The decarbonization of heat generation is the key prerequisite for achieving the climate targets in the building sector. What are the particular challenges of the heat transition?

Michael Dusch: A key feature of the heat transition is its close interaction with the other pillars of the energy transition, which need to be considered as strategic requirements. This is clearly illustrated by the example of the air source heat pump: Today, it basically offers the fastest path to supposedly CO2-neutral heat generation. However, two central prerequisites must be created for this: Firstly, the expansion of the power grid infrastructure, since the parallel expansion of e-mobility is placing more and more load on the power grid, which is not actually designed for this scale. Secondly, the expansion of renewable energies must be massively promoted in order to prevent air source heat pumps from being operated with electricity from fossil fuels and thus emitting more CO2 than conventional gas heating.

Christof Spangenberg: This leads directly to the question of sector coupling, i.e., the linking of electricity, heat, mobility and industrial processes as well as the associated infrastructures. To this end, concepts and solutions must be found and implemented as to how surpluses from photovoltaics or wind power can be used for green heat generation, either directly as Power-2-Heat or heat pumps or indirectly in the form of green hydrogen.

In addition to these general requirements, it must be determined with which technology the goal of 50% climate-neutral heat generation by 2030 is to be achieved at a local level. Municipalities are therefore mandated to carry out municipal heat planning. What can be expected from this?

Christof Spangenberg: The heat planning, as it is to be adopted, provides three main possible outcomes: Either an area is suitable for a decentralized individual solution or it is suitable for a centralized solution – or both. Behind each of these is then a list of possible technologies that can be used for centralized or decentralized heat generation at the respective location. In fact, municipal utilities and municipalities already know most of this. So little surprise is to be expected here. The really exciting question, which is completely open at the moment, is: What happens afterwards? For now, there is no agreed structure as to who will take responsibility for implementation. As a result, we run the risk of losing several years that we won't be able to get back on track.

What would you need to focus on now instead?

Michael Dusch: The imperative for a successful heat transition is clarity of action and investment security – in two directions: On the one hand, citizens need clarity about which heating technology they should invest in in the future – or whether they will be connected to a local or district heating network in the next few years after all. At the same time, lengthy planning and approval procedures must be prevented from delaying the transition. So we need acceleration here in two respects: both rapid clarity of action and accelerated speed of planning and implementation. On the other hand, the necessary requirements must be created in industry to gear the market to this special economic situation, so that manufacturers of heating pumps, for example, can plan for corresponding production capacities.

How can this clarity of action be established?

Christof Spangenberg: The discussion with citizens has shown that the path via bans is not very effective. It would therefore be more important to create concrete and binding framework and funding conditions now, so that citizens and the market can adapt to them. I am convinced that a price of 200 to 300 euro per ton of CO2, which experts expect in the medium term, will have a significant steering effect. Especially since we are already seeing manufacturers, service providers and municipal utilities starting to move.

The CO2 price is set in the federal government – the mandate for municipal heat planning is de facto with the municipalities. Where will the heat transition be decided?

Michael Dusch: On the one hand, there must be a central political guideline as to which options may be used in the sense of a portfolio for implementing the heat transition. On the other hand, the freedom to shape the heat transition at the local level must lies with the respective municipalities. This is because the requirements are fundamentally different depending on the region, the topology, whether rural or metropolitan – for example, in the case of district heating: Here, the spectrum ranges from sprawling areas for which a centralized solution is out of question, to industrial clusters with great potential for local heating supply, to highly dense cities such as Berlin, where the large-scale laying of new district heating networks does not seem feasible and existing pipelines must be used or other technologies should be resorted to.

To what extent do these specific local requirements offer opportunities for municipal utilities and regional suppliers to position themselves as shapers of the heat transition?

Christof Spangenberg: The conditions are ideal. That's why we also encourage the municipal utilities to get actively involved. Because it cannot be taken for granted that they are involved: The job is first up to the municipality and who they involve is up to them. But especially when it comes to sector coupling and the question of who can take over customer control, there is in fact no sensible way around the municipal utilities. As a municipal utility, waiting until the heat planning has been completed increases the risk that other suppliers will also enter the game. Therefore, the clear advice is: Get in position, use your local knowledge, and don't wait until the heat planning is done.

What should municipal utilities be doing today to prepare for this?

Christof Spangenberg: Most municipal utilities can already foresee quite well for their region what lies ahead and should therefore already be thinking about how to address their customers, where they currently stand, e.g., in terms of the age of the heating systems or the energy condition of the buildings. They can already clarify the financing question and thus position themselves as soon as the results of the heat planning are available. They need to realize that in the next 10-15 years, just about every property will undergo extensive energy refurbishment and become a prosumer. They need an offer for this, otherwise they will be reduced to network operation in the medium term.

Michael Dusch: Customers are now looking for solutions and want to know what the next step is, regardless of any legal conditions. It has to be about reassuring them that they will be taken care of, that a solution will be found for them and that they will be the first point of contact on site. Municipal utilities can fulfill this role perfectly. This goes as far as offering or leasing transmission technologies until the local district heating network is developed.

You mentioned financing. How can municipal utilities finance the necessary investments, for example for the expansion of the district heating network?

Christof Spangenberg: There are several elements: In addition to the usual financing through municipal loans, there are a number of funding options. You can also involve an investor or set up citizen financing.

Michael Dusch: For an investor, this is a safe investment. The network has been laid, the customers are connected. It is not expected that the heat generator, if that is the municipality in any form, will become insolvent. In that respect, it's probably a low-yielding but very safe investment opportunity.