Digitalisation : opportunities for heating and cooling.
Date: 2019-04-26
Institutions: Joint Research Centre
Subjects: air conditioning, building, data protection, digital technology, digitisation, energy consumption, energy efficiency, energy research, energy saving, heating, impact of information technology, research report

Digitalisation: Opportunities for 
heating and cooling 

LYONS, L. 

2019 

EUR 29702 EN 

 
 
 
This publication is a Technical report by the Joint Research Centre (JRC), the European Commission’s science 
and knowledge service. It aims to provide evidence-based scientific support to the European policymaking 
process. The scientific output expressed does not imply a policy position of the European Commission. Neither 
the European Commission nor any person acting on behalf of the Commission is responsible for the use that 
might be made of this publication. 

Contact information 
Name: 
Email: 

Lorcan Lyons 
lorcan.lyons@ec.europa.eu 

EU Science Hub 
https://ec.europa.eu/jrc 

JRC116074 

EUR 29702 EN 

PDF 

ISBN 978-92-76-01438-6 

ISSN 1831-9424 

doi:10.2760/00116 

Luxembourg: Publications Office of the European Union, 2019 

© European Union, 2019 

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How to cite this report: LYONS, L., Digitalisation: Opportunities for heating and cooling, EUR 29702 EN, 
Publications Office of the European Union, Luxembourg, 2019, ISBN 978-92-76-01438-6, doi:10.2760/00116, 
JRC116074 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of contents 

Acknowledgements ................................................................................................ 1 

Abstract ............................................................................................................... 2 

1 

Introduction .................................................................................................... 3 

1.1  What is digitalisation? ................................................................................. 3 

1.2  Why is it important for heating and cooling? .................................................. 4 

2  Smart buildings ............................................................................................... 7 

2.1  Examples .................................................................................................. 7 

3  Heat pumps .................................................................................................... 9 

3.1  Examples .................................................................................................. 9 

4  District heating and cooling ............................................................................. 10 

4.1  Examples ................................................................................................ 11 

5  Smart energy systems ................................................................................... 12 

5.1  Examples ................................................................................................ 12 

6  Electrification ................................................................................................ 14 

6.1  Examples ................................................................................................ 14 

7  Business models ............................................................................................ 16 

7.1  Heat pumps ............................................................................................. 17 

7.2  District heating and cooling ....................................................................... 17 

7.3  Examples ................................................................................................ 18 

8  Communities, cities and regions ...................................................................... 19 

8.1  Examples ................................................................................................ 20 

9  Case study: Blockchain................................................................................... 22 

9.1  Examples ................................................................................................ 25 

10 

Energy consumption .................................................................................... 27 

10.1 

Buildings ............................................................................................. 27 

10.1.1  Examples ......................................................................................... 29 

10.2 

Data centres ....................................................................................... 30 

10.2.1  Examples ......................................................................................... 31 

11  Other opportunities and challenges ............................................................... 33 

11.1 

11.2 

11.3 

11.4 

11.5 

11.6 

11.7 

Privacy and data .................................................................................. 33 

Cybersecurity ...................................................................................... 33 

Standardisation and interoperability ....................................................... 34 

Economic activity ................................................................................. 35 

Skills .................................................................................................. 35 

Social impacts ..................................................................................... 36 

Digitalisation for policymaking ............................................................... 36 

i 

 
12 

Research and innovation .............................................................................. 38 

12.1 

Examples ............................................................................................ 39 

13 

Conclusion – towards beneficial digitalisation .................................................. 40 

13.1 

13.2 

13.3 

13.4 

13.5 

Energy policy initiatives ........................................................................ 40 

Digital policy initiatives ......................................................................... 41 

Standardisation and interoperability ....................................................... 41 

Research and innovation ....................................................................... 42 

Other opportunities and challenges ........................................................ 42 

References ......................................................................................................... 43 

List of abbreviations and definitions ....................................................................... 50 

List of figures ...................................................................................................... 51 

List of tables ....................................................................................................... 52 

ii 

 
 
Acknowledgements 

This  report  was  written  by  Lorcan  Lyons,  supervised  by  Johan  Carlsson  under  the 
direction  of  Efstathios  Peteves.  Helpful  feedback  and  suggestions  were  also  received 
from  other  colleagues  within  the  Unit  (Knowledge  for  the  Energy  Union):  Konstantinos 
Kavvadias, Faidra Filippidou, Juan Pablo Jimenez Navarro, Aliki Georgakaki and Carmen 
G. Moles, as well as from Eva Hoos, Niels Ladefoged, Sylvain Robert and Karlis Goldstein 
of  the  Directorate-General 
for  Energy  of  the  European  Commission.  Georgia 
Karamountzou provided publications support. 

1 

 
Abstract 

Digitalisation  is  the  innovative  use  of  information  and  communications  technologies,  in 
particular  the  large-scale  rollout  of  smart  devices  and  sensors,  and  the  use  of  big  data 
collection  and  analysis.  In  the  context  of  meeting  the  energy  savings  targets  of  the 
European Union and improving the energy efficiency of its buildings, this Joint Research 
Centre  Technical  Report  looks  at  the  technologies,  opportunities  and  challenges 
presented  by  digitalisation  for  heating  and  cooling.  The  report  provides  real-world 
examples and highlights key policy initiatives and research projects. 

Digitalisation  in  heating  and  cooling  has  received  less  attention  than  digitalisation  in 
other areas, such as household appliances or transport. Yet heating and cooling accounts 
for  around  half  of  final  energy  consumption.  Therefore  it  is  essential  to  better 
understand  the  potential  of  digitalisation  for  these  end  uses,  and  the  technologies  with 
most relevance, in order to develop appropriate policies and prepare the ground for new 
investment. 

By analysing the available literature, it is shown that there is a significant opportunity for 
energy  savings  and  other  benefits.  However,  there  is  also  a  possibility  that  energy 
savings might not be as large as expected, for example due to the energy consumption 
of  digital  technologies  themselves,  and  there  are  important  risks  to  be  anticipated  in 
other areas (privacy, cybersecurity, the digital divide, etc.). New policies – both energy 
and  digital  –  could  mitigate  those  risks  and  ensure  that  the  best  technologies  and 
business models prevail. 

2 

 
1  Introduction 

This  JRC  Technical  Report  provides  an  overview  of  technologies,  challenges  and 
opportunities associated with digitalisation for heating and cooling, along with real-world 
examples  and  policy  initiatives.  Until  now,  digitalisation  in  heating  and  cooling  has 
received less attention than digitalisation in other areas, such as appliances or transport. 
Yet  heating  and  cooling  is  vital  for  comfort  at  home  and  at  work,  and  (although  the 
report focuses mainly on buildings) process heat represents about two-thirds of industry 
energy  demand.  Moreover,  and  perhaps  more  importantly,  energy  systems  are 
increasingly  interlinked.  Therefore  it  is  essential  to  better  understand  the  potential  of 
digitalisation for heating and cooling, and the technologies with most relevance, in order 
to develop appropriate policies and prepare the ground for new investment. 

1.1  What is digitalisation? 

Digitalisation  is  the  innovative  use  of  information  and  communications  technologies 
(ICT), in particular the large-scale rollout of smart devices and  sensors, and the use  of 
big  data  collection  and  analysis  (Table  1).  It  can  be  used  to  optimise  flows  of  heating 
and  cooling,  for  example  in  response  to  prices  and  demand,  as  well  as  to  reduce  costs 
and enable new services. 

A  smart  meter  is  an  electronic  device  that  records  data  on  energy  consumption  and 
communicates  it  to  suppliers  for  monitoring  and  billing.  More  advanced  models  enable 
two-way  communication  between  the  meter  and  the  supplier,  sometimes  wirelessly. 
According  to  Recommendation  2012/148/EU,  which  covers  smart  meters  for  electricity 
and  gas,  they  should  update  frequently  enough  to  allow  the  information  to  be  used  to 
achieve  energy  savings,  and  they  should  enable  consumer  participation,  particularly 
when paired with advanced tariff schemes. Similar devices exist for district heating and 
cooling.  Under  the  revised  Energy  Efficiency  Directive  (EED,  Article  9c),  a  transition  to 
remotely  readable  meters  and  heat-cost  allocators  (radiator-mounted  devices  for 
metering individual apartment buildings) is required to be completed throughout the EU 
no later than 2027. 

IoT  (Internet  of  Things)  is  the  ever-growing  network  of  physical  devices  and  objects 
that feature an IP address for Internet connectivity, and the communication that occurs 
between those objects and other Internet-enabled devices and systems. It allows remote 
devices  to  be  easily  monitored  and  controlled  by  facilities  managers  or  households  via 
smartphones or tablets. 

IoT  can  allow  households  to  remotely  control  their  heating  and  cooling  equipment,  for 
example by combining temperature data with a set monthly budget. On the supply side, 
a  key  application  for  many  IoT  platforms  is  to  use  sensor  and  machine  data  in 
conjunction  with  analytical  software  to  optimise  reliability,  increase  availability  and 
reduce  operating  costs.  Solutions  range  from  simple  software  packages  to  much  more 
expensive IoT platforms. 

IoT  is  closely  related  to  big  data  and  cloud  computing.  IoT  collects  data  and  takes 
action  based  on  specific  rules,  cloud  computing  stores  the  data  and  big  data  analytics 
enables processing, interpretation and decision-making. In combination, they merge the 
physical and virtual worlds, creating smart environments. 

The large volumes of data generated from equipment, machines and people, along with 
dramatic increases in computational power, are allowing machines to learn and become 
intelligent, 
in  some  cases  surpassing  human  analytical  capabilities.  Artificial 
Intelligence (AI) is the ability of machines and systems to acquire and apply knowledge 
and  to  behave  intelligently  (OECD,  2016).  It  can  indicate  any  technology  (software, 
algorithm,  set  of  processes,  robot,  etc.)  that  is  able  to  function  appropriately  with 
foresight of its environment (EPSC, 2018). 

3 

 
Digitalisation provides significant opportunities for innovation, new business models, and 
smart  products  and  services.  In  addition,  new  heating  and  cooling  technologies  could 
emerge that would be enabled and amplified by digitalisation. For example, clothes and 
other textiles could be redesigned to incorporate heating and cooling, which would be a 
radical  shift  from  space  heating  to  human  comfort,  with  huge  potential  for  energy 
savings (Futures CoLab, 2018). 

Table 1. Elements of digitalisation for heating and cooling 

Benefits 

Energy transition (energy bill savings, climate change mitigation, 
reduced air pollution), greater comfort and new services, innovation and 
competitiveness, improved policymaking 

Decarbonisation (energy 
savings, renewable energy) 

Decentralisation (distributed energy; 
district energy; smart buildings, 
communities and cities) 

Barriers 

For households: need for expert knowledge, multiple changes and 
customisation 

For housing developers: risk of delivering obsolete technology 

Drivers 

Cost reduction > New revenue streams > Platforms > Distributed 
ledger technologies (Blockchain) 

Components  Mobile apps, notifications, dashboards, gamification, integration 

services, etc. 

BIM, BEMS, GIS, Big data analytics, AI 

Data storage 

Cloud 

IoT hub, external data sources 

Controls and equipment, smart HVAC, DHC, water heaters, 
interconnection, network control 

Smart meters, sensors, drones 

Fixed and mobile broadband networks (3G, 4G, 5G) 

Frameworks  Cybersecurity 

Interoperability and standardisation 

Policies on privacy, data ownership and social impacts 

BIM  =  Building  Information  Modelling,  BEMS  =  Building  Energy  Management  Systems,  GIS  =  Geographic 
Information  Systems,  AI  =  Artificial  Intelligence,  IoT  =  Internet  of  Things,  DHC  =  District  Heating  and 
Cooling, HVAC = Heating, Ventilation and Air Conditioning. 

1.2  Why is it important for heating and cooling? 

Heating  and  cooling  is  the  largest  end  use  of  energy  Europe.  According  to  the  latest 
available  data,  it  is  responsible  for  around  50 %  of  final  consumption  (Figure  1). 1 

1 Final energy consumption is the energy that users purchase in order to enjoy a service 
such as heating or cooling. 

4 

 
                                           
Although cooling only accounted for 3.8 %  of final energy in 2018, demand throughout 
Europe is expected to rise rapidly and is already quite significant in a few Member States 
(Nowak, 2018). 

Figure 1. The other half: Final energy in the European Union by end use, 2015 

Source: HRE, 2018. 

Buildings  are  responsible  for  around  80 %  of  final  energy  consumption  for  heating  and 
cooling in the EU. Adoption and enforcement of building codes and deployment of more 
efficient equipment have improved the energy intensity of heating and cooling, offsetting 
other factors (Figure 2), but the energy intensity of heating per unit of floor area is still 
high, in part because of the cold climate. Also, although building energy codes in Europe 
are  ahead  of  other  world  regions,  about  75 %  of  the  existing  stock  dates  from  before 
such codes were implemented. 

In  recent  years  however,  progress  seems  to  have  ground  to  a  halt:  weather-corrected 
heating  energy  consumption  has  been  quite  flat  since  2010  (Thomas,  2018).  Energy 
renovation  is  not  happening  fast  enough  (the  annual  rate  needs  to  increase  to  2-3 % 
from 1.2 % today (Fabbri, 2017)) or deep enough (typical improvements in the 10-12 % 
range  are  insufficient  and  below  the  cost-effective  potential)  (IEA,  2016a).  Moreover, 
average  heating  and  cooling  equipment  efficiencies  are  still  far  below  Best  Available 
Technology. 

5 

Everything elseSpace heatingProcess heatingHot waterSpace coolingProcess coolingCookingHeating and cooling12 606 TWh 
 
Figure 2. Household energy consumption for space heating (normal climate) in the 
European Union (Mtoe), 2000-2016 

Source: ODYSSEE, 2018. 

Digitalisation is an opportunity to increase the share of heating and cooling demand met 
by  a  wide  range  of  renewable  energy  sources.  About  19 %  of  Europe's  heating  and 
cooling  consumption  is  met  by  renewable  energy  (mostly  solid  biomass)  (EEA,  2018). 
That  share  has  been  rising  over  time  but  slowly,  and  slower  than  the  share  of 
renewables  in  electricity  overall.  Technologies  using  renewables  to  deliver  heating  and 
cooling  in  buildings  can  be  deployed  in  individual  units  of  small  capacity  or  in  DHC  in 
larger  capacities.  However,  their  penetration  is  very  low  despite  being  promoted  by 
energy efficiency and renewables policies that increasingly include dedicated heating and 
cooling measures. 

The Heat Roadmap Europe project showed that heating and cooling can be decarbonised 
affordably with existing technologies and that doing so would save primary  energy too, 
allowing renewable energy capacity to be better used and reducing pressure  on power-
sector  infrastructure  (HRE,  2018).  However,  radical  change  is  needed  and  digitalisation 
can be part of that change. 

Digitalisation  reduces  the  overall  cost  of  decarbonisation  by  optimising  operations, 
planning and business models, and by connecting producers of heat and cooling, users, 
local  stakeholders  and  energy  markets  (Rothballer,  2018).  It  contributes  to  changes  in 
energy  market  design  and  is  a  driver  of  smart  buildings,  smart  communities,  smart 
cities, distributed energy and district heating and cooling (DHC). 

Yet in many buildings today, control is limited to a room thermostat at most. And even 
when thermostats are programmable, many building users do not know how to do so, or 
choose not to. There is still low awareness of the benefits of digitalisation for heating and 
cooling, or even that the technologies are available. In many cases, there is also a lack 
of good distribution, installation and service support. 

Barriers  include  the  need  for  expert  knowledge,  accumulation  of  multiple  (albeit  low-
cost) changes, and customisation. For households, in terms of disruption and the length 
of  intervention  required,  digitalisation  falls  somewhere  between  a  lighting  upgrade  and 
the  addition  of  insulation  (Olsthoorn  et  al.,  2017).  For  housing  developers,  the  time  to 
plan and build houses can be long (around five years), so the risk of delivering obsolete 
technology is a further barrier. 

6 

0501001502002503002000MoredwellingsLargerhomesMorecentralheatEnergysavingsBehaviour2016 
 
2  Smart buildings 

There  are  applications  of  digitalisation  for  heating  and  cooling  in  design  and  planning, 
across  production,  distribution  and  use,  and  in  the  development  of  smart  energy 
systems that integrate multiple sources of heat and cold.  This report focuses mainly on 
buildings and in particular residential buildings, which account for 75 % of floor space in 
Europe (Pavel and Blagoeva, 2018). However, much of what is discussed is also relevant 
for the service sector and small- and medium-sized enterprises (SMEs). 

At  the  design  stage,  a  growing  number  of  simulation  tools  are  available  to  improve 
understanding  of  the  interaction  of  the  building  components  that  contribute  to  energy 
demand.  In  particular,  the  Building  Information  Modelling  (BIM)  approach  creates  what 
can  be  called  a  "digital  twin",  recreating  the  entire  building  with  all  its  systems  on  a 
computer  and  then  simulating,  testing  and  correcting  it  (Siemens,  2018).  The  first  two 
parts of a new International Organization for Standardization standard were published in 
January  2019,  providing  a  framework  for  managing  information  through  collaborative 
working using BIM (ISO, 2019). 

A  low-cost  first  step  is  regular  feedback  (e.g.  via  smart  meters,  in-house  displays, 
energy  bills  or  emails).  However,  several  studies  show  that  it  is  hard  to  engage 
households  in  energy  issues  (de  Beaufort  et  al.,  n.d.),  especially  if  the  information 
received  is  not  clear,  action-oriented  and  timely  or  frequent  enough.  The  revised  EED 
(Article  10a  and  Annex  VIIa)  lays  down  new,  clearer  and  strengthened  rules  on  the 
billing  and  consumption  information  to  be  provided  to  the  final  user  of  thermal  energy 
supplied from collective sources.  

There  are  far  fewer  systems  on  the  market  that  go  beyond  basic  information  and 
visualisation  to  carry  out  advanced  analytics.  Building  energy  management  systems 
(BEMS)  combine  software  with  smart  thermostats  and  sensors  to  anticipate  behaviour 
and use weather forecasts and energy prices to predict demand and manage heating and 
cooling.  The  aim  is  to  optimise  energy  consumption  and  maintenance  (with  remote 
monitoring  replacing  some  inspection  visits),  enable  demand  response,  and  improve 
comfort and environmental quality.  

BEMS  have  been  around  for  a  long  time  but  improvements  in  sensors  and  control 
technology,  and  the  use  of  computers,  have  made  them  increasingly  sophisticated  and 
reduced  costs.  Increasingly,  systems  can  be  interlinked,  for  example  by  using  sensors 
embedded  in  smart  lighting  to  tailor  heating  and  cooling.  Systems  can  be  managed  by 
algorithms with minimal input from humans, or by authorised users on smartphones. AI 
can  greatly  enhance  the  potential  by  balancing  energy  saving  and  user-customised 
comfort. 

As regards individual items of equipment, air conditioning for example can be improved 
using variable-speed drives (VSDs) and optimisation of controls (IEA, 2008).  VSDs can 
modulate  blower  fans  and  pumps  based  on  actual  demand  for  heating  and  air 
conditioning. Some have a built-in controller based on a set of programmed instructions, 
others  need  an  external  controller.  Other  relevant  technologies  include  switchable 
vacuum  insulated  panels,  switchable  mirror  film  on  windows,  automatic  shades, 
integrated cooling of ICT equipment and integrated control of clean room conditions (BIO 
et al., 2008). 

2.1  Examples 

Temperature monitoring and heating control solutions are provided by many companies, 
e.g. Siemens or Centrica (Hive Active Heating). In the longer term, voice-activated home 
assistants  such  as  Amazon’s  Echo  or  Google  Home  aim  to  be  the  single  interface  for 
home energy systems, with the utility as the enabler. 

LeanHeat  from  Finland  (46  %  owned  by  Danfoss)  provides  smart  building  control  and 
maintenance based on IoT and AI, in 80 000 apartments so far (LeanHeat, 2018). They 

7 

 
claim 10-20 % energy cost savings for building  owners with smart heating control, and 
up to 30 % savings in technical maintenance costs. 

WattTime incorporates software in smart thermostats that adjusts the amount of electric 
heating and cooling (e.g. on-off cycles of air conditioners) according to the availability of 
renewable energy using real-time data from power-grid operators. 

Tado is a smart thermostat and air conditioning control startup headquartered in Munich 
with  total  funding  of  USD  102  million  since  2011  (Techcrunch,  2018).  It  plans  to  add 
proactive  boiler  maintenance,  via  data  its  app  collects  and  analyses,  and  a  network  of 
40 000  heating  engineer  partners.  Longer  term,  Tado  aims  to  benefit  energy 
management overall, including at the grid level, through partnerships with local utilities 
(pilots are underway) that enable its customers to opt in to demand-response  schemes 
so  that  a  home’s  heating  and  cooling  systems  are  used  outside  of  peak  times  where 
possible. This could be as simple as turning the heat down slightly without it being very 
noticeable  or  heating  the  home  a  little  ahead  of  time.  This  can  make  a  tangible 
difference  to  grid  stability.  Tado's  sales  are  around  half  to  households  and  half  to 
businesses,  with  investors  including  E.ON  and  Amazon  (which  has  also  invested  in 
ecobee, another smart thermostat company). 

BeeBryte  is  based  in  France  and  Singapore  and  provides  automatic  control  of  heating 
and cooling equipment based on weather forecasts, occupancy, usage and energy prices. 
It claims up to 40 % savings, using algorithms, cloud computing and IoT, and predictive 
analytics. 

The  “adapterm”  service  offered  by  the  energy  services  company  Techem  uses 
temperature measurements from sensors in individual heat-cost allocators in apartment 
buildings  with  central  heating  to  control  and  optimise  flow  temperature  and  operation 
(Techem, 2019). 

The  smart  heating  service  offered  by  Fourdeg  in  Sweden  takes  into  account  the  local 
weather forecast, number of open windows, number of occupants and characteristics of 
each  room  (Gunnarson  and  Melin  Hamber,  2018).  Heating  is  operated  wirelessly  using 
thermostatic  radiator  valves  and  gateways,  compatible  with  other  IoT  devices  and 
building automation. 

Among other functions, the Trecobat smart home app developed in France can be used 
to  improve  maintenance.  It  would  allow  a  heat  pump  to  send  an  alert  whereby  the 
customer  receives  either a tutorial by text message or an appointment for a technician 
to intervene (Chauvot, 2018). 

The Cosy system by the company geo is an electric heating management system for the 
Nordic market with advanced controls, including integration with Nord Pool Spokt Market 
and  potential  for  peak  lopping  (smartEn,  n.d.).  Tiko  Energy  Solutions  provides  smart 
home energy systems in France and Germany that connect residential and SME storage 
assets to make a large-scale virtual battery, raising finance through the sale of primary 
balancing  power  to  the  electricity  grid  (Hill,  2018).  Finally,  Voltalis  is  another  example 
from  France  of  a  company  providing  a  demand-response  solution  free  of  charge  by 
selling flexibility to wholesale electricity markets.  

In  Amsterdam's  The  Edge  building,  intelligent  ventilation  systems  and  connected  LEDs 
are  responsive  to  real-time  data  from  sensors  or  occupant  commands.  This  allows 
lighting  levels,  humidity  and  temperature  to  be  adapted  to  building-user  preferences, 
while  also  improving  energy  efficiency.  In  addition,  the  data  is  shared  with  occupants, 
enabling  employees  to  locate  workspaces  that  match  their  thermal  comfort  needs 
(Bloomberg in IEA, 2017a). 

Sello  is  a  shopping  centre  in  Finland  with  24  million  visitors  per  year  (smartEn,  n.d.). 
Sello  has  been  working  with  Siemens  since  2003  and  uses  a  cloud  platform  to  monitor 
and  optimise  its  ventilation  units,  room  sensors  and  lighting.  The  results  include  better 
air flow, 680 MWh in electricity savings and 800 MWh of district heating. 

8 

 
3  Heat pumps 

A  heat  pump  transforms  low-temperature  heat  from  the  air,  water  or  the  ground,  or 
from  waste  heat,  into  high-temperature  heat.  Heat  pumps  are  used  to  heat  and  cool 
buildings, as well as for some industrial applications needing low-temperature heat. 

Heat  pumps  are  particularly  appropriate  when  both  heating  and  cooling  are  required  in 
the same location and they can be four to five times more efficient than condensing gas 
boilers  (IRENA,  2017).  In  the  EU,  heat  produced  by  heat  pumps  counts  as  renewable, 
subject  to  certain  energy  performance  requirements.  The  overall  environmental  impact 
can  be  improved  even  further  relative  to  fossil  alternatives  through  continued  progress 
in decarbonisation of the electricity grid and uptake of alternative refrigerants. 

The  European  heat  pump  market  grew  every  year  from  2013  to  2017.  More  than 
11 million  heat  pumps  had  been  installed  by  the  first  half  of  2018,  with  sales  of 
1.11 million  units  in  2017  alone  (Nowak,  2018).  About  85 %  of  homes  in  Austria  and 
45 %  in  Germany  use  heat  pumps  (IRENA,  2017);  with  both  countries  having  offered 
special electricity tariffs for heat pump owners. 

Heat pumps can be connected to storage in three ways (Nowak, 2018): 

—  a water tank can store domestic hot water and a second tank can store heat or cold 

for later distribution; 

—  if equipped with floor or wall heating, the thermal mass of a building can be used to 

shift demand; 

—  a battery can be used to run the heat pump at night. 

In  the  first  two  cases  above,  the  system  provides  a  “thermal  battery”  to  the  grid: 
electricity is used in times of surplus to heat up the storage or the building core. In times 
of  supply  shortage,  the  stored  energy  is  distributed  to  maintain  comfort.  Heat  pumps 
therefore  provide  load-shaping  and  load-shifting  services.  In  the  third  case,  a  battery 
increases the independence of the system. While battery storage is still expensive, costs 
are rapidly coming down. 

A heat pump system with thermal and battery  storage  can provide heating and cooling 
for several hours or even a few days without needing grid electricity. This will help move 
demand  off  peak,  and  appropriate  business  models  would  make  that  economically 
advantageous.  Demand-shifting  will  also  probably  be  cheaper  than  maintaining  reserve 
power plants or building new power generation and distribution infrastructure. 

Digitalised heat pumps need sensors providing temperature data, access to weather data 
(in particular solar irradiation), access to electricity price signals, intelligent controls that 
can  understand  the  thermal  behaviour  of  the  building  and  user  comfort  requirements; 
and smart controls that can use all that data to optimise the service (Nowak, 2018). 

In  the  long  term,  individual  heat  pumps  should  supply  the  majority  of  demand  in  low 
heat-density  areas  (typically  detached  houses  outside  towns  and  cities)  (HRE,  2018). 
However,  heat  pumps  are  also  increasingly  used  in  DHC.  Starting  from  a  few  hundred 
kW, they can reach capacities of several MW – sufficient to supply a city like Helsinki or 
Stockholm.  Combining  central  and  decentralised  heat  pumps  with  energy  grids  and 
storage  will  provide  flexibility  and  stability  to  the  electricity  grid  in  the  most  efficient 
manner (Nowak, 2018). 

3.1  Examples 

Currently, the largest installation of this kind is the Katri Vala heating and cooling plant 
in  Helsinki:  five  large  heat  pumps  use  wastewater  and  the  return  line  of  the  district 
heating  grid  as  energy  sources;  they  can  generate  90 MW  of  heating  and  60  MW  of 
cooling.  In  addition,  buildings  serve  as  solar  collectors  and  waste  heat  from  ventilation 
processes  is  fed  into  the  grid  (Nowak,  2018).  The  GreenHP  project  analysed  the  load-
shifting potential of heat pumps for Germany (www.greenhp.eu). 

9 

 
4  District heating and cooling 

DHC systems are a major contributor to emissions reduction and primary energy savings 
in  several  Member  States.  They  consist  of  networks  of  insulated  pipes,  pumps,  energy 
sources and end users. Heat exchangers transfer heat from a district heating network to 
a building's own heat and hot water systems, while return water is pumped back to the 
heating plant. District cooling uses the same principles. 

There are more than 6 000 district heating  systems across  Europe and many cities and 
regions envisage a growing role for them in their energy plans; some are also looking at 
district cooling, which is much less widespread as it requires more specialised conditions 
and more complex design (Euroheat & Power in IEA, 2016a). 

Modern  DHC  is  inherently  flexible  in  terms  of  source,  size  and  load.  Although  currently 
dominated by fossil fuels such as coal and gas, it can use any fuel including excess heat 
that is currently being wasted, renewables (solid biofuel, solar and geothermal) and co-
generation.  Each  network  develops  according  to  local  circumstances  and  adapts  to 
continuous innovation such as digitalisation. 

District heating could cost-effectively meet at  least half of heating demand in 2050, up 
from 12 % today, with large-scale heat pumps and other proven technologies providing 
heat from renewable sources (HRE, 2018). An important advantage of DHC is that HVAC 
systems  in  buildings  can  be  simpler  and  easier  to  install,  reducing  maintenance  costs, 
freeing up space and improving safety (Nguyen and Hoang, 2018). Increasing the share 
of  district  heating  in  combination  with  cheap  thermal  storage,  heat  pumps  and  co-
generation can help stabilise the electricity grid as well (Rothballer, 2018).  

DHC can become more efficient, intelligent and cheaper thanks to automation and other 
digital  technologies  that  enable  data  management  relating  to  temperatures,  flows, 
pressure and leak detection (de Beaufort et al., n.d.). Under the revised EED, meters in 
DHC  networks  installed  or  replaced  as  of  25  October  2020  will  have  to  be  remotely 
readable, and any meters already installed will have to be rendered remotely readable or 
replaced  by  1  January  2027.  While  this  requirement  was  introduced  to  provide  better 
and  more  frequent  consumption  information  to  customers,  it  will  also  open  up  new 
opportunities for network operators in terms of optimisation, leak or fault detection, etc. 
(see for example Staerk, 2016).  

Smart  DHC  network  controllers  would  help  manage  demand,  enabling  more  dynamic 
control  of  system  temperatures,  which  would  reduce  heat  loss  and  therefore  primary 
energy  demand.  Buildings  would  communicate  with  each  other  and  with  energy 
production  and  distribution  systems,  to  continuously  exchange  information  about  which 
energy  sources  are  available  and  learn  to  make  the  system  more  efficient  over  time 
(STORM,  2018).  Smart  optimisation  and  control  technologies  as  well  as  IoT  would  also 
enable better co-operation with service providers and equipment manufacturers. 

4th  generation  DHC  is  characterised  by  low-temperature  heat  supply,  integration  of 
ambient, waste and  solar heat as well as district cooling, heat recycling, power-to-heat 
flexibility  of  co-generation,  storage  systems  and  intelligent  control  systems  (continuous 
real-time  monitoring).  In  countries  where  DHC  has  been  in  place  for  a  long  time,  4th 
towards  design  and 
generation  systems  are  moving  beyond  concept  stage 
implementation.  The  enhancements  of  4th  generation  technology  may  be  necessary  in 
order for Nordic district heating networks to maintain viability as a long-term low-carbon 
solution (IEA, 2016b). 

New  district  heat  technologies  offer  several  important  advantages.  First,  energy 
efficiency is improved both on the production and distribution sides. Second, because of 
the  lower  supply  temperatures,  the  co-generation  power-to-heat  ratios  can  be  raised, 
distribution  losses  reduced,  and  renewable  heat  sources  easily  integrated.  Finally,  the 
system  as  a  whole  provides  more  flexibility  in  both  electricity  and  heat  supply  – 
important for integrating renewables (Figure 3). 

10 

 
Figure 3. Renewables and district heating: Shares by Member State 

Source: Vad Mathiesen, 2018. 

Accessible and still largely unexploited opportunities lie in the recovery and reuse of low-
temperature  heat  from  urban  sources  such  as  transport  systems,  shops  and  offices, 
wastewater  networks,  data  centres,  harbours,  rivers,  lakes,  seawater  and  electrical 
substations.  For  example,  waste  heat  recovered  from  sewage  systems  in  urban  areas 
with  more  than  10 000 inhabitants  could  cover  5 %  of  total  heat  demand  (ReUseHeat, 
2018), and could provide heating and cooling through individual systems as well as DHC. 
Only a limited number of small-scale examples are in place in the EU today. 

4.1  Examples 

InDeal offers a platform for real-time energy consumption data-gathering via intelligent 
meters; identifying buildings' heating and cooling needs depending on energy efficiency, 
energy  consumption and type  of building; predicting short-term and long-term weather 
conditions and forthcoming need for heating and cooling; monitoring and control of the 
level  of  energy  storage;  24/7  monitoring;  and  minimising  heat  losses  via  novel  pipe 
design solutions and innovative insulation materials (InDeal, 2018). 

TEMPO  includes  three  elements:  a  supervision  platform  for  detection  and  diagnosis  of 
faults  in  district  heat  substations,  visualisation  tools  and  a  smart  network  controller  to 
balance  supply  and  demand  and  minimise  the  return  temperature  (follow-up  to  the 
STORM project) (TEMPO, 2018). 

CELSIUS  covers  the  full  spectrum  of  planning,  implementing  and  optimising  new  and 
existing  smart  infrastructure  solutions  for  heating  and  cooling.  COOL  DH  aims  to  find 
ways  of  using  low-grade  waste  heat  in  energy-efficient  buildings  by  optimising  low-
temperature district heating, including by enabling prosumers and better network layout 
and control (COOL DH, n.d.). 

Other relevant EU research projects include RELaTED (ultra-low temperature), THERMOS 
(address-level energy system maps, to enable public authorities and other stakeholders 
to rapidly and cheaply upgrade, refurbish and expand heating and cooling systems), and 
FLEXYNETS  (intelligent  DHC  networks  where  the  substations  are  replaced  with  heat 
pumps and networks serves as low-temperature storage). 

11 

 
 
5  Smart energy systems 

In a smart energy system, electricity, heat and gas networks are co-ordinated to identify 
synergies and achieve an optimal solution for each individual sector as well as the overall 
system  (Lund,  2015).  The  large  volumes  of  data  produced  by  smart  meters  and  other 
digital  technologies  could  be  used  to  predict  heating  and  cooling  flows,  spot 
inconsistencies  and  check  for  leaks  or  losses.  AI  could  control  distributed  production 
assets to optimise local resources and minimise overall cost. 

Figure 4. Integration of heat and electricity systems 

Source: IEA, 2017b. 

CHP  =  Combined  Heat  and  Power.  CHP,  or  co-generation,  is  the  simultaneous  production  of  electricity  and 
heat, both of which are used. In other words, excess heat generated by the production of electricity can be 
reused  in  individual  buildings,  industrial  facilities  or  cities  served  by  district  heat  networks  (ReUseHeat, 
2018). 

Energy  storage  technologies  can  capture  energy  during  periods  when  demand  or  costs 
are low, or supply exceeds demand, and surrender it when demand or energy costs are 
high. Storage benefits customers, system managers and companies and can be applied 
from the household level to the utility scale. Depending on the size, thermal storage can 
be  up  to  100  times  cheaper  than  electricity  storage  (Lund  et  al.,  2016);  collective 
storage  can  be  orders  of  magnitude  cheaper  than  individual  household  storage.  There 
are  storage  technologies  available  for  short-,  medium-  and  long-term  applications  and 
with  varying  returns  on  investment.  Technologies  include  pit,  cold  water,  underground, 
residential hot water heaters with storage, ice, molten salt and thermochemical storage. 

With a smart energy system, a 100 % renewable energy system in Europe is technically 
possible  without  consuming  an  unsustainable  amount  of  bioenergy  (Connolly  et  al., 
2016). This is due to the additional flexibility that is created by connecting the electricity, 
heating,  cooling  and  transport  sectors,  which  enables  renewables  penetration  of  over 
80 %  in  the  electricity  sector.  The  scenario  costs  approximately  10-15 %  more  than 
business as usual but since it is based on local investments instead of imported fuels, it 
creates around 10 million additional direct jobs in the EU. 

5.1  Examples 

The  EU  project  HEAT4COOL  demonstrates  integrated  heating  and  cooling  solutions 
complemented  by  heat  pumps  and  renewable  energy  sources  at  building  and  district 
scales.  It  includes  an  online  design  tool  that  combines  a  set  of  HVAC  technological 

12 

 
 
solutions  including  renewables  and  BEMS  with  data  from  real  buildings  to  predict  the 
performance of a  variety of  retrofit solutions; and the  architecture  for a Self-Correcting 
Intelligent Building Energy Management System (HEAT4COOL, 2018). 

STRATEGO  was  an  Intelligent  Energy  Europe  project  that  supported  local  authorities  in 
developing enhanced heating and cooling plans. It has been succeeded by Heat RoadMap 
Europe, which is mapping and modelling the heating and energy systems of 14 Member 
States (those that use the most heat) to develop new policies that ensure the uptake of 
efficient, sustainable and affordable heating and cooling solutions. 

13 

 
6  Electrification 

Most of today's energy network infrastructure will still be operational in 2050 so there is 
a clear rationale for sector coupling to create smart energy systems as described in the 
previous  chapter;  in  the  longer  run,  there  may  be  choices  to  be  made  between 
managing multiple networks and operating only one extended power grid (EC, 2018). 

Electric  heating  has  been  common  in  France  for  decades  but  has  recently  received 
renewed  attention  there  and  in  other  Member  States  in  the  context  of  decarbonisation. 
The  use  of  electricity  for  heating  and  cooling  can  make  a  significant  contribution  to 
emissions reduction. However, electrification will only be viable if power generation can 
continue  to  decarbonise,  increase  output  and  adapt  to  building  consumption  patterns, 
and  if  distribution  networks  strengthen  and  digitalise.  ACEEE  considers  "beneficial 
electrification"  that  which  reduces  total  energy,  costs  and  emissions,  and  sees  it  as  a 
form of energy efficiency as well (Nadel, 2018). 

Electrification has its own drivers and has always progressed more quickly than broader 
energy  consumption.  It  may  even  be  the  only  option  when  there  is  no  access  to  a  gas 
network  or  no  possibility  of  district  heat.  In  the  industry  sector,  the  demand  for 
digitalisation, automation and advanced robotics often leads to fossil fuels being replaced 
with electricity. 

On  average,  only  37 %  of  EU  consumers  are  equipped  with  smart  electricity  meters, 
which is well below the 80 % non-binding objective agreed by Member States for 2020 
(ACER in Simon, 2019). Sweden, Finland and Estonia have fully deployed smart meters 
but fixed network data collection on an hourly or daily basis is still in the early stages in 
most other Member States.  

In  France,  15  million  smart  meters  have  been  installed  so  far  (about  one  household  in 
three)  but  progress  has  been  slower  than  planned.  Delays  have  also  been  encountered 
in  the  UK,  with  11  million  smart  meters  installed  out  of  46 million  (Which?  in  Press 
Association,  2018),  and  some  early  adopters  already  having  to  upgrade  to  a  newer 
model.  Other  countries  have  not  yet  started  –  Ireland  for  example  is  beginning  to  roll 
out smart meters in 2019, with smart services set to become available from 2021. Italy 
instituted  time-of-use  pricing  after  it  rolled  out  smart  meters  in  2011  but  experienced 
only  modest  customer  load-shifting  because  of  a  small  price  difference  and  substantial 
growth in solar PV (Hale et al., 2018).  

Smart meters and digitalisation enable automation of controllable thermal loads such as 
air conditioners, heat pumps or electric water heaters. Key technologies include building 
management  solutions,  digitally  controlled  thermostats  and  remote-control  pumps  that 
can  make  subtle  changes  in  intensity.  Automatic  curtailment  of  consumption  can  be 
based  on  predefined  signals  sent  by  the  transmission  systems  operator  (TSO)  or  the 
aggregator.  Demand  response  should  have  only  a  limited  effect  on  daily  life  and  while 
particularly  relevant  for  commercial  centres  or  large  industrial  sites,  can  achieve 
meaningful scale when aggregated for the residential sector (IEA, 2016c). 

For  now,  demand  response  is  mostly  restricted  to  large  industry  –  Finland,  France  and 
the  United  Kingdom  are  the  only  Member  States  with  commercially  open  demand-
response  markets.  Interest  is  growing  but  large-scale  deployment  of  demand  response 
will require the development of automated solutions.  

6.1  Examples 

The "Real Value" European project studies the potential to electrify more of the heating 
load  in  aggregated,  small-scale  residential  uses  by  introducing  power-to-heat  storage 
devices  that  can  provide  flexibility  to  the  grid.  Companies  such  as  Brenmiller  Energy 
provide  heat  storage  for  district  heating  and  industrial  power-to-heat.  The  DR-BOB 
project  aims  to  demonstrate  the  benefits  of  demand  response  for  blocks  of  several 
buildings  at  universities,  hospitals  and  a  technology  park  (EASME,  2018).  Finally,  the 

14 

 
Horizon  2020  project  SABINA  aims  to  exploit  synergies  between  electricity  and  heat 
networks through the optimisation of electricity use for cooling and heating purposes. 

15 

 
7  Business models 

In the past, digitalisation of heating and cooling was driven by a simple business case to 
reduce  costs.  For  example,  smart  meters  help  reduce  commercial  losses  from 
unregistered  or  non-paying  customers,  while  apps  allow  customers  to  more  easily  sign 
up and pay bills. Digitalisation has been an opportunity for suppliers to optimise assets, 
integrate distributed renewables and reduce operating costs. 

This first generation of digitalisation however, did not create a universal, interconnected 
space and more importantly did not offer radically new services or customisation. In the 
future  however,  digitalisation  will  be  driven  as  much  by  desire  to  create  new  revenue 
streams as to reduce costs. The second generation will be characterised by the fusion of 
advanced  technologies  and  the  integration  of  physical  and  digital  systems.  It  is  set  to 
profoundly transform business models and processes, and lead to the creation of smart 
products and services. 

Energy systems are moving towards digitalisation, decentralisation and decarbonisation. 
In buildings, ongoing energy efficiency improvements and a warming climate could lead 
to  declining  heat  demand,  while  heatwaves  of  greater  intensity,  duration  and  extent 
could  lead  to  increased  cooling  demand.  Comfort  requirements  are  also  increasing, 
meaning people are more likely to turn on cooling systems in hot summers and to turn 
up  the  heat  in  cold  winters  (a  particular  opportunity  for  heat  pumps)  (Nowak,  2018). 
These  trends  also  increase  the  need  for  further  integration  of  heat  and  electricity 
systems (see Chapter 5).  

One way for companies and policymakers to respond to such changes is to develop new 
business  models  and  offer  comfortable  indoor  climate  as  a  service,  rather  than  selling 
kWh.  In  that  way,  energy  efficiency  improvements  would  not  necessarily  represent  a 
financial loss. 

Some  energy  businesses  are  beginning  to  transform  into  software-enabled  service 
platforms,  providing  everything  from  equipment  design  through  operations  and 
maintenance  tools  to  BEMS  and  smart  district  energy.  In  strategy  terms,  they  are 
choosing  Innovate  rather  than  Fight  (against  uptake  of  renewables)  or  Flight 
(divestment) (Green and Newman, 2017). Energy-service companies (ESCOs) or similar 
businesses  could  provide  comprehensive  energy  packages  such  as  smart  controls 
combined with heat pumps and renovation measures, aimed at delivering energy savings 
across a range of end uses.  

Software can also be used to show how a heating and cooling system will behave before 
it  is  installed,  helping  to  stimulate  investment.  And  there  may  also  be  implications  for 
heat-cost allocation in apartment buildings. 

Large corporations have legacy business to protect, and so may be reluctant to expand 
funding  of  disruptive  technologies  such  as  platforms  that  would  enable  transactions 
related  to  self-produced  energy  or  decentralised  storage.  Disintermediation  of  energy 
trading represents a risk to the business model of centralised utilities.  In electricity, the 
rise  of  distributed  generation  will  reduce  wholesale  demand,  forcing  utilities  to  raise 
charges,  which  will  further  accelerate  adoption  of  distributed  generation,  inducing  what 
has been called a utility death spiral, with poorer or more vulnerable consumers charged 
higher tariffs too (Asensio et al., 2018) (see also section 12.6). 

However, digitalisation improves the utilisation rates of assets, offering an alternative to 
building  or  upgrading  network  infrastructure.  And  digital  technology  is  expected  to 
increase the prospect of energy efficiency participating in electricity markets by enabling 
energy savings generated by ESCOs or utilities to be traded. This is starting to happen, 
particularly in the United States. 

The  development  of  multi-vendor  ecosystems  will  be  a  key  factor  in  how  fast 
digitalisation proceeds. The companies that develop and control these systems will play a 
major role in the energy sector. 

16 

 
7.1  Heat pumps 

The dominant business model in the heating sector today is to manufacture a boiler and 
sell  it  to  a  customer  via  a  wholesaler  or  installer.  Value  is  created  by  manufacturing, 
installing and maintaining the product as well as by providing the energy to operate it. 

For  larger  capacity  heat  pumps  in  apartment  buildings,  offices  and  district  heating 
systems, a different business model is already in place today. Based on a service model, 
the end user pays for the delivery of heating and cooling. This approach is now becoming 
feasible  for  aggregated  heat  pumps  or  even  individual  units,  thanks  to  digitalisation 
(sensors, computing power and access to high-speed data networks). 

With  a  redefined  value  proposition,  the  offering  is  no  longer  a  physical  product  but  a 
package  consisting  of  hardware,  software  and  support  in  terms  of  planning,  financing, 
insurance, maintenance, etc. Heating and cooling becomes a service that the user enjoys 
and  pays  for,  while  the  service  provider  takes  ownership  and  is  also  responsible  for 
system  design  and  operations.  Optimising  design,  monitoring  operations  and  providing 
timely  maintenance  leads  to  reduced  operating  cost  and  thus  optimised  profit  (Nowak, 
2018). 

Business  models  are  even  conceivable  in  which  heating  or  cooling  would  be  offered 
against a flat payment or for free. Value would instead come from: 

—  access to data on user behaviour; 

—  the use of the system for electricity grid-balancing purposes (demand response); 

—  the achievement of a better building class with related savings; 

—  CO2  emission-free  heating  that  would  benefit  from  savings  on  the  payment  of  a 

carbon tax; 

—  particulate  emission-free  heating:  there  may  eventually  be  penalty  payments  or 
usage  restrictions  on  combustion  technology  giving  an  advantage  to  technologies 
free of CO2 or particulate matter emissions at the point of use; 

—  cost-efficient  deployment  of  CO2-neutral  technology  in  another  part  of  the  world, 
benefiting  from  transfer  mechanisms  or  other  monetary  benefits  (similar  to  the 
former Clean Development Mechanism). 

A  service  provider  would  integrate  all  the  necessary  steps  from  system  design  to 
integration, add the necessary sensors and control systems and be the direct link to the 
end user, in return reaping all the benefits from the system. In this way, the workings of 
the  heating  and  cooling  system  would  no  longer  matter  to  the  user,  as  long  as  the 
required  function  is  provided.  Such  an  approach  could  have  far  reaching  effects  on  the 
brand value of the current market leaders and on their ability to set high prices for their 
products. 

Any of these new value propositions could be offered by existing actors but it is expected 
that  new  players  will  take  an  active  role  in  their  development,  in  particular  those  with 
access to sensors and  digital technologies (e.g. the  Google Nest thermostat). Similarly, 
large utilities could commercialise their knowledge of large-scale roll-out of products and 
services. Having access to user data already could be a headstart for those players. 

7.2  District heating and cooling 

The trends of decreased heat demand in buildings and competition from heat pumps are 
a  challenge  to  district  heating  companies  and  co-generation.  For  example,  Helsinki 
Energy  has  announced  that  they  will  not  replace  large  co-generation  plants  (IEA, 
2016b).  Coverage  of  homes  in  Helsinki  is  close  to  99 %,  so  without  new  customers, 
energy  efficiency  improvements  will  reduce  heating  loads.  Even  a  1 %  reduction  in 
district  heat  demand  per  year  is  an  issue  given  the  long  lifetimes  and  structural 
characteristics of district energy infrastructure. 

17 

 
Digitalisation can support the development of new business models for DHC by allowing 
district energy  companies to  offer more diversified products and services. The  offerings 
would be highly automated and standardised, while at the same time personalised using 
software. As a result, the companies would become more service-oriented. 

7.3  Examples 

The  Horizon  2020  project  MAGNITUDE  (www.magnitude-project.eu)  aims  to  develop 
business  and  market  mechanisms,  and  support  co-ordination  tools  to  provide  flexibility 
to the  European electricity system, by enhancing synergies between  electricity, heating 
and cooling, and gas systems. 

Bristol  Energy  has  become  the  first  energy  supplier  in  the  UK  to  trial  selling  heat  as  a 
service,  rather  than  kWh.  The  trial  is  backed  by  the  government  through  Energy 
Systems  Catapult.  Customers  can  buy  a  Heat  Plan  that  includes  a  fixed  monthly  cost 
tailored to their home and habits (Energy Systems Catapult, 2019). 

In Germany, manufacturers of solar thermal systems have provided potential customers 
with  online  sales  platforms  for  heating  systems  with  or  without  solar  energy;  clients 
could provide information online about their desired heating system and then receive an 
offer directly from the system supplier, bypassing the installer (REN21, 2017). 

Large-scale  pilot  projects  are  ongoing  in  Denmark  (www.ic-meter.com)  to  test  novel 
meters  and  digital  solutions  to  perform  heat-cost  allocation  that  integrates  indoor 
environment parameters. 

18 

 
8  Communities, cities and regions 

The fact that heat and cold are produced and consumed locally, combined with a general 
trend  towards  decentralisation  of  governance,  means  that  regional,  municipal  and  local 
levels  are  often  involved  in  infrastructure  planning.  At  the  same  time,  long-term 
investments are necessary, which engages higher levels of governance. 

Cities  often  have  jurisdiction  over  zoning  and  building  codes,  business  licensing, 
transport  planning  and,  in  many  cases,  local  distribution  networks.  In  Denmark  for 
example, municipalities play the key role in heat supply planning.  

It is estimated that 75 % of EU citizens will live in cities in 2020, increasing to 84 % by 
2050  (ReUseHeat,  2018).  The  main  focus  of  decarbonising  the  urban  energy  supply  is 
heat – electricity benefits from greater flexibility and more policy options as electricity is 
easier  to  transport  via  transmission  lines.  The  density  and  diversity  of  urban  energy 
demand also offers valuable opportunities for integrating electricity, heat and buildings. 

In particular, DHC in cities can be a cheap and efficient solution for reducing emissions 
and primary energy demand by accommodating renewable sources and excess heat. The 
key  is  to  plan,  co-ordinate  and  implement  over  a  long  enough  period  to  engage 
stakeholders and allow for capital investment planning (IEA, 2016a). 

The  REMOURBAN  project  includes  the  following  goals  on  optimisation  of  existing  DHC 
(Muñoz Rodríguez et al., n.d.): 

—  Minimise the investment costs in the generation plant by optimising using simulations 
of  energy  demand  together  with  real  data.  Back-up  boilers  from  the  original 
generation system could be maintained to supply peak loads. 

—  Increase  the  efficiency  of  the  system  by  at  least  5 %  and  reduce  district  energy 
consumption  by  adapting  energy  distribution  and  production  to  end  users'  real 
demand, for example by using a variable flow pumping system. 

—  Adapt  the  operating  conditions  to  real  heat  needs  by  control  strategies  to  adjust 

various parameters such as the supply temperature and the flow rate. 

—  Integrate  a  smart  centralised  control  and  monitoring  system  that  ensures  that  the 
system  responds  to  the  demand.  This  measure  optimises  the  energy  balance 
between the network and the substations. 

—  Achieve  appropriate  co-ordination  of  generation,  distribution  and  energy  exchange 
control  strategies  in  order  to  anticipate  the  response  to  variations  in  demand.  The 
substations constitute a connection point between the overall optimisation strategies 
for the generation and distribution levels and end-user demands. 

Digitalisation of energy can also be an important part of the blueprint for smart regions. 
It  can  be  particularly  relevant  to  coal-  and  carbon-intensive  regions  in  transition.  Both 
regions and cities are major enablers of digital transformation, by bringing together local 
resources and mobilising everyone concerned.  

Renewable  energy  sources,  distribution  networks  and  storage  capacity  are  increasingly 
seen  as  local  resources  that  need  a  community  approach.  Local  communities  are  well 
placed  to  identify  local  energy  needs,  take  appropriate  initiatives  and  bring  people 
together to achieve common goals.  

Energy  communities  collaborate  to  develop  smart  energy  and  foster  greater  use  of 
renewable and distributed sources, with the aim of reaping economic, environmental and 
energy  security  benefits.  Digital  technologies  can  be  understood  as  enablers  of  energy 
communities,  along  with  technical 
in  distributed  renewable  energy 
technologies  and  social  innovation  in  governance.  Digitalisation  helps  communities  to 
manage  and  control  these  assets,  giving  them  an  interest  in  running  and  maintaining 
them. 

innovation 

19 

 
There are around 3 000 energy  communities across Europe,  of which around 1 000 are 
in Germany and 400 in the Netherlands (Koirala et al., 2018). The number is increasing 
as  more  and  more  local  communities  engage  in  generating,  conserving,  sharing, 
consuming  and  exporting  energy  locally  thanks  to  recent  developments  such  as  the 
implementation of suitable policies, cost reduction of renewables, emergence of ICT and 
IoT  as  well  as  environmental  awareness  and  community  objectives  such  as  self-
sufficiency, resiliency and autonomy. 

Digitalisation can enable community energy storage (CES). CES stores excess local heat 
that cannot be consumed locally when produced and makes it available later when it is 
needed. For example, the energy community of Feldheim (Germany) has added it to its 
technology  mix  (Koirala  et  al.,  2018).  Stored  energy  can  be  used  for  various  purposes 
depending on local conditions such as resource availability and consumption patterns. In 
this way, it enables matching of local renewable energy supply to local energy demand. 
It  not  only  allows  higher  penetration  of  local  generation  such  as  renewables  but  also 
facilitates  energy  sharing  and  self-consumption.  At  the  same  time,  CES  can  provide 
energy services to neighbouring communities as well as larger energy systems. 

Digitalisation  is  also  a  potential  way  to  reduce  the  cost  of  new  Nearly  Zero  Energy 
Buildings,  by  shifting  the  focus  from  individual  buildings  to  entire  settlements.  This 
brings  economies  of  scale  into  play,  together  with  sharing  and  management  of  energy 
loads across individual buildings. 

Regulation  in  Europe  is  evolving  to  respond  to  and  facilitate  these  trends.  Citizens  and 
communities  also  need  to  be  provided  with  the  capacity  to  become  knowledgeable 
participants and to participate effectively in the formulation of energy policy. 

8.1  Examples 

aspern Seestadt is a new urban centre in northeast Vienna due for completion in 2028. 
It  encompasses  whole  system  research,  three  smart  buildings  (equipped  with  solar 
thermal,  heat  pumps  and  thermal  storage)  and  111  households  equipped  with  a  smart 
home app (aspern Seestadt, 2018). 

Kalasatama is a smart district of Helsinki, connected to district heating and cooling. The 
area  also  hosts  TelecityGroup’s  data  centre  using  seawater  for  cooling  and  providing 
heating for houses in Helsinki (Smart Kalasatama, 2018).  

Schoonschip  is  a  floating  residential  neighbourhood  of  47  households  in  Amsterdam 
North that hopes to become the most sustainable urban development in Europe. A smart 
grid  will  be  implemented  and  each  house  equipped  with  local  photovoltaic  (PV) 
production,  battery  storage,  solar  collectors,  thermal  storage,  a  smart  heat  pump  and 
other smart-grid ready appliances.  

The much larger Bijlmer Bajes development includes local renewable generation systems 
based  on  PV,  wind  and  biogas;  large-scale  centralised  battery  systems;  smart  heat 
pumps combined with an aquifer thermal storage system; and intelligent co-ordination of 
local supply and demand via an energy management system (Spectral, 2018). 

for  Smart  Cities  and  Communities  has 
The  European  Innovation  Partnership 
4 600 partners  and  370  commitments  in  31  countries.  It  aims  to  deliver  scale, 
acceleration  and  impact  through  common  solutions,  an  integrated  approach  and 
collaboration. It focuses on energy, ICT and transport. 

The  Digital  Cities  Challenge  is  another  example  of  a  European  Commission  initiative  to 
help  cities  achieve  their  digital  transformation  ambitions.2 It  provides  free  advice  from 
experts to 15 cities across Europe (www.digitallytransformyourregion.eu). 

2 See http://ec.europa.eu/growth/industry/policy/digital-transformation_en. 

20 

 
                                           
Smart  cities projects funded under  Horizon 2020 include: GrowSmarter (including open 
district heating using waste heat, district heating rings and smart local thermal districts), 
REMOURBAN  (including  optimisation  of  existing  DHC  and  low-temperature  district 
heating), Triangulum, REPLICATE (including district heating system), Smarter Together, 
SmartEnCity  (biomass  district  heating  and  district  cooling  using  residual  heat),  Sharing 
Cities,  ESPRESSO  (smart  cities  information  systems),  MySMARTlife,  Ruggedised  (smart 
thermal grid) and +CityxChange.3 

The Smart Specialisation Platform for industrial modernisation is a tool to combine smart 
specialisation  and  inter-regional  co-operation  to  boost  industrial  competitiveness  and 
innovation.  All  EU  regions  with  their  clusters  and  industrial  partners  are  encouraged  to 
take part and a partnership in a new thematic area can be proposed by any EU region or 
group of regions.4 

The  Pan-European  Thermal  Atlas  (part  of  the  Heat  Roadmap  Europe  project)  provides 
information  on  heating  and  cooling  demand  densities,  renewable  energy  sources  and 
excess  heat  in  order  to  empower  decision-making  processes.  It  can  facilitate  dialogue 
and help enable heat synergy regions – regions in which urban and rural areas combine 
their renewable energy potentials and excess heat sources beyond their borders in order 
to  optimise  energy  infrastructure  and  make  it  as  sustainable  as  possible  (Rothballer, 
2018). 

The  ZERO-PLUS  project  is  constructing  four  pilot  demonstration  settlements  that  will 
each save at least 16 % of the normally expected building costs by using mass-produced 
technologies and integrating them into a system that is optimally designed according to 
the local climate (EASME, 2018). 

3 See cityxchange.eu. 
4 See s3platform.jrc.ec.europa.eu/industrial-modernisation. 

21 

 
                                           
9  Case study: Blockchain 

ledger  technologies  save  transactions 

Distributed 
in  a  shared  data  structure 
(blockchain).  New  transactions  are  added  to  the  end  of  the  chain,  with  each  block 
referencing  the  previous  one.  A  smart  contract  is  code  that  executes  or  enforces  a 
predefined  agreement  using  blockchain  once  specific  conditions  are  met  (though  it  is 
usually  not  legally  binding  without  separate  contractual  agreements)  (WEC  and  PwC, 
2018). 

Public  blockchains  remove  intermediaries  and  trusted  third  parties.  Modifications  are 
visible  to  all  and  transactions  cannot  easily  be  altered  or  deleted.  However,  blockchain 
cannot  verify  the  accuracy  of  external  data,  only  what  is  contained  in  the  blockchain 
itself. Blockchain isn't necessarily better than traditional databases in all cases, but it is 
particularly useful in low-trust environments (WEC and PwC, 2018). 

Blockchain  and  smart  contracts  can  theoretically  be  used  for  almost  any  decentralised 
service,  though  few  or  no  reliably  operational  examples  exist  (House  of  Commons, 
2018).  Transaction  costs  in  terms  of  time  and  energy  consumption  (see  Chapter  10) 
have limited the scope of services offered by public decentralised blockchains so far.  

Blockchain for energy thus is also still in the early adoption phase and has not yet made 
a  commercially  tangible  impact,  changed  business  models  or  enabled  a  clear  shift  to 
decentralisation.  Meanwhile,  distributed  energy  resources  have  achieved  high  levels  of 
penetration without blockchain in countries such as Germany and Spain (WEC and PwC, 
2018). 

That  said,  in  order  to  facilitate  the  transition  to  renewable  heating  and  cooling  at  the 
scale  needed,  a  range  of  transaction  technologies  enabling  storage,  trading,  demand 
forecasting  and  management,  will  need  to  be  integrated  into  new,  intelligent  systems. 
Blockchain  could  help  knit  such  technologies  and  systems  together,  thus  becoming  a 
core part of distributed heating and cooling resources and DHC (PwC, 2018). 

Systems  based  on  blockchain  have  the  potential  to  help  solve  data  management 
challenges, reduce transaction costs, error and fraud, and help empower households and 
energy  communities.  They  can  enable  households  to  become  producers  as  well  as 
consumers  of  heating  and  cooling,  and  to  play  a  more  active  role  in  storing  and 
managing it. Smart contracts to support this automatic and distributed exchange would 
make energy markets  more  efficient and resilient.  That would reduce the need for  new 
heating and cooling infrastructure and make greater use of existing assets. 

Box 1. Potential applications of blockchain for heating and cooling 

Decentralised  utility  systems  at  scale:  Platforms  could  collate  distributed  data  on 
energy  resources  (e.g.  from  smart  sensors  in  households),  enabling  more  informed 
decision-making regarding system design and resource management. This could include 
peer-to-peer  transactions,  with  blockchain  managing  contracts  for  energy  flows  and 
instant  payment,  allowing  households  to  become  producers  with  minimal  reliance  on 
authorities. 

Sustainable  finance:  Blockchain-enabled  finance  platforms  could  increase  access  to 
capital and unlock potential new investment in projects – from retail-level investment in 
infrastructure to blended finance to charitable donations for developing countries. There 
is  potential  to  expand  traditional 
financial  accounting  to  capture  social  and 
environmental capital and for a shift from shareholder to stakeholder value (tokenisation 
or  crowdsale)  –  through  automated  smart  contracts,  blockchain  makes  it  possible  to 
raise  finance  for  an  asset  that  directly  represents  an  ownership  stake,  incentivising 
locally owned renewable energy projects, e.g. WePower and 220 Energia in Estonia (JRC, 
2018a). 

22 

 
Carbon  (and  other  environmental)  markets:  Authentification  and  trading  of 
renewable  energy  credits,  certificates  of  origin,  emissions  trading  or  energy  efficiency 
certificates based on actual production or savings. Blockchain could be harnessed to use 
cryptographic  tokens  with  a  tradable  value  to  optimise  existing  markets  for  carbon  (or 
other substances) and create new opportunities for carbon credits. For example, tracking 
renewable  energy  certificates  is  among  the  first  applications  of  the  Energy  Web 
Foundation platform (Orcutt, 2017). 

Enhanced  traceability  in  supply  chains:  By  creating  unique  and  trusted  digital 
identities  and  allowing  all  users  to  work  with  a  common  ledger,  blockchain  can  track 
ownership,  increasing  certainty  of  the  origin  of  assets  and  energy.  Traceability  enables 
more sustainable production, logistics and consumer choice, which could drive behaviour 
change and contribute to the circular economy. 

Asset  agency:  Through  unique  and  trusted  digital  identities,  blockchain  can  enable 
assets  such  as  batteries  or  other  smart  home  equipment  to  participate  directly  in 
markets without the need for a human intermediary, co-ordinating energy purchase and 
use with a network, increasing efficiency, decreasing overall energy costs and extending 
lifetimes. 

Automation  of  data  collection  for  sustainability  monitoring,  reporting  and 
verification:  Helping  companies  manage,  demonstrate  and  improve  their  performance 
while enabling consumers and investors to make better decisions. This could drive more 
accountability  and  action,  as  it  provides  a  more  complete  picture  of  risk  and  reward 
profiles. 

Data  sovereignty: By creating unique identifiers for asset owners, assets and the data 
produced  by  those  assets,  blockchain  could  create  direct  data  ownership  and  selective 
permission, allowing for better customer data management and privacy. 

Distributed  cybersecurity:  Through  distributed  ledgers  and  consensus  mechanisms, 
blockchain  aims  to  ensure  that  there  is  no  single  point  of  failure  for  network  control 
systems, increasing robustness to certain types of cyber-attack.  

Increased  market  access:  With  smart  contracts  automating  many  of  the  functions 
necessary to bid, settle and participate in markets, blockchain can help open up energy 
markets to smaller participants. 

Secure  transactions:  Facilitating  faster  payment  cycles  and  streamlined  account 
management. 

Optimised  and  resilient  network  management:  Using  blockchain-enabled  sensors 
and  controls.  For  example,  maintenance  and  repair  activities  of  service  providers  could 
be  stored  in  a  blockchain,  enabling  accountability  and  payments  using  smart  contracts 
(dena, 2019). 

Blockchain-based land, corporate, civil and asset registries. 

Waste-to-energy blockchain solutions. 

Sources: PwC (2018), McKinsey (2018) and Henly (2018), unless otherwise specified. 

Blockchain  could  be  particularly  useful  for  DHC.  Today,  DHC  is  based  on  transactions 
between  one  company  and  many  customers.  However,  blockchain  could  play  a  role  if 
transactions  among  customers  of  different  companies  started  to  occur  (Gunnarson  and 
Melin Hamber, 2018). 

A  study  in  Sweden  identified  32 relevant  applications  of  blockchain  for  district  heating 
(Table 2). The two deemed to have the most potential were 1) to ensure the quality of 
metering  and  maintenance,  and  2)  to  create  a  common  heat  production  system  for 
district heating companies. However, it is recognised that standardisation is key and that 
additional  policies,  technologies  or  infrastructure  may  be  necessary  in  order  to  create 
value from a blockchain solution (Gunnarson and Melin Hamber, 2018).  

23 

 
Table 2. Potential applications of blockchain in district heating 

Procurement 
and suppliers 

Production and 
sustainability 

Fuel-origin tracing and supply-chain tracking 

Shared fuel procurement programme for district heating companies 

Smart contracts with suppliers 

Common heat production system for district heating companies 

Improved trading of carbon credits 

Calculation and visualisation of production climate impact 

Customer influence over environmental decisions and sustainability 

Distribution 
and properties 

Quality of metering and maintenance 

Extended load control management for customers 

Transition towards smart and automated properties 

Excess heat 
suppliers 

Customer 
relations 

Individual measurement and charging for owners and co-operatives 

Dynamic control of the temperature delivered 

Smart contracts with the customers 

Customer payment system with more transparent prices 

Optimised sale of heat where several intermediaries are involved 

Client profiles 

Data storage 
and IT security 

Machine-to-machine communication among production, distribution 
and customers 

Administration 
and 
communication 

Confidentiality and integrity of data 

Improved AI systems 

Signing, storing and sharing of documents 

Checking of supplier certificates and handling of company certificates 

Simplified communication among stakeholders 

Verification of digital accounting documents 

Finance and 
asset 
management 

Management of owner shares in facilities 

Facilitation of investment in the district heating sector 

Asset management 

Ecosystem 

Unified system for communication, agreements, permit management 

Visualisation of a property's heat life-cycle for customers by its 
waste, measuring how much heat could be generated 

Connection of society infrastructure systems 

Market 
structure 

Facilitate an open marketplace for heat trading 

Manage integration of heat and electricity systems 

Source: Gunnarson and Melin Hamber, 2018. 

24 

 
9.1  Examples 

In  1Q2018,  energy-related  blockchain  projects  attracted  USD 359 million  in  investment 
(Buchmann,  2018).  As  of  March  2018,  there  were  122 organisations  involved  in 
blockchain for energy and 40 deployed projects (Metelitsa, 2018). The EU is a leader in 
blockchain  in  general  and  far  ahead  of  the  United  States  when  it  comes  to  blockchain 
demonstrations  and  expertise  (Henly,  2018).  It  is  also  home  to  more  blockchain 
initiatives in the energy sector than any other world region. However, use cases for the 
energy  sector  that  have  advanced  beyond  proof-of-concept  are  rare,  in  particular  for 
heating or cooling (Table 3). 

Table 3. Blockchain-for-energy initiatives in Europe with potential relevance to heating and 
cooling 

Name 

Type 

Website 

Status 

SAIEX Tokens 

Initial Coin Offering from 
Saiterm for an infrared heating 
product; based on Ethereum 

Execution of bilateral trade of 
physical electricity and gas 
within Europe, managed by 
Ponton, in partnership with 
E.ON, Engie, Statkraft, 
Vattenfall and others 

Base-layer infrastructure 
dedicated to the energy sector; 
based on Ethereum; with the 
Rocky Mountain Institute and 
major European oil companies. 
Proof-of-authority mechanism 
(less energy-intensive). 

Peer-to-peer electricity trading 

Enerchain 

Energy Web 
Foundation 
Blockchain 

Household-
Supplier 
Energy 
Market 

https://ico.saiterm.com  Crowdsale 

https://enerchain.ponto
n.de/index.php 

ongoing 

Proof of 
concept 
phase 
complete 

energyweb.org 

In 
production 

https://gtr.ukri.org/proj
ects?ref=EP%2FP03183
8%2F1 

2017-2019 

cryptoleaf 

Crowdfinancing green projects 

www.cryptoleaf.io/ 

Offis 

Power systems intelligence, 
standardised systems 
engineering and assessment, 
automation, communication and 
control, simulation and agents in 
multiple domains, data 
integration and processing 

www.offis.de/en/applica
tions/energy.html 

First 
projects 
expected 
available 
for funding 
1Q2019  

Proof of 
concept 
completed 

NestEgg 

Crowdfunding 

nestegg.eu 

Startup 

25 

 
DEFENDER 

Security and resilience of 
electricity infrastructure 

defender-project.eu 

Solarchain 

Smart grid platform 

www.sunchain.fr 

Ongoing 
research 

Proof of 
concept  

PowerToShare  Peer-to-peer trading and 

www.powertoshare.eu 

Startup 

Fortum 

CGI & Eneco 

OLI Systems 

information services platform 

With three research partners 
and nine companies, part of the 
BOND project in Finland. 
Optimises heating consumption 
by taking forecasts and 
electricity prices into account. 

Uses Tendermint blockchain for 
decentralised trading in heat. 
Pilot running in the heat network 
that connects the Port of 
Rotterdam to the city. 

Residential and commercial 
buildings are equipped with OLI 
boxes that optimise the use of 
electricity and heat. Electricity 
produced can also be shared 
with neighbours and tenants. 

www.fortum.com 

Founded 
2016 

Prototype, 
founded 
2017 

Founded 
2016 

my-oli.com 

Source:  Various  including  Illinois  Blockchain  Initiative  (Blockchain  in  Government  Tracker),  EU  Blockchain 
Observatory Forum (Blockchain Map) and SolarPlaza. 

The  European  Commission  is  monitoring  this  area  closely  and  organises  regular 
workshops  with  experts  to  explore  how  blockchain  can  help  meet  the  Energy  Union 
objectives.  The  launch  of  the  EU  Blockchain  Observatory  and  Forum  in  February  2018 
has  enriched  the  discussion  on  the  opportunities  and  challenges  of  the  blockchain 
ecosystem.5 Also, 24 European countries have signed a declaration on the establishment 
of  a  European  Blockchain  Partnership,  with  a  view  to  developing  a  blockchain 
infrastructure that can enhance value-based, trusted, user-centric digital services across 
borders  within  the  Digital  Single  Market.  The  Partnership  will  be  a  vehicle  for  Member 
States  to  exchange  experience  and  expertise,  and  prepare  for  the  launch  of  blockchain 
applications.6 

The European Parliament’s Industry Committee has agreed a motion for a resolution on 
"Distributed ledger technologies and blockchains: building trust with disintermediation". 
The resolution, voted on by the full Parliament in October 2018, emphasises the need to 
safeguard  trustworthy  blockchain  decentralisation  and  calls  upon  the  European 
Commission  to  explore  the  possibility  of  creating  an  EU-wide,  highly  scalable  and 
interoperable  network  that  makes  the  technology  available  to  European  citizens.  The 
challenge  with  these  EU-level  initiatives  is  to  create  a  framework  of  legal  and 
institutional  certainty  that  would  facilitate  the  development  of  scalable,  efficient  and 
high-impact  decentralised  solutions  to  social  innovation  challenges  arising  from 
blockchain applications (Kritikos, 2018). 

5 See http://europa.eu/rapid/press-release_IP-18-521_en.htm. 
6 See https://ec.europa.eu/digital-single-market/en/news/european-countries-join-
blockchain-partnership. 

26 

 
 
                                           
10 Energy consumption 

The  majority  of  digitalisation  trends  will  lead  to  an  increase  in  overall  energy 
consumption,  particularly  electricity  (INSIGHT_E,  2016).  However,  digitalisation  of  the 
energy  sector  itself,  in  particular  heating  and  cooling,  could  prove  an  exception. 
Beneficial  digitalisation  is  when  the  energy  savings  outweigh  the  direct  energy 
consumption.  Digital  technologies  have  great  potential  to  help  achieve  energy  savings 
through more efficient delivery of heating and cooling and by supporting users to reduce 
or  shift  loads,  saving  money  while  safeguarding  or  improving  comfort  and  indoor  air 
quality. 

Rebound effects could offset some of the energy savings brought about by digitalisation. 
Firstly,  improved  affordability  could  lead  to  increased  consumption  of  heating  and 
cooling. Second, there may be greater use of energy for the technology itself, including 
standby functions. Thus, the technical potential may exceed the energy savings actually 
achieved  (Sanguinetti  et  al.,  2018).  However,  part  of  this  is  due  to  new  services  and 
improved  comfort  levels,  which  can  be  considered  non-energy  benefits.  Moreover,  part 
of  that  improvement  in  comfort  can  be  considered  "catch  up"  rather  than  waste 
(Noesperger et al., 2017). 

There  are  also  important  pitfalls  to  anticipate  and  avoid  in  promoting  digital 
technologies. To take a high-profile example, speculative crypto-assets use more energy 
per euro generated than mining copper, platinum or gold – even before cooling is taken 
into account (Krause and Tolaymat, 2018).  

Efforts  to  restrain  the  energy  consumption  of  blockchain  more  generally  (including  for 
heating and cooling as described in Chapter 7) involve more efficient mining (new chips, 
servers  and  cooling  systems  such  as  immersion  in  liquid)  and  alternative  consensus 
mechanisms  such  as  proof-of-stake.  However,  efficiency  gains  are  quickly  eaten  up, 
while  alternative  mechanisms  are  still  being  developed  (e.g.  Ethereum  is  only  due  to 
transition  to  proof-of-stake  within  the  next  five  years)  and  could  lead  to  problems  of 
security and centralisation (Roubini, 2018).  

In fact, any digital technology can benefit from becoming more energy efficient even at 
early  stages  of  development,  and  energy  consumption  is  an  important  consideration  in 
assessing the benefits of digitalisation more generally. In that sense, energy efficiency is 
the best fuel for digitalisation. 

A  scenario  approach  is  useful  given  the  uncertainty  in  the  potential  net  effect  of 
digitalisation  on  energy  consumption.  In  one  recent  study,  the  shift  towards  smart 
products and services (automation) is estimated to result in additional energy savings in 
2050  of  5 %  in  an  "Efficient"  scenario  and  -11 %  (i.e.  lost  energy  savings)  in  an 
"Inefficient"  scenario  (Fraunhofer  ISI,  2019).  For  heating  and  cooling  in  buildings, 
building  automation  and  interconnection  of  appliances  increases  energy  demand  by 
10 % in the Inefficient scenario but reduces it by 5 % in the Efficient scenario. 

10.1  Buildings 

Energy efficiency and digitalisation in buildings can reinforce each other. While a building 
is  being  renovated,  there  is  an  opportunity  to  achieve  additional  gains  from 
digitalisation. Similarly, installation of digital technologies is an opportunity to implement 
energy  efficiency  measures  at  the  same  time  –  though  energy  savings  are  rarely  the 
primary  objective.  In  addition,  energy  efficient  buildings  are  more  suitable  for 
technologies such as heat pumps that enable greater digitalisation. 

These two complementary aspects – renovation and modernisation of buildings – drove 
the revision of the Energy Performance of Buildings Directive (EPBD), which entered into 
force  in  2018.  The  revised  EPBD  includes  additional  measures  in  favour  of  digital  and 
smart  technologies  in  buildings:  for  instance,  targeted  requirements  for  the  installation 
of  self-regulating  devices  and  building  automation  and  control  systems,  and  the 

27 

 
establishment  of  a  new  instrument  to  rate  the  smart  readiness  of  buildings:  the  Smart 
Readiness Indicator for buildings. 

Savings  from  basic  digitalisation  (smart  meters,  visualisation)  are  likely  to  be  modest. 
One review for the UK found that a reduction of just 2-3 % might be expected, although 
savings might be higher in Member States that have significant cooling loads (House of 
Commons, 2016). 

Digitally  controlled  lighting,  HVAC,  security  and  home  appliances  offer  greater  savings 
and  the  number  of  homes  using  them  is  projected  to  grow  from  8.5 million  in  2016  to 
80.6 million in 2021 (ESPC, 2018b). At the same time, alliances are  emerging whereby 
smart  home  platforms  incorporate  both  home  energy  management  and  non-energy 
related  devices.  This  amplifies  the  value  of  smart  home  technology  for  consumers  but 
also  makes  it  difficult  to  anticipate  the  net  energy  impacts.  Smart  home  products 
adopted  for  non-energy  benefits,  or  integrations  with  other  smart  home  technologies 
that consume but do not help manage energy, might just as easily result in net energy 
consumption increases (Sanguinetti et al., 2018). 

While  savings  for  traditional  energy  efficiency  products  (e.g.  A-rated  appliances  or  LED 
bulbs) can be calculated through technical testing, the savings of a smart home product 
depend on how it is used and such savings can vary widely. In the United States, Energy 
Star-certified  smart  thermostats  save  on  average  8 %  of  heating  and  cooling  bills  and 
can  also  function  as  a  demand-response  resource  (Relf  et  al.,  2018).  Nest,  a  leading 
manufacturer  of  smart  thermostats,  reports  drops  in  electricity  bills  of  10-12 %  for 
heating  and  about  15 %  for  cooling.  Extending  the  concept  to  large  commercial 
buildings,  an  integrated  system  that  manages  cooling,  heating  and  lighting  could  help 
reduce  energy  consumption  by  as  much  as  50 %  (Ramamurthy  and  Jain,  2017). 
Widespread  adoption  of  such  digital  technologies,  in  particular  smart  thermostats  and 
sensors,  could  cut  energy  use  in  buildings  worldwide  by  about  10 %  by  2040,  with  the 
largest gains in heating and cooling of non-residential buildings (IEA, 2017c). 

Figure 5. Heat first: Cumulative energy savings in buildings from widespread digitalisation, 2018-
2040 

Source: IEA, 2017c. 

In the EU, the optimisation of technical building systems (not taking into account savings 
from the replacement of heat generators) can lead to average energy savings of 30 %, 
with  a  range  of  14-49 %  (Schramm  et  al.,  2017).  The  ”Get  the  basics  right”  scenario 
presented  in  Table  4  includes  no-regret  measures  with  low  investment  and  short 

28 

 
 
payback periods. The ”High performance” scenario includes a set of advanced measures 
(mainly building automation and control systems). 

Table 4. Results of optimising technical building systems at EU level 

Emissions 
reduction, 
2030 
(MtCO2) 

Primary 
energy 
saving, 
20303 
(Mtoe) 

Energy cost 
savings per 
year 
(EUR billions) 

Investment 
cost per year 
(EUR billions) 

Payback 
(years) 

Get the basics 
right1 

61 

27 

2.8 

5.6 

High 
performance1, 2 

126 

58 

5.2 

24.8 

2.0 

4.8 

1 Not considering the business-as-usual scenario with an impact of 30 MtCO2 and 13 Mtoe in 2030.  2 Includes 
the impact of Get the basics right.  3 Optimised technical building systems implemented in 47 % of the EU 
building stock until 2030. 

Source: Schramm et al., 2017. 

Importantly,  optimisation  of  technical  building  systems  can  deliver  quick  savings, 
avoiding lock-in and reducing cumulative emissions. Therefore, the speed of optimisation 
needs to increase – renovation rates of technical building systems could be in the range 
of 3-4 %, which would be three times the current renovation rate of buildings. 

The  revised  EPBD  promotes  the  optimisation  of  technical  building  systems  through  two 
main  sets  of  provisions:  inspections  of  heating,  air  conditioning  and  combined  heating, 
air  conditioning  and  ventilation  systems  (Articles  14-15)  and  establishment  of 
requirements  on  the  overall  energy  performance,  proper  installation,  appropriate 
dimensioning, adjustment and control of technical building systems (Article 8). 

The  rollout  of  advanced  metering  infrastructure  creates  an  opportunity  to  derive 
additional  value  from  utilities'  energy  efficiency  programmes  by  obtaining  more  timely 
and more granular estimated impacts (Kupser et al., 2017). Digitalisation is also key to 
the  development  of  high-quality  thermal  models  to  predict  building  behaviour.  The 
benefits  of  such  models  are  expected  to  amount  to  5-70 %  of  energy  savings  and  10-
40 % of peak power savings (JRC, 2018a).  

Digitalisation  can  also  facilitate  deep  renovation  by  analysing  and  customising 
information  on  existing  building  systems,  enabling  holistic  approaches  such  as  building 
renovation  passports.  Building  passports  support  building  owners  with  personalised 
information  on  their  renovation  options  and  a  long-term  renovation  roadmap  resulting 
from an energy audit. They present all the expected benefits of renovation along with a 
logbook  and  a  repository  of  information  on  energy  consumption  (using  smart  meter 
data) and production, and finance opportunities. 

10.1.1 

Examples 

The IMPRESS project brings together reconfigurable moulding (RM) techniques, 3D laser 
scanning and 3D printing technology and embeds them in a cloud-based BIM model that 
incorporates all stages of the building process from design, construction and installation 
through  to  operation.  Its  Online  Management  Platform  allows  all  team  members  to 
collaborate and plan the project based on a shared model (EASME, 2018). 

Similarly,  the  BIM4EEB  project  under  Horizon  2020  will  encourage  renovation  by 
developing a set of BIM tools capable of a) supporting designers in the planning phase, 
b)  allowing  construction  companies  to  efficiently  perform  the  work,  and  c)  providing 
service  companies  with  attractive  solutions  for  building  retrofitting.  The  toolset  will  be 
tested during the renovation of three buildings (IERC, 2019). 

29 

 
 
Building passports are being implemented in France (the carnet numérique is mandatory 
for  new  buildings  since  2017  and  will  be  for  any  property  transaction  by  2025  (Sebi  et 
al.,  2019)),  Belgium  (Flanders)  and  Germany  (Fabbri,  2017).  There  are  also  one-stop 
shop services for renovation in France (Energies POSIT'IF), Denmark (BetterHome) and 
other  Member  States  that  include  digital  (online)  tools.  One-stop  shops  have  been 
advocated  by  the  European  Commission  through  the  “Smart  financing  for  smart 
buildings”  initiative  and  through  the  “new”  EPBD  as  part  of  the  Directive  2018/844/EU 
(Boza-Kiss and Bertoldi, 2018). 

In  Flanders,  every  resident  can  connect  free  of  charge  to  an  online  platform  using  an 
electronic  identity  card  or  an  app.  This  platform  encourages  users  to  improve  their 
building's energy performance by providing an overview of various characteristics of the 
property and comparing it with neighbours. From January 2019, the site recommends a 
roadmap  and  an  overview  of  the  available  tax  incentives  (Armand,  2018).  The  EPBD 
provides a framework for Member States to introduce such programmes. 

The  Request2Action  Intelligent  Energy  Europe  project  aimed  to  stimulate  retrofit  action 
in  the  residential  sector  by  using  big  data  tools  to  make  retrofit  data  (from  Energy 
Performance  Certificates)  available  in  new  and  dynamic  ways.  Companies,  distributors, 
providers  and  investors  could  use  such  tools  to  spot  areas  with  good  potential. 
Visualisation of data could be aggregated, e.g. for 500–1 000 buildings or by postcode, 
in  order  to  avoid  door-to-door  selling  and  address  data  privacy  concerns.  However, 
interest from the small companies (1-5 employees) that dominate supply chains in many 
Member States seems to be low. Such actors tend to operate in small geographic areas 
and  base  their  leads  on  word-of-mouth  or  local  advertising  rather  than  data  analysis 
(Costanzo  et  al.,  2017).  The  EU  project  4RinEU  is  also  developing  tools  and 
methodologies for deep energy renovation (see 4rineu.eu/results). 

10.2  Data centres 

Data  centre  energy  consumption  in  the  EU  (the  second-  or  third-largest  market  in  the 
world) was estimated in 2014-2015 at 43-49 TWh, i.e. between 1.5 % and 1.8 % of EU 
total  consumption.  If  data  transmission  by  broadband  operators  and  end  users  is 
included, that estimate doubles (Craglia et al., 2018). 

Data centres themselves are a  constantly growing source of waste heat and could thus 
play a role in smart energy systems (Figure 6). A medium-sized data centre with 1 MW 
of IT load releases 3 700 MWh of thermal energy per year. If heat is not used, it must be 
removed anyway to avoid damage to the equipment. The cooling system represents up 
to 40 % of data-centre energy consumption (ReUseHeat, 2018). 

Efforts are underway  to power data centres with more  renewable  energy,  restrain their 
electricity  consumption  and  use  the  resulting  heat.  Efficient  cooling  solutions  include 
outdoor  air,  evaporative  cooling  and  free  cooling  from  nearby  water  sources.  More 
efficient  servers  and  other  equipment  are  also  important  as  well  as  more  efficient 
software. 

It is important to note however that although there have been major advances in energy 
efficiency for large data centres, that is not yet the case for small and medium centres, 
which account for more than 50 % of the electricity consumption of the sector (Vasques 
et  al.,  2017).  Also,  other  environmental  impacts  also  need  to  be  addressed  more 
robustly than today. For  example, heat pumps, air conditioning units, electric furnaces, 
electric  centralised  heating  units,  dehumidifiers,  and  monitoring  and  control  equipment 
are all sources of e-waste that are set to grow in coming years (Baldé et al., 2017). The 
ICT  sector  should  feature  more  prominently  in  climate  strategies  and,  conversely, 
environmental sustainability should be a key issue in digital strategies. 

30 

 
Figure 6. More data, more heat: Coupling of electricity, heating, transport and data 

Source: Vad Mathiesen, 2018. 

10.2.1 

Examples 

In  Ireland,  Amazon  designed  and  installed  an  energy  centre  as  part  of  its  planning 
approval for a data centre near Dublin. A non-profit company is being set up to manage 
the  supply  heat  to  nearby  homes  in  what  is  set  to  be  Ireland's  first  data  centre-based 
district  heating  system.  The  project  will  also  receive  funding  from  the  EU  HeatNet 
programme,  a  fund  for  schemes  that  reduce  CO2  emissions  in  Europe’s  northwest 
(McMahon, 2018). 

Data  centres  can  also  be  retrofitted  to  recover  excess  heat,  as  is  being  shown  in 
Stockholm by Digiplex. It has signed a deal with Stockholm Exergi to provide heat to the 
local district heating system (Data Centre Dynamics, 2018). 

The  EU  Code  of  Conduct  on  Energy  Efficiency  in  Data  Centres  has  been  adopted 
voluntarily by more than 350 data centres in Europe (Craglia et al., 2018). It promotes 
data  centre  energy  efficiency  best  practices  and  monitors  energy  consumption 
(Avgerinou et al., 2017). There are also many EU research projects that can be relevant 
to improving the environmental sustainability of data centres (Table 5). 

The use of data centre heat resulting from blockchain  has been studied for example for 
the  Hyrsylä  Co-housing  project  in  Lohja  (Finland)  using  heat  from  crypto-asset  mining 
(Nguyen and Hoang, 2018). The model can also be applied in the agriculture sector for 
greenhouses,  as  seen  in  UnitedCorp's  use  of  geothermal  air  exchange  (UnitedCorp, 
2018).  The  bitcoin  miner  Heatmine  in  Canada  is  going  one  step  further  and 
experimenting with a network of decentralised mining machines connected to homes and 
businesses.  In  a  pilot  at  a  greenhouse  for  strawberries,  heating  costs  were  reduced  by 
75-100 % (Kirkwood, 2019). 

31 

 
 
Table 5. Selected FP7 and Horizon 2020 projects with relevance for data centres 

FP7 

H2020 

Efficiency of an 
individual data 
centre 

Renewables, 
heat reuse, 
smart grids 

Public 
procurement 

Measuring 
environmental 
efficiency 

Bringing more 
energy efficient and 
integrated data 
centres to market 

EUR 12 million 

EUR 18 million  EUR 5 million 

EUR 0.4 
million 

EUR 6 million 

CoolEmAll 

RenewIT 

EURECA 

ICTFootprint 

CATALYST 

All4Green 

GreenDataNet 

BodentypeDC 

Fit4Green 

Dolfin 

GAMES 

GENiC 

DC4Cities 

GEYSER 

Source: Based on Mihaylov, 2018. 

32 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
11 Other opportunities and challenges 

There will be many benefits to digitalising and decarbonising heating and cooling: energy 
savings  (see  Chapter  10),  reduced  operating  costs  (thereby  reducing  exposure  to  fuel 
prices),  greater  resilience,  better  service  quality,  new  markets  for  local  heat  sources, 
local job creation and improved industrial competitiveness, and mitigated environmental 
impacts including improved air quality (Rothballer, 2018). 

However, the positive impact of digitalisation is accompanied by destabilising effects on 
some aspects of economic and social life. These include up-front costs, privacy and data 
protection,  fairness  and  impacts  on  vulnerable  groups  such  as  the  fuel  poor,  elderly  or 
those less adept with ICT. 

European  citizens  see  digitalisation  and  automation  primarily  as  an  opportunity  but  call 
for  investment  in  better  and  faster  Internet  services  as  well  as  effective  policy  to 
accompany  changes  in  areas  such  as  employment,  privacy  and  personal  health.  The 
more people are informed or use technologies the more they are likely to have a positive 
opinion of them and to trust them (Eurobarometer, 2017). 

11.1  Privacy and data 

While traditional systems have collected user data on a planned basis, for example on a 
fixed date each year, new smart meters allow data to be collected at least hourly. Wide 
deployment of demand-response and smart-grid technologies brings with it an increase 
in the granularity and amount of data collected. 

A  central  challenge  is  to  properly  collect  and  handle  these  data.  Smart  meter  data  are 
sensitive and fall under data protection laws. However, there are also anonymised, non-
sensitive data being produced. 

A  healthy  market  for  digitalisation  will  require  some  level  of  access  to  consumer  and 
distribution data, such that companies can pursue the most valuable opportunities. Too 
much  regulation  could  hinder  the  development  of  digitalisation  for  heating  and  cooling. 
This  requires  finding  a balance,  with  the  objective  of  forming  an  efficient,  dynamic  and 
open market (REN21, 2017). 

Data protection (including notably the requirement in some cases that personal data be 
anonymised  or  deleted)  is  covered  by  the  General  Data  Protection  Regulation  (GDPR), 
which entered into application in May 2018. 

The Article 29 Working Party has concluded that smart meter data is considered personal 
data  and  therefore  covered  by  the  GDPR  (Schelle  Jensen,  2018).  The  Danish  Energy 
Agency  and  Department  of  Justice  have  looked  into  whether  into  whether  a  legal  basis 
for  processing  smart  meter  data  can  be  found  in  Article  6,  i.e.  to  the  extent  that  such 
processing is in the public interest (e.g. to save energy) or for the purposes of legitimate 
interests  (e.g.  improving  energy  efficiency).  They  concluded  that  under  certain 
conditions,  district  heating  operators  need  not  request  consent  from  customers  to  read 
remotely  readable  meters  more  frequently  than  required  for  billing  purposes  (Danish 
Energy Agency, n.d.).  

The  decentralisation  inherent  in  blockchain  (all  transactions  can  be  seen  by  others) 
makes it difficult to interpret  some  GDPR  rules. Compliance is therefore to be assessed 
by  use  case  and  application  rather  than  for  the  technology  as  a  whole  (EU  Blockchain 
Forum, 2018). Some systems now provide encrypted and private transactions. 

11.2  Cybersecurity 

In a more complex system, operators must protect information systems, detect potential 
attacks,  and  respond  and  recover  from  any  incidents.  In  order  to  address  this,  it  is 
important to develop a common understanding of cybersecurity threats, and  a common 
response framework for operators. 

33 

 
The European Commission is reviewing the EU Cyber Security Strategy and developing a 
comprehensive  strategy  on  how  to  reinforce  the  operation  of  the  2016  Directive  on 
security of network and information systems (NIS Directive) in the energy sector (JRC, 
2018a).  ENISA,  the  EU  Cyber  Security  Agency,  assists  Member  States  in  the 
implementation  of  the  NIS  Directive  and  supports  public  and  private  stakeholders  to 
enhance  the  security  and  resilience  of  their  smart  infrastructures  and  services  and 
delivers trainings to enhance their capabilities. 

Blockchain has the potential to make cyberattacks less likely, by giving digital identities 
to electronic equipment (Simon, 2018). On the other hand, it may itself be vulnerable to 
centralisation:  a  dominant  player  would  be  a  critical  failure  point.  Given  that  whoever 
controls  mining  also  controls  the  protocol,  this  decides  which  transactions  are  deemed 
valid. If the majority of the hashing power decides for or against a  change, it is nearly 
impossible  for  other  users  of  the  network  to  oppose  this  decision.  In  the  case  of 
Ethereum,  for  example,  61 %  of  the  average  weekly  capacity  is  in  the  hands  of  just 
three miners (Kritikos, 2018). 

Some  newer  blockchain  projects  hardcode  decision-making  processes  into  the  software 
in  the  form  of  smart  contracts,  a  method  called  on-chain  governance  (Kritikos,  2018). 
Also,  the  introduction  of  open-source  patents  such  as  the  Blockchain  Defensive  Patent 
Licence  is  expected  to  encourage  mining  entities  to  grant  their  mining  patents  under  a 
mutually defensive licence. That would prevent any single consortium from obtaining the 
ability  to  launch  majority  attacks,  given  the  fierce  competition  to  obtain  patents  that 
allow faster and more efficient mining (Kritikos, 2018). 

11.3  Standardisation and interoperability 

ICT  standards  are  essential  to  interoperability  (compatibility  between  systems)  and 
competitiveness.  Standards  and  interoperability  are  preconditions  for  the  uptake  of 
digitalisation  for  heating  and  cooling.  No  technology  works  in  isolation  and  data  from 
different  sectors  can  help  to  optimise  the  energy  system  as  a  whole,  so  it  is  crucial  to 
think holistically. 

Missing  standards  for  heat  meter  interfaces  hamper  the  remote  reading  of  data. 
Standardisation and regulation of remote metering in the electricity sector is far ahead of 
the heat sector (de Beaufort et al., n.d.). 

The Communication on ICT Standardisation Priorities proposes to speed up the standard-
setting  process  by  focusing  on  5G,  IoT,  cloud,  cybersecurity  and  data  technologies.  It 
builds  on  the  European  Multi-Stakeholders  Platform  on  ICT  Standardisation,  the  Rolling 
Plan  for  ICT  Standardisation  and  the  Annual  Union  Work  Programme  for  European 
Standardisation (Europa, 2018). 

A key participant in European work on standards for digital interoperability in energy is 
the  European  Committee  for  Standardization-European  Committee  for  Electrotechnical 
Standardization  (CEN-CENELEC),  which  brings  together  the  national  standardisation 
bodies  of  34  European  countries  and  includes  industry  stakeholders,  consumer 
representatives,  trade  unions  and  environmental  groups.  Recent  areas  of  work  include 
the  development  of  standards  for  electricity  and  telecommunications  networks,  energy 
management systems, data formats for electronic invoicing and digital skills. 

The  Smart  Appliances  Reference  Ontology  (SAREF)  is  a  common  interoperability 
language for home appliances to exchange energy- and product-related information with 
any energy or building management system or entity. 

The  JRC  Smart  Grid  Interoperability  Laboratory  was  inaugurated  in  November  2018  in 
Petten. It will test the interoperability of market and research solutions, promote the use 
of  a  common  interoperability  testing  methodology,  network  with  other  European 
laboratories and research centres for common initiatives, and disseminate the results of 
testing campaigns. 

34 

 
11.4  Economic activity 

Investment in digitalisation of the  energy  sector (including smart meters, home  energy 
management  systems,  distribution  automation  and  other  categories)  is  estimated  at 
almost  USD 60  billion  in  2017  and  projected  to  rise  to  USD  80  billion  in  2025  (Curry, 
2018).  The  global  market  for  data  analytics  in  the  energy  sector  reached  more  than 
USD 3.5  billion  by  2Q2017  (Gifford  and  Willuhn,  2018).  Revenue  from  the  sale  of 
connected  smart  thermostats  and  their  software  and  services  is  projected  to  reach 
USD 1.1 billion in 2025 (Navigant Research in IEA, 2017c). 

Current  estimates  suggest  a  shortfall  of  EUR  155  billion  of  the  total  EUR  500  billion 
investment  needed  to  meet  the  Commission’s  2025  internet  connectivity  objectives. 
Furthermore, lack of advanced computing systems impedes Europe's success in the data 
economy.  Also,  as  underlined  by  the  Commission’s  communication  on  AI  for  Europe, 
there is currently a gap in investment in AI between the EU and competing economies of 
more than EUR 10 billion per year (European Parliament, 2019). 

In Germany, the market for energy management services, software and technology has 
been growing significantly and service suppliers expect further dynamic growth (Flegel et 
al.,  2017).  The  market  volume  of  around  EUR  0.2  billion  is  driven  by  the  expansion  of 
smart  metering  and  remote  services,  along  with  improved  opportunities  derived  from 
demand-side management and renewable energy. 

Energy  tech  start-ups  attracted  EUR  5  billion  in  2017  in  venture  capital  and  private 
equity  (ESPC,  2018b).  The  cleantech  sector  in  general  has  historically  seen  high  risks 
and low returns to such investment.  However,  digitalisation can improve that situation: 
energy-oriented  early-stage  deals  for  software  companies  have  been  twice  as  likely  to 
exit  successfully  and  half  as  likely  to  dissolve  as  deals  for  hardware  companies  (IEA, 
2017d).  Likely  reasons  include  the  efficiency  gains  from  enhanced  productivity  and 
reduced  costs  unlocked  by  automation,  remote  controls,  marketplaces  and  other  forms 
of software. In addition, the average software deal requires about half the capital of the 
average  hardware  deal,  thereby  enabling  increased  diversification  for  investors.  Since 
2015,  the  increase  in  corporate  investments  in  new  energy  technology  companies  has 
been driven by the ICT sector (IEA in ESPC, 2018b). 

There  has  been  a  strong  trend  worldwide  towards  greater  corporate  procurement  of 
renewable electricity and companies are also set to play a leading role in deployment of 
renewable heating and cooling (see for example the Renewable Thermal Collaborative in 
the United States with members Cargill, City of Philadelphia, L'Oréal USA, Mars, Procter 
&  Gamble,  Kimberley-Clark  and  General  Motors 7 ).  Such  approaches  are  also  an 
opportunity for digitalisation. 

11.5  Skills 

Reskilling  is  essential  to  help  workers  cope  with  the  changes  required  by  the  energy 
transition  and  ensure  a  positive  economic  impact.  Various  funding  mechanisms  could 
play  important  roles  in  this,  such  as  the  recently  launched  Coal  Regions  in  Transition 
Platform,  Cohesion  Policy  funds,  the  European  Social  Fund  or  InvestEU.  The  European 
Parliament  has  also  proposed  an  Energy  Transition  Fund  to  help  regions  green  their 
economies (Morgan, 2018). 

Already  90%  of  jobs  require  at  least  a  minimum  level  of  digital  skills,  and  demand  is 
growing  for  digital  specialists  (European  Parliament,  2019).  However,  37  %  of  the  EU 
labour  force  has  an  insufficient  level  of  such  skills.  In  addition,  nearly  half  of  EU 
businesses are not implementing strategies to reskill their workforce. 

The  European  Digital  Platform  for  construction  is  intended  to  facilitate  the  uptake  of 
digital tools such as BIM and support the digital evolution of the sector (JRC, 2018a). In 

7 See www.renewablethermal.org. 

35 

 
                                           
addition,  the  BUILD  UP  Skills  initiative,  co-ordinated  by  EASME,  was  set  up  in  2011  to 
boost  the  continuing  or  further  education  and  training  of  craftsmen,  other  onsite 
construction workers and systems installers (JRC, 2018b). There may be a need to focus 
future BUILD UP Skills support on digital technologies as well. 

11.6  Social impacts 

Energy poverty is a structural deficit in the accessibility and affordability of energy. It is 
caused by a combination of factors such as high energy bills, low incomes, poor energy 
efficiency,  inadequate  housing  tenure  and  quality  of  energy  supply.  Around  9-11 %  of 
the  EU  population  is  not  able  to  heat  their  household  adequately  at  an  affordable  cost 
(EU Statistics on Income and Living Conditions in Asensio et al., 2018). 

Digitalisation of heating and cooling can help address energy poverty by reducing energy 
demand  and  spending.  Using  a  smart  thermostat  is  cheaper  than  insulating  a  building 
envelope.  Digitalisation  can  therefore  be  a  more  attractive  option  for  low-income 
households  than  more  expensive  measures.  However,  there  is  also  a  significant  cost 
associated  with  digital  technologies,  and  perhaps  more  importantly  a  risk  of  lock-in  to 
sub-optimal measures or shallow renovation. 

The  European  Commission  has  highlighted  the  increasing  relevance  of  energy  poverty 
(Asensio et al., 2018). As reflected in the Guidance document on Vulnerable Consumers, 
smart  meters  are  an  opportunity  to  empower  consumers  and  promote  integrated 
options.  However,  there  is  also  a  risk  that  digitalisation  of  heating  and  cooling  could 
exacerbate  digital  divides,  such  as  that  between  urban  and  rural  areas,  and  introduce 
new types of inequality.  

It  is  demanding  and  tiring  to  tackle  uncertainties  and  learn  how  to  use  building 
technologies  and  contact  professionals  for  support  (Isaksson,  2017).  Some  (perhaps 
wealthier) households could react to digitalisation by opting for greater convenience and 
comfort  (and  increased  energy  consumption),  while  other  (possibly  less  wealthy) 
households  could  face  constant  nudges  to  change  their  behaviour  and  reduce  energy 
consumption. 

Digitalisation  for  heating  and  cooling  could  also  have  gender  impacts.  The  ERA-Net 
Smart  Grid  Plus-funded  project  MATCH  found  that  it  is  often  men  that  are  most 
interested  and  engaged  in  new  digital  technologies  and  the  efforts  of  monitoring  and 
planning  (Christensen  et  al.,  2017).  In  extreme  cases,  giving  control  over  thermal 
comfort, lighting or security to one member of the household could exacerbate situations 
of domestic abuse. 

Finally,  the  digital  divide  applies  to  organisations  as  well  as  people.  Larger  companies 
exhibit  much  greater  uptake  of  digital  technologies  than  SMEs,  and  more  traditional 
industry sectors such as construction also lag behind (European Parliament, 2019). 

11.7  Digitalisation for policymaking 

Digitalisation  can  improve  the  policymaking  process  in  various  ways,  notably  the 
collection  and  publication  of  more  timely  and  better  quality  energy  statistics. 
Digitalisation  provides  opportunities  to  analyse  data  on  a  much  more  disaggregated 
basis and enable the effects of policy interventions to be more  easily tracked (Thomas, 
2018). 

All  levels  of  governance  can  use  data  and  a  better  sense  of  building  energy  needs  to 
shape policy decisions and prioritise energy efficiency. Data can also play a critical role in 
targeting  the  right  stakeholders  to  increase  adoption,  the  more  manageable  market 
segments and the most critical areas for action. 

For  example,  this  could  include  near  real-time statistics  on  power  generation,  or  better 
information on biomass through geospatial imaging of forests. There is even potential to 
use  satellites  and  drones  to  identify  energy  efficiency  potential;  for  example,  the 

36 

 
European Space Agency, E.ON and Astrosat plan to use satellite imaging data to create 
heat maps and identify areas in the UK where energy efficiency improvements are most 
needed (Eco-Business, 2018). 

Digitalisation  can  also  lead  to  greater  use  of  market-based  instruments  for  energy 
efficiency  by  making  metered  savings  feasible  in  more  circumstances;  increased  use  of 
metering  will  ensure  more  accurate  measurement  of  savings  at  the  individual  project 
level (IEA, 2017e). 

Finally, digital energy labelling provides several advantages. For example, the Digi-Label 
project  funded  under  Horizon  2020  develops  and  initiates  the  roll-out  of  an  extended 
digital version of the European energy label (Dütschke et al., 2017). 

37 

 
12 Research and innovation 

Europe needs a world-class research and science strategy. Public sector research plays a 
pivotal  role  in  technology  development  and,  just  as  importantly,  nurtures  many  of  the 
skills needed (OECD, 2016). Sufficient investment is therefore important. 

The  innovation  progress  of  solar-assisted  water  or  space  heating  systems  and  heat 
pumps  has  been  estimated  as  "lagging  but  viable",  while  progress  of  DHC  with 
renewables  is  "not  viable  at  current  pace";  meanwhile,  information  on  advanced  smart 
heating and cooling is "currently not available" (Cornell University et al., 2018). Among 
other  areas,  technology  breakthroughs  are  still  needed  in  high-temperature  thermal 
storage  and  smart  storage  in  general,  though  research  is  under  way  to  bring  capital 
costs down (OECD, 2016). 

Further  research  is  needed  to  improve  understanding  of  the  opportunities  for  co-
generation and DHC in an increasingly dynamic, integrated  energy  system with various 
actors and energy sources (IEA, 2016a). There is also a need for more research into the 
impacts  of  digitalisation  on  emissions  mitigation  scenarios  for  the  EU  (INSIGHT_E, 
2016). 

Public  research  and  innovation  investment  in  digitalisation  for  heating  and  cooling  has 
not yet been estimated but is likely to be very low. The categories "Smart solutions for 
consumers"  and  "Integrated  and  flexible  energy  systems"  below  are  probably  the  most 
likely  to  contain  digitalisation  research  but  also  contain  much  research  that  does  not 
involve  digitalisation,  or  only  partly.  Patent  activity  in  these  two  categories  has  been 
increasing but is still behind the rest of the world. 

Figure 7. Cool on funding: Public research and innovation investment in the EU, 2016 
(EUR millions) 

Source: Based on Pasimeni et al., 2018. 

Notes: Public investment as available in the IEA RD&D Statistics database, for codes relevant to the Integrated 
SET  Plan  Actions.  Public  investment  does  not  include  funds  from  EU  framework  programmes  or  other 
funding instruments at EU level. 

The  data  suggest  that  private  research  may  tend  to  focus  more  on  solutions  for 
consumers,  whereas  public  research  may  have  more  of  a  system-level  emphasis. 
However,  it  is  important  to  note  that  the  data  sources  and  typologies  are  different,  so 
the comparison below can only be an indicative one. 

38 

01000200030004000500020002004200820122016Integrated & flexible energy systemSmart solutions for consumersEnergy efficiency in buildingsEnergy efficiency in industryRenewable energy technologiesRenewable fuels & bioenergyCCUSNuclear safety 
 
Figure 8. Public systems, private solutions: Research and innovation investment in the EU, 2015 
(EUR millions) 

Source: Pasimeni et al., 2018. 

Notes: Public investment as available in the IEA RD&D Statistics database, for codes relevant to the Integrated 
SET  Plan  Actions.  Public  investment  does  not  include  funds  from  EU  framework  programmes  or  other 
funding instruments at EU level. Private investment as estimated by JRC SETIS. 

12.1  Examples 

Under  the  current  multiannual  financial  framework,  digitalisation  is  financed  through 
several  programmes  and  instruments,  the  biggest  being  Horizon  2020.  The  European 
Commission  proposes  to  spend  about  16 %  of  the  next  round  of  Horizon  2020  funding 
on "Climate, Energy and Mobility". For the period 2021-2027, EUR 8.7 billion will be on 
offer for energy networks and EUR 3 billion for digital networks (Euractiv). 

The  European  Commission  has  also  proposed  a  new  Digital  Europe  programme  with  a 
budget  of  EUR  9.2  billion  to  shape  and  support  the  digital  transformation  of  Europe’s 
society  and  economy  (European  Parliament,  2018).  Of  that,  EUR  2.5  billion  is  to  go  to 
AI,  EUR 2 billion  to  cybersecurity  and  EUR  700  million  to  digital  skills.  Digital  Europe  is 
the first ever funding programme dedicated to digital transformation.  

The EU strategy on Digitising European Industry aims to financially support research and 
innovation,  for  instance  via  Horizon  2020.  The  contribution  of  the  Energy  Challenge  is 
matched  by  a  contribution  from  the  ICT  part  of  Horizon  2020  within  two  topics, 
"Interoperable  and  smart  homes  and  grids"  and  "Big  data  solutions  for  energy".  In 
addition, the Energy Challenge contributes to the Focus Area "Boosting the effectiveness 
of  the  Security  Union"  with  the  topic  "Cybersecurity  in  the  Electrical  Power  and  Energy 
System" (JRC, 2018a). 

Horizon  2020  cannot  solve  the  challenges  of  digitalisation  on  its  own.  It  is  only  by 
facilitating  co-operation  and  triggering  the  creativity  of  businesses  and  innovators  that 
the impact of digitalisation can be maximised.  The SET Plan, supported by its Strategic 
Energy Technologies Information System (SETIS), is crucial in this respect: many of the 
targets and Implementation Plans that industry, research organisations, Member States 
and the European Commission have defined address digitalisation. The group working on 
smart solutions for consumers has for example agreed to look at reference architectures 
for  generic  digital  platforms  and  at  specific  requirements  for  the  energy  sector  (JRC, 
2018a). Also, a new European Technology Platform on Renewable Heating and Cooling is 
being set up under the SET Plan with Horizon 2020 funding. 

39 

 0 5001 0001 5002 0002 500PublicPrivateIntegrated & flexible energy systemSmart solutions for consumers 
 
13 Conclusion – towards beneficial digitalisation 

13.1  Energy policy initiatives 

For  buildings,  the  first  priority  should  be  to  reduce  the  need  for  heating  and  cooling  to 
the  extent  possible,  in  particular  through  renovation,  better  building  design  (solar 
shading,  orientation,  window  size,  efficient  appliances  and  lighting,  etc.)  and  urban 
planning.  Efficient  equipment  is  also  important,  although  it  should  be  a  secondary 
priority  (IEA,  2016a).  There  is  also  what  has  been  called  "getting  the  basics  right": 
individual  room  temperature  control  and  dynamic  hydronic  balancing  delivered  by 
equipment  installed  at  the  riser  pipes  or  directly  at  the  radiators;  such  technical 
solutions are well proven and offered by multiple suppliers at relatively low cost (Osojnik 
et al., 2017. 

Digitalisation  enables  greater  integration  of  heating  and  cooling  with  other  sectors  and 
uses of energy (transport, power generation, etc.). Energy policy should therefore focus 
not  only  on  developing  the  market  for  individual  technologies  but  on  combinations  of 
technologies,  the  interplay  with  on-site  renewables  and  on  managing  the  building’s 
usefulness  within  a  smart  energy  system  (including  district  energy)  (Schramm  et  al., 
2017).  For  example,  DHC  has  the  capacity  to  incorporate  several  technology  solutions 
(co-generation,  industrial  waste  heat,  heat  pumps,  solar  thermal,  off-peak  or  seasonal 
thermal  storage,  etc.).  When  paired  with  building  efficiency  measures,  integrated 
solutions  can  reduce  life-cycle  costs  for  both  buildings  and  the  DHC  networks 
themselves. 

increased 

The Clean Energy for all Europeans measures push innovation in the direction of energy 
efficiency, demand response and small-scale generation, and aims to create markets for 
this 
facilitates  self-consumption  and  energy 
communities,  strengthens  the  rules  for  metering  and  billing  of  thermal  energy  – 
especially  for  DHC  and  apartment  buildings  with  collective  heating  systems  –  and 
mandates the gradual roll-out of remotely readable heat meters by 2027. 

flexibility.  The  package 

Article 8 of the EPBD aims to minimise energy use of technical building systems through 
better  installation,  adjustment  and  control  (Schramm  et  al.,  2017).  For  example,  the 
text  requires  new  buildings  to  be  equipped  with  self-regulating  devices,  and  existing 
buildings  when  heat  generators  (e.g.  boilers)  are  replaced.  The  revised  Directive  also 
requires  the  European  Commission,  in  consultation  with  stakeholders,  to  establish  an 
optional  common  European  scheme  for  rating  the  smart  readiness  of  buildings,  i.e. 
capacity  to  use  ICT  and  smart  technologies  to  adapt  operation  to  the  needs  of  the 
occupant and the grid and to improve its energy efficiency and overall performance. The 
Smart  Readiness  Indicator  will  raise  awareness  among  building users  and  customers  of 
the  benefits  of  digitalisation  and  of  the  smart  functions  with  the  most  impact,  and  will 
encourage investment in building modernisation. 

The Connecting Europe Facility supports the development of trans-European networks in 
energy,  digital  services  and  transport.  One  of  its  key  priorities  is  to  enable  synergies 
across  those  sectors  so  it  is  therefore  a  key  instrument  in  promoting  digitalisation  for 
heating and cooling. 

At Member State level, Germany launched a programme in 2017 that offers grants of up 
to 60 % of investment  cost for new, innovative heating and cooling networks based on 
at  least  50 %  renewable  heat.  Similar  support  is  available  in  France  under  the  Fonds 
chaleur programme (IRENA, IEA and REN21, 2018). France has also made it possible for 
third-party  aggregators  to  shift  energy  loads  without  needing  the  agreement  of  energy 
suppliers (UN Environment and IEA, 2017). 

Policy  and  planning  at  all  levels  should  also  take  into  account  the  multiple  benefits  of 
heating  and  cooling  technologies.  Under  the  revised  EPBD,  renovation  strategies  are 
supposed to include “an evidence‐based estimate of expected energy savings and wider 
benefits, such as those related to health, safety and air quality”. 

40 

 
Finally,  the  energy  consumption  of  digitalisation  needs  to  be  considered  alongside  its 
potential benefits for decarbonisation and decentralisation. In order to ensure beneficial 
digitalisation, there is a need to assess energy consumption and to promote the uptake 
of more energy efficient technologies. 

13.2  Digital policy initiatives 

It  is  important  to  move  from  national  digital  markets  to  a  single  one,  just  as  it  is 
important to integrate national energy markets. There are synergies between the Energy 
Union8 and  the  Digital  Single  Market  in  stimulating  joint  investments  and  coherence  in 
regulatory frameworks, common standards and interoperability.  

The  European  Commission  has  launched  several  initiatives  as  part  of  the  Digital  Single 
Market  Strategy  to  tackle  obstacles  to  big  data  and  digital  platforms. 9 The  European 
Cloud  Initiative  aims  to  strengthen  Europe's  position  in  data-driven  innovation.  The 
Digitising  European  Industry  initiative  sets  out  a  vision  of  IoT  based  on  a  thriving 
ecosystem,  a  human-centred  approach  and  a  single  market.  The  Commission  also 
assesses  various  legal  and  technical  obstacles  to  the  free  flow  of  data  and  defines 
measures  to  address  them;  for  the  digital  economy  to  flourish,  data  needs  to  be 
accessible and reusable across borders, and by different organisations and sectors. This 
work needs to  continue as technological progress accelerates; in particular in the areas 
of data, AI and cybersecurity, and on uptake and skills (European Parliament, 2018). 

Denmark  for  example  has  a  Digital  Strategy  2016-2020  adopted  by  the  national, 
regional and local governments (IEA, 2017b). One of its focus areas is efficient utilities, 
highlighting  the  need  for  open  and  high-quality  data,  including  on  production  and 
consumption  of  heat,  as  well  as  underground  infrastructure  such  as  district  heating. 
Since 2013, energinet.dk, the TSO, gives extensive access to its data on the web, while 
several  digital  pilot  projects  are  ongoing  in  smart  cities,  local  grids  and  at  commercial 
sites.  

A  co-ordinated  plan  on  AI  was  agreed  with  Member  States,  Norway  and  Switzerland in 
December 2018; in addition to creating an enabling environment, it aims to build global 
regulatory norms and frameworks that ensure that AI develops in a  human-centric and 
ethical  way  (Craglia  et al.,  2018).  Finland  and France  have  their  own  AI  strategies  and 
are building their capacity, with other Member States to follow. 

The  AI4EU  project  launched  in  January  2019  includes  eight  industry-driven  pilots  that 
will  demonstrate  an  AI-on-demand  platform.  An  AI4EU  Ethics  Observatory  will  be 
established to ensure respect for human-centred AI values. Sustainability will be ensured 
via  the  creation  of  the  AI4EU  Foundation,  whilst  the  results  will  feed  a  new  and 
comprehensive Strategic Research Innovation Agenda for Europe. 

13.3  Standardisation and interoperability 

Policymakers  and  companies  need  to  ensure  that  equipment  and  devices  are  able  to 
provide  and  receive  information  using  open  source  or  compatible  software  to  allow  for 
interoperability  with  other  equipment,  building  management  systems  and  energy 
networks.  Inadequate interoperability and harmonisation of technology are  obstacles to 
sector-coupling solutions such as power-to-heat. Standards  can also improve  interfaces 
and ergonomics, making products more user-friendly (IEA, 2017c). 

The EU can not only lead in some or many technology and service innovation fields but 
also export its approach to system and market design. The EU “can set global standards 
for big data, artificial intelligence and automation”, according to Jean-Claude Juncker in 
the  2018  State  of  the  European  Union.  The  large  internal  market  and  EU  leadership  in 

8 See https://ec.europa.eu/commission/priorities/energy-union-and-climate_en. 
9 See http://ec.europa.eu/digital-single-market/. 

41 

 
                                           
technologies  and  climate  policy  are  an  opportunity  to  promote  European  values  and 
interests  around  the  world,  while  the  urgency  and  pace  of  the  energy  transition  will 
impel  all  countries  to  adopt  proven  models  for  hardware,  software,  engineering, 
governance, legal frameworks and business models. 

13.4  Research and innovation 

Europe  needs  ambitious  strategies  for  the  rapid  deployment  of  digital  technologies. 
Continued  support  for  R&D  is  needed,  pushed  by  tighter  minimum  energy  performance 
standards and pulled by market incentives and other policies. 

Competition  exists  not  only  in  technical  solutions,  but  also  business  models,  platforms 
and  standards.  First-mover  advantage  can  make  the  difference  between  success  and 
failure.  Supporting  emerging  technologies  therefore  requires  looking  beyond  R&D  to 
appreciate the company and industry dynamics that contribute to their success. 

13.5  Other opportunities and challenges 

Digitalisation involves changes in technologies, services, standards, business models and 
socio-economic  factors.  These  changes  will  affect  energy  companies,  markets  and 
infrastructure,  households,  and  public  authorities  at  all  levels  (including  energy 
communities). Changes will be seen in the adoption and integration of new technologies 
but also in institutions, updated legal frameworks for privacy and cybersecurity, and jobs 
and skills.  

Innovation  requires  a  supportive  regulatory  framework  and  policies  in  order  to  develop 
and  compete.  Fully  decentralised  heating  and  cooling  solutions  will  require  sufficient 
regulation to encourage adoption and ensure the security and integrity of software, the 
ownership and control of intellectual property, and the trading of resources. 

Yet policymakers also have a duty to anticipate threats and take action. Risks associated 
with  digitalisation  include  technology  lock-in,  social  exclusion  and  market  oligopolies. 
This calls for an inclusive, anticipatory governance of technological change that includes 
assessments of costs and benefits and active shaping of development pathways (OECD, 
2016). 

In  particular,  strategies  for  digitalisation  of  heating  and  cooling  need  to  be  designed 
around  people,  taking  care  not  to  widen  the  digital  divide  or  result  in  unwanted 
"gamification"  of  daily  life.  Technologies  must  be  accessible  and  affordable  to  all, 
including renters, SMEs and low-income households, which may require specific support 
or skills initiatives. Data privacy and cybersecurity risks must also be addressed. 

42 

 
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49 

 
List of abbreviations and definitions 

1Q 

AI 

first quarter 

Artificial Intelligence 

BIM 

Building Information Modelling 

BEMS  Building Energy Management Systems 

CES 

community energy storage 

CO2 

carbon dioxide 

DHC 

district heating and cooling 

eceee  European Council for an Energy Efficient Economy 

EED 

Energy Efficiency Directive 

EPBD  Energy Performance of Buildings Directive 

EUR 

euros 

FP7 

7th Framework Programme 

GDPR  General Data Protection Regulation 

GIS 

Geographic Information Systems 

HVAC  heating, ventilation and air conditioning 

ICT 

IoT 

Information and Communications Technologies 

Internet of Things 

LED 

light-emitting diode 

JRC 

Joint Research Centre 

kWh 

kilowatt-hour 

Mtoe  million tonnes of oil-equivalent 

MW 

megawatt 

MWh  megawatt-hour 

n.d. 

not dated 

NIS 

network and information systems 

PV 

photovoltaic 

TSO 

transmission system operator 

USD 

United States dollars 

VSD 

variable-speed drive 

50 

 
List of figures 

Figure 1. The other half: Final energy in the European Union by end use, 2015 ........... 5 

Figure 2. Household energy consumption for space heating (normal climate) in the 
European Union (Mtoe), 2000-2016 ......................................................................... 6 

Figure 3. Renewables and district heating: Shares by Member State ........................ 11 

Figure 4. Integration of heat and electricity systems .............................................. 12 

Figure 5. Heat first: Cumulative energy savings in buildings from widespread 
digitalisation, 2018-2040 ..................................................................................... 28 

Figure 6. More data, more heat: Coupling of electricity, heating, transport and data .. 31 

Figure 7. Cool on funding: Public research and innovation investment in the EU, 2016 
(EUR millions) ..................................................................................................... 38 

Figure 8. Public systems, private solutions: Research and innovation investment in the 
EU, 2015 (EUR millions) ....................................................................................... 39 

51 

 
 
List of tables 

Table 1. Elements of digitalisation for heating and cooling ......................................... 4 

Table 2. Potential applications of blockchain in district heating ................................. 24 

Table 3. Blockchain-for-energy initiatives in Europe with potential relevance to heating 
and cooling ......................................................................................................... 25 

Table 4. Results of optimising technical building systems at EU level ........................ 29 

Table 5. Selected FP7 and Horizon 2020 projects with relevance for data centres ....... 32 

52 

 
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