Market Strategies in Renewable District Heating: Engaging Prosumers and Enhancing Demand Response

Heating accounts for the largest share of final energy demand in Europe, making the decarbonization of this sector central to achieving climate and energy policy targets. District heating (DH), particularly when integrated with renewable sources, offers a pathway to reduce greenhouse gas emissions, enhance system efficiency, and improve energy security. Yet, current DH systems remain challenged by centralized structures, limited prosumer engagement, and weak incentives for demand-side flexibility. This thesis explores how market strategies can strengthen the role of prosumers and enable demand response in renewable district heating (RDH). The research combines a comprehensive literature review with a scenario-based modeling analysis of the Italian heating sector. Financial and non-financial mechanisms—including pricing models, regulatory frameworks, and behavioral incentives—are assessed for their effectiveness in promoting prosumer integration and system flexibility. A comparative scenario analysis evaluates the impacts of increasing RDH penetration to 60% of total heat supply in Italy, with emphasis on system efficiency, emissions reduction, and consumer engagement. The findings show that carefully designed market mechanisms, such as cooperative ownership models, dynamic pricing, and supportive regulation, are critical to unlock prosumer participation and enhance demand response. Scenario results highlight that expanding RDH to 60% penetration can substantially reduce fossil fuel reliance and carbon emissions, though it requires robust investment frameworks and alignment with consumer incentives. The study concludes that integrating market design with technical optimization is essential to scale up RDH systems. Policies that combine financial incentives with regulatory transparency and digital tools can foster prosumer trust, increase participation, and accelerate the transition toward a sustainable heating sector in Europe.