Price elasticity of district heating

Abstract

Although district heating is a well established industry in Sweden it still faces challenges. One of these is their way of charging customers for supplied heat. These price models are often complicated to understand for both customers and company employees as well as sensitive for weather making it hard to predict income. The price itself could also affect the energy use which is relatively unexplored in DH. Therefor an analysis of how price elasticity can be used to predict energy use was done. It was done by doing a literature study which was followed by an interview study and creating three models, modelling the energy of two networks, in order to see if using price elasticity when setting prices is a good approach. The thesis also examines the what kind of building that is consuming the heat and the effect that has on the price elasticity. Lastly the thesis also investigates the correlation between district heating use and electricity prices in order to see if users of district heating increases their use of district heating instead of using other heating options. The literature study concludes that the price elasticity of demand for district heating is inelastic, meaning that the changes in demand are rather small compared to the price changes. The interview study concludes that district heating companies do think of price elasticity when setting prices but would be interested to use it in the future to better predicts revenues. The studied models for elasticity show that the use of price elasticity in setting DH prices is somewhat unnecessary as the elasticity in literature as well as historically in the networks are rather low. The results also indicates that the use of individual metering for households in multi family buildings makes a difference on the elasticity in some capacity however it still remains rather inelastic. Lastly there is low correlation between electricity prices and district heating use for most of the year.