How a very small part of the Danish DH grid became owned by a private company.
The short version of the story on how a very small part of the Danish DH grid became owned by a private company.
During the formation in 2005 (or 2006) of the company DONG Energy as we know it today E.on (as well as Vattenfall) were introduced to the Danish heat and power sector. Before, DONG existed as a government owned oil and gas company; they were established to take care of bringing ashore and distributing via a major transmission line the gas from the Danish sector in the North sea. A consultancy report stated that including power production and distribution into the value chain of DONG would greatly increase its value thus resulting in a higher profit when selling off 49 %. Thus a merger with the power company ELSAM located in Jutland, was negotiated with the owners – municipalities in Jutland/Funen. ELSAM had just recently bought the power distribution company NESA on Sealand. In order to increase the price of their shares, some of the municipalities decided to sell to Vattenfall instead of DONG. Just suddenly, also the power company E2 (on Sealand) was involved in this ‘ugly’ business where municipalities let go of dead capital (their silver shrine).
Due to the Heat Supply Act, one of the (public) conditions for this merger to be accepted, was that a certain amount of DH capacity (production and grid) was sold to a third party. This capacity was by and large something that had been established by NESA when it was a (regulated) power distribution company. Some of the capacity went with Vattenfall and some was sold to E.on. At that time, the gas price was suitably low compared to the electricity prices on NordPool, so there was a reasonable incentive to run these plants. One tiny detail that (maybe) was overlooked at this time was that the gas supplier to these plants was actually DONG Energy – the power competitor!
In the years to follow the gas price has gone up and the NordPool prices hasn’t followed since it is more or less dictated by the coal/oil price, so now the heat consumers on those gas fired plants pays the deficit. The operator is not allowed to make a profit directly but they can to a reasonable extent (whatever that is) earn some money on the additional work (maintenance, advice etc.) associated with the operation of the plant. And the accounts are split nicely – one for the engine buying gas and selling the power and the heat to the grid, and one for the heat grid buying the heat and selling it again. In general for these privately owned heat grids, the operator has very little incentive (except for image) to spend money on optimizing the operational performance of both the engine and the heating grid; the consumers always have to pay. In one of those privatized grids I have seen an almost 50 % heat loss from a 15-20 year old network. Why improve?
I fully agree with Marko that competition is valuable; but in a liberal market you should be aware of that companies: 1. Can be sold, 2. Can go bankrupt, 3. Can have sold out of its products, and 4. Sets prices on products also according to the value for the customer. This is fine with me, except when it comes to delivery of society infrastructure products like water, power, heat, sewage, roads, rails neither of the four are particular nice. An example, in Denmark we spend around 2 % of GNP on producing power – the societal value of having access to a stable electrical power supply is most likely around 70 % (or even higher) – thus we are willing to pay a very high price for electricity. When buying batteries (mobile power) we pay of the order 300 EURO pr. kWh without a blink of the eyes. Giving similar thought to the sewage system: What would you as a customer be willing to pay for a robust operation of the sewage system – a think a private company can make a huge profit there if deregulated.
Med venlig hilsen
MSc Engineering, PhD.
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