Marginal Costs for District Heating

District Heating (DH) is facing great challenges on raising production efficiency and reducing production cost in order to improve its competence. A novel pricing mechanism is an effective instrument to promote the sustainable development of DH systems. Based on the data on the daily dynamic operation of DH systems, this work calculated the practical marginal costs of a DH system, which can serve as the basis for developing a new dynamic pricing mechanism. Two methods, namely setting the price of electricity and entropy drop method were used to allocate the fuel costs in order to calculate the variable cost of heat production. Results show that the dynamics of marginal costs can indicate the increase in the variable costs with the increase in heat production. The calculated marginal costs were further compared with real heat prices. It was found that although heat prices varied with temperature in general, it could not reflect the changes in the technology of heat production, and therefore, could not represent the practical production costs.