The European Union is committed to becoming carbon neutral by 2050. This is an ambitious target, and although the deadline seems far in the future, reaching it requires profound planning already now. At Fortum we believe that electrification will be a key enabler to achieve decarbonisation in many sectors, including industrial processes, transport, or heating and cooling. This is, however, predicated on the overarching condition of a complete shift to low-carbon power generation.
In Europe, the highest share of primary energy is destined for heating and cooling purposes, but still only around 20% of the overall EU-level heat supply is based on renewables. That indicates the magnitude of the efforts that the sector must take to eventually become decarbonised. As mentioned, electrification will most likely play the dominant role in this process. District energy supplies (district heating and cooling, DHC) based on low-carbon fuels and recovered energy should enable decarbonisation in densely inhabited areas. But improvements in efficiency and increased investments in low- and zero-energy building stock will also be necessary.
Increasing competition benefits customers and suppliers
National heating and cooling markets in the EU are very different from each other, due to the varying climate conditions, available supply alternatives and economic abilities of market participants. The core customers in those markets are owners and tenants of residential, tertiary and industrial buildings. To satisfy the heat demand created by the customers, a number of supply options are in use, the most significant being district heating, direct electricity heating, heat pumps, and individual gas, pellet or coal boilers. Based on our observation, increasing competition between different heating methods benefits customers and suppliers, and normally leads to better service levels and promotes innovations in business as well as service concepts.
District heating should take a scalable role
District heating (DH) currently represents only around 10% of the total heat supply in the EU. It has been recognised that DH could and should take a scalable and thus extremely important role in decarbonisation of the heat market.
To be able to contribute to the established energy and climate policy targets, the heating and cooling markets need to develop. The current policy focus must be widened and improved. It needs to cover the whole heat sector and enhance equal operational and regulatory conditions for all the market participants, including DH. That would create a fair, level playing field and enable competition between alternative sources of heat supply.
Let’s give customers a chance to influence
The importance of proper incentives and enablers for customers, allowing them to influence their own environmental footprint as well as the price tag of their heating and cooling consumption, cannot be forgotten. Customers need clear, easily available and transparent information about the heat sector, including the environmental performance of different heat supply methods.
The cooperation between industries, citizens and governmental bodies in the legislative processes cannot be underestimated. In our view, a dialogue based on trust, openness and continuity is the way to create the sustainable legal and operational framework and in turn deliver the overall policy goals. Our shared efforts with local society are well illustrated by our cooperation with the city of Espoo in Finland.
Legislative framework is set
Recently the EU has delivered a significant set of new and updated legislation known as the Circular Economy Package and Clean Energy Package for all Europeans. These packages intend to set an operational framework for the energy and waste sectors in the EU. The policy targets for 2030 have been agreed: 32% RES and 32.5% Energy Efficiency as well as 40% GHG reduction [as laid down in the ETS revision]. The Circular Economy Package sets targets for recycling: 65% of municipal waste by 2035 and 70% of packaging waste by 2030. The profound and timely national implementation is now of utmost importance. To enable decarbonisation of the heat sector, implementation should aim at incentivising the smart utilisation of waste heat and renewables within the scopes of district heating networks. This implies certain changes to the existing national regulatory schemes, providing incentives leading to decarbonisation of the systems.
The different paths of energy transition lead to a common goal
The energy sector transition should and will be a stepwise process. Changes will have different paths, due to the significant differences in the energy mix, ambition levels and current legislative frameworks of European countries. For each of them, it is crucial to aim for a common goal and to preserve the willingness to contribute towards a cleaner future.
Fortum is engaged in various operations with possible synergies. In this time of transformation, we must be mindful that we carry the obligation to provide security of supply to our customers, at affordable costs. This means that we must make conscientious and long-lasting decisions when operating in this asset-heavy business. We are already now well positioned for the transition, as our operations are efficient and we are one of the least emitting companies in the EU. We are also undertaking efforts to deliver the objectives of the circular economy by boosting resource efficiency and developing our recycling operations. We aim to recover, recycle and reuse as much materials from the waste stream as possible, and from the remaining part we aim to recover the energy content in our waste to energy plants. This, in turn, reduces the utilisation of virgin fuels.
Decarbonisation is a necessary step in preventing climate change, but it cannot be delivered only by industries. Every one of us creates a heating or cooling demand, so we should be in a position to make a conscious choice on the supply method and be able to control our own energy consumption.
It is up to us to leave this planet with liveable conditions for the next generations; thus in the words of John F. Kennedy:“One person can make a difference, and everyone should try.”