Maarit Jäntti Decarbonisation of District Heating System Case: District Heating System in the City of Vaasa Vaasa 2025 School of Technology and Innovations Master of Science in Technology Smart Energy 2 UNIVERSITY OF VAASA School of Technology and Innovations Author: Maarit Jäntti Title of the thesis: Decarbonisation of District Heating System : Case: District Heating System in the City of Vaasa Degree: Master of Science in Technology Discipline: Smart Energy Supervisors: Mika Luoto (EPV Energia Oy), Hannu Laaksonen (University of Vaasa Year: 2025 Pages: 88 ABSTRACT: In this thesis, methods to optimize the heating system in the Vaasa region and reduce carbon dioxide emissions are studied. The work presents already existing assets in Vaasa, such as the combination of electric boilers and thermal energy storage, which has proven effective in opti- mizing energy systems. This combination supports carbon neutral heat production and provides balancing services to the electricity grid by participating in different energy markets. Vaasa's CHP plants are also presented, and alternative fuels are considered to make the heating sector in the Vaasa region carbon neutral. Sector coupling mechanisms are essential for balancing consumption and production. Sector coupling refers to the integration and optimization of different energy forms to achieve a more sustainable and efficient energy system. When renewable energy production is high and de- mand is low, electric boilers can use the excess electricity to produce heat, which can be stored for future use. This approach helps stabilize electricity prices and supports the integration of renewable energy sources. In Vaasa, they have made significant progress in improving heat production. Continuous devel- opment is essential, and further improvements are needed to achieve carbon neutrality. This thesis explores various options such as developing the district heating network by combining heating and cooling solutions into bidirectional district heating and demand response in heating. Technologies such as heat-to-power, small nuclear heat, waste heat, and heat pumps are also potential alternatives. The research problem addressed in this thesis is the decarbonisation of the heating sector in the Vaasa region. The theory and key concepts include sector coupling, renewable energy integra- tion, and carbon capture technologies. The methods used involve analysing existing assets, eval- uating alternative fuels, and exploring new technologies. In conclusion, the decarbonisation of the heating sector in the Vaasa region requires a multifaceted approach and continuous devel- opment of existing assets. This thesis provides insights into the methods and technologies that can be used to achieve carbon neutrality in the heating sector in Vaasa. KEYWORDS: sector coupling, renewable energy, electric boilers, thermal storage, decarboni- sation 3 VAASAN YLIOPISTO School of Technology and Innovations Tekniikan ja innovaatiojohtamisen yksikkö Työ tekijä: Maarit Jäntti Työn nimi: Decarbonisation of District Heating System : Case: District Heating System in the City of Vaasa Tutkinto: Diplomi-insinööri Koulutusohjelma: Smart Energy Työn ohjaajat: Mika Luoto (EPV Energia Oy), Hannu Laaksonen (Vaasan yliopisto) Vuosi: 2025 Sivumäärä: 88 TIIVISTELMÄ: Tässä opinnäytetyössä tutkitaan keinoja Vaasan alueen lämmityssektorin hiilidioksidipäästöjen vähentämiseen ja poistamiseen. Työssä on esitelty Vaasassa jo olemassa olevia ratkaisuja kuten sähkökattiloiden ja lämpöenergiavaraston yhdistelmä, joka on osoittautunut tehokkaaksi ener- giajärjestelmien optimoinnissa. Tämä yhdistelmä tukee hiilineutraalia lämmöntuotantoa ja tar- joaa myös tasapainotusta sähköverkkoon osallistumalla eri energiamarkkinoille. Myös Vaasan CHP-laitokset on esitelty ja vaihtoehtoisten polttoaineita on mietitty, jotta saataisiin Vaasan alu- een lämmitys sektori hiilineutraaliksi. Sektorikytkentämekanismit ovat olennaisia kulutuksen ja tuotannon tasapainottamisessa. Sek- torikytkentä tarkoittaa eri energiamuotojen yhdistämistä ja niiden käytön optimointia, jotta saa- vutetaan ympäristöystävällisempi ja tehokkaampi energiajärjestelmä. Kun uusiutuvan energian tuotanto on korkealla ja kysyntä matalalla, sähkökattilat voivat käyttää ylimääräisen sähkön läm- mön tuottamiseen, joka voidaan varastoida tulevaa käyttöä varten. Tämä lähestymistapa auttaa vakauttamaan sähkön hintoja ja tukee uusiutuvien energialähteiden integrointia energiajärjes- telmään. Vaasassa on tehty merkittävää edistystä lämmöntuotannon parantamisessa. Jatkuva kehitystyö on tärkeää ja lisäparannuksia tarvitaan, jotta ilmastopäästöt saadaan poistettua järjestelmästä. Tässä opinnäytetyössä tutkitaan eri vaihtoehtoja kuten kaukolämpöverkon kehittämistä yhdistä- mällä lämmitys- ja jäähdytysratkaisut kaksisuuntaiseen kaukolämpöverkkoon sekä kysyntäjous- toon lämmityksessä. Myös teknologiat kuten heat-to-power, pienydinlämpö, hukkalämpö ja läm- pöpumput ovat potentiaalisia vaihtoehtoja. Tämän työn tutkimusongelma on Vaasan alueen lämmityssektorin hiilidioksidipäästöjen poista- minen. Teoria ja keskeiset käsitteet sisältävät sektorikytkennän, uusiutuvan energian integroin- nin ja hiilidioksidin talteenotto. Työssä käytetyt menetelmät sisältävät olemassa olevien ratkai- sujen analysoinnin, vaihtoehtoisten polttoaineiden arvioinnin ja uusien teknologioiden tutkimi- sen. Vaasan alueen lämmityssektorin hiilivapauttaminen vaatii monitasoista lähestymistapaa, joka sisältää olemassa olevien ratkaisujen jatkuvan kehittämisen. Tämä työ antaa tietoa mene- telmistä ja teknologioista, joita voidaan käyttää Vaasan lämmityssektorin hiilineutraaliuden saa- vuttamiseksi. AVAINSANAT: sektorikytkentä, uusiutuva energia, sähkökattilat, lämpövarasto, hiilineutraalius 4 Contents 1 Introduction 11 1.1 Motivation 13 1.1.1 Decarbonisation of heating sector 13 1.1.2 Global megatrends 14 1.1.3 The climate goals of EU 14 1.2 Overview of the thesis 15 2 Commissioner EPV Energia Oy and the heating sector in Vaasa and Finland 16 2.1 EPV Energia Oy 16 2.1.1 The structure and business areas of EPV Group 17 2.1.2 Energy production of EPV 18 2.1.3 The flexibility solutions of EPV 21 2.1.4 Upcoming development projects of EPV 22 2.2 Heating sector in Finland 24 2.2.1 Guarantee of Origin 25 2.2.2 District heating in Finland 26 2.2.3 District cooling 28 2.3 Heating sector in Vaasa region 28 2.3.1 District heating in Vaasa 29 2.3.2 Vaasan Voima Oy 31 2.3.3 Westenergy 35 2.3.4 Pått wastewater treatment plant -heat pump 36 3 Theory 37 3.1 Energy markets 37 3.1.1 Electricity markets 38 3.1.2 The Nordic energy system 38 3.1.3 Electricity markets in Finland 39 3.2 Sector coupling 41 3.2.1 Definition of sector coupling 43 3.2.2 The main dimensions of sector coupling 44 5 3.2.3 Power to X (P2X) and Power to Gas (P2G) 45 3.2.4 Power to heat 46 3.2.5 Heat-to-power 47 3.2.6 Power to cooling 47 4 Methodologies and technologies for decarbonisation of the heating sector 48 4.1 Energy efficiency 48 4.1.1 Future district heating network 49 4.1.2 Combined production of district heating and cooling 50 4.1.3 Demand response for heating 51 4.2 Improvements for CHP-plants 53 4.2.1 Alternative fuels for CHP-plants 53 4.2.2 Carbon capture utilisation and storage 55 4.3 Waste heat 56 4.3.1 Cogeneration and Flue Gas Heat Recovery 58 4.4 Heat pumps 58 4.5 Heat accumulators 60 4.5.1 Sensible heat storage (SHS) 60 4.5.2 Latent heat storage (LHS) 60 4.5.3 Thermochemical heat storage (TCS) 61 4.6 SMR and nuclear heat 61 4.7 Geothermal Heat 61 4.8 Examples of decarbonisation of the heating sector in other countries and cities 62 4.9 Evaluation of the methodologies and techniques 64 5 Towards a carbon neutral district heating system in Vaasa 67 5.1 Challenges of the existing assets 68 5.2 Proposed strategy for achieving carbon neutrality in the Vaasa region 70 6 Conclusion 72 6.1 Recommendations for further research 73 6 References 74 Appendices 86 Appendix 1. The promoting mechanisms for the use of renewable energy and emission reductions 86 Appendix 2. EU funding for climate actions 87 Appendix 3. Terminology of the electricity exchange 88 7 Figures Figure 1. The structure and business areas of EPV. 18 Figure 2. The electricity generation of EPV in 2024. 19 Figure 3. The flexibility solutions of EPV in 2025. 22 Figure 4. The heating buildings in Finland in 2022. 25 Figure 5. Development of electric boilers in district heating. 27 Figure 6. Vaasa heating sector. 29 Figure 7. Vaasa district heating in 2024. 30 Figure 8. District heating in Finland in 2024. 30 Figure 9. Vaasan Voima fuels 2023. 32 Figure 10. Vaasan Voima Fuels 2024. 32 Figure 11. Thermal storage of Vaasan Voima Oy. 35 Figure 12. The reserve markets of Fingrid Oyj. 41 Figure 13. Benefits of sector coupling. 43 Figure 14. The main dimensions of sector coupling. 45 Figure 15. Example of waste heat sources. 57 Figure 16. The advantages of thermal storage. 68 8 Tables Table 1. The five generations of district heating systems. 50 Table 2. SWOT-analysis of technologies for decarbonisation of heating sector. 65 9 Abbreviations CCS Carbon Capture Storage CCU Carbon Capture Utilisation CCUS Carbon Capture Utilisation and Storage CH4 Methane CHP Combined Heat and Power CO2 Carbon dioxide DH District heating DHC District heating and cooling DHW Domestic hot water DSO Distribution System Operators EU European Union ETS Emissions Trading System GWh Gigawatt-hours H2P Heat to Power MWh Megawatt-hours MWp Megawatt peak NOx Nitrogen oxides P2C Power to Cooling P2L Power to Liquids P2G Power to Gas P2H Power to Heating P2X Power to anything 10 RES Renewable energy source TES Thermal energy storage TSO Transmission System Operators TWh Terawatt-hours VRE Variable renewable energy 11 1 Introduction Human activities such as burning fossil fuels, deforestation, and livestock farming in- crease significantly greenhouse gas emissions such as CO2, CH4, NOx, and fluorinated gases enhancing the greenhouse effect and leading to global warming. The 2010s were the warmest on record, with global temperatures 1.1 °C above pre-industrial levels. Hu- man-induced warming is rising at 0.2 °C per decade. To prevent severe environmental and health impacts, global warming needs to keep well below 2 °C, ideally limiting it to 1.5 °C. Reducing emissions is crucial for slowing global warming and achieving net-zero CO2 emissions. The EU prioritizes both mitigating climate change and adapting to its ef- fects, pointing out the urgent need for climate action. (European Commission, n.d.) Renewable power generation has increased and is expected to continue rising. Renewa- ble energy sources such as wind, solar, hydro, ocean, geothermal, biomass, and biofuels are replacing fossil fuels providing sustainable and low-carbon energy. These sources re- duce pollution, diversify the energy mix, and decrease dependence on volatile fossil fuel prices. (European Parliament, 2024) Despite the promising outlook, challenges remain. Renewable energy can cause imbalances in energy systems due to its inflexibility, leading to mismatches between consumption and production. Therefore, increasing flexibility solutions and electricity consumption is essential to gain benefits from fluctuating re- newable energy sources such as wind and solar. Additionally, some sectors, like certain industrial processes, building heating, heavy transportation, and aviation are challenging to decarbonise. Addressing imbalances and decarbonising all sectors, smart implemen- tation and operation are crucial. This thesis is made for EPV Energia Oy to identify strategies to decarbonising the heating sector in the Vaasa region. EPV Energia Oy primarily through its subsidiary Vaasan Voima Oy is connected to the heating of the Vaasa region by producing about half of the district heating in the area. Vaasan Voima Oy has made significant investments in developing electrification of heat and heat storage technology. To understand the study area better EPV Energia Oy and the existing assets of Vaasa heating sector are explained in this thesis. 12 To develop an effective system, it is essential to consider the characteristics of the Vaasa region and the existing assets. Sector coupling is examined in this thesis because it offers technologies and mechanisms that are claimed to be effective reducing emissions and balancing energy consumption and production (Erbach, 2019; IRENA, 2022; Abdur Rehman, Palomba, Frazzica, & Cab- eza, 2021; Wang et al., 2023). Sector coupling sub concept Power-to-Heating utilizes electric boilers and heat pumps in heating sector. In addition, CHP plants are coupling electricity and heating. When these assets are operated intelligently, they use affordable renewable energy to produce heat for the district heating network. Combined with heat storage, they can provide balancing services to the electricity grid. Therefore, this thesis explains the different energy markets and their interaction with electricity markets. Additionally, this thesis assesses other technologies and mechanisms to determine their suitability and effectiveness for decarbonising Vaasa's heating sector for example carbon capture technologies and small modular reactors are presented in this thesis. The research questions are as follows: - What methods and technologies are utilised in other countries and cities for de- carbonising the heating sector, and what related studies have been conducted? - What methods and technologies can be used to decarbonise the heating sector of Vaasa? This thesis provides a preliminary analysis to identify the options that require more com- prehensive calculations and analyses to support the decarbonisation of the heating sec- tor in Vaasa and EPV's goal of achieving carbon neutrality by 2030. The thesis does not extensively examine the technical attributes or the costs of different assets and technol- ogies. 13 1.1 Motivation This thesis will be focusing Vaasa heating sector which already utilises diverse heat gen- eration methods, including CHP plants, electric boilers, heat pumps (Pått), a district heat- ing network, and heat storage. However, the system is not entirely carbon neutral yet. Different methods and technologies need to be explored and evaluated to achieve car- bon neutrality in Vaasa heating system. Vaasa, known for its strong energy cluster and commitment to innovation, presents a unique case for exploring decarbonisation strategies. The city has already taken steps toward integrating renewable energy and improving energy efficiency, yet challenges re- main in fully transitioning away from fossil-based heating systems. This thesis is moti- vated by the need to understand how cities like Vaasa can lead the way in implementing practical, scalable solutions for low-carbon heating. Vaasa’s proactive stance on energy innovation makes it an ideal case study for examining the real-world application of de- carbonisation strategies. 1.1.1 Decarbonisation of heating sector The decarbonisation of heating systems is timely issue and many countries, cities, organ- isations and institutions and individuals are actively seeking solutions to address this challenge. The heating sector plays a crucial role in the overall energy consumption and carbon emissions, particularly in regions with cold climates such as Finland. To meet cli- mate targets, decarbonising this sector is essential. Heating in Finland forms a major part of residential and industrial energy use, making it critical for sustainable change. Heating sector is a challenging sector to decarbonise, and heating-related CO2 emissions are a significant part of Finland's greenhouse gas emis- sions. The share of heating varies annually depending on weather conditions, but it is one of the largest sources of emissions in Finland (Tilastokeskus, 2024). Heating buildings 14 accounts for about 25 % of all energy used in Finland. Residential buildings consume 20 % of the total energy, with approximately two-thirds used for space heating. The most used energy sources are district heating, wood, and electricity. (Suomen ympäristökeskus, 2022) 1.1.2 Global megatrends Climate change, reliable energy supply, energy sector transition, and digitalisation are identified as global megatrends impacting the energy industry (EPV Energia Oy, n.d.). In addition, the U.S. Energy Information Administration (EIA, 2023) has identified electrifi- cation as a significant trend influencing the future of energy. Electrification involves tran- sitioning energy consumption from fossil fuels to renewable electricity generated from sources such as wind and solar. This trend is expected to drive stable growth in electric power demand and increase the share of zero-carbon electricity generation. (EIA, 2025) 1.1.3 The climate goals of EU The European Union (EU) has established ambitious decarbonisation goals to combat climate change and transition to a sustainable low-carbon economy. These objectives are part of a comprehensive strategy aimed at ensuring sustainable economic growth, environmental protection, and improved quality of life for all EU citizens. The EU is pro- moting the use of renewable energy and emission reductions through multiple initiatives such as EU Climate Law, European Green Deal, Green Industrial Revolution, Renewable Energy Directive, Energy efficiency Directive, Sectoral Decarbonisation, EU ETS, Adapta- tion Strategy and REPowerEU plan. (European Commission 2023; European Commission 2025; European Parliament 2024; European Union 2021; Suomen ympäristökeskus 2022) The promoting mechanisms and their explanations are listed in Appendix 1. 15 The EU provides funding and incentives for environmentally friendly projects, such as renewable energy production and improving energy efficiency. The EU provides financial support through programs like the LIFE Programme, the Social Climate Fund, the Inno- vation Fund, and the Modernization Fund. (European Commission, 2025) EU funding schemes for climate actions are listed in Appendix 2. 1.2 Overview of the thesis The thesis is organized as follows: Chapter 2 introduces the commissioner EPV Energia Oy and the heating sector in Vaasa and in Finland. Chapter 3 introduces the basics of the energy markets and the concept of sector coupling. Chapter 4 introduce different tech- nologies and methodologies for the decarbonisation of heating sector. Chapter 5 intro- duces and evaluates the different methods and technologies for the decarbonisation of Vaasa heating sector. The conclusion of the thesis is presented in Chapter 6. 16 2 Commissioner EPV Energia Oy and the heating sector in Vaasa and Finland The commissioner of the thesis is EPV Energia Oy, and the study takes place in Vaasa heating, therefore they are introduced in this section. The author of this thesis has worked as an Operational Energy Engineer at EPV Energia Oy since 2022. 2.1 EPV Energia Oy EPV Energia Oy (EPV) is a Finnish energy company established in 1952 specializing in the generation and supply of electricity and heat to its shareholders. EPV is dedicated to advancing zero-emission energy production and mitigating climate change, with a goal of achieving carbon neutrality by 2030. The company's diverse energy production port- folio comprises wind, solar, nuclear, and hydropower, as well as domestic forest energy, CHP, and energy management solutions. With decades of expertise in responsible en- ergy production, EPV has positioned itself as a pioneer in emission-free energy genera- tion. The company continuously enhances its energy generation capabilities, resulting in significant reductions in CO2 emissions. (EPV Energia Oy, n.d.) EPV ensures a reliable energy supply by investing in grid infrastructure and digitalizing energy procurement and supply management. EPV places significant emphasis on a long-term energy policy and investments in new technologies aiming at modernizing the energy system and reducing emissions. Utilising advanced technology, EPV adjusts its production processes and efficiently balances supply and demand. (EPV Energia Oy, 2025 a & b) 17 2.1.1 The structure and business areas of EPV Group The EPV Group consists of subsidiaries and affiliated companies, in which EPV partici- pates in governance and supervision. Nevertheless, these subsidiaries and affiliated companies maintain their own administrative bodies. (EPV Energia Oy, n.d.) EPV operates under the Mankala principle (TVO, 2023), which means that energy is de- livered to the owners at production cost. Instead, the owners benefit by utilising the procured energy or selling it. This model effectively pools resources and shares risks among the owners, enabling the execution of extensive energy projects while maintain- ing low production costs. In Finland, over 40 % of electricity is procured according to the Mankala principle. (Vaasan Voima Oy, n.d.) EPV consist of four business areas: CHP pro- duction and energy storage, renewable energy production, energy management and electricity transmission. The structure and business areas of the EPV Group are illus- trated in Figure 1. 18 Figure 1. The structure and business areas of EPV (adapted from EPV Energia Oy, n.d.). 2.1.2 Energy production of EPV In 2024, EPV achieved a total power procurement of 4.7 TWh, representing 5 % of Fin- land's total electricity consumption. Notably, 96 % of EPV's electricity production in 2024 was generated through emission-free sources such as wind, hydro and nuclear power. (EPV Energia Oy, n.d.) The electricity generation of EPV in 2024 is illustrated in Figure 2. •Vaasan Voima Oy, Seinäjoen Voima Oy, Tornion Voima Oy, Raahen Voima Oy •EPM Metsä Oy, EPV Aluevarannot Oy •EPV Akkuhybridi Oy CHP production and Energy storage •EPV Tuulivoima Oy •Rajakiiri Oy •EPV Aurinkovoima Oy Renewable Energy Production •EPV Operointi Oy •EPV Tase Oy Energy Management •EPV Alueverkko Oy •EPV Siirtoverkko Oy •EPV Teollisuusverot Oy Electricity Transmission •Co-owned Power Generation in Pohjolan Voima Oy, Teollisuuden Voima Oy, Voimapiha Oy •Powerheat Solutions Oy •Suomen Energiavarat Oy •Vaskiluodon Teollisuuskiinteistöt Other 19 Figure 2. The electricity generation of EPV in 2024 (adapted from EPV Energia Oy, 2025b). Wind power EPV is one of the largest wind power producers in Finland. The company focuses on de- veloping, building, investing in, operating, and managing wind power projects. EPV initi- ated its wind power program in 2006. In 2024 about 28.5 % of EPV's energy generation originated from wind power. (EPV Tuulivoima Oy, n.d.) Hydro power EPV contributes to hydropower electricity production through its shares in Pohjolan Voima Oy and Voimapiha Oy. Pohjolan Voima Oy generates hydropower electricity in Finland. Additionally, EPV Energy has invested in hydropower in Sweden via Voimapiha Oy. Hydropower production occurs on an industrial scale, providing balancing power for Wind power 28 % Hydropower 9 % CHP 11 % Nuclear Power 52 % THE ELECTRICITY GENERATION OF EPV ENERGIA OY IN 2024 20 renewable energy sources. In 2024 hydroelectric power accounted for 9.1 % of EPV's energy generation. (EPV Energia Oy, n.d.) Combined heat and power EPV operates CHP plants in Vaasa, Seinäjoki, Tornio, and Raahe. These CHP plants pro- duce both electricity and heat. Additionally, Tornion Voima Oy uses process heat from the Outokumpu steel factory, while Raahen Voima Oy generates electricity primarily from process gases at the SSAB steel factory. (EPV Energia Oy, n.d.) Detailed information on the operations of Vaasan Voima Oy can be found in chapter 2.3 where the heating sector of Vaasa is introduced. EPV is also investing in Finnish biofuels to enhance energy security and employment. The company has developed a cost-effective bioenergy supply chain for CHP and aims to in- crease the share of domestic bioenergy in heat and electricity production. (EPV Energia Oy, n.d.) Nuclear power EPV produces nuclear power through its affiliated companies, Teollisuuden Voima Oy. When responsibly managed nuclear power is environmentally friendly and safe provid- ing zero-emission electricity. For approximately 40 years, Teollisuuden Voima Oy has gen- erated nuclear power for EPV from the Olkiluoto 1 and 2 nuclear power plants, with EPV owning over 8 % of the production. Additionally, EPV owns about 10 % of the Olkiluoto 3 production. In 2024 nuclear power accounted for 51.4 % of EPV's energy generation. (EPV Energia Oy, n.d.) 21 Energy management EPV's Energy Management provides energy system optimization services to EPV share- holders and energy generation companies that are wholly or partially owned by EPV. The activities of EPV’s Energy Management focused on the Operations Centre (OC), where key functions include managing the wholesale power balance, buying and selling elec- tricity in the Nordic power exchange, and controlling various energy production plant systems. The OC also plans and directs production for EPV companies, optimizing output in the wholesale electricity market and minimising costs in the imbalance power market (EPV Energia Oy, n.d.) 2.1.3 The flexibility solutions of EPV To support the growing generation of renewable energy, EPV is developing a range of energy storage solutions, including electric boilers, thermal energy storage systems, en- gine power plants, and electrical batteries. The flexibility solutions of EPV are illustrated in Figure 3. EPV is committed to continuing its investments in clean electricity generation and flexibility solutions. These efforts are aimed at enhancing the reliability and effi- ciency of renewable energy integration. (EPV Energia Oy, 2025) 22 Figure 3. The flexibility solutions of EPV in 2025. 2.1.4 Upcoming development projects of EPV EPV Energia Oy is actively advancing its strategy known as the "New Electricity Revolu- tion," which emphasizes zero-emission energy production and sustainable innovation. The company is currently engaged in several significant development projects across Fin- land. (EPV Energia Oy, n.d.) Solar power One of the most prominent initiatives is the construction of the Heinineva solar power plant in Lapua. The first industrial-scale solar park of the EPV Group is scheduled to com- mence electricity production by the end of 2025. The Heinineva solar park, with a total output of approximately 86 MWp, is expected to produce over 80 GWh of electricity annually, making it one of the largest solar parks in Finland and it is expected to increase Hydro power 77 MW Elerctric boilers 240 MW Gas-engine powerplant Tornio 43 MW Electric battery Teuva 12 MW Tornio CHP 38 MW Vaasa CHP 230 MW Heat storage Vaasa 110 MW (Capasity 11 GWh) Heat storage Seinäjoki 40 MW (Capasity 400 MWh) Seinäjoki CHP 125 MW THE FLEXIBILITY SOLUTIONS OF EPV ENERGIA OY 23 EPV’s renewable electricity production by about 6 %. The facility will feature approxi- mately 123,000 solar panels across 120 hectares, with an expected annual output ex- ceeding 80 GWh. (EPV Aurinkovoima Oy, 2024) Since 2018, EPV Energy has been actively researching solar energy. The company owns land suitable for solar power generation and plans to utilise it sustainably, minimising environmental impact. (EPV Aurinkovoima Oy, n.d.) (EPV Aurinkovoima Oy, 2023) Energy storages In the field of energy storage, EPV is planning a 1600 MWh CO2 battery-based storage system in Laihia. The system utilizes the phase change of carbon dioxide for energy stor- age. This facility will store zero-emission electricity and enhance grid stability. Helps bal- ance the power system by acting as both a consumption and production facility. (EPV Energia Oy, n.d.) Additionally, EPV is constructing its first electrical energy storage unit in conjunction with the Teuva wind power plant, further supporting flexible energy management. EPV is also participating in the planning of a major battery technology hub in Laajametsä, Vaasa, reinforcing its role in Finland’s energy transition. (EPV Energia Oy, n.d.) EPV has implemented Finland’s largest thermal energy storage facility in Vaskiluoto. This installation serves as a strategic asset for optimizing the company’s energy portfolio and ensuring a stable supply of thermal energy. Capacity of the Vaskiluoto thermal storage will be increased from 11 GWh to 17 GWh by the end of 2025. (Vaasan Voima Oy, 2024) 24 Hydrogen technology Hydrogen technology is another key focus area. EPV is exploring hydrogen as a storable, emission-free energy carrier that can address the intermittency of renewable energy sources. In addition, the heat generated in hydrogen production can be utilized in the district heating network for maximising the overall efficiency. This aligns with global cli- mate goals and supports long-term energy storage strategies. (EPV Energia Oy, n.d.) Gas-engine technology To maintain grid reliability with the growing integration of renewable energy sources, EPV is investing in gas-engine technology to enhance its balancing power capabilities. These investments will provide the necessary flexibility to manage the variability in en- ergy production. (EPV Energia Oy, n.d.) Offshore wind power Furthermore, EPV is involved in offshore wind power development, aiming to harness large-scale renewable energy from marine environments. (EPV Energia Oy, n.d.) 2.2 Heating sector in Finland In the Finnish heating markets customers can choose their heating and cooling methods freely. Available options include district heating, electric heating, and solutions based on heat pumps, and renewable or fossil fuels. Political decisions, such as taxes and subsidies, influence the attractiveness of these options. District heating companies procure heat at favourable prices and often buy waste heat from customers or other producers. (Energiateollisuus ry, n.d.) 25 In the EU, there is increasing recognition of the role of heating markets in emission re- duction and energy efficiency. In Finland, district heating is the most common method for heating. The heating for residential, commercial and public buildings in Finland also comprises electricity, heat pumps, wood and fuel oil. (Energiateollisuus ry, n.d.) The shares of different heating sources in Finland in 2022 are presented in Figure 4. Figure 4. The heating buildings in Finland in 2022 (Adapted from Finnish Energy, 2025). 2.2.1 Guarantee of Origin In Finland, the regulation under the Renewable Energy Directive (RED II) has revised the Guarantee of Origin Act (1050/2021). Guarantee of Origin will be issued for electricity from renewable sources, nuclear power, efficient co-production, renewable gas, hydro- gen from renewable sources, heat and cooling from renewable sources, and waste heat or cold. (Energy authority, n.d.) Producers and users claiming their heat/cooling comes from renewable sources or waste heat/cold must verify the origin. Sellers must verify the origin of renewable or waste District heat 44 % Electricity 17 % Heat pump 13 % Heat pump electricity consumption 8 % Wood 12 % Fuel oil 5 % Other 1 % SPACE HEATING FOR RESIDENTIAL, COMMERCIAL AND PUBLIC BUILDINGS IN FINLAND IN 2022 26 heat/cool energy, unless transfer methods leave no doubt about the origin and no Guar- antee of Origin are applied for. Fossil fuel content during maintenance and startup must not exceed 4 % of total fuels used annually. (Finlex, 2021) 2.2.2 District heating in Finland Finland's district heating network spans about 16,000 kilometres with high reliability due to quality construction, systematic maintenance, and renovations. Heat from plants is transferred as hot water through a closed two-pipe system, where the supply pipe deliv- ers hot water (65 to 115 °C), and the return pipe brings back cooled water (40 to 60 °C). The water is treated to prevent corrosion, and leaks are detected by coloured water. Pipes installed 0.5–1 meter underground are well-insulated, losing about 8-9 % of energy in distribution. Modern factory-made pipes with polyurethane insulation last up to 100 years and are monitored using thermal imaging. (Energiateollisuus ry, n.d.) District heating in Finland achieves nearly 100 % reliability, with interruptions averaging less than two hours per year, mostly affecting only a small number of customers. High reliability comes from looped networks allowing bi-directional heat delivery. Faults or repairs isolate affected areas while maintaining heat delivery elsewhere. New connec- tions and branches usually occur without service disruption. Interruptions average less than an hour per year due to faults, repairs, planned maintenance, new connections, or pipe relocation for road construction, often scheduled outside the heating season. (Energiateollisuus ry, n.d.) Heat recovery comprises renewable heat produced by heat pumps and unused heat en- ergy, such as that recovered from wastewater, flue gases, data centres, industrial pro- cesses, and return water from district cooling. The waste category encompasses munic- ipal waste, recovered fuels, demolition wood, impregnated wood, plastic waste, and haz- ardous waste. Other biofuels include wood pellets, recovered wood, black liquor, and other types of biomasses. (Finnish Energy, 2025) 27 The rate of electrification in district heating has risen significantly in recent years. The development of electric boilers is shown in Figure 5. When electricity prices are low, electric boilers substitute burning fuels. Figure 5. Development of electric boilers in district heating (adapted from Finnish Energy, 2025). In Finland, the Energy Efficiency Act regulates district heating and cooling measurement, billing, and information provision. An amendment effective November 23, 2020, man- dates that new buildings must use remotely readable meters for district heating and cooling, and existing meters must be updated or replaced by December 31, 2026. Heat energy sellers must provide detailed consumption, fuel information, and climate impact data to customers. A government decree will outline the cost distribution for heating, cooling, and water consumption. (Energy authority, 2020) Finland's district heating supplied 35.5 TWh of heat from sources like biomass, waste heat, and electric boilers. Renewable energy, heat recovery, and electric boilers covered 73 % of production. The sources of district heating across Finland in 2024 are presented in Figure 8. District heating CO2 emissions were 2.5 million tons in 2024, which was 19 % less than in 2023. (Finnish Energy, 2025) 16 58 746 1538 0 200 400 600 800 1000 1200 1400 1600 1800 2021 2022 2023 2024 Development of electric boilers in district heating between 2021-2024 28 2.2.3 District cooling District cooling production in Finland in 2024 amounted to 402 GWh, marking a 20 % increase from the previous year. The district cooling is produced using heat pumps that often also produce heating energy. In 2024, 67 % of district cooling was generated by heat pumps. Additionally, district cooling utilises ambient energy from seas, lakes, rivers, and outdoor air whenever the temperature is sufficiently low. (Finnish Energy, 2025) 2.3 Heating sector in Vaasa region The Vaasa heating sector utilises diverse heat sources. The district heating network con- nects consumers to Vaskiluoto power plant, electric boilers, a large heat storage facility, Westenergy waste-to-energy plant, Pått heat pump, and various heat centres. Vaasa heating sector is described in Figure 6. 29 Figure 6. Vaasa heating sector. 2.3.1 District heating in Vaasa By 2024, over 80 % of Vaasa's district heating came from renewable energy and waste energy, with specific emissions at 65.2 g/kWh. (Vaasan Sähkö Oy, n.d.) The energy sources of Vaasa district heating are presented in Figure 7. •CHP electric power output 230 MW and DH power output 175 MW •Three Electric boilers, combined capacity 160 MW •Thermal Storage capacity 11 GWh with charging and discharging power 110 MW (Vaasan Voima Oy, 2024) Vaasan Voima •CHP, electric power output 15 MW and DH power output 40 MW •waste-to-energy (WtE) plant where waste is converted into electricity, heat, and recovered materials (West Energy Oy, 2024) West energy •Heatpumps DH power output 12 MW •Generates thermal energy from wastewater provided by the Pått wastewater treatment plan (Vaasan Vesi, 2024) Pått heatpumps •Serves Vaasa, Sepänkylä in Mustasaari and the Vähäkyrö center area District heating network •Light fuel oil and is operated during potential disturbances and durign coldest periods of winter •about one percent of annual district heating demand in Vaasa (Vaasna sähkö Oy, n.d.) Peak and reserve boilers •Heat pumps (ASHP, GSHP, AWHP) •Direct electric heating •Boilers (oil, gas, wood, woodpellet) and fireplaces Other 30 Figure 7. Vaasa district heating in 2024. In comparison this chapter also presents the sources of district heating across Finland in 2024 (Figure 8). Figure 8. District heating in Finland in 2024 (adapted from Finnish Energy, 2025). Biomass (125 GWh) 16 % Peat (13 GWh) 2 % Coal (12 GWh) 2 % Oil (10 GWh) 1 % Non-recyclable municipal waste (316 GWh) 41 % Waste heat recovery (74 GWh) 10 % Heat pumps (41 GWh) 5 % Electricity (173 GWh) 23 % DISTRICT HEATING IN VAASA IN 2024 Forest fuelwood 30 % Industrial wood residues 12 %Other biofuels 6 % Peat 6 % Natural gas 7 % Coal 6 % Oil 3 % Waste 10 % Heat recovery 16 % Electric boilers 4 % DISTRICT HEATING IN FINLAND IN 2024 31 2.3.2 Vaasan Voima Oy Vaasan Voima Oy is a subsidiary fully owned by EPV Energia Oy. Vaasan Voima produces electricity and district heating, supplying approximately half of the city's heating require- ments. The company operates under the Mankala principle, providing energy to its shareholders at production cost. Vaasan Voima is committed to addressing the energy needs of various industries by developing new sources of electricity and innovative heat generation solutions. (Vaasan Voima Oy, n.d.) Vaasan Voima leads innovation with the world's first biomass gasification plant and Fin- land's largest electric boiler and thermal energy storage combination. The focus is on improving energy efficiency and environmental friendliness, including increasing heat storage to 17 gigawatt-hours for better district heating in winter. Investments in Vas- kiluoto include an additional 60 MW electric boiler to enhance renewable energy storage. Sector coupling will integrate various energy sectors to increase flexibility and reduce emissions. They also plan renewable hydrogen production for electricity storage, sup- ported by significant investments. These projects aim to meet future energy market chal- lenges and promote sustainable energy production. (Vaasan Voima Oy, n.d.) Figure 9 and Figure 10 illustrate the changes in fuel usage between 2023 and 2024. The electrification of Vaasa's heating sector has increased due to the lower costs of electricity due to renewable energy sources like wind, solar, and hydro. The increased use of elec- tric boilers is supported by the 11 GWh thermal storage at Vaasan Voima power plant. One factor is the increased district heating demand and higher electricity prices during cold winter days, which could make electric boilers less economical. Therefore, there is a need to find solutions to cover heating demand with renewables during times when electricity prices are high. 32 Figure 9. Vaasan Voima fuels 2023 (adapted from Vaasan Voima Oy, 2024). Figure 10. Vaasan Voima fuels 2024 (adapted from Vaasan Voima Oy, 2024). Coal 29 % Biofuels 48 % Peat 5 % Eliectric 17 % Oil 1 % VAASAN VOIMA FUELS 2023 Coal 26 % Biofuels 36 % Peat 4 % Eliectric 33 % Oil 1 % VAASAN VOIMA FUELS 2024 33 Electric boilers Electric boilers are crucial for clean heat production and provide adjustable capacity (Vaasan Voima Oy, 2024). Vaasan Voima operates three electric boilers in Vaskiluoto with a total output of 160 MW. These zero-emission boilers use electricity to heat water, sup- porting the district heating network. They enhance EPV's adjustable production capacity and align with climate targets of Finland and the EU. Utilising existing infrastructure makes the boilers cost-effective. Electric boilers optimize power plant operations, con- tributing to emission-free heat production while supporting future energy system needs. The electric boilers benefit from low electricity prices during high renewable energy availability. (Söderlund, 2021) CHP Vaasan Voima produces electricity and district heating through CHP which improves ef- ficiency and lowers fuel consumption. The fuels used in the CHP include woody biomass, energy peat, and coal. The biomass gasification facility and electric boilers allow the fa- cility to reduce the use of coal. Electrically powered on-site crushers enable forest fuels to be delivered directly from the forest to the on-site crusher. Vaasan Voima uses local biofuels like wood biomass and energy peat sourced within a 100 km radius from the power plants in Ostrobothnia and South Ostrobothnia. (Vaasan Voima Oy, 2024) Technical Specifications of the CHP Plant in Vaskiluoto: • Power output: Electric power 230 MW and district heating power 175 MW • Turbine: Three-casing turbine with DH and forest chip dryer extractions • Boiler: Benson-type once-through boiler with reheater • Biomass gasification plant: 140 MW bio gasifier and forest chip dryer • Fuels: woody biomass, energy peat, and coal • Desulphurization plant: Wet scrubbing with limestone, producing gypsum 34 • NOx removal: Low-NOx burners and Overfire Air (OFA) system • By-Product: Ash (100 % utilisation) A site crusher installed in 2015 improves the management of the biofuel supply chain and reduces CO2 emissions compared to diesel-powered crushing. In 2020, improve- ments to the boiler's upper air system and the installation of a urea feed system (SNCR) helped reduce NOx levels. (Vaasan Voima Oy, n.d.) Vaasan Voima adheres to ISO 14001:2015 environmental management standards and ETJ+ energy efficiency systems. The plant also participates in a voluntary energy effi- ciency agreement. (Vaasan Voima Oy, n.d.) Thermal storage A large (currently 11 GWh) thermal energy storage (TES) in Vaasa, Vaskiluoto is con- nected to the district heating network with a charge and discharge capacity of 110 MW. Serving as an optimization tool for energy generation, the facility enhances thermal en- ergy production in the region and is usable regardless of production mode. (Vaasan Voima Oy, 2024) Figure 11 illustrates the size of the thermal storage. 35 Figure 11. Thermal storage of Vaasan Voima Oy (Vaasan Voima Oy, 2024). 2.3.3 Westenergy Westenergy is a waste-to-energy (WtE) plant where waste is converted into electricity, heat, and recovered materials. Annually, around 200,000 tons of combustible and non- recyclable waste is incinerated at the plant. (Westenergy Oy, n.d.) During the incineration process, flue gases heat boiler water, which converts into steam to rotate the turbine and generator. Hot steam also heats water in the district heat unit. The flue gas treatment system operates in multiple stages. Acidic impurities and heavy metals are filtered out in the fabric filter. Flue gases are purified in a scrubber, and the heat is recovered in a heat exchanger. The electric power output is 15 MW, and the dis- trict heating power output is 40 MW. (Westenergy Oy, n.d.). Depending on the year and temperature levels, Westenergy produces approximately 50-60 % of Vaasa's district heating annually. 36 Westenergy aims for carbon-neutral energy production by 2030 and the development of a circular economy where all materials are utilised effectively. In optimal conditions, all materials, energy, water, and CO2 are captured. The goal is to avoid waste formation, instead utilising by-products and residues of the production process as raw materials for other industries. For example, ashes from the Westenergy plant are used in earthwork materials and concrete production. Metals that end up at the plant are separated and recycled. (Westenergy Oy, n.d.) Westenergy Oy, CPC Finland Oy, and Prime Capital AG are developing a full-scale carbon capture unit to be located in Mustasaari, Finland, with operations expected to start in 2026. The unit aims to capture all carbon dioxide from the fluid gases of the Westenergy WtE plant, reducing its carbon footprint. Most of the captured CO2, approximately 150,000 tons annually, will be liquefied and transported to a Power-to-X site in Kris- tinestad for producing carbon-neutral synthetic gas. Additionally, over 30,000 tons of CO2 will be used in the production of carbon-sequestering products, advancing the car- bon recycling industry in the Vaasa region. This project promotes sustainable develop- ment and the circular economy in Finland (Westenergy Oy, n.d.) 2.3.4 Pått wastewater treatment plant -heat pump A heat pump generates thermal energy from wastewater provided by the Pått wastewater treatment plant. The wastewater enters the facility at temperatures ranging between 8–17 °C. The heat pumps capture this waste heat and deliver it into the district heating network in Vaasa. The plant produces 50-60 GWh of heat annually, contributing approximately 10 % of Vaasa's district heating production. The heat pump plant has been operational since December 2023. (Vaasan Vesi, 2024) 37 3 Theory This chapter provides an overview of the theory of energy markets and the Nordic en- ergy system. It also details the characteristics of electricity markets in general, with a specific focus on the unique aspects of electricity markets in Finland. This chapter introduces sector coupling, because the concept is recognised for its poten- tial to decarbonise the heating sector (Erbach, 2019; IRENA, 2022; Abdur Rehman, Pal- omba, Frazzica, & Cabeza, 2021; Wang et al., 2023). Definitions and strategies vary across organizations and countries due to the lack of an official definition. This chapter aims to clarify the author's perspective on sector coupling. In addition, sub concepts like Power- to-X and Power-to-Heating are introduced in this chapter for their relevance in decar- bonising the heating sector. 3.1 Energy markets Effective energy markets support the sustainable energy transition and ensuring security of supply. Electricity markets are a key component, integrating with other energy forms and connecting low-emission energy production with industrial requirements, transpor- tation, and heating. As society relies more on electricity, the demand for renewable en- ergy increases, enhancing requirements for electricity transmission and grid reliability. (Energiateollisuus ry, n.d.) Electricity sales and network operations significantly influence the heating market. (Energiateollisuus ry, n.d.) Since the 1990s, the EU has established internal markets for electricity and natural gas, facilitating the free movement of energy between member states. (Energiateollisuus ry, n.d.) 38 3.1.1 Electricity markets The wholesale electricity market engages in trading for next-day or near-term needs with prices collectively set across most of Europe. It is essential that supply matches demand exactly, but limited transmission capacity can cause regional price differences. Finland benefits from having a single price area due to its strong grid, unlike Sweden and Den- mark, which have multiple price areas. (Energiateollisuus ry, n.d.) In the wholesale market, electricity prices are governed by EU-wide regulations and are determined by supply and demand principles. Increasing transmission connections is crucial for strengthening market operations and ensuring security. Maintaining a reliable and smart grid is vital to the market's functionality. (Energiateollisuus ry, n.d.) The terms of electricity markets are explained in Appendix 3. Between 2021 and 2023, Europe experienced exceptional electricity prices, peaking in Finland in late 2022. However, prices began to decline in early 2023 in the Nordic coun- tries while remaining high elsewhere in Europe due to reliance on fossil fuels. Finland managed the situation by utilising nuclear and wind power, thereby reducing its depend- ence on imports and fossil fuels. This crisis underscored the importance of relying on domestic production and advancing the green transition to replace emission-intensive production with low-emission domestic electricity. Despite this, price fluctuations re- main a normal part of the market due to the ongoing need to balance production with consumption. (Energiateollisuus ry, n.d.) 3.1.2 The Nordic energy system The functioning of cross-border electricity markets began in the Nordics, serving as an example for the rest of the EU. National energy policies continue to influence market operations. The Electricity Market Act regulates electricity production and sales as free 39 business activities, while electricity transmission, operating as a monopoly, remains reg- ulated and overseen by national authorities, such as the Energy Authority in Finland. (Energiateollisuus ry, n.d.) Finnish Energy (Finland), Swedenergy (Sweden), Fornybar Norge (Norway), Green Power Denmark (Denmark) and Samorka (Iceland) have established a collaboration between Nordic associations for electricity producers, suppliers, and distributors. They represent over 2000 market actors in the electricity sector, district heating, gas, and services. Nor- denergi supports the EU's goal of net-zero carbon emissions by 2050 and aims to reduce greenhouse gas emissions by at least 55 % below 1990 levels by 2030. They advocate for the EU ETS (explained in Appendix 1) as the main driver for decarbonisation and support the strengthening. Nordenergi promotes all clean investments and stresses the im- portance of the EU recognizing these contributions. They support a well-functioning, fully integrated power market in the Nordics and the EU to achieve climate targets. Ad- ditionally, Nordenergi works to improve finance and permitting conditions for electricity transmission and distribution infrastructure to support electrification and clean invest- ments. They also promote a reliable and flexible power system that meets consumer needs and enables active market participation. (Nordenergy, n.d.) In the joint Nordic system (Finland, Sweden, Norway, and East Denmark), the TSOs have agreed on maintaining reserves through the System Operation Agreement. TSOs procure their share of reserves independently, with some reserves traded between countries. A portion must be maintained nationally to ensure frequency stability during operation, with up to one-third of frequency containment reserves purchasable from other Nordic countries. (Fingrid Oyj, 2025) 3.1.3 Electricity markets in Finland The Finnish electricity market opened to competition with the 1995 Electricity Market Act, allowing users to choose their suppliers since 1998. There are around 75 electricity 40 retailers. Finland is part of the Nordic wholesale market, which includes other Nordic countries and the Baltic States. Market liberalization and integration have boosted productivity and environmental efficiency, enabling effective use of hydropower and green energy trading. The future goal is a European-wide market, aligned with the EU's energy supply security aims. (Ministry of Economic Affairs and Employment of Finland, n.d.) . In addition, consumers or prosumers can use their own produced electricity or sell the production to the grid. Fingrid Oyj, Finland's TSO, manages the high-voltage grid, connecting producers, facto- ries, and distribution networks. It operates as a state-regulated monopoly, ensuring reli- able energy supply and promoting a clean, market-based power system. Fingrid main- tains balance in electricity production and consumption, enhancing market functionality through connections to Central Europe and Estonia. (Fingrid Oyj, About Fingrid, n.d.) Electricity production must match consumption to maintain grid stability at a frequency of 50.0 Hz. Market operators plan their consumption and production in advance in the Day-ahead and Intraday markets, but deviations still occur. To manage these deviations, TSOs like Fingrid in Finland procure reserves from real-time reserve markets. These re- serves include power plants, consumption resources, and energy storage systems that adjust their power output as needed to balance the system. (Fingrid Oyj, 2024 and 2025) Fingrid's reserve products include manual and automatic reserves for balancing supply and demand (Figure 12). The reserve markets use marginal pricing, where all volumes receive the same price based on the highest accepted bid, creating additional revenue for market participants. (Fingrid Oyj, 2024) 41 Figure 12. The reserve markets of Fingrid Oyj (adapted from Fingrid Oyj, 2024). 3.2 Sector coupling Sector coupling enhances the flexibility and reliability of energy systems by integrating renewable electricity across various sectors, with the goal of achieving net-zero emis- sions. Sector coupling utilises technologies such as energy storage, electric vehicles, green hydrogen, Power-to-Gas, and Power-to-Heating to link renewable electricity with heating, cooling, transport, and industrial processes. By replacing fossil fuels with renew- able sources, sector coupling supports comprehensive energy transformation and elim- inate the use of fossil gas, coal, and oil. Renewable energy sources are the foundation for all energy carriers in the sector coupling value chain to be completely renewable based and environmentally friendly energy system. (IRENA, 2022) Renewable energy in the power sector has increased significantly compared to other sectors. Connecting different sectors increases the utilization of renewable energy •Fast Frequency ReserveFFR •Frequency Containment Reserves for Disturbances, Up Regulation •Frequency Containment Reserves for Disturbances, Down RegulationFCR-D •Frequency Containment Reserve for Normal OperationFCR-N •Automatic Frequency Restoration Reserve, Up Regulation •Automatic Frequency Restoration Reserve, Down RegulationaFRR •Manual Frequency Restoration Reserve, Up Regulation •Manual Frequency Restoration Reserve, Down RegulationmFRR 42 sources in all end-use sectors. For example, wind and solar power provide direct and indirect electrification opportunities to decarbonise these sectors. Coupling energy sources directly to service such as electric vehicles in the transport sector or heating through heat pumps or electric boilers are usually more efficient than indirect electrifi- cation. Power-to-Gas technology is an example of indirect electrification and means that synthetic fuels such as green hydrogen or methane are produced by electrolysis or methanation. Therefore, indirect electrification is reasonable only in sectors that are not able to be electrified directly or are hard to decarbonise such as transportation, aviation and some industrial processes. (IRENA, 2022) Sector coupling requires smart operation and digitalization that improves system effi- ciency, flexibility, reliability and safety by enabling better observation, forecasting, mon- itoring, and controlling multiple energy sector integration. In addition, sector coupling supports energy storage solutions and renewable energy integration in the energy sys- tem. However, larger-scale electrification could increase peak electricity demands with- out price and energy signals to consumers or smart operation systems. That requires additional investments in the electricity distribution network. In addition, digitalization provides opportunities for demand-side flexibility but requires regulatory framework. Educating policymakers and integrating sector coupling into energy access projects can promote the idea. Smart sector coupling system enables cost reductions for converting energy system environmentally friendly. (IRENA, 2022) The benefits of sector coupling are concluded in Figure 13. 43 Figure 13. Benefits of sector coupling. 3.2.1 Definition of sector coupling Sector coupling lacks an official definition, leading to multiple interpretations (IRENA, 2022). Definitions and strategies differ across organizations and countries, and various actors have refined their understanding of sector coupling over recent years. The IRENA Coalition for Action (2021) defined sector coupling as follows: “the process of interconnecting the power sector with the broader energy sector (e.g. heat, gas, mobility).” (IRENA, 2021) To achieve 100 % renewable energy, the concept of sector coupling must evolve to en- sure a complete transformation towards reliable renewable energy across all sectors. The IRENA Coalition for Action (2022) has updated their definition of sector coupling: "Sector coupling focuses on combining at least two of the different sectors of en- ergy demand and production (i.e. electricity, heating, cooling, transport and in- dustrial processes). Enabling technologies including smart grids, district heating and cooling, short- term and seasonal storage in pumped hydro, batteries, green hydrogen and other Sector coupling Increased efficiency and flexibility Enhanced reliability and safety Cost reduction Support for renewable energy Improved storage and demand response 44 innovative or readily available solutions are applied to balance resource availabil- ity and energy demand. This results in significantly higher levels of direct or indi- rect electrification of end uses and system integration. Adapting energy market designs can effectively support the transformation towards a more electrified and renewables-based energy system." (IRENA, 2022) The European Commission definition for sector coupling: “a strategy to provide greater flexibility to the energy system so that decarbonisa- tion can be achieved in a more cost-effective way.” (Erbach, 2019) A common aspect of these definitions is the integration of different energy sectors to improve decarbonisation cost-effectively. 3.2.2 The main dimensions of sector coupling Transitioning to clean industrial processes can drive new investments, jobs, and growth. Sector coupling coordinates various technologies to optimize use of resources across end-use sectors, facing challenges in technology, finance, and regulation. (IRENA, 2022) Technology related considerations are primarily linked to advancements and develop- ments of technology and maturity of sector coupling solutions across multiple scales. Especially P2X-technologies should be improved so they can be implemented on a large scale. In addition, an increasing amount of renewable energy assets are needed to achieve decarbonisation goals. However, these increased assets require improvements of transmission, distribution and storage assets. (IRENA, 2022) Financial considerations are related to the high costs of technologies such as the P2X chain and infrastructure investments. In addition, lack of financial incentive hinger the adaptation of sector coupling mechanisms. Flexibility is not always rewarded, requiring tailored market designs and viable business models for different regions. (IRENA, 2022) Regulatory considerations require clear definitions and planning for P2X technologies and integrated system planning. The general understanding of ownership of different 45 assets is important and co-ordination among prosumers, DSOs, TSOs, and international arrangements to support sector coupling. (IRENA, 2022) These three dimensions highlight the importance of technology, financial incentives, and regulatory frameworks in advancing sector coupling to achieve a fully renewable energy system. (IRENA, 2022) These main dimensions of sector coupling are summarised in Fig- ure 14. Figure 14. The main dimensions of sector coupling. 3.2.3 Power to X (P2X) and Power to Gas (P2G) P2X is a broad concept for technologies that convert surplus renewable electricity typi- cally from wind, solar, or hydro into other forms of energy or products. The “X” can stand for example: Gas (Power-to-Gas), Liquid fuels (Power-to-Liquid), Heat (Power-to-Heat), Chemicals or synthetic materials. P2X enables the storage, transport, and sectoral inte- gration of renewable energy, helping to balance the grid and decarbonise sectors like heating, transport, and industry. (RWE Innovation Centre, n.d.) Technology Maturity of sector coupling solutions across multiple scales Integration of the entire system, P2X- technologies, new renewable energy assets The needs of infrastructure including transmission distribution and storage Financial High costs and lack of financial incentives hinder sector coupling Market designs and business models for motivating change Cost-efficient resource use and infrastructure investments Regulatory Clear definitions, integrated system planning and legal frameworks are needed Understanding the ownership, operation and maintenance of different assets Cooperation among stakeholders (prosumers, DSOs, TSOs) 46 P2G is a specific P2X pathway where electricity is used to produce gas, typically through electrolysis of water to generate hydrogen. This hydrogen can be used directly as a fuel or combined with CO₂ to produce synthetic methane or stored in the gas grid or used in district heating systems. Thereby enabling decarbonisation of heating and transport sec- tors. (RWE Innovation Centre, n.d.) The European Green Deal promotes P2X as a key enabler of climate neutrality by 2050. P2X technologies are central to integrating renewables at scale, especially in hard-to- electrify sectors. European Energy defines P2X as the process of turning electricity into sustainable green products (the X). The input is renewable power for example from solar panels and wind turbines, and the output is a variety of clean e-fuels or chemicals. (Eu- ropean Energy, n.d.) In addition, according to RWE Innovation Centre (RWE Innovation Centre, n.d.) P2X is a general framework for technologies capable of utilising or storing a future oversupply of electricity from renewables such as wind and solar energy or hy- dropower to turn fluctuating generation from renewables into controllable energy. According to the EU METIS Study (Bossmann, Fournié, Humberset, & Paul, 2019) P2G and P2L solutions, together referred to as P2X technologies, are promising solutions for decarbonising sectors like transport, buildings, and industry. These technologies convert electricity into synthetic gas or liquid fuels. The study emphasizes that P2G is particularly relevant for storing renewable energy, producing hydrogen or synthetic methane of feeding into existing gas infrastructure. 3.2.4 Power to heat Power-to-Heat involves integrating electricity with heating systems. Co-generation of heat and power is a well-known sector coupling method for flexible and efficient energy systems. Large-scale biomass boilers and district heating systems can efficiently use bio- mass. (IRENA, 2022) 47 Solar thermal systems remain crucial for heating buildings, providing competitive heat- ing and reducing pollution. Combining heat pumps and electric boilers with rooftop pho- tovoltaic (PV) systems or battery storage can provide heating or cooling and enhance system stability by offering balancing services. (IRENA, 2022) District heating with thermal storage, electric integration (electric boilers and heat pumps) and CHP plants with renewable fuels are examples of P2H-technologies in Vaasa heating sector. 3.2.5 Heat-to-power Converting heat to energy is a process where thermal energy is transformed into elec- tricity. Applications include electricity generation from industrial processes and renewa- ble energy sources, waste heat recovery, and solar energy utilization. The advantages of this process are improved energy efficiency, clean energy production, and emission re- duction. Disadvantages include high costs and technological challenges. In the future, thermoelectric materials and devices offer promising prospects for enhancing energy ef- ficiency and promoting clean energy solutions. (Greg, 2024) 3.2.6 Power to cooling The cooling needs of buildings are forecasted to increase due to rising global tempera- tures. Mini-split heat pumps provide both heating and cooling. Solar thermal cooling technologies should be considered alongside electricity-driven cooling solutions. Ther- mal energy from solar collectors can operate various cooling systems based on technol- ogies such as absorption chillers, desiccant coolers, and heat ejectors. Many of these systems also have the capability to provide heating in buildings and domestic hot water. Geothermal heat, waste heat, or bioenergy can also be utilized (IRENA, 2022) 48 4 Methodologies and technologies for decarbonisation of the heating sector The heating sector is moving towards electrification through Power-to-Heat technolo- gies, such as heat pumps and electric boilers. Future energy systems that incorporate various energy carriers and fluctuating renewable energy sources regard thermal storage as an affordable, stable, and durable technology for high-efficiency energy storage. Ther- mal energy storage has the potential to provide the flexibility necessary to accommodate the growing share of wind and solar power. (Rämä, Pursiheimo, Sundell, & Abdurafikov, 2024) CHP plants that utilize biomass and industrial-scale heat pumps are vital in Finland for reducing carbon dioxide emissions in district heating. Consequently, some existing dis- trict heat producers must replace fossil fuels with renewable energy sources to reduce emissions. (Haq, Valisuo, Kumpulainen, & Tuomi, 2020) In addition, carbon capture tech- nologies are needed to reduce carbon emissions from CHP plants. In this chapter are presented some methodologies and technologies for decarbonising heating sector. This chapter gives answers to the first research question: − What methods and technologies are utilised in other countries and cities for de- carbonising the heating sector, and what related studies have been conducted? 4.1 Energy efficiency The EU views energy efficiency as a key pillar to meet climate objectives, reduce depend- ence on fossil fuels, and increase the use of renewable energy. The Energy Efficiency First Principle emphasizes the prioritization of cost-efficient energy efficiency measures in shaping energy policy and investment decisions. This principle is considered crucial in complementing the EU's objectives of sustainability, climate neutrality, and green 49 growth. The latest recast of the Energy Efficiency Directive includes a clearer priority for this principle, with formal recommendations and detailed guidelines to ensure its imple- mentation. (The European Council for an Energy Efficient Economy, 2023) The goals and benefits of the Energy Efficiency First Principle are multifaceted. It aims to ensure that only necessary energy is produced, thereby avoiding investments in stranded assets. It also focuses on reducing and managing energy demand in a cost-ef- fective manner. By treating energy efficiency as a source of energy and prioritizing de- mand-side solutions, the principle supports sustainability. Additionally, it increases the resilience of the EU's energy system and promotes the sustainable use of resources. (The European Council for an Energy Efficient Economy, 2023) Energy efficiency provides cost savings and reduces system costs. Operating the system efficiently can improve overall system performance. Flexible supply from renewable sources requires adaptable demand. Shifting heat consumption from peak hours to pe- riods when renewable electricity is more available helps avoid operating fossil fuel plants with high emissions. Energy efficiency improves buildings' thermal storage capacity, as insulated buildings retain heat longer, reducing peak hour demand. (Energy Star, n.d.) 4.1.1 Future district heating network District heating systems have evolved over time through five main generations, each im- proving efficiency, sustainability, and integration with renewable energy sources. These generations of district heating are presented in Table 1. (International Energy Agency, 2023) (U.S. Department of Energy, n.d.) (International District Energy Association, n.d.) 50 Genera- tion Time Period Heat Carrier Temper- ature Range Pipe Type Energy Sources Effi- ciency Key Fea- tures 1st Gen- eration Late 19th – Mid 20th Cen- tury Steam High-pres- sure steam Large, of- ten above ground Coal or oil Low due to high heat losses Early ur- ban heat- ing, espe- cially in in- dustrial cities 2nd Gen- eration 1950s– 1970s Pressur- ized hot water 120– 150 °C Pre-insu- lated steel pipes, of- ten under- ground Coal, oil, and later natural gas Improved, but still reliant on fossil fuels Expansion to resi- dential ar- eas and public buildings 3rd Gen- eration 1980s– 2000s Hot water 70–100 °C Pre-insu- lated, flex- ible plas- tic or steel pipes Mix of fos- sil fuels, waste heat, and some re- newables Better in- sulation and con- trol sys- tems Modern urban de- velop- ments and retro- fits 4th Gen- eration 2010s– Present Very low- tempera- ture wa- ter 30–70 °C Highly in- sulated, optimized for mini- mal losses Renewa- ble energy (solar, ge- othermal, biomass), waste heat, heat pumps High, with integra- tion into smart grids and buildings Sustaina- ble cities, carbon- neutral goals, sec- tor cou- pling 5th gener- ation Future Ultra-low tempera- ture wa- ter Below 30 °C Advanced insulated pipes 100 % re- newable energy sources Maximum efficiency with AI and IoT in- tegration Smart cit- ies, com- plete en- ergy sec- tor inte- gration Table 1. The five generations of district heating systems. 4.1.2 Combined production of district heating and cooling District cooling can be produced using an absorption process, which uses hot water (>80 °C) as the energy source. The process works more efficiently with higher tempera- ture levels. The absorption heat pump operates based on the physical properties of the solvent and absorbent pair. The process includes four parts: absorber, generator, con- denser, and evaporator. The intermediate cooling flow can serve as a waste heat source 51 for a regular compressor heat pump, enhancing overall efficiency for combined heating and cooling production compared to a compressor-only solution. (VTT Oy, Miika Rämä & Krzysztof Klobut, 2020) Combined district heating and cooling production using heat pumps, as seen in Helsinki (Helen, 2015), is a significant example of waste heat utilization. This principle also applies to integrating all refrigeration and cooling processes into district heating production. In both scenarios, the cooling requirement dictates the amount of waste heat used. (VTT Oy, Miika Rämä & Krzysztof Klobut, 2020) D2Grids Project in Europe aims to develop 5th generation urban heating and cooling networks in several European cities. These networks are designed to optimize the use of renewable energy sources by integrating heating and cooling needs, storage capacities, and related thermal or electrical flexibility. (European Commission, 2019) Fifth-generation district heating and cooling systems (5GDHC) use low-temperature heat pumps, enabling both heating and cooling within the same network. The advantages of 5GDHC systems include reducing heat losses and allowing the use of renewable energy sources. The disadvantages are their higher installation and pumping costs. Germany and Switzerland have the most 5GDHC systems in Europe, and their number has grown over the past decade. 5GDHC systems can significantly contribute to carbon neutrality and energy efficiency in district heating and cooling. (Buffa, Cozzini, D'Antoni, Baratieri, & Fedrizzi, 2019) 4.1.3 Demand response for heating Demand response in heating refers to the ability of consumers to adjust their heating energy use in response to external signals such as electricity prices, grid congestion, or renewable energy availability. This is especially relevant in Northern Europe, where heat- ing demand is high due to long, cold winters. 52 Northern Europe is increasingly electrifying its heating systems (e.g., heat pumps), which opens opportunities for DR. Flexible heating loads can help balance intermittent renew- able energy sources like wind and solar. (Mastrucci, van Ruijven, Byers, Poblete-Cazenave, & Pachauri, 2021) Buildings in Northern Europe often have good insulation and thermal inertia, which al- lows for thermal storage delaying or advancing heating without affecting comfort. Smart thermostats and building energy management systems are key enablers. These technol- ogies allow for load shifting, where heating is pre-heated during low-price periods and reduced during peak demand, contributing to grid stability and cost savings. (Mastrucci, van Ruijven, Byers, Poblete-Cazenave, & Pachauri, 2021) Countries like Finland, Sweden, and Denmark are exploring market mechanisms such as time-of-use tariffs and capacity markets to incentivize DR participation. Regulatory frameworks are evolving to support aggregation of residential loads into virtual power plants. Finland has been a pioneer in integrating smart electric heating systems with de- mand response. A key focus is on direct electric heating and heat pumps, which are com- mon in residential buildings. (Mastrucci, van Ruijven, Byers, Poblete-Cazenave, & Pachauri, 2021) A study using the MESSAGEix-Buildings model includes Finland in its regional analysis and shows that electrification of heating, combined with demand-side flexibility, can re- duce CO₂ emissions by up to 52.5 % by 2050 under sustainable development scenarios. Finnish pilot projects have demonstrated that aggregated residential heating loads can participate in balancing markets, offering both economic and grid stability benefits. The model includes regional differentiation, including Northern Europe, and highlights the role of smart heating systems in demand-side flexibility. (Mastrucci, van Ruijven, Byers, Poblete-Cazenave, & Pachauri, 2021) 53 Sweden’s district heating systems and high building insulation levels make it ideal for thermal inertia-based DR. Research highlights how thermal mass in buildings can be used to shift heating loads without compromising comfort. This is especially effective when combined with time-of-use electricity pricing, which incentivizes users to heat dur- ing off-peak hours. Sweden is also exploring automated control systems that adjust heat- ing based on real-time electricity prices and weather forecasts. (Mastrucci, van Ruijven, Byers, Poblete-Cazenave, & Pachauri, 2021) Helen, Fortum and Tampereen sähkölaitos already offer the possibility of selling excess heat to the district heating system at pre-announced prices (VTT Oy, Miika Rämä & Krzysztof Klobut, 2020). 4.2 Improvements for CHP-plants CHP produces electricity and heat which is more efficient than separate electricity and heat systems. CHP efficiency is typically 65-80 %. Reduces emissions during the transition to cleaner energy. Supports solar and wind power in microgrids, improving reliability and resilience. Reduces emissions in sectors that are difficult to decarbonise. CHP can serve as a cornerstone of microgrids, providing reliable electricity and heat. CHP systems can considerably lower carbon dioxide emissions compared to traditional energy systems. CHP can utilize low-carbon fuels like biogas and green hydrogen, further contribution to emission reductions. (Environmental Protection Agency, 2024) 4.2.1 Alternative fuels for CHP-plants CHP can use renewable fuels such as biogas and green hydrogen. Hydrogen can be pro- duced from renewable energy or natural gas with carbon capture. Hydrogen emits zero carbon emissions when burned. Using these fuels can further reduce emissions. (Envi- ronmental Protection Agency, 2024) 54 Power-to-X technologies Methanol and ammonia are hydrogen derivatives that can be used in gas turbines. Hy- drotreated Vegetable Oil (HVO) is a biogenic fuel that can significantly reduce carbon emissions. Other biogenic fuels include biogas, biomethane, biodiesels/FAME, and eth- anol. (Siemens energy, n.d.) Torrefied bio coal Torrefied bio coal pellets are produced through torrefaction, a thermal process at 200- 300 °C in an oxygen-free environment, which improves the energy density and storability of biomass. Different wood materials, including birch, spruce, pine, and mixed hardwood can be used for biochar production. The production cost of torrefied pellets is influenced by raw material costs, fixed and variable costs of torrefaction, and logistics, with an av- erage production cost estimated at 39.5 €/MWh. Torrefied bio coal pellets have the po- tential for large-scale energy production, but further research and support mechanisms are needed to make their use economically viable. (Föhr, Seppänen, Suikki, Soininen, & Ranta, 2015) Biochar and thermally treated wood pellets can replace peat in bioenergy production. By-products from the forest industry, such as bark, chips, and sawdust, are potential raw materials for biochar production. The production potential of biochar in Finland is signif- icant. Biochar is produced through pyrolysis, torrefaction, or steam explosion. Biochar and thermally treated pellets are particularly suitable for pulverized fuel boilers. The production costs of biochar depend on the price of raw materials and the size of the plant. As the price of emission allowances rises, the competitiveness of biochar improves. (Korpijärvi, Björnström, Karlsson, Raitila, & Virkkunen, 2021) 55 4.2.2 Carbon capture utilisation and storage CCUS (Carbon Capture, Utilisation and Storage) refers to the process of capturing carbon dioxide from large sources such as power plants and industrial facilities, transporting it, and storing it in geological formations. This technology encompasses the capture, utili- zation, and storage of CO2 to mitigate its impact on the environment. CCUS plays a crucial role in reducing emissions in sectors that are difficult to decarbonize such as heating sector. It highlights the importance of integrating CCUS with heating systems to reduce emissions from fossil fuel-based heating. It also enables the production of low-carbon hydrogen, which supports the reduction of CO2 emissions in other parts of the energy system. (IEA, n.d.) The number of CCUS projects has increased significantly in recent years but remains be- low the requirements of the net zero scenario. Countries and institutions like the Euro- pean Union, Germany, Japan and United States have made significant investments and legislative changes to promote CCUS. For instance, the United States has allocated $1.7 billion for carbon capture demonstration projects and $1.2 billion for direct air capture hubs. In addition, governments are focusing on public funding, strategic communication, and cross-border collaboration to advance CCUS. For example, the European Commis- sion has allocated approximately $1.5 billion to CCUS projects in the industrial sector. (IEA, n.d.) One example of CCS project is Northern Lights Project that captures CO₂ from industrial sources (like cement and WtE plants), liquefies it, and transports it via ship to an offshore storage site under the North Sea. Northern Lights aims to reduce and remove industrial emissions in Europe by providing CO2 transport and storage services. Their goal is to pre- vent unavoidable emissions from reaching the atmosphere and to provide a safe, per- manent storage option for CO2 to be removed from the air. (Northern Lights, n.d.) Stockholm Exergi signed a deal with Microsoft for permanent negative emissions from a planned bio-CCS facility in Stockholm. Deliveries will start in 2028 and last for ten years. 56 captures CO₂ from a biomass-powered CHP plant that supplies district heating to Stock- holm. This is a direct application of CCS in the heating sector, and because it uses biomass, it can result in negative emissions. This is the world's largest agreement for permanent negative emissions, highlighting the project's importance, quality, and sustainability. The agreement supports ambitious climate goals, aiming to limit global warming and con- tribute to the Paris Agreement targets. The Bio-CCS Facility will remove up to 800,000 tons of CO2 annually. Construction is set to begin in 2025, with sustainable biomass sourcing and permanent geological storage in the Nordic region. (Stocholm Exergi AB, 2024) Net Zero Teesside (NZT) is part of the East Coast Cluster, aiming to be the UK’s first de- carbonized industrial cluster. The cluster consists of power and industrial facilities con- nected to a shared CO₂ pipeline and offshore storage. This system includes facilities that produce both electricity and heat, showing how CCS can be integrated into CHP systems. The project will capture up to 2 million tonnes of CO₂ per year, which will be transported and stored offshore in the North Sea. (BP, 2024) 4.3 Waste heat Waste heat or cold is an inevitable byproduct in district heating or cooling systems, which would otherwise be lost without utilization. Most waste or renewable heat sources are at low temperature levels and thus require heat pumps to be utilized in district heating systems. (VTT Oy, Miika Rämä & Krzysztof Klobut, 2020) The Finnish Energy Industries and the Ministry of Economic Affairs and Employment commissioned a study conducted by VTT. The report reviews energy efficiency and re- newable energy directives for utilizing waste heat, describing potential sources and spe- cial cases. The report introduces various sources of waste heat, including buildings, re- frigeration systems, public facilities, industry, and energy production (figure 18). Direc- 57 tives aim to promote waste heat utilization but are not entirely clear. For example, resi- dential buildings are not considered waste heat sources, and wastewater is classified as renewable sources. The aim is to encourage the use of renewable and waste heat sources to improve energy efficiency and reduce emissions. (VTT Oy, Miika Rämä & Krzysztof Klobut, 2020) Some of the waste heat sources are presented in Figure 15. Figure 15. Example of waste heat sources (adapted from VTT Oy, Miika Rämä & Krzysztof Klobut, 2020V). Industrial waste heat has significant potential, but its use in district heating is often lim- ited by size and distance. As a base load source, it impacts other heat production and requires reliable industrial operations. Typically, from large sources, industrial waste heat is often far from district heating systems or nearby systems too small to use. Originating mainly from wood, paper, metal, and chemical industries, over 95 % of industrial energy consumption follows these sectors. Other local industries also contribute significantly. (Garay-Martinez & Garrido-Marijuan, 2022) One challenge is that the amount of available waste heat can exceed the total district heating demand, and district heating companies must prepare for interruptions and Heat Producers in Buildings Exhaust air heat recovery Greywater heat recovery Building-specific cooling Refrigeration Equipment Commercial refrigeration equipment Ice rinks, artificial ice tracs Freezer storage, other cold storage Public Facilities Wastewater treatment plants Cooling of buildings Ventilation of underground areas Industry Industrial processes Datacenters Agriculture and greenhouses Energy Production Waste heat and condensation heat from energy production District cooling Electrical substations 58 long-term uncertainties in industrial operations. Additionally, district heating companies cannot control the quantity of waste heat, although it remains relatively constant throughout the year. Utilizing industrial waste heat is advantageous, but it may originate from fossil fuels. Over time, industries are expected to transition towards low-carbon energy solutions, which may affect the availability of waste heat. The potential for tech- nical and economic utilization, implementation options, and opportunities in various in- dustries have been extensively recognized. (VTT Oy, Miika Rämä & Krzysztof Klobut, 2020) 4.3.1 Cogeneration and Flue Gas Heat Recovery The heat production of CHP is not classified as waste heat; however, heat recovered from flue gases using heat pumps is considered waste heat. Flue gas heat can be utilized di- rectly or through separate recovery processes enhanced by heat pumps. These pumps use return water from district heating as a heat source, producing high-temperature dis- trict heating. In Finland, flue gas heat recovery from CHP plants using fossil fuels creates tax issues, where more efficient systems result in heavier tax consequences. Flue gas heat recovery is suitable for plants burning moist or hydrogen-rich fuels. Potential waste heat may remain unutilized due to tax reasons, as Finnish taxation makes waste heat utilization unfavourable for plants using taxable fuels. While heat pump electricity is tax- free, a heat tax applies to all produced heat. (VTT Oy, Miika Rämä & Krzysztof Klobut, 2020) 4.4 Heat pumps Heat pumps are efficient and environmentally friendly heating methods that utilize waste heat or ambient heat from the air, water, or ground. The benefits are high effi- ciency because heat pumps can produce 3-4 times more heat than the electricity they consume. In addition, heat pumps use renewable energy, reducing carbon dioxide emis- sions. However, the efficiency of heat pumps can decrease in extremely cold conditions. 59 Heat pumps are anticipated to become more prevalent in both district heating produc- tion and building-specific heating production. They will be more common in Finland's heating sector. Favourable taxation requires separate measurements of electricity con- sumption and heat production. Decisions are needed on whether heat pumps qualify for favourable taxation when heating locally rather than producing waste heat for the dis- trict heating network. (VTT Oy, Miika Rämä & Krzysztof Klobut, 2020) Centralized large-scale heat pumps are utilized in industrial processes, data centres, treated wastewater, and district cooling networks. Decentralized small-scale heat pumps are typically used in buildings and refrigeration equipment. Heat produced in smaller sites is often best used within the site itself, though it can occasionally supply heat to the district heating network. (VTT Oy, Miika Rämä & Krzysztof Klobut, 2020) It is generally more economical for district heating companies or third parties to operate decentralized, smaller heat pumps. From the building owner's perspective, the impact of a single small heat pump in the district heating system or as a source of income is not significant. However, multiple heat pumps together form a larger entity from the per- spective of district heating production. (VTT Oy, Miika Rämä & Krzysztof Klobut, 2020) Interest in heat pumps utilizing waste or renewable heat sources may increase if they are classified in a lower electricity tax category in the future. This requires separate measurements of their electricity consumption and heat production. For small, decen- tralized heat pumps owned by individual operators, the costs of maintenance, manage- ment, and installation may outweigh the benefits. (VTT Oy, Miika Rämä & Krzysztof Klobut, 2020) 60 4.5 Heat accumulators Heat accumulators, also known as TES systems, are devices or systems that store thermal energy for later use, helping to balance energy supply and demand, improve energy ef- ficiency, and integrate renewable energy sources. TES system needs to be tailored to the specific energy system (e.g., solar thermal, CHP, district heating). TES systems can signif- icantly reduce greenhouse gas emissions by enabling greater use of renewable energy and reducing reliance on fossil fuels. Types of heat accumulators: sensible heat storage (SHS), latent heat storage (LHS) and thermochemical heat storage (TCS). (Demchenko, Konyk, & Dekusha, 2023) (Kurpaska, et al., 2020) 4.5.1 Sensible heat storage (SHS) SHS stores energy by increasing the temperature of a solid or liquid. Common materials include water, molten salts, and rocks. An example of this type of storage is hot water tanks. The efficiency of SHS is generally high due to its simple design. (Demchenko, Konyk, & Dekusha, 2023) 4.5.2 Latent heat storage (LHS) LHS utilizes phase change materials (PCMs) that absorb or release heat during phase transitions such as melting or freezing. Examples of PCMs include paraffin wax and salt hydrates. One advantage of LHS is its high energy density at nearly constant temperature. However, it has limitations such as lower thermal conductivity and the cost of PCMs. (Kurpaska, et al., 2020) 61 4.5.3 Thermochemical heat storage (TCS) Thermochemical Heat Storage (TCS) stores energy through reversible chemical reactions. It is characterized by high energy density and potential for long-term storage. Currently, TCS is still under development for large-scale applications. (Demchenko, Konyk, & Dekusha, 2023) 4.6 SMR and nuclear heat VTT is developing a Small Modular Reactor (SMR) for district heating in Finnish cities. The project aims to create a new industrial sector around SMR technology, providing a cost-effective and low-emission solution for heating homes. SMRs can significantly re- duce emissions from district heat production, supporting Finland's goal to phase out coal by 2029. VTT leverages its expertise in nuclear energy and advanced simulation methods. The unit size of VTT’s reactor is 50 MW. (VTT, 2020) 4.7 Geothermal Heat Geothermal heat utilizes the Earth's internal heat for heating purposes. Geothermal en- ergy is continuously available and not dependent on weather conditions. Geothermal energy is almost emission-free. However, installing geothermal systems can be costly and requires specific geographical conditions. Geothermal energy is only available in certain areas. (U.S. Department of Energy, n.d.) 62 4.8 Examples of decarbonisation of the heating sector in other countries and cities There are multiple projects around the world that are developing heating sector and district heating systems. The cities and countries chosen to this study are chosen because they have similar weather conditions than Vaasa. This chapter reviews decarbonisation methods for the district heating systems of Helsinki, Vesterås, Cobenhagen and Sondeborg. Helsinki, Finland Rämä et al (2025) have introduced the concept of dynamically distributed district heat- ing, which allows for the cost-effective transformation of an existing 3rd generation dis- trict heating system into a 4th generation system. The 4th Generation District Heating concept incorporates a more decentralized heat supply utilizing renewable energy sources and/or surplus heat, along with low-temperature distribution. This concept in- cludes large thermal storage units charged during the summer and used in the winter. During the heating season, areas operate in island mode, disconnected from the main system. Helsinki has been used as a case study to assess the concept’s impact on district heating costs and efficiency. The study concluded that the concept can be technically and economically feasible and facilitate the transition towards a district heating system based on renewable energy sources. (Rämä, Pursiheimo, Sundell, & Abdurafikov, 2024) The Esplanade and Katri Vala heating and cooling plants in Helsinki utilize biomass and industrial heat pumps. Additionally, Helsinki is investigating utilization of bedrock and caves as thermal storage. (Haq, Valisuo, Kumpulainen, & Tuomi, 2020) 63 Västerås, Sweden In Västerås, Sweden, a Cold War-era cave system carved into bedrock has been repur- posed into a giant underground heat battery. Hot water is stored in massive underground caverns and is heated using a co-generation plant that burns waste and biomass to pro- duce both electricity and heat. This stored heat is then distributed through a district heating system to warm homes during the cold winters. The system is highly efficient and significantly reduces the need for fossil fuels during periods of peak energy demand. (Rohwer-Kahlmann, 2025) Copenhagen, Denmark Copenhagen's district heating system connects various energy stakeholders to optimize synergies. It includes waste incineration facilities, wastewater treatment plants, CHP plants, heat pumps, electric boilers, thermal energy storage units, and peak and reserve boilers. Waste incineration and wastewater treatment provide stable heat sources for heat pumps linked to the heating network or power supply. Biogas production and solid biomass from these processes are used in CHP plants, which operate with biomass to generate heat and power. Utility-sized heat pumps co-generate heat and cooling for com- mercial buildings, data centres, and industrial processes, avoiding peak power periods to optimize efficiency. Sector coupling of heating, cooling, and power enhances system performance. Peak and reserve boilers fired by natural gas, biogas, or bio-oil secure the energy system and provide emergency reserves. (Danfoss, 2024) The Greater Copenhagen Utility HOFOR has partnered with Danfoss to optimize Copen- hagen's district heating network using AI-powered software. The software uses weather forecasts and real-time data to optimize supply temperature, improving efficiency and reducing fuel consumption and CO2 emissions. (Danfoss, 2024) 64 Sonderborg, Denmark Energy efficiency and diverse heating sources include various systems and technologies. The base load is managed by a waste incineration plant that produces both heat and power, and a biomass plant is used for mid-load. Peak load boilers utilize bio-oil and natural gas for peak load reserve and backup capacity, along with thermal energy stor- ages. Additional heating sources come from geothermal heat, electrically driven heat pumps, and direct electric boilers. In the industry sector, a 6 MW substation installed by Danfoss delivers surplus heat (waste heat) from production processes to the district heating network. Sources of surplus heat in the industry sector include production pro- cesses, excess heat from air compressors, process cooling, and data centres. The district heating network functions on a two-way basis. (Danfoss, 2024) 4.9 Evaluation of the methodologies and techniques In this chapter are evaluated the presented options along with their strengths, opportu- nities, weaknesses and threats for decarbonising strategy for Vaasa heating sector. The SWOT analysis of different technologies is presented in Table 2. 65 Heat Pumps Strengths: High efficiency in converting energy to heat. Can utilize renewable energy sources. Reduces greenhouse gas emissions. Many applications in residential and industrial. Weaknesses: High initial installation costs. Efficiency can decrease in extremely cold cli- mates. Requires electricity to operate. Opportunities: Growing market for renewable energy solutions. Government incentives and subsidies Advancements in technology improving efficiency and reducing costs. Threats: Fluctuating electricity prices. Competition from other RES technologies. Regulatory changes affecting incentives. Waste heat recovery Strengths: Improves overall energy efficiency. Reduces operational costs by utilizing waste heat. Can be applied in various processes. Weaknesses: High initial investment costs. Utilisation of low-grade heat. Dependence on continuous industrial operations. Opportunities: Growing emphasis on energy efficiency and sus- tainability. Government incentives. Advancements in heat recovery technologies. Threats: Fluctuations in industrial activity affecting waste heat availability. Regulatory changes impacting project feasibility. Competition from other energy efficiency assets. Small modular reactors Stre