7 I NDIVIDUAL HOUSEHOLD HEATING SYSTEMS , FUEL CELLS AND ELECTROLYSERS
7.6 E VALUATION OF FEASIBILITY AND A NEW PUBLIC REGULATION SCHEME
Both HP systems have marginally lower socio‐economic costs than gas boilers and lower costs than wood boilers and the two micro‐FC‐CHP alternatives. In the feasibility studies, the fossil fuel opportunity costs of using limited resources were not included, such as natu‐
ral gas in boilers only producing heat, instead of in CHP plants producing both heat and power.
The geothermal HPs have the lowest CO2 emissions. Here, it is assumed that the alterna‐
tives analysed have opportunity costs. A CO2 emission could be allocated to the use of wood or biogas in boilers. As an example, wood boilers can reduce emissions by around 900 Mt CO2, when compared to natural gas boilers. If wood is used in CHP plants instead, it can replace approx. 1,800 Mt CO2 from coal. By using wood in boilers instead of in CHP plants, a CO2 opportunity cost of around 900 Mt tons CO2 can be defined. The situation is similar for natural gas boilers, which could allocate CO2 emission, including lost CO2 oppor‐
tunity costs, by not using natural gas in CHP plants; thus, also replacing coal CHP.
When compared with the micro‐FC‐CHP and boiler alternatives, the HP systems analysed for 300,000 households have the following advantages:
a) The lowest socio‐economic costs; although in the case of geothermal HP, these costs are only marginally lower than those related to natural gas boilers.
b) For geothermal HP, 40 to 50 per cent CO2 emissions compared to natural gas boilers, approx. 80 per cent of the emissions from natural gas micro‐FC‐CHP, and 10 per cent of the emissions from hydrogen micro‐FC‐CHP.
c) They have future possibilities for further reducing fuel use and CO2 emissions by in‐
troducing larger heat storages. The socio‐economic value of this has not been quan‐
d) Compared with other fossil fuel alternatives, HPs reduce the dependence on fossil fuels by 30 to 40 per cent. The socio‐economic value of this has not been quantified here.
e) Compared with other fossil fuel alternatives, HPs decrease the emissions to air from the conversion of fuels. The socio‐economic value of externalities connected to envi‐
ronmental effects or health, etc., has not been quantified here.
The socio‐economic evaluation of the results concludes that the HP systems have the larg‐
est advantages and that geothermal HPs provide the most fuel‐efficient solution with the highest reduction in CO2 emissions.
In Fig. 27, current Danish taxes and levies (2008) are included in the evaluation made in the market exchange analyses previously presented. Under present market and taxation condi‐
tions, the geothermal HP cannot compete with natural gas or wood boilers.
-100 100 300 500 700 900 1,100 1,300
Boiler (Ngas/biogas)
Boiler (Wood) Geothermal heat pump
Air/water heat pump
Micro FC-CHP (Ngas/biogas)
Micro FC-CHP (H2)
M. EUR/year
Total annual business economic cost (oil-eq 120$/bbl) incl. 2008 taxes of providing 4.5 TWh of house heating in a BAU 2030 CHP energy system
2008 taxes Net elect. trade CO2-quotas Fuel Fuel handling O&M
Investment (6%) Total socio-economic costs
Fig. 27, Total annual business‐economic costs of the CHP energy system supplying 300,000 houses with heat, including Danish 2008 fuel and electricity taxes. The socio‐economic costs of the systems are also illustrated for comparison.
This inability to compete is due to these factors:
a) The geothermal HP carries the highest investment costs of the alternatives, which make this investment very risk sensitive.
b) The geothermal HP has a high investment share in pipes with a very long technical lifetime. This makes heavy demands on the financial system. It requires an incentive to make long‐term investments and the opportunity to take out loans for 30 years for these heating systems, as is the case of investments in house improvements.
c) In the Danish tax system, the HP alternative has a higher taxation of “fuel used” than the other alternatives. Wood for boilers has no taxation.
When considering the current taxation, HPs are taxed much higher per unit of fuel used than natural gas boilers. In Table 4, the taxes per KWh for HP have been converted into taxes per MJ fuel. The large difference between the fuel taxes linked to boilers and those linked to the HP system is based on the fact that, for HP, the tax is levied on electricity, whereas the tax of natural gas boilers is levied on fuel. If, for instance, the HP system had been 20 per cent less efficient, the tax per MJ fuel would have been 20 per cent lower. As a consequence, no reward is given for the fuel efficiency of the HP system. Also, there is no tax on biomass fuels which are even less efficient than gas boilers.
Geothermal HP Air/water HP Ngas boiler Wood boiler
2008 taxation 0.086 €/KWh 0.086 €/KWh 0.0076 €/MJ ‐
2008 taxation related to
fuel efficiency 0.023 €/MJ 0.022 €/MJ 0.0076 €/MJ ‐ New taxation rewarding
fuel efficiency (first step)
0.028 €/KWh (0.0076 €/MJ)
0.028 €/KWh
(0.0076 €/MJ) 0.0076 €/MJ ‐ Table 4, Present taxation, taxation connected to fuel efficiency and suggestions
for the first step of a new taxation for the HP and boiler heating systems.
The present tax system causes at least four problems. First, it promotes wood and natural gas boilers, even though HP systems carry lower socio‐economic costs. Secondly, it results in socio‐economic allocation losses, as there is a high taxation on renewable energy if it is wind power, but no taxation if it is, for instance, imported biomass. Moreover, taxation at the electricity use levels gives no direct incentive to reduce fuel use for electricity produc‐
tion. Thus, the tax system for individual house heating does not in general support the de‐
velopment of fuel‐efficient energy systems, when these use electricity. The last problem mentioned here is the fact that there is no scarcity and CO2 tax on the “inefficiency oppor‐
tunity costs” created by using limited resources, like natural gas and wood in boilers, in‐
stead of more efficient CHP systems.
A new public regulation scheme should solve these problems and thus give incentives to install socio‐economically feasible and fuel‐efficient systems as well as systems with low
CO2 emissions. As the first step, a tax reform should have the same fuel tax level for HP as
for natural gas boilers, as listed in Table 4. This step is called a minimum step, since it does not involve any extra payment to the HP system as a compensation for its ability to inte‐
grate more wind power or any tax on the opportunity cost of the fuel use and CO2 emis‐
sions of using boilers instead of CHP. These two factors should be included in the second step.
In the first step, no tax on wood for wood boilers is included, and the tax on electricity used
systems are installed, such low taxation on HP should only be given to licensed systems. A licensed system could have the following characteristics:
1. The HP system should supply 100 per cent of the heat and hot water demand not supplied by other renewable heating solutions.
2. A metering system should monitor the COP on an hourly basis and calculate the av‐
erage COP monthly. The monthly tax is calculated as fuel taxation linked to the av‐
erage fuel use of the month. This means that very efficient HP systems will have a lower taxation than less efficient HP systems.
3. If the HP owner purchases a share in a wind turbine, the production amount and profile of the share will be known. The owner of the HP should, therefore, pay zero tax in periods when the wind turbine share produces electricity. The remaining time, the taxation is calculated according to 2.
The business‐economic results of implementing the first step of such a taxation system are illustrated in Fig. 28. The first step in such a reform promotes a better accordance between socio‐economic costs and market costs, and more HP systems should be installed due to such a reform.
-100 100 300 500 700 900 1,100 1,300
Boiler
(Ngas/biogas) Boiler (Wood) Geothermal
heat pump Air/water heat
pump Micro FC-CHP
(Ngas/biogas) Micro FC-CHP (H2)
M. EUR/year
Total annual business economic cost (oil-eq 120$/bbl) incl. new taxes of providing 4.5 TWh of house heating in a BAU 2030 CHP energy system
New taxes Net elect. trade CO2-quotas Fuel Fuel handling O&M Investment (6%) Total socio-economic costs
Fig. 28, Total business‐economic costs of supplying 300,000 houses with heat, including the first step in a tax reform. The socio‐economic costs of the system are also illustrated for comparison.
In the second step of a tax reform, the fuel use and CO2 emission opportunity costs should be included in order to increase the tax on natural gas and biomass used in boilers. The first stage should be implemented as soon as possible and the second step should be decided in Parliament. It is suggested that the second step is implemented e.g. five years from now.
Hence, this could introduce a reward and an incentive to efficiently use natural gas and biomass in the tax system.