Market opening and third party access in district heating networks

The purpose of this paper is to analyse the possible effects of introducing TPA in district heating networks by identifying and scrutinizing a number of possible scenarios for increased competition. The analysis builds on a theoretical discussion of economic efficiency in district heating operations, and the possible impacts on consumer prices of a market opening. An important conclusion is that regulated TPA may have small positive effects on competition, and at the same time it can have a negative impact on the possibility to run the integrated district heating operations in a cost-effective manner. This conclusion stems in part from the observation that most district heating networks are local in scope. Moreover, district heating operations are highly interdependent in, for instance, that the level of the return temperature of the water will affect the efficiency of combined heat and power plants. For these reasons, the introduction of the so-called single-buyer model or, perhaps even more preferable, an extended and more transparent producer market could represent more efficient market designs. Moreover, in networks with clear natural monopoly characteristics an ex ante price regulation must be considered.