Price systems and control. Since the heat supply sector is vertically integrated and heat consumers have no choice of supplier, it is relevant to examine how the price of heat is determined. It appears from the above mentioned 2018 study by the CMA that on average the heat supply tariffs set by DH companies “are close to or lower than the price of the gas comparators” [116]. This was already established in 2012 although not as precisely: “there is little evidence of consumers being disadvantaged by the monopoly status of their heat supplier in community heating arrangements” [117]. However, to avoid that customers of DH companies would be forced pay excessive heat supply tariffs, the CMA recommended that some price rules should be established. The two options presented by the CMA are the following:
Price systems and control. Heat supply in Denmark must be priced according to actual costs following the implementation of the ‘non-profit principle’ (article 4). Both DH companies and network operators (if separated, which does not often happen) are considered monopolies and, therefore, not permitted to make profit [192]. The Act stipulates in article 20 that prices may include all necessary fuel costs, wages and other operational costs, research activities, administrative and energy delivery costs as well as costs associated with performing a PSO and the necessary developments of the network [193]. Over the years the regime governing heat supply prices has developed to a more cost-effective regime and the Danish government has introduced voluntary benchmarking, where the maximum limit for the cost-based heat prices are based on an efficiently operating heating plant [194]. The Heat Supply Act requires in article 21 that the Danish Utility Regulator (Forsyningstilsynet [195]) validate costs and tariffs. Consequently, the regime does not require a pre-approval by the Utility Regulator but rather authorises it to make changes if tariffs or other conditions are unreasonable or not set according to the rules (article 21.4).
