United Kingdom District Heating Market Size & Share Analysis - Growth Trends & Forecasts (2023 - 2028)

United Kingdom District Heating Market Size & Share Analysis - Growth Trends & Forecasts (2023 - 2028)

The United Kingdom District Heating Market size is expected to grow from USD 1.44 billion in 2023 to USD 1.68 billion by 2028, at a CAGR of 3.20% during the forecast period (2023-2028).

A district heating system helps achieve energy efficiency and reduces the cost for residential and commercial users. The demand for such solutions is expected to grow significantly over the years, owing to growing government funding and initiatives and increased investment by key market players.

Key Highlights

• To meet the Sustainable Development Scenario (SDS), clean heating technologies, such as heat pumps, district heating, and renewable and hydrogen-based heating, are expected to increase the sales of district heating networks by 2030, positively influencing market demand.
• The rising demand for energy-efficient heating solutions is pushing for the adoption of new technologies. As per the UK government's research, 14-20% of the heat demand in the United Kingdom is expected to be met by heat networks by 2030 and 43% by 2050. Around half of the energy consumed in the United Kingdom is used as heat. The commercial, domestic, and public sectors accounted for two-thirds of the final energy consumption. Heat is primarily used for water and space heating in residential/domestic and commercial buildings.
• Rapid urbanization worldwide is driving the demand and pushing the switch to renewable energy sources for centralized heating and cooling, which can help reduce CO2 emissions, improve efficiency, increase urban energy needs, and provide cost-effective temperature control. For instance, driven by urbanization, the United Kingdom has rapidly increased its use of centralized systems in its northern regions.
• District heating systems are more capital-intensive as compared to alternatives in the market. The DHC system requires a network of trenches and continuous maintenance of pumps and systems. These factors hinder the demand for DHC systems. The installation of a central heating system involves the replacement of the radiators, boilers, pipework, and heating controls, which costs around GBP 3,500-GBP 5,500 (~USD 4,200 to USD 6,600). The installation cost differs according to boiler location, fuel source, and property characteristics.
• The recent COVID-19 outbreak and nationwide lockdowns in various countries worldwide resulted in consumers spending an increasing amount of time indoors, with businesses and commercial establishments shutting down for at least three months, thus reducing energy consumption.
• The demand from the residential sector is expected to increase post-pandemic, owing to rising investment in cost-effective DH networks and government initiatives to boost the adoption of the heat network. The commercial sector witnessed a significant dip in demand due to closure and lower investments in expansion. However, the construction industry in various regions experienced growth, which is a positive sign for the adoption of DHC solutions.

UK District Heating Market Trends

Rising Urbanization and Industrialization to Drive the Market

• Rapid urbanization worldwide is driving the demand and pushing the switch to renewable energy sources for centralized heating and cooling, which can help reduce CO2 emissions, improve efficiency, increase urban energy needs, and provide cost-effective temperature control. For instance, driven by urbanization, the United Kingdom has rapidly increased its use of centralized systems in its northern regions.
• Europe commands a prominent share of the global demand for DHC solutions, and a major share of the distribution network is situated in urban areas in the region. Large heat distribution infrastructures were developed during the second half of the 20th century in countries and regions such as Scandinavia and Central and Eastern Europe. These remain the principal way to provide energy for space and water heating in urban areas.
• District energy systems benefit from and support this environment and are inherently appropriate to urban landscapes. The technology's synergy with the environmental conditions and the working population's needs are well suited for urban demographics. The growth of urban centers facilitates the construction of district networks. England, London, Wales, and Nottingham are some of the best examples in the market.
• England's population grew in urban and rural areas during the last decade. The urban population grew by 6.2%, while the rural population rose by 5.2%. The rural town and peripheral areas experienced the highest population growth rate within rural areas (5.7%).
• In the United Kingdom, 84.15% of the population lived in urban areas in 2021, indicating an increase of roughly 3% over the previous ten years. Though gradual, the rising trend has consistently been favorable.

Residential and Domestic Segment Holds Significant Market Share

• Domestic heating accounts for nearly 14% of all emissions in the United Kingdom (according to the Institute for Government) and needs to be tackled urgently in line with the government's aim to meet its carbon reduction targets. District heating offers an effective solution for the supply of low-carbon heat to homes across the United Kingdom. While just over 2% of residences in the United Kingdom are currently connected to a district heating network (as per Energy Saving Trust), more are expected to come online as the country transitions to net zero over the coming decades.
• Most district heating systems currently installed in the United Kingdom use a gas-powered combined heat and power system (CHP), which generates electricity. In a block of flats or a housing estate, a single CHP is usually more efficient and requires less maintenance than a gas-powered boiler in every flat or house. The UK government's Committee for Climate Change (CCC) estimates that around 12% of domestic heat will be supplied by district heating by 2050.
• There are over 17,000 heat networks in place in the United Kingdom, and around half a million connections to them, most of them being domestic customers (as per Energy Saving Trust). They are perceived as a particularly attractive option in dense urban areas. They are an effective way of dealing with fuel poverty while reducing housing management costs.
• The establishment of heat networks, which can vary widely in size, implies that cheaper, lower-carbon sources of heat generation can be added over time without abrupt changes, such as digging up roads or changing people's homes.
• The Future Homes Standard, expected to be introduced in the United Kingdom in 2025, requires carbon emissions produced by new homes to be around 75-80% lower than those built to current standards. Houses will have to be 'zero carbon ready,' with no retrofit work needed to benefit from the electricity grid's decarbonization and the heating's electrification. Fossil fuel heating may be banned in new houses, with an expected shift toward low-carbon heating technologies, such as heat networks.
• Distributed heating has significant growth potential in the residential sector. In the coming years, district heating is likely to be commonly included as part of new housing developments, such as the Linen Quarter housing development in Dunfermline, Scotland, where homes are heated through a district heating system that utilizes heat from landfills.

UK District Heating Industry Overview

The UK district heating market is moderately fragmented, with the presence of major players like Vital Energi, Utilities Ltd, 1 Energy Group Limited, Baxi Heating UK, Ramboll UK Limited, and Veolia Environnement SA. Players in the market are adopting strategies such as partnerships and acquisitions to enhance their product offerings and gain sustainable competitive advantage.

• In August 2022, after receiving GBP 16.9 million (~USD 20.3 million) in financing from the government's Heat Networks Investment Project, a new project in Bedfordshire is on track to become the country's next major heat network. Vital Energi would construct the new project to take waste heat from the Rookery South Energy Recovery Facility and distribute it to nearby homes and commercial buildings.
• In April 2022, E.ON United Kingdom launched a smart network system for greener home developments and collaborated with Cala Homes to achieve low carbon energy potential. The smart energy network enables homes to be built to the highest sustainability standards, with solar panels, heat pumps, and EV chargers connected to the grid where there could be an insufficient network capacity.

Additional Benefits:

• The market estimate (ME) sheet in Excel format
• 3 months of analyst support