21 October 2005 1

Euroheat & Power

Heating Sector Institutional Reform in the Former Soviet Union Baku, 21 October 2005

Challenges in Liberalisation of Large District Heating Networks

Dusan JakovljevicEuroheat & Power, Brussels

21 October 2005 2

Euroheat & Power

"Association of Associations"

Members in 32 countries, incl. 21 national district heating & cooling (DHC) and combined heat & power (CHP) Associations:

Austria, Czech Republic, Denmark, Estonia, Germany, Finland, France, Hungary, Iceland, Italy, Lithuania, Latvia, The Netherlands, Norway, Poland, Romania, Russia, Slovakia, Sweden, Switzerland and The United Kingdom.

Euroheat & Power

21 October 2005 3

Euroheat & Power

Areas of Activity Lobbying

– Positioning in EU policies

Pooling of expertise and technical cooperation– Market analysis / statistics and certification– Assessing the societal / environmental impact– Elaborating common guidelines (quality assessment)– Common research platform

Exchange of experience and meeting platform– Forums for utilities / industries– Conferences, exhibitions

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Eliminate prejudices and market the societal advantages of CHP/DHC

Create transparency and increase credibility Raise political awareness for opportunities and

problems Link interests to political targets / measures Create technical toolbox needed for successful

policy implementation

Lobbying for CHP/DHC

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DHC: the link

Surplus heatfrom industry

Municipal Waste

CHP

Biofuels

Fossil fuels

Geothermal

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Liberalised Market: Characteristics

decentralised ownership a large pool of private

actors competing in the market place

unbundling of production, distribution and supply

full market access necessity to change

company’s focus from production to customer

Policy View

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Liberalised Market: Benefits

increased investment increased energy efficiency becoming a market player employment and training customer benefits environmental awareness

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Dangers of tariff only model

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Private Sector Participation in District Heating

Up to 1990 in general Western Europe: municipal and customer

ownership Eastern Europe: State ownership

From 1990 in general Significant changes Liberalisation of Electricity and Gas markets Direct impact on district heating

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Private Sector Participation in District Heating

Four alternative ownership models Full state or municipal control Full private control Mixed ownership and management – PPP

(PPP = Public Private Partnership) Non profit cooperatives – customer ownership

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Private Sector Participation in District Heating

Public Private Partnership – different models Operation or management contracts Leasing Concession Generation-only-privatisation Minority private equity, invited Minority private equity, stock market (IPO) Majority private equity Full private ownership with municipal support

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Current ownership structure

Rough indication of ownership structure in CEE countries

privatised/concessioned

municipalities

state

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Examples of ownership in District Heating

Full public ownership

Helsinki, München, Wien, Gothenburg, Budapest Full private ownership

Berlin, Hamburg, Malmö Public Private Partnerships

Tallinn, Vilnius (leasing)

Paris (concession - since 1927!)

Warsaw, Brno, Riga, Romania (generation only)

Mannheim, Brescia (IPO)

Praha, Skopje (private majority)

Southampton (full private with municipal support)

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Private Sector Participation in District Heating

Important prerequisites for private participation Good regulatory framework (heat tariffs, no gas

subsidies) Detailed regulation must be avoided Market philosophy Non political governance, commercial behaviour Duration of contracts for PPP

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Private Sector Participation in District Heating

Assessing Private Participation in District Heating Is the decision process focused on business? Is a private actor realising environmental benefits? Is a private actor looking to a long-term perspective? What local focus will a private actor have? Is a private partner financially/technically credible? Is the national legislation appropriate for DH?

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Private Sector Participation in District Heating

Concluding Remarks Many types of partnership are possible Realise that District Heating is local business Realise that District Heating is infrastructure Market approach is necessary Negotiate contracts carefully – also exit options Private money is often needed – and welcome

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