The future of heat supply in Ukrainian cities and towns lies with heat pumps
photo: online resource teploradost.com.ua
Gas boilers are becoming a thing of the past
In 2022, an energy transition began in the heating systems of cities and buildings in the European Union - the end of the gas boiler era. The energy crisis in Europe and the unprecedented rise in natural gas prices have sowed doubts about the prospects for using this fuel and related technologies for heating cities and buildings.
I recently joked on my Facebook page that we are starting to say goodbye to gas boilers, their place is next to steam locomotives. Indeed, gas boilers, like steam locomotives, have served us well for almost a century and are now gradually becoming history. There is a global change in the world's technological order, and this is most acutely felt in the energy sector.
One by one, European countries are beginning to ban the use of gas boilers in homes - first in new buildings and then in existing ones. The technology change is due to take place by 2030, and the main trend today is towards renewable heating, cooling and hot water. This is underscored by the EU's requirements for new buildings to be built to near-zero energy consumption standards, which mean that demand for heat energy should fall to the lowest possible levels. Old buildings will also be gradually modernised to meet these standards. Heat consumption in buildings will continue to decline over the next three decades.The European Heat Pump Association (EHPA) reports that an increasing number of European countries are banning fossil fuel heating systems in new construction. The phase-out of "fossil fuel" (i.e. gas) boilers is due to be completed in the European Union by 2030. Between 2025 and 2026, they will be downgraded in energy efficiency class, and starting from 2025, all forms of subsidies for natural gas heating and hot water systems will be cancelled.
For the first time in its history, the International Energy Agency (IEA) forecasts that the demand (and cost) of natural gas will increase to a maximum level in 2030, after which, according to experts, demand will decline. These data are published in the World Energy Outlook report prepared by the International Energy Agency. The decline in natural gas consumption for large-scale heat and power generation is offset by an increase in its consumption in the global chemical and engineering industries for the production of plastics and plastic products. Metals are being replaced by plastics, and it is unclear when this process will stop. The world's energy and material balances are undergoing tectonic shifts, with natural gas replacing iron. In 15 years, plastics have replaced several hundred million tonnes of metals.
The crisis of existing heating systems for cities and buildings in Ukraine
The war in Ukraine has highlighted the shortcomings of district heating systems and severely shaken the already low public confidence in them. I have already written about the drop in consumer demand for heat from centralised sources in Ukraine (between 1990 and 2020) by more than 65% of the demand in 1990. For more than 20 years, district heating companies in Ukrainian cities have been losing profitability and are unable to operate in a market environment without subsidies and tariff support from the state and local budgets.
In 2022 alone, the state budget spent about UAH 300 billion to maintain not so low natural gas tariffs for households and district heating networks. In April 2023, Naftogaz planned budget support (to maintain gas prices) of UAH 327 billion in 2023. No assessment of subsidies for district heating systems from local budgets has been made, although this amount is tens of billions of hryvnias annually. Atlanta is holding the sky with bent arms. It is getting harder to hold it every year.
If by 2030 the demand for district heating in Ukrainian cities is halved (which is very likely) and the price of natural gas increases by 2-4 times, the fate of existing district heating systems will be fatal. The optimism of our and foreign admirers of Ukrainian district heating systems, who propose to preserve, mainly by compulsory and low-cost measures, outdated systems that have worked for 2-3 design periods without overhauls, has long been incomprehensible to me. These doubts are especially true for heating networks - their deterioration is already reaching the limit, and heat losses in the networks are increasing every year.
A new life for Ukraine's district heating system would be possible with a complete renewal of fixed assets based on heat supply from renewable sources and the abandonment of natural gas as the main fuel. Our cities alone cannot cope with this work - there is no money, no understanding. This modernisation will require large investments, which will inevitably increase the already high tariffs. It's a vicious circle - the high cost of modernising district heating in the face of a long-term decline in demand for heat puts investment in the sector in question. This is a crisis that needs to be addressed.
Ukraine can be encouraged to overcome the crisis by the example of the European Union, where the transition from boilers to heat pumps has become the basis of a plan for the transition to renewable heating and cooling - the REPower EU plan. The International Energy Agency's report The Future of Heat Pumps, which presents the prospects for heat pumps, identifies key opportunities to accelerate their deployment, as well as key obstacles and policy solutions, could also serve as a roadmap for modernising Ukraine's heat supply. Ukraine needs its own plan to get rid of gas dependence - REPower UA.
The choice of heat supply source has been and will remain with consumers
Heat consumers in Ukraine are heterogeneous and can be understood by dividing them into clusters based on common interests. Most heat consumers live in private houses, both in cities and rural areas. For them, district heating systems are not popular, and gas and solid fuel boilers are the basis of heat supply. However, this cluster consumes the most natural gas - about 8 bcm. About 7.5 million households belong to this cluster. Another 6.2 bcm is consumed by urban district heating systems (over 200,000 multi-storey buildings) and about 0.8 bcm is consumed by the public sector (120,000 buildings). Estimates of the number of buildings are approximate and need to be clarified.
The simplest solutions for switching from gas to renewable heating and cooling will be for the low-rise building cluster. Approximately 4 million households out of 7.5 million already have air conditioners, and replacing them with heat pumps will provide heating, air conditioning and hot water to these buildings.
An interesting experience for Ukraine may be the UK, where the government has adopted a programme to replace 26 million gas boilers in existing buildings with heat pumps. The budget of this programme for 8 years is 115 billion pounds - it is easy to understand how the problem of decarbonisation will be solved in the country.
The installation of solar panels to provide heat pumps with electricity will allow the basic energy supply of buildings to be provided by renewable sources. The centralised power system will remain a backup source for buildings during peak loads.
A simplified model of the efficiency of replacing gas boilers with heat pumps
Natural gas consumption in Ukraine's low-rise housing sector is currently around 8 billion cubic metres per year. Approximately 7 billion cubic metres could be saved by switching to renewable energy sources. Installing 7 million heat pumps instead of gas boilers and air conditioners will cost about $20-25 billion, and if solar panels are added to the house kit, the cost will increase by another $20 billion.
We need to create a scheme under which the natural gas saved over 20 years will be sold on foreign markets, and households will not need budget and tariff subsidies.
7 billion cubic metres * 20 years * $400 = $56 billion - the formula for calculating the benefits for Ukraine from natural gas produced in our country for low-rise construction in the domestic market or for sale to foreign markets.
The formula allows the state and local budgets to exclude subsidies for low-income households and subsidies to maintain low tariffs for gas, heat and electricity. The budgetary savings are hard to imagine - it is about 2-2.5 times the annual budget of Ukraine.
And another source of funding for such projects is the proceeds from the sale of greenhouse gas emission rights when we abandon natural gas.
Burning 140 billion cubic metres of natural gas over 20 years leads to huge CO2 emissions - 140 billion cubic metres * 0.00185 = 259 million tonnes of CO2.
The sale of CO2 emission rights, which Ukraine will have in excess in this case, can significantly replenish the state budget of Ukraine. In 2021, the volume of trading in the global carbon dioxide emission permit markets increased by 164% (a record €760 billion ($851 billion) compared to 2020). Ukraine can receive up to $13 billion for the sale of emission rights (average price of 1000 m³ of CO2 = $50).
(to be continued)
Vasyl Stepanenko, Director of ECCO ECOSIS, July 2023