Lower heat tariffs with flexible gas engines

In recent years, district heating has undergone a dramatic transformation. Once seen as unavoidable cost centres, these systems are now being reimagined as potential revenue drivers. Industry research highlights how combined heat and power (CHP) solutions powered by flexible gas engines can unlock multiple income streams, revolutionising the financial outlook of district heating while supporting Europe’s energy transition.

Why flexible gas engines make sense

Internal combustion engines (ICE) stand out for their fast start-up times, rapid ramping capabilities, and fuel efficiency – even at partial loads. These qualities deliver unparallelled operational flexibility and significantly improved profitability. Market studies across Europe reveal that for modern district heating companies, heat sales often represent only a small share of total revenue. Instead, participation in both electricity markets and grid services forms a robust financial foundation.

Flexibility meets market volatility

Today’s electricity markets are unpredictable because of increasing volatility. Flexible ICE CHP systems are uniquely positioned to thrive in volatile markets. Their ability to hedge against downturns and seize price peaks is critical in a dynamic environment. These engines enable district heating operators to capture multiple revenue streams while ensuring affordable, reliable heat for municipalities.

Key revenue sources with flexible engines include:

• Electricity market participation: Operators can benefit from short-term price fluctuations and long-term contracts.
• Ancillary services: Providing essential grid services such as automatic frequency restoration reserve (aFRR) adds extra revenue.
• Capacity market: As renewable penetration grows, balancing capacity becomes vital. CHP plants can supply on-demand power to maintain grid stability.

From theory to practice: real world examples

Across Europe, case studies demonstrate the benefits of revenue stacking.

In Budapest, Hungary, Alteo, operating the FOTAV heating system, combines gas cogeneration units with battery storage. This set-up allows ICEs to deliver aFRR services with a 30-second start-up and BESS extends the ability to participate in frequency containment reserve (FCR). These services now outweigh heat and electricity sales in the company’s revenue structure.

In Skagen, Denmark, a municipal ICE CHP plant contributes to just 24% of the total heat but due to the participation in through electricity and aFRR markets the plant is generating disproportionately high revenue. Additional heat comes from heat pumps, wastewater recovery and electric boilers when power is cheap. This strategy allows the company to pass extra profit to customers through lower tariffs.

The future of district heating

Transforming district heating systems from cost centres into profit generators is more than a financial tactic – it’s a cornerstone of the energy transition. Flexible gas engine CHP systems enable operators to:

• Diversify revenue streams and improve financial performance;
• Support grid stability in renewable heavy systems;
• Hedge against market volatility and fuel price fluctuations.

Germany’s ambitious plan to install over 25GW of hydrogen ready capacity, of which half are dedicated to CHP plants, underscores this trend. Paired with hydrogen pipelines and capacity market mechanisms, these developments signal a future where flexibility is key.

Revenue stacking through flexible gas engine CHP systems represents a paradigm shift in district heating. By turning these systems into dynamic revenue generators, operators can strengthen financial performance, stabilise grids and accelerate the transition to a sustainable energy mix. In an evolving market, adaptability isn’t just an advantage – it’s essential.

About the author

About the company

Wärtsilä Energy is leading the transition towards a 100% renewable energy future. We help customers and the power sector accelerate decarbonisation with market-leading technologies: flexible, future-proof engine power plants, energy storage and optimisation technology, and lifecycle services. We have delivered 79 GW of power plant capacity and 130+ energy storage systems in 180 countries.

https://www.wartsila.com/energy