The President of the URE publishes the 2024 Heating Energy Market In Numbers Report
The year 2024 brought stabilisation to the fuel market for district heating along with continued decline in the demand for district heat. The district heating sector still faces huge transformation challenges, although a gradual change in the energy mix is seen along with the potential for collaboration with the electricity industry.
Under the auspices of the Regulator, the heat and power sectors have begun to cooperate on the challenges of EU climate policy. This cross-sectoral cooperation will be an important part of the transformation of district heating. I believe that the arrangements made will allow for the development of the right solutions that will ensure better efficiency and cost-effectiveness of the process of district heating, states Renata Mroczek, the President of the URE (Energy Regulatory Office).
In 2024, the number of licensed district heating companies was 398, a number unchanged from 2023. Last year, however, heat sales fell by more than 3.8 per cent to 322.500 TJ, reaching another record low. There was a decrease in installed and ordered capacities.
The waning demand for district heat is tied to several factors, the rising atmospheric temperatures included. According to IMGW (The Polish Institute of Meteorology and Water Management), the area-averaged air temperature in Poland in 2024 was a record 10.9°C, almost 1 degree higher than the year before.
Despite lower heat sales, the length of district heating networks owned by licensed companies increased again in 2024, from 22,837.8 km to 23,016.54 km.
Changes to tariff regulations
In the last two years, there have been significant changes in the regulations driving the functioning and financial health of the energy sector.
The 2023 amendment of the Energy Law[1] allowed combined district heat and power businesses to switch their tariff calculation method from simplified to cost-based from October 2023. Given the Energy Law amendment and due to consultations with the industry, the President of the URE modified the regulatory practice in 2024, allowing operators of multiple CHP units to file two separate tariff requests, one simplified and one cost-based.
The President of the URE routinely engages in discussions and consultations with energy market actors. The same applies to the mentioned change in the co-generated energy tariff calculation method. By dialogue with the district heating sector, we have come to a solution that is most optimum for businesses operating multiple CHP units that gives them a free hand in choosing the tariff method, Renata Mroczek points out.
The 2023 Energy Law amendment also exempts generating units with an installed thermal capacity at or below 5 MW from the obligatory tariff calculation[2]. A very important change was the minimum return on capital employed that was pegged at 7 per cent.[3]
In mid-2024, the Energy Law was amended to require the President of the URE to publish reference indices twice a year to be used in the simplified tariff calculation method[4]. These reference indices had been published once a year before the amendment.
Stabilisation of energy material prices and emission allowances
In 2024, the situation in the fuel markets stabilised. There was a decrease in the unit cost of fuels for district heating was (aside from biogas, industrial waste and RES sources).
Last year, 417 decisions were issued on the approval and amendment of heat tariffs compared to 570 decisions issued in 2023, continuing the downward trend in the number of tariff procedures and suggesting a stabilisation of the market.
The price of emission allowances decreased in 2024, so that the industry’s annual expenditure on those fell to 21.7B PLN from more than 41.5B PLN in 2023. Note that the need to purchase allowances remains a significant burden for district heating companies.
The reduction in fuel and allowance prices resulted in a 15.12 per cent decrease in variable costs. However, fixed costs increased by 6.45 per cent, driven by high costs of overhaul (which has increased by 26.54 per cent). Overall, however, the costs of district heating operations were 8.14 per cent lower in 2024 compared to 2023.
The average price of heat sold from all licensed generating sources was 105.74 PLN/GJ, an increase of just over 1 per cent compared to 2023. The average price of heat sold from licensed non-co-generation sources was 116.63 PLN/GJ (a decrease by just over 7 per cent) and the average price of heat sold from licensed co-generating sources was 99.66 PLN/GJ (an increase by 7 per cent).
The average transmission service charge rate was 31.76 PLN/GJ, 8.8 per cent higher in 2024 than in 2023.
However, consumers did not experience an increase in the cost of district heat due to the continuation of the ‘price freeze’.
Financial health of district heating companies
In 2024, the gross profitability of the district heating sector overall was minus 0.49 per cent, a figure significantly better than the previous year (minus 9.5 per cent). Non-co-generation sources achieved plus 5.07 per cent of profitability. In contrast, CHP operations recorded a gross profitability of minus 3.67 per cent.
In 2024, however, capital expenditure in district heating fell by 6 per cent. Last year, it was 4.66B PLN compared to 4.96B PLN in 2023.
Expert analysis indicates that capital expenditures for the transformation of the district heating sector will amount to between 299B PLN and 466B PLN by 2050, depending on the adopted scenario options. Considering the 42B PLN of annual revenue of the sector from district heating operation, it makes sense to assume that while the funding of the transformation must be sought from heat consumers, its primary source must be third-parties, notes Renata Mroczek, the President of the URE.
Transformation of the heating industry
The volume of coal used for heating fell in 2024; it was the source for 57.4 per cent of the total energy output in the sector (compared to 61.2 per cent the year before). The share of RES grew slightly from 14.4 per cent in 2023 to 14.7 per cent in 2024. A more pronounced growth has been seen in the gas-fired sources, with their share in the energy output increasing from 13 per cent to 15.2 per cent.
The consumption of hard coal and lignite in the heating sector, resulting in significant CO2 emissions, fell by 24.3 percentage points between 2002 and 2024, while that loss is gradually being offset by heat generation from fuel gases and RES.
The share of individual fuels in heat generation varies territorially in our country. The report of the President of the URE (Energy Regulatory Office) reveals that the greatest use of renewable energy was made by the heating industry in the Podlaskie, Kujawsko-Pomorskie and Warmińsko-Mazurskie Voivodeships. In contrast, heat generators in the Dolnośląskie, Lubelskie, Zachodniopomorskie and Łódzkie Voivodeships relied almost exclusively on coal. The leaders in gas fuel consumption were in the Lubuskie and Podkarpackie Voivodeships.
An important feature in the district heating transformation is the market coupling with the electricity sector. In 2024, the President of the URE spurred action fostering dialogue between the district heating and electricity sectors by several measures, like The Charter for Effective Transformation of the Distribution Systems of the Polish Energy Sector (KET). The technologies already available for district heating companies to be used in cooperation with the electricity system, including gas-fired co-generation, heat pumps, electrode boilers, heat storage units, and smart demand management systems help to define the direction for the energy transformation.
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- 2024 Heating Energy Market In Numbers Report (in Polish).
- Co-generation (CHP, Combined Heat and Power) is the generation of electricity and heat in a single process.
- The simplified model for determining co-generation tariffs is based on the average heat sales prices in the previous year from non-CHP units (which generate heat only). Heat generation prices are considered separately for different fuels. The tariff rate is calculated by multiplying the last year’s prices by a reference index.
- The cost-based tariff model is based on the reasonable costs planned by the generating company to emerge during the validity period of the tariff. A reasonable return on capital is also taken into account.
[1] Pursuant to the Polish Act of 17 August 2023 to amend the Renewable Energy Sources Law and certain other acts (Dz.U 2023.1762)
[2] Article 4 of the Polish Act of 17 August 2023 to amend the Renewable Energy Sources Law and certain other acts (Dz.U. 2023.1762)
[3] Ibidem, Article 4(14).
[4] Pursuant to the Polish Act of 23 May 2024 on the energy voucher and on the amendment of certain acts to limit the prices of electricity, natural gas and system heat (Dz.U. 2024.859)