well as complaints, play a significant role in maintaining low prices. This demonstrates that consumers’ ability to compare prices across regional providers and voice their complaints are important governance mechanisms that pressure utilities to be more efficient 7 . In summary, the observed price differences may arise because commercially owned utilities focus on generating a surplus for their shareholders, while democratically owned utilities prioritize providing affordable and stable heat to consumers. This aspect of ownership is especially important to keep in mind when taking steps to ensure a just and politically sustainable transition away from fossil fuels in the heating sector. Democratic ownership makes long-term planning possible Ownership doesn’t just matter when it comes to keeping prices low. It is also central to investment. Expanding district heating
District heating utilities are local natural monopolies, meaning it is inefficient to have multiple providers in the same area. Commercially owned utilities are driven by the need to generate returns for shareholders, which often results in them using their monopoly power to charge higher prices. In contrast, democratically owned utilities are accountable to local citizens, either directly by electing board members or indirectly through elected officials. This accountability incentivizes the utilities to keep prices low, as they are more responsive to consumer needs and concerns. While some argue that the need to generate a surplus in commercial companies encourages innovation, democratically owned utilities also have strong incentives to innovate. Innovations that lower costs can lead to reduced prices, which benefit the consumers who control the democratically governed utilities. Studies from Sweden indicate that consumer comparisons of prices across different utilities, as
Time horizons of DH assets and private investors
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Expected lifespan of new district heating pipes
Average lifespan of transport infrastruture in the danish district heating sector
Average lifespan of production facilities in the danish district heating sector
Median holding period of a private infrastructure investor
Figure 2: The lifespan of district heating assets compared with the median holding period of a private infrastructure. Source: SWECO 8 , Danish Utility Regulator 9 , and MSCI 10
7 Petyo Bonev, Matthieu Glachant, Magnus Söderberg, Implicit yardstick competition between heating monopolies in urban areas: Theory and evidence from Sweden, Energy Economics, Volume 109, 2022, https://doi.org/10.1016/j.eneco.2022.105927 8 https://www.energi.se/artiklar/2024/september-2024/miljardinvesteringar-nar-fjarrvarmeroren-ska-bytas-ut/ 9 https://forsyningstilsynet.dk/Media/638233062065051174/bilag-8_generelt-effektiviseringspotentiale-og-indfrielse.pdf 10 https://www.msci.com/research-and-insights/blog-post/private-capital-in-focus-q2-returns-and-an-exploration-of-holding- periods
41 www.dbdh.dk
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