From Brussels - Heating and cooling already account for half of Europe’s energy use, and most of that demand is still met by fossil fuels. At the same time, an amount of heat equivalent to 30% of total final energy consumption is simply wasted – a volume that “could largely cover all our needs for space heating and cooling if it were recovered and captured,” as Margot Pinault, policy officer at the EU’s DG ENER, reminded participants at the workshop Strategic Directions for the Heating & Cooling Transition.

The workshop, hosted on 26 February in Brussels and organized by Euroheat & Power, the international network for district energy that promotes sustainable heating and cooling in Europe and beyond, provided a reality check on challenges and the need for more swift actions. District heating and cooling (DHC) – centralised networks that deliver hot or chilled water from a common plant to many buildings – are one of the key solutions to tap this potential and replace individual fossil-fuel boilers. According to Aalborg University’s Heat Roadmap Europe study, DHC will need to reach about 55% of the heating and cooling market by 2050 if the EU is to fully decarbonise the sector in a cost‑effective way, up from roughly 13% today.

The workshop brought together nine LIFE projects (the European Union fund entirely dedicated to the environment), among them Support DHC, EnableDHC, Green Heat Life, IncentEU, and HeatMineDH, with more than 50 pilot sites across Europe testing technologies from waste heat recovery to low-temperature renewables. Support DHC alone works with 11 “frontrunner” systems in six countries and 27 followers, helping operators draw up investment plans and transformation pathways towards decarbonisation.

EU policies and national perspectives

Pinault’s keynote set the policy frame. Renewables in heating and cooling reached 26.7% in 2023, growing by only 0.5 percentage points per year. Worse, “biomass represents 80% of renewable energy in heating”, a model that “cannot obviously be replicated everywhere (…) and should not create too much stress on forestry resources”. The Commission’s answer is a mix of demand reduction, local clean heat sources and circularity: capturing waste heat from industry and data centres, scaling up geothermal and solar thermal, and using district heating and cooling (DHC) networks as flexible infrastructure coupled with the power system

 The forthcoming Heating and Cooling Strategy, expected around mid‑May, dovetails with the Electrification Action Plan and tightens links with the Energy Efficiency Directive and the Renewable Energy Directive, including dynamic criteria for “efficient” DHC and binding annual increases in renewables.

During the workshop, national perspectives showed how uneven the transition currently is. In Germany, renewables cover “slightly above 50” of electricity but “just about 15 for the heating market”, even if one third of heat in networks already comes from “climate neutral sources such as renewables and waste heat”, explained Johannes Dornberger from AGFW, the leading German industry association representing the interests of the district heating, cooling, and combined heat and power sectors. Progress in recent years has been driven by new legislation but also undermined by abrupt policy shifts and speculation around gas boiler rules, which recently have created uncertainty among operators. Lithuania sits at the other end of the spectrum: renewables already supply about half of electricity and 81% of district heating, with gas down to 10% and the rest from municipal waste, and a national target of 90% renewable DHC by 2030.

Yet Vytautas Dziuve from LSTA, the Lithuanian District Heating Association, asked the uncomfortable question: “What is the future status of biofuel? Will it continue to be considered a sustainable and renewable energy source?” This should be considered in the context that major cities are “totally dependent on solid biomass”. Finland offered a different story, meanwhile, as Kaneli Seppanen from Finnish Energy explained. Decades of security-of-supply policy and a diversified power mix – including new wind power and the much-delayed Olkiluoto 3 nuclear reactor, which started generating “12 days early” during the energy crisis – allowed the country to cut Russian fossil imports rapidly, with politicians “trusting the market” rather than prescribing specific technologies.

Beyond technology: the governance gap

Beyond technology, the workshop exposed a governance gap and some emerging best practices. Nicolas Raimondi, EU Policy and Project Management at Energy Cities, told Renewable Matter: “In Germany, there is a technical centre at the federal level that provides training and technical support to the municipalities. At the end of the day, this means that all the municipalities will work in the same direction in all of Germany, and you will be able to compare the plans.” In the Netherlands as well, a strong national methodology for mapping heating and cooling potential and a programme that requires cities to work at a neighbourhood level have helped align heat planning with building renovation and broader urban transitions.

By contrast, Joana Fernandes, from ADENE, the Portuguese Energy Agency, described Member States as “in the very early stage of the transpositions” of the latest directives, with little coherence between legal texts and a chronic shortage of skills and data at the city level. Raimondi of Energy Cities – which offer a tracker on the current state of play for local heating and cooling plans for each EU country – added that the new obligation on local heat planning has so far been fully transposed by only a handful of countries. The gas package, meanwhile, requires decommissioning strategies for gas grids to be clearly linked to those same plans to avoid financing clean heat infrastructure and maintaining fossil‑based networks in parallel.

Financing the transition: from investment gap to bankable pipelines

If policy and planning are one bottleneck, finance is the other. Gabriele Pesce, Innovation & Sustainable Finance Director at Euroheat & Power, recalled recent analysis estimating that “we need around €1.44 trillion to decarbonise completely by 2050”, with an annual investment gap of about €149 billion in the buildings sector and €30–40 billion needed every year for district heating and cooling. “We have the funds. The problem right now is money may be ready for DHC, but is district heating and cooling ready for the money?” he asked.

Giulia Conforto, Senior Researcher at e-think energy research and representing the Support DHC project, called this the “investment readiness gap”. Many operators are developing promising projects but fail to translate them into “detailed technical assessment” and “detailed analysis of the heat demand in their area”. Feasibility studies are often shallow, demand mapping is patchy, and internal capacity is weak, especially in local administrations. Support DHC responds with three pillars: a technical foundation built around a toolkit of GIS-based planning methodologies, economic viability tools, and implementation capacity through staff training, stakeholder engagement and peer learning across frontrunner and follower systems.

From the financiers’ side, Thomas Miller, Executive Director at Hamburg Commercial Bank, explained that in project‑finance structures, the bank’s only security is “the cash flows of the project”, determined by volumes and prices over decades. Projects are rejected when the model shows that “cash flows available for debt service” are unlikely to repay the loan or when revenues are not backed by long‑term contracts. Public funding is designed to bridge part of that risk. Ugo Miretti from the European Climate, Infrastructure and Environment Executive Agency (CINEA) described the EU Innovation Fund, which channels revenues from the Emissions Trading System into first‑of‑a‑kind low‑carbon projects, from deep geothermal plants with closed loops at 4,500 metres feeding district heating to data‑centre waste‑heat recovery and large‑scale thermal storage.

In conclusion, the workshop pointed to three converging directions, as summarised by Nicholas Dodd, Senior Project Advisor at the Sustainable Energy Finance Association (SEFA). “First, we must treat DHC as critical infrastructure, aggregating local schemes into regional platforms that can standardise studies and reach the ticket sizes institutional investors expect. Second, integrate heat and cooling planning with gas‑grid decommissioning, electrification and climate adaptation, especially in heat‑wave‑prone Southern cities. Third, close the investment‑readiness gap by equipping municipalities and operators with the technical and financial literacy needed to negotiate with banks and EU funds.”

This content is produced thanks to the support of sponsors

Cover: photo by Euroheat & Power