National Audit Office: achieving the state’s climate targets requires local authorities to act more vigorously in developing the heat economy

1/11/2024 | 11:00 AM

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TALLINN, 11 January 2024 – A recently completed audit by the National Audit Office shows that moving towards the ambitious climate targets set by the central government and making the necessary reorganisations requires not only that large investments are made, but also that local governments take more initiative in managing and organising the development of the heat economy. Experts have put forward five possible future journeys for the state to reach a carbon-neutral heating and cooling economy by 2050. In the different scenarios, at least €0,9 to 2.3 billion must be invested in technologies and district heating infrastructure, the choice between the different plans and financing schemes has not yet been made. The specific expectations for the activities of local authorities in relation to the reorganisation of the heat economy resulting from the climate targets and the division of rights and responsibilities need to be negotiated and clearly agreed between the central government (Ministry of Climate) and cities, towns and municipalities. The current inconsistent information on the state of the district heating infrastructure and on development targets does not make it possible to obtain a good overview of investment needs in the heating sector at national level.

There are ca 230 district heating network areas in Estonia, of which 61% are served by the private sector. District heating infrastructure has been significantly upgraded over the last decade, the service quality has improved and the number of problems that need to be addressed promptly by the local authority has decreased. Heat production has largely been transferred to renewable energy sources – renewable sources are already used as the main fuel for heat production in most of the network areas (ca 73%). At the same time, there are still areas where all the heat needed is produced from fossil fuels (e.g. natural gas, shale oil). However, the number of consumers in these areas is rather small – less than 10% of the total.

In terms of both the environmental impact and the cost of heat, it is also important to minimise heat losses when transferring the produced heat to consumers. However, this requires heat-retaining mains with optimal capacity, as well as appropriate technical solutions for receiving the heat. There are ca 1,700 km of mains in the network areas, most of which were built during the Soviet era, and although there has been significant investment in infrastructure, some lines still need upgrading – about 30%, or about 500 km, have not been renovated.

Local authorities can influence the upgrading of boiler houses and mains through the development obligation imposed on the service provider, which is up to the local authority to determine. However, the audit showed that in the audited local authorities, the development obligations were often formulated so vaguely that they did not create any real pressure to develop infrastructure. Although local authorities should be proactive in ensuring that the people living on their territory have access to heat at the best possible price, from environmentally friendly sources and with the least possible heat loss from pipes, it is the central government that has encouraged developments in this direction with its European funding (231 infrastructure projects were supported in 2014-2020 with approximately €62 million) and the Competition Authority with its activities in setting heat prices.

The National Audit Office also noted that project-based behaviour in local governments dominates in the development of the sector. This is illustrated, for example, by the fact that although almost all local authorities prepared development plans for the sector (heat economy development plans) 7-8 years ago with the help of support funds from the state, they are now often outdated and only a few have updated them on their own. An up-to-date overview of the current state of district heating infrastructure and development objectives can therefore mostly not be found in the development documents of local authorities. It also means that the state cannot obtain a complete picture of the sector’s investment needs either.

Often, it is not customary to collect information from service providers that would allow the local authority to receive periodic information on the situation and problems of heat economy. There is ongoing case-by-case information exchange, for example in the event of major service failures or when local authorities are planning developments that also affect heating pipelines. A positive example is Tallinn, where in the largest network area, a comprehensive annual development report is submitted to the city under the infrastructure rental contract with the service provider (generation according to boiler houses, sales, heat losses, plus an investment plan, compliance with agreed service levels, etc.).

According to the Ministry of Climate, which coordinates the development of the heat economy at the national level, local authorities should be more active in fulfilling their responsibilities, but the Ministry does not yet have a clear plan on how to achieve this.

The analysis of future scenarios on how to reach a carbon-neutral heating and cooling economy by 2050, which was commissioned by the Ministry, was recently completed. Experts have put forward five possible future journeys for the state to reach a carbon-neutral heating and cooling economy by 2050. If electrification of the systems is chosen (solutions powered by electricity are used to heat water in the local or district heating network), around €2.3 billion would have to be invested in technologies and district heating infrastructure, while in the case of the so-called leveraged district heating development (district heating is the main solution), experts estimate that an outlay of ca €2 billion (including half of this in infrastructure) would be necessary. The corresponding figure for the preferential development of local heating solutions is ca €1.3 billion and for technology-neutral solutions (i.e. a scenario combining different approaches), it would be ca €1.2 billion. Even in the case of continuing with the current technological solutions, it would be necessary to invest at least 0.9 billion euros. The choice between the different plans as well as financing schemes has not yet been made.

The authors of the analysis find that one of the prerequisites for achieving the goal is to strengthen the role of local authorities by providing clearer instructions, funding and administrative support. The National Audit Office considers it important that specific expectations for the role of local authorities in the light of the nationwide climate objectives are formulated, and the tasks and possibilities of local governments to fulfil the expected role are reviewed in the course of this.

The development obligation of the heating company needs special attention. It is necessary to critically assess the possibilities of the local authority to steer the development, taking into account the ownership relations of the established infrastructure (in almost half of the regions, the infrastructure belongs to a private entrepreneur). It is also necessary to take into account that development pressure also arises through the establishment of the marginal heat price, which is done by the Competition Authority. If local authorities remain responsible for defining the development obligation, the minimal solution would be to provide practical guidelines on how to implement the development obligation in the local authorities.

In connection with the above, the National Audit Office made recommendations to the Minister of Climate, who promised to be guided by them in the preparation of the national energy economy development plan (until 2035).

Background: The audit focused on district heating, the most common heat supply solution for households in Estonia. According to the 2021 census, it was used in 71% of occupied dwellings.

It is the responsibility of the local authority to consider where using district heating as the heat supply is justified, to define the regions of district heating, the conditions of connection and disconnection from the district heating network, the general quality of service requirements and the development obligations of the heating company.

There are just over 200 district heating regions and 229 district heating network areas (i.e. service areas) in Estonia.

The National Audit Office analysed how the local authorities have guided the development of the heat economy in these regions in accordance with their tasks. Ten local authorities were examined in greater detail: Tallinn, Keila Town, Haapsalu City, Rapla Municipality, Lääne-Nigula Municipality, Järva Municipality, Tapa Municipality, Viljandi Municipality, Otepää Municipality and Kastre Municipality.

Toomas Mattson
Advisor at National Audit Office of Estonia
+372 513 4900
[email protected]

  • Posted: 1/11/2024 11:00 AM
  • Last Update: 1/11/2024 1:57 AM
  • Last Review: 1/11/2024 1:57 AM

There are ca 1,700 km of mains in the network areas, most of which were built during the Soviet era, and although there has been significant investment in infrastructure.

Elmo Riig / Sakala

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