Efficient contract and regulation design for district energy systems using multi-agent modeling

Fifth-generation district heating and cooling (5GDHC) networks offer high energy efficiency, bidirectional thermal flows, and seamless integration of renewables and waste heat. However, their decentralized nature creates complex interactions between consumers and providers, particularly under fixed-price contracts.This study evaluates how business models, pricing strategies, and regulatory measures affect such interactions in a real-world 5GDHC system in Hassel, Germany. A traditional energy system optimization model is extended into a discretized Stackelberg pricing game, capturing strategic price-setting by the provider and cost-minimizing behavior of 51 consumers. Unlike previous work that addresses technical design, stakeholder behavior, or policy separately, this approach integrates strategic interaction and regulation to quantify incentive misalignments, welfare losses, and emissions.Results indicate that constant-price contracts can increase system-wide annualized costs by 8–18% relative to the social welfare optimum, measured using a new incentive alignment suboptimality metric. Combining CO2 taxes (100 €/t) with investment subsidies (25%) effectively reduces both welfare losses and emissions, offering scalable insights for policy and utility design of future-ready district energy markets.