336 L. BOSCÁN ET AL.
2017). Yet, unless specific technical assumptions and calculations are
made, it is not possible to determine the effectiveness of the reform on
the re-organization of the merit order of heating production. As a point
of reference, Hvelplund et al. (2017) explain that, before the tax reform,
biomass-fueled heat production paid almost no taxes, whereas electricitybased heat production paid approximately 100 EUR/MWh in tax. Thus,
1 MWh of wind power for heat production costs (including tax) 123
EUR, whereas biomass costs only 28 EUR.
However, the modernization effort hides several risks that should be
assessed at a system-wide level. The main benefits of heat electrification, such as adopting highly efficient technologies like heat pumps and
relying on an already decarbonized energy carrier (i.e., wind power),
are obvious. The costs, on the other hand, are less understood. The
measures taken may well incentivize a dash for individual electricity usage
for heating purposes, which could end up being counterproductive if heat
demand does not coincide with wind power production. Decentralized
heat pumps, controlled and operated by individuals, rather than centralized heat pumps operated by companies—which are better positioned to
deal with the complexities of energy markets—could induce undesirable
demand spikes. This could trigger increased electricity system balancing
costs and the need for dispatchable capacity, which will not necessarily
be emission-free. In this respect, a technology-neutral tax incentive could
be harmful from a societal perspective as well as giving customers the
possibility of disconnecting from the heating supply network.
Even if the policy goal is to induce cost-efficiency gains by encouraging
competition between collective and individual district heating, a lock-in
cost could still be present. Particularly, the investment cost of an individual heating solution could make it prohibitive for some households
to disconnect. Well-off households may be better positioned to leave the
heating network than less affluent counterparts. Yet, because of disconnection from the heating network, the former may increase the cost of
collective heating for the latter. Implementing the modernization effort all
at once may prove complex and could jeopardize the success of the Danish
District Heating sector. A critical review of the regulatory framework may
be thus required. 3
Challenge 3: Removing the Cost Barriers in the Usage of Electric Transportation and Heating. In addition to the decarbonization challenges
in the Danish transportation sector and the conflicting ambitions in
the modernization strategy of district heating, one of Denmark’s core
2017). Yet, unless specific technical assumptions and calculations are
made, it is not possible to determine the effectiveness of the reform on
the re-organization of the merit order of heating production. As a point
of reference, Hvelplund et al. (2017) explain that, before the tax reform,
biomass-fueled heat production paid almost no taxes, whereas electricitybased heat production paid approximately 100 EUR/MWh in tax. Thus,
1 MWh of wind power for heat production costs (including tax) 123
EUR, whereas biomass costs only 28 EUR.
However, the modernization effort hides several risks that should be
assessed at a system-wide level. The main benefits of heat electrification, such as adopting highly efficient technologies like heat pumps and
relying on an already decarbonized energy carrier (i.e., wind power),
are obvious. The costs, on the other hand, are less understood. The
measures taken may well incentivize a dash for individual electricity usage
for heating purposes, which could end up being counterproductive if heat
demand does not coincide with wind power production. Decentralized
heat pumps, controlled and operated by individuals, rather than centralized heat pumps operated by companies—which are better positioned to
deal with the complexities of energy markets—could induce undesirable
demand spikes. This could trigger increased electricity system balancing
costs and the need for dispatchable capacity, which will not necessarily
be emission-free. In this respect, a technology-neutral tax incentive could
be harmful from a societal perspective as well as giving customers the
possibility of disconnecting from the heating supply network.
Even if the policy goal is to induce cost-efficiency gains by encouraging
competition between collective and individual district heating, a lock-in
cost could still be present. Particularly, the investment cost of an individual heating solution could make it prohibitive for some households
to disconnect. Well-off households may be better positioned to leave the
heating network than less affluent counterparts. Yet, because of disconnection from the heating network, the former may increase the cost of
collective heating for the latter. Implementing the modernization effort all
at once may prove complex and could jeopardize the success of the Danish
District Heating sector. A critical review of the regulatory framework may
be thus required. 3
Challenge 3: Removing the Cost Barriers in the Usage of Electric Transportation and Heating. In addition to the decarbonization challenges
in the Danish transportation sector and the conflicting ambitions in
the modernization strategy of district heating, one of Denmark’s core