District energy supplies around 10% of global final energy consumption for heat. As heating and cooling account for more than half of global end-use energy consumption today, this corresponds to around 5% of total energy consumption. District heating and cooling systems offer an efficient, large-scale solution for energy diversification in areas with sufficiently dense demand. By producing heat or cold centrally and distributing it through insulated networks, district energy systems can integrate diverse energy sources - including renewables - optimise demand management at scale, and support coordinated infrastructure planning in urban and industrial settings.

District heating serves more than 600 million people worldwide and global networks extend over more than one million kilometres. The amount of heat delivered through district heating has increased by about 35% since 2010. These systems are embedded in national energy systems across Europe, China, Russia and parts of Central Asia. District cooling is less developed than district heating but is expanding beyond the Middle East into multiple regions. With rising cooling demand and urban density, it can improve efficiency, reduce peak electricity demand and support system integration.

To date, district heating remains largely fossil fuel-based, with around two-thirds of consumption in energy-importing countries, exposing consumers to price volatility and geopolitical supply risks. While efficiency improvements – including the shift to combined heat and power – have reduced emissions intensity, overall fossil fuel use remains high. Coal accounts for around half of global district heat production, with natural gas contributing close to one-third, reflecting continued reliance on legacy infrastructure and established supply chains, particularly in China and Eastern Europe. Existing networks provide a platform for fuel switching and the integration of renewables and waste heat, making district energy a key lever to advance, energy security and system efficiency and emission reductions.

Renewables currently supply just 7% of global district heat, concentrated in a small number of countries with strong policy support, favourable resources and coordinated planning. This contrasts sharply with the rapid scale-up of other clean energy technologies. Over the past five years, global solar PV capacity has more than quadrupled, wind capacity has nearly doubled, and electric car sales have surged – all while renewables use in district heating has remained stable.

Without policy changes, renewable district heat is projected to grow by only around 10% to 2030. This highlights a major untapped opportunity to expand renewables in both existing and new district energy systems, supporting diversification and decarbonisation of heat supply. In existing networks alone, renewable and waste heat could increase up to tenfold without major infrastructure investment. Under existing policies, the number of district heating consumers is set to increase by around 8% by 2030, reaching approximately 650 million worldwide. Yet the expansion potential remains significant, particularly in dense urban areas: over 600 million people live in cities with substantial heating demand but no access to district heating. Experience in countries such as Denmark shows that, in some cases, district heating can be viable beyond the densest urban areas.

Several technologies needed to decarbonise district energy are commercially available and increasingly cost-competitive. District energy systems can leverage economies of scale that are not viable at the individual building level. Large-scale high-efficient heat pumps are competitive where suitable low-temperature sources are available, networks can operate at lower supply temperatures, and electricity-to-gas price ratios are favourable. Solar thermal and geothermal can provide low-cost heat where land, resources, financing and risk-sharing frameworks align; and sustainable bioenergy continues to underpin most systems that already operate at high renewable shares.

Thermal storage in district energy systems enables cost-effective system integration, offering capabilities few other technologies can match. By shifting heat across hours, days or even seasons, storage facilitate the integration of variable renewables. This is evident in solar district heating: Denmark pairs large solar thermal fields with seasonal storage, while projects in Germany and the Netherlands combine solar thermal, storage and waste heat to extend supply beyond summer. Waste heat offers significant but underutilised potential as well: large volumes of low-temperature heat are released from urban and industrial sources including data centres. While capture is technically straightforward, deployment depends on local conditions, including proximity to demand, temperature compatibility and connection costs.

The main challenges are not technological, but economic and regulatory, and can be addressed through targeted policy action. High upfront capital requirements and long payback periods constrain investment, while high operating temperatures and ageing network infrastructure limit the integration of low-temperature renewable sources. Price signals, including unfavourable electricity-to-gas price ratios, can discourage electrification. In addition, frameworks to value and integrate third-party heat remain underdeveloped, and insufficient planning allows individual heating choices to undermine network efficiency. Addressing these challenges requires coordinated policy and system-level approaches alongside technical solutions.

Across key district heating regions, renewables and waste heat already displace over 190 million barrels of oil equivalent of imported fossil fuels each year, largely driven by Europe. In Northern Europe, import dependence in district heating is currently around 14%, and about 25% in the Baltic region. Without renewables, it would be more than fourfold and fivefold higher, respectively.

Strategic implications vary across systems. Networks reliant on imported natural gas, notably in parts of Central and Western Europe, are most exposed to supply shocks, while systems based on domestic fossil fuels have lower import dependence but higher emissions. In contrast, several Northern European countries have diversified towards bioenergy, waste heat and heat pumps, reducing both import dependence and emissions and showing that energy security and decarbonisation can advance together.

Electrification can enhance energy security in district energy systems. As power systems decarbonise, heat pumps and electric boilers reduce reliance on fossil fuels and, with thermal storage, enable integration of variable renewables and peak load shifting. However, benefits depend on system design: electricity tariffs can raise cost exposure, waste heat use is location-specific, and fossil capacity is likely to remain for peak and backup supply during the transition.

Closing the gap between district energy's potential and its current trajectory requires a more coordinated and comprehensive policy approach than is in most jurisdictions today. In jurisdictions where untapped potential exists, policy makers need to move district energy systems up the energy policy agenda by making the role of renewables and efficiency more prominent in national energy planning while focusing in four main priorities:

Plan. Heating and cooling planning should be a statutory element of urban and energy strategy, not an optional exercise. Demand mapping, zoning and clear designation of network areas align utilities, municipalities, building owners and investors around long-horizon commitments. In established systems, planning supports temperature reduction and renewable integration; in emerging markets, it helps identify where district energy is viable and where decentralised solutions are more appropriate.

Modernise. Most existing networks need investment to lower supply temperatures, reduce losses, deploy digital controls and support building renovations that enable low-temperature operation. Lower temperatures facilitate the integration of heat pumps, waste heat and solar thermal while improved building performance ensures system compatibility. Tariff and metering reform are also critical: consumption-based pricing strengthens efficiency incentives, provided that affordability measures protect vulnerable consumers.

Electrify and integrate. Electricity price structures, capacity market rules and waste heat valuation frameworks should reflect the services district energy can provide. Recognising thermal storage and large-scale heat pumps as flexibility assets in electricity markets, with appropriate remuneration, represents a high-impact policy opportunity.

Finance. District energy systems are capital-intensive and long-lived, yet often lack access to suitable financing frameworks. Financing mechanisms such as concession models, regulated returns, blended finance and dedicated funds for network rehabilitation can help mobilise capital, while public support for feasibility studies and project preparation is critical in markets with limited project pipelines.

Policy priorities vary by market maturity. Advanced renewable district heating markets should focus on optimisation, temperature reduction and supply diversification; fossil-dominated systems on efficiency, fuel switching and regulatory reform; and emerging markets on planning, institutional capacity and bankable project pipelines. Across all contexts, stronger policy action is needed to unlock district energy’s full contribution to energy security, emissions reduction and system flexibility.