Regulatory Models and Pricing Mechanisms for District Heating in the Nordic Countries: Implications for Norway

Chunzi Qu and Mette Helene Bjørndal

No 2026/9, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: District heating (DH) is important for Nordic decarbonization and power-heat coordination, but its development differs markedly across the region, with Norway showing much lower DH penetration than Denmark, Sweden, and Finland. The analysis combines institutional comparison, a review of empirical pricing and modeling studies, and two stylized numerical case studies, to identify transferable lessons and suitable analytical tools for Norwegian policy reform aimed at supporting DH expansion. The results show that the main weakness of Norway’s current electricity-indexed maximum-price rule lies not merely in the level of the cap, but in the instability of the benchmark and its weak alignment with the underlying cost structure and system value of DH. Greater electricity-price volatility can further amplify the mismatch between the electricity-linked cap and DH cost recovery, increasing downside revenue risk for DH companies. The representative-customer comparison shows that the current Norwegian regime exposes customers more directly to the market-linked price variation, while also making the tariff relatively more favorable for low-utilization customers, thereby increasing cost-recovery risks for DH companies. The Norwegian policy-counterfactual analysis shows that if Norway wishes to retain a maximum-price rule while revising its cap-setting method, using the cost of alternative heating technologies as a hard cap may be insufficient to ensure cost recovery under the Oslo calibration, whereas a Danish cost-recovery benchmark provides a more robust basis for long-run DH viability. Finally, the modeling review highlights the need for integrated, multi-model evaluation strategies to support evidence-based DH regulatory reform in Norway and other highly electrified energy systems.

Keywords: District heating; Price regulation; Tariff design; Power-heat coordination; Energy system modeling; Nordic countries (search for similar items in EconPapers)
JEL-codes: Q20 Q30 Q40 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2026-08-18
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