Design and evaluation of policy schemes supporting waste-heat recovery into district heating networks

Juan Jerez Monsalves, Claire Bergaentzlé, Paolo Pisciella, Esmail Saber and Dogan Keles

Applied Energy, 2025, vol. 399, issue C, No S0306261925012474

Abstract: Waste-heat recovery (WHR) offers significant decarbonisation potential for district heating (DH) networks. However, economic barriers limit adoption, highlighting the need for policy incentives that consider DH's cost-driven decision-making. This study formulates a bilevel optimisation framework to determine optimal support incentives that minimise government spending while capturing policymaker-DH interactions. We examine five policy scenarios: WHR operational subsidies, WHR capital subsidies, carbon taxation on existing heating units, and subsidy-tax combinations. These are evaluated across varying decarbonisation targets and consumer cost constraints, using Denmark as a case study. Results show combined subsidy-tax schemes significantly outperform standalone subsidies, reducing the policy cost of 5% DH decarbonisation from 14%–20% of pre-policy heating costs to only 4%, without increasing net consumer costs. This efficiency stems from taxes internalising policy objectives within DH merit-order, preventing displacement of already decarbonised heating sources and avoiding excessive WHR subsidisation.

Keywords: Waste-heat recovery; District heating; Bilevel optimization; Policy design; Energy efficiency (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1016/j.apenergy.2025.126517

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