios of assets of varying character. By identifying what kind of investment (asset class) DH is, investors can lower the threshold for investing in them.
  • Objective 2 is to establish a database of key financial characteristics.

  • Objective 3 is to understand the impacts of financial frameworks on the deployment of DH

  • Objective 4 is to provide recommendations on how investors in green energy can approach the DH sector.

    Whereas the budget only permits a European perspective, the financial principles are expected to be largely applicable in all geographies – and thereby IEA DHC member countries. Results are expected to occur on the short term for the project planning phase in DH projects, wherein finance is key. Further, on the medium term through actual increased deployment of projects.

Project lead

Energy Modelling Lab (EML)
Refshalevej 163A
1432 Copenhagen K

Dr. Kenneth Karlsson
Phone: +45 2 132 87 33
Email: kenneth.karlsson@energymodellinglab.com

Partner Organizations

  • Lund University (LU), Sweden

  • Euroheat & Power (EHP), Belgium

  • Halmstad University (HU), Sweden

  • Steinbeis Transfer GmbH (SCSF), Germany