Economic and environmental efficiency of district heating plants

District heating, the conversion of primary energy into distributed thermal energy and possible electric energy, is a challenge to regulate. In addition to the ever present asymmetric information in any sufficiently complex activity, some of the inputs for district heating, such as excess process heat, have arbitrary valuation. This study concerns the most developed European district heating and cogeneration system, the Danish. By assessing environmental and economic efficiency, the impact of governmental, market and managerial imperfections are estimated. The principal methodological base is the additive Data Envelopment Analysis model with extensions. The paper ends with some policy suggestions. (c) 2004 Elsevier Ltd. All rights reserved.