Primers: District Energy in Cities

Introduction

District energy (DE) systems use local sources of energy to provide heat and cooling to buildings connected to the heat pipe network. DE is scalable to the needs of the customers, and can take advantage of a variety of renewable energy sources, including energy from waste, biomass, sewage, combined heat and power projects, solar thermal, geothermal, and local sources of cold temperatures, such as lakes and rivers. Although the technology is not new, growing challenges such as energy security, affordability and climate change have spurred new interest in the technology and new generations of modern, innovative district energy projects and business models have emerged in recent years.  Leading cities such as Helsinki and Copenhagen have well-established district energy networks, and new leaders such as Anshan in China and Dubai in the UAE are emerging as major investors and innovators in district energy.

Legislation and Policy

Cities are ideally placed to enable district energy. DE is by design ideal for serving high density neighborhood areas. Cities typically have control of the pipe network right-of-way, and a certain level of control over local planning and regulation. In some cases, municipalities have publicly-owned utilities, which can be directed to develop district energy projects, or can allow municipal land to be used by district energy projects.

A challenge for policy-makers is that heat is more complex than electricity from a technical and regulatory perspective. Different qualities and temperatures of heat, interconnection challenges, distance between the energy supply and load, and interconnection standards, mean that each district energy project must be tailored to meet local needs, conditions and resources. However, there are key enabling actions available to cities that have proven effective, including:

• Regulating mandatory connection of new buildings if a district energy system is present, or a ‘connect-unless’ policy, such as in the city of London, which requires hook-up unless it is demonstrated to be technically or economically unfeasible. This helps to protect the long term viability and facilitate expansion of the project.
• Introducing financial tools, such as a feed-in tariff for heat, or a carbon tax, to improve the economics of the heat or cooling projects which enable DE. The carbon tax in Denmark, for example, has been a significant factor in the successful implementation of district energy.
• Engaging in a heat mapping exercise in the municipality to identify where the heating and cooling load centres are. Amsterdam, for example, has an extensive, publically-available heat map for the city.
• Setting DE targets to provide long-term visibility in the market. For example, Dubai aims to double the share of cooling capacity from 20% to 40% through district cooling by 2030.

Building Political and Citizen Will

Community energy planning is an effective tool to engage local citizens and create support within the community for district energy systems. District energy can be a key component of meeting local objectives for energy security and sustainability. Interest at the local level in district energy can also be generated by new infrastructure and development or demonstration projects, such as the Olympic villages in London and Vancouver. District energy can be showcased in new developments, and can be incorporated into new construction plans more easily than with existing buildings.

Finance, Investment and the Business Case

District energy projects typically provide a long term stable investment opportunity. When DE takes advantage of renewable energy sources, the heat or cooling supply is typically predictable and low cost. The City of Vancouver, for example, has developed a sewage heat policy which provides for long term contracts and heat at zero cost. Provided that the project has been designed to include sufficient anchor loads, such as from hospitals or universities, revenues from district energy projects are steady and reliable. Innovative business models are emerging that bring together municipal and private sector partners, with wholly-owned public utility models, private-public partnerships, and privately owned models, which take into account local needs and conditions. From the perspective of the consumer, a key advantage of district energy is protection against price volatility compared to traditional heat sources such as natural gas and electricity.

The primary challenges for investment in district energy relate to the high up-front capital costs, and relative lack of familiarity with the technology among investors. Because DE projects typically have unique characteristics, the financial models and revenue flows from one project can be challenging to apply to a DE project in a different context. Furthermore, regulatory barriers and lack of knowledge among policy-makers and the community can increase costs and timelines. For these reasons, many of the cities with successful district energy projects have taken a leadership role in moving district energy projects forward, either as project owners, investors, or through a local champion or local department dedicated to DE advancement.

Technology and Infrastructure

New technologies for district energy are emerging that promise to further increase the value of DE to the community. District heat and cooling can have an energy storage and balancing functionality, which can facilitate the integration of intermittent renewable sources such as wind. For example, in the city of Harbin, in northeast China, a pilot project is exploring how wind energy can be redirected to the district energy system when there is a surplus of power. Modern DE systems can leverage distributed sources of demand and production of renewable heat and electricity to provide an increasingly integrated, reliable, and cost effective heating and power network.