A dynamic price model based on levelized cost for district heating

Abstract

District Heating (DH) is facing a tough competition in the market. In order to improve its competence, an effective way is to reform price models for DH. This work proposed a new dynamic price model based on the levelized cost of heat (LCOH) and the predicted hourly heat demand. A DH system in Sweden was used as a case study. Three methods were adopted to allocate the fuel cost to the variable costs of heat production, including (1) in proportion to the amount of heat and electricity generation; (2) in proportion to the exergy of generated heat and electricity; and (3) deducting the market price of electricity from the total cost. Results indicated that the LCOH-based pricie model can clearly reflect the production cost of heat. Through the comparison with other market-implemented price models, it was found that even though the market-implemented price models can, to certain extent, reflect the variations in heat demand, they cannot reflect the changes in production cost when different methods of heat production are involved. In addition, price model reforming can lead to a significant change in the expense of consumers and consequently, affect the selection of heating solution.