Economic Analysis According to VDI 2067

VDI 2067 is the standard methodology for the economic assessment of district heating networks in Germany: it converts investment costs, energy costs, operating costs, and revenues into comparable annual costs using the annuity method, enabling direct variant comparison over observation periods of 20 to 30 years. The key performance indicator is the levelized cost of heat (LCOH), which typically ranges from 8 ct/kWh (gas boiler) to 20 ct/kWh (cold district heating) — depending on technology, heat density, and available funding.

Online calculator: levelized cost of heat (LCOH)

Enter the investment, discount rate, energy and operating costs and the annual useful heat — the calculator determines the annuity factor, the price-dynamic annual costs per cost group and the levelized cost of heat using the annuity method, so supply variants can be compared in seconds. The article below explains the methodology in detail.

Basic Principle of VDI 2067

VDI 2067 is based on the annuity principle: all costs and revenues are converted into uniform annual payments (annuities). This makes it possible to directly compare variants with different investment levels, service lives and cost profiles.

The central idea is straightforward. One-off investments, recurring annual costs and energy costs subject to price escalation are all converted into comparable annual costs over the observation period $T$, using a uniform discount rate $q$.

Cost Categories

VDI 2067 distinguishes four cost groups:

1. Capital Costs (Investment Costs)

The investment costs $I_0$ comprise all one-off expenditures for planning, procurement and construction of the plant:

• Heat generators (boilers, heat pumps, solar thermal systems)
• Pipe network (material costs, civil engineering, laying)
• Transfer stations
• Pumps, valves, control technology
• Planning costs (typically 10 to 15 % of construction costs)

The investment costs are converted into annual capital costs using the annuity factor $a$:

$a = \frac{q \cdot (1+q)^T}{(1+q)^T - 1}$

with the discount rate $q$ (e.g. 0.03 for 3 %) and the observation period $T$ in years.

The annual capital costs are then:

$K_{\text{Capital}} = I_0 \cdot a$

Example: an investment of EUR 2,000,000 at $q = 3\;\%$ and $T = 25$ years yields:

$a = \frac{0{.}03 \cdot (1{.}03)^{25}}{(1{.}03)^{25} - 1} = \frac{0{.}03 \cdot 2{.}094}{2{.}094 - 1} = \frac{0{.}0628}{1{.}094} \approx 0{.}0574$

$K_{\text{Capital}} = 2{,}000{,}000 \; \text{EUR} \cdot 0{.}0574 = 114{,}820 \; \text{EUR/a}$

2. Demand-Related Costs (Energy Costs)

Demand-related costs comprise the expenditures for the energy input (electricity, gas, biomass, ambient heat) and, where applicable, auxiliary energy (pump electricity). They depend on the annual energy demand and the specific energy prices:

$K_{\text{Energy}} = \sum_i E_i \cdot p_i$

where $E_i$ is the annual consumption of energy carrier $i$ and $p_i$ is the corresponding price.

When accounting for price escalation, the price-dynamic annuity factor $b$ is used:

$b_{\text{Energy}} = a \cdot \frac{1 - \left(\frac{1+r}{1+q}\right)^T}{q - r}$

with the annual price escalation rate $r$ for the respective energy carrier. The price-dynamic annual costs are then:

$K_{\text{Energy,dyn}} = K_{\text{Energy,year\;1}} \cdot b_{\text{Energy}}$

3. Operation-Related Costs (Maintenance and Servicing)

These costs include personnel, maintenance, repair and insurance. VDI 2067 recommends expressing these costs as a percentage of the investment costs:

The annual operation-related costs are therefore:

$K_{\text{Operation}} = \sum_j f_{\text{M},j} \cdot I_{0,j}$

4. Other Costs

This category includes, among others:

• CO$_2$ costs (emissions trading, CO$_2$ pricing)
• Administrative costs
• Insurance
• Lease payments and concession fees

CO$_2$ costs in particular are becoming increasingly important. With the national emissions trading scheme, CO$_2$ prices are rising continuously. Any economic analysis should therefore assume a realistic price trajectory that, over the observation period, lies significantly above today’s prices.

Revenues and Funding

Set against the costs are the heat revenues, the income from selling heat to consumers. In an economic analysis these are often calculated as an annuity of revenues:

$E_{\text{Heat}} = Q_{\text{sold}} \cdot p_{\text{Heat}}$

In addition, funding (e.g. from the German Federal Funding for Efficient District Heating Networks, BEW) can substantially reduce the investment costs. Funding is accounted for as a one-off deduction from the investment costs:

$I_{\text{0,effective}} = I_0 - F$

where $F$ is the amount of funding received.

Net Present Value Method

As an alternative or complement to the annuity method, the net present value method (NPV) is frequently used. The net present value $C_0$ is the sum of all payments discounted to the reference point $t = 0$:

$C_0 = -I_0 + \sum_{t=1}^{T} \frac{E_t - K_t}{(1+q)^t} + \frac{RV}{(1+q)^T}$

with the annual revenues $E_t$, the annual costs $K_t$ and the residual value $RV$ of the plant at the end of the observation period.

A project is economically viable if $C_0 > 0$. When comparing several variants, the one with the highest net present value should be preferred.

Levelized Cost of Heat

The levelized cost of heat (LCOH) is the key performance indicator for variant comparison. It expresses what a kilowatt-hour of heat costs on average over the entire observation period:

$\text{LCOH} = \frac{K_{\text{Capital}} + K_{\text{Energy,dyn}} + K_{\text{Operation}} + K_{\text{Other}}}{Q_{\text{useful}}}$

where $Q_{\text{useful}}$ is the useful heat delivered to consumers each year. Typical levelized costs of heat for various systems (as of 2025):

These values are highly site- and project-specific and serve only as guidance. Actual LCOH depends on heat density, network length, energy prices and the available funding landscape.

Service Life and Replacement Investments

An important aspect of VDI 2067 is the consideration of different service lives for the individual system components. While a pipe network has a lifetime of 40 to 50 years, heat pumps must be replaced after 15 to 20 years and control technology after 10 to 15 years. Replacement investments that fall within the observation period are accounted for as additional, discounted one-off payments:

$I_{\text{Replacement},t} = \frac{I_{\text{Replacement}}}{(1+q)^{t_{\text{Replacement}}}}$

Typical service lives according to VDI 2067:

Sensitivity Analysis

No economic analysis is complete without a sensitivity analysis. This examines how changes in input parameters affect the result. The most important parameters for district heating networks are:

• Energy price development (especially electricity and gas prices)
• CO$_2$ price development
• Discount rate
• Connection rate (how many potential consumers actually connect)
• Heat sales (influenced by the refurbishment rate of connected buildings)

Software such as VICUS Districts provides, through its annual thermohydraulic simulation, the physical input data — annual energy demand, network losses, pump electricity and load profiles — as a sound basis for the variant comparison; the economic analysis itself according to VDI 2067 is then carried out in an external calculation tool.

Making the Method Reliable

VDI 2067 offers a proven and transparent framework for the economic analysis of district heating networks. The annuity method makes one-off and recurring costs comparable, and accounting for price escalation ensures realistic results over long observation periods. A sound basis for decisions rests on three things: capturing all four cost groups completely, assuming realistic price developments, and validating the results through a sensitivity analysis. The levelized cost of heat, as the central performance indicator, enables direct comparison of different supply variants and forms the foundation for investment decisions and heat pricing models. VICUS Districts supplies the physical input data from the simulation, on which the economic analysis according to VDI 2067 builds in an external calculation tool, so that technical and economic assessment interlock consistently.

Further reading: BEW Funding — public funding that reduces investment costs in the economic analysis, Heat Loss Calculation According to DIN EN 13941 — quantifying losses that directly impact operating costs, Linear Heat Density — the key metric for economic assessment of network viability, Pump Sizing in District Heating Networks — pump energy as an operational cost factor in the VDI 2067 framework.

References and Standards

• VDI 2067 Part 1 — Economic efficiency of building installations — Fundamentals and economic calculation
• DIN EN 15459-1 — Energy performance of buildings — Economic evaluation procedure for energy systems in buildings
• AGFW FW 308 — Technical-economic parameters of district heating supply