A rolling investment approach for the stepwise implementation of district heating grids

Abstract

The expansion of district heating (DH) grids represents significant capital investments and requires strategic planning to optimize return on investment over the depreciation time. A critical challenge in DH grid expansion is determining the most economically viable sequence for gradually connecting new subareas – smaller areas in a certain predefined area, for which a plan of district heating grid expansion exists – while considering real-world constraints, such as workforce availability and annual investment limitations.The primary research question addressed in this thesis is: “What is the most economical sequence for expanding district heating networks within a predefined area, given constraints on annual pipeline construction lengths?” This work aims to develop a methodology that optimizes the phased expansion of district heating infrastructure, ensuring profitability while balancing financial and construction constraints.To achieve this goal, an optimization model based on Mixed-Integer Linear Programming (MILP) was developed to simulate and determine the optimal sequence of DH grid expansion. The model takes into account annual cash flow and workforce availability based on which net present value (NPV) and levelized cost of heat (LCOH) are calculated and evaluated. The model was implemented using Python with the CVXPY optimization framework and Gurobi solver. An exemplary case study was conducted on a part of the district heating grid in the Romanian city of Brașov, where different pipeline expansion rates were tested to analyse their economic impact.The results demonstrate that there exists a lower limit for annual pipeline expansion below which the investment is not profitable within the examined timeframe. The NPV analysis indicates that slower expansion leads to delayed profitability, while higher annual expansion rates yield greater long-term financial benefits but require a larger upfront investment. The LCOH results confirm that increasing the expansion rate reduces heating costs due to economies of scale.This research provides a novel contribution by addressing the gap in DH planning literature related to sequential investment under practical constraints. The findings highlight the importance of strategic scheduling of grid expansion to ensure financial viability, offering valuable insights for policymakers, urban planners, and investors in district heating infrastructure.