District heating: advantages and disadvantages explained (2025)
District heating – also known as a heat network – plays an important role in the Dutch energy transition. An increasing number of homes, businesses and public institutions are being connected to collective heat systems. But like any energy solution, district heating has both advantages and disadvantages.
In this blog, we outline the key points. We also look ahead: which disadvantages will be reduced or eliminated by the Collective Heat Act, and what role does data play in making heat networks smarter and fairer?
What is district heating and how does it work?
With district heating, heat is generated centrally and transported to homes and buildings via well-insulated underground pipes. The heat can come from:
- Residual heat from industry or data centres
- Waste incineration
- Geothermal energy
- Large-scale heat pumps
- In some cases, biomass or aquathermal energy
Each home or building is equipped with a heat interface unit that transfers heat from the network to the internal heating system, such as radiators or underfloor heating.
Read more:
https://www.aurumeurope.com/en/blog/what-is-district-heating/
Advantages of district heating
1. More sustainable heat supply
The greatest strength of district heating is its ability to utilise sustainable or residual heat sources.
Examples include:
- Industrial waste heat that would otherwise be lost
- Geothermal energy as a constant, low-carbon source
- Heat pumps that upgrade heat from water or air to usable temperatures
As a result, CO₂ emissions at neighbourhood level can be significantly reduced.
2. No gas boiler required → safe and low maintenance
Because there is no need for a gas boiler, flue or gas connection, risks are reduced, such as:
- Carbon monoxide poisoning
- Gas leaks
- Individual technical failures
For residents, this means less space required, lower maintenance needs and fewer malfunctions.
3. Well suited for dense urban areas and high-rise buildings
In busy urban environments with many apartments, offices and healthcare facilities, individual heat generation is inefficient.
District heating makes it possible to supply thousands of connections through a single network.
For municipalities and property managers, this makes district heating an effective solution for large-scale decarbonisation.
4. Future-proof and scalable
Heat networks can relatively easily switch to new heat sources:
- Existing networks can be connected to geothermal energy
- Seasonal storage solutions (ATES / heat buffers) can be added
- Residual heat can be supplemented with heat pumps or solar thermal energy
This means neighbourhoods do not need to be rebuilt when new technologies become available.
Disadvantages of district heating
Despite its advantages, district heating also comes with challenges.
1. High fixed costs – especially for low consumption
Many residents experience district heating as expensive, mainly because:
- Fixed connection fees are relatively high
- Low-consumption households (such as energy-efficient homes) benefit less
- Tariff structures differ from natural gas pricing
Costs typically consist of:
- Fixed charges
- Variable costs per gigajoule (GJ)
- Metering costs
The relatively high fixed component is often perceived as unfair.
2. Limited freedom of choice
In a district heating network, a single supplier is responsible for a specific heat area. Switching suppliers is not possible.
This can lead to distrust, especially when prices rise or performance is perceived as inadequate.
The Collective Heat Act partially addresses this by giving municipalities greater control over who may supply heat and under what conditions.
3. Lack of insight into consumption and performance
Many users lack visibility into:
- How many gigajoules they consume
- How their bill is structured
- Whether the network operates efficiently
- Why return temperatures are high
- Whether heat losses occur
This lack of transparency is one of the main sources of dissatisfaction among district heating users.
4. Heat losses in older networks
In outdated or poorly balanced networks, heat can be lost during transport.
This leads to higher costs and reduced sustainability.
While modern networks largely mitigate this issue, it still occurs in older districts.
5. Vulnerability to outages
A failure at the heat source, distribution pipes or pumping installations can affect hundreds of homes at once.
Although district heating systems are generally reliable, this level of dependency can be perceived as a disadvantage.
How the Collective Heat Act addresses these disadvantages
From 2025–2026 onwards, the heat market will change significantly.
The Collective Heat Act introduces new obligations aimed at reducing or eliminating many of the current disadvantages.
Key improvements include:
✓ Tariffs based on actual costs
No longer linked to gas prices, resulting in more transparency and fairer bills.
✓ Municipal control
Municipalities determine:
- Heat zones
- Who is allowed to supply heat
- Which performance standards apply
✓ Transparency on sources, CO₂ and efficiency
Suppliers must report on:
- Sustainability of heat sources
- Network efficiency
- Heat losses
- Overall system performance
✓ Stronger consumer protection
Clearer billing, improved service levels and stricter supervision.
✓ Mandatory data processing and monitoring
Without reliable metering data, suppliers cannot fulfil their obligations.
This makes heat networks measurable, comparable and controllable.
In short: many disadvantages were real, but are now being structurally addressed.
Read also: Monitoring district heating at neighbourhood level: opportunities for municipalities
Why data is the key to better district heating
Many of the disadvantages mentioned above – high costs, inefficiency and lack of transparency – stem from insufficient data.
Modern heat networks rely on:
- Smart meters
- Continuous data monitoring
- Anomaly detection
- Real-time temperature and pressure analysis
- Automated billing data
- Predictive maintenance
This results in:
- Reduced heat losses
- Lower costs
- Fewer outages
- Fairer energy allocation
- Better compliance with Collective Heat Act requirements
For municipalities, housing corporations, property managers and energy companies, insight becomes the new standard.
Who are the advantages and disadvantages most relevant for?
Residents
For residents, most concerns relate to costs and lack of insight.
The new Collective Heat Act and data-driven dashboards are expected to significantly improve this.
Property managers & homeowners’ associations (HOAs)
In smaller collective systems, they may be considered heat suppliers.
Monitoring and billing data become essential to meet regulatory obligations.
Municipalities
They must designate heat zones and oversee performance.
Reliable data is essential for supervision and reporting.
Heat companies
Efficiency becomes increasingly important:
- Lower return temperatures
- Reduced losses
- Improved planning and operations
Conclusion: district heating has pros and cons — but the future is smarter and fairer
District heating offers many advantages: sustainability, safety, scalability and future readiness.
At the same time, disadvantages such as high fixed costs, limited choice and lack of transparency remain.
However, with the Collective Heat Act and increasing digitalisation, the landscape is changing rapidly.
In the coming years, district heating will become more transparent, efficient and reliable — with greater control for users and stronger governance by municipalities.
The future of heat does not start at the source, but with insight.
Curious what district heating means for your building or project?
Contact our advisors for more information.