ENERGY-TRANSITIONED FUTURE

In this article, we discuss different drivers and development approaches and consider some basic necessary steps to take to district energize a city.

Isidore McCormack is the Chief Project Manager, and John Flørning is the Chief Energy Planner based in Ramboll, Copenhagen. Both are working on district energy and energy supply decarbonisation projects across Europe and the US.

Based on over 40 years of experience, Ramboll offers clients complete consulting service requirements, from economic modeling, energy planning, and feasibility studies to detailed design and commissioning of networks and generation plants.

First, we take some different case studies:

International Financial Institutions (IFI’s)

There are many IFIs globally (examples being the European Investment Bank (EIB), USAID, European Bank of Reconstruction and Development (EBRD), and Asian Development Bank (ADB)). Many of these are tasked with distributing funds provided by individual countries or blocks, such as the EU, to drive carbon emission reduction based on the UN agreements going back to the Kyoto Protocol. 

The District Heating (DH) sector has proven to be a useful investment sector for IFIs in ex-Soviet countries in Eastern Europe and Central Asia due to their existing systems and the potential for modernization with associated carbon reductions. The IFIs initiate such DH system rehabilitation projects in partnership with the identified City and its associated DH utility. 

The drivers for the projects tend to be emission reduction through better energy efficiency, loan provision with interest repayment, and consumer condition improvement.

These projects have an existing generation and distribution system and consumer base. By their nature, these are rehabilitation of existing system projects with limited integration of renewables or network expansion due to the reduced investment capacity of the loan takers (City and DH Company). 

Examples of such DH system rehabilitation projects in implementation today are the Cities of Zhytomyr, Lutsk, and Horishni Plavni in Ukraine. The approach for these cities is to improve the cost recovery of their DH utilities through modernisation and increasing heat tariffs accordingly. These tariffs are regulated and often politically sensitive, creating issues for cost recovery.

Western European cities

Here we look at examples of Western European Cities and their drivers for district energising. Dublin in Ireland and Antwerp in Belgium are progressing with their respective city DH enablement to take advantage of existing and proposed Waste to Energy (WtE) plants. Establishing DH networks for these cities will enable switching an initial consumer base from fossil fuel-driven thermal energy supplies to a waste heat-driven thermal supply, thus increasing the efficiencies of their respective WtE significantly and reducing the carbon intensity of the thermal demand in their cities. 

The city of Santa Coloma de Gramenet, adjacent to Barcelona in Spain, has identified a potential geothermal source to drive the development of a DH system there. In each of these cases, the respective cities have identified a low-grade heat source that could be used to substitute fossil fuel use if it can be distributed to consumers in a manner they are accustomed to, such as the existing electrical and gas grids. 

As a result, these cities plan to utilise DH to deliver this heat, although this method of thermal energy delivery is not well known or expected in any of these countries. As a result, each city has its respective barriers to address to realize this transition. Still, these barriers are well-known in other countries with a developed DH sector and are being addressed incrementally.

Each of these cities has identified, which is in line with more extensive studies such as the Heat Roadmap Europe studies funded by the European Union’s Horizon 2020 research and innovation program, that there is a lot of waste and ambient heat unutilized in Europe. If DH networks are available to distribute this heat, these sources can be utilised economically to reduce fossil fuel consumption in their cities, thus decarbonising them. 

There are existing examples of this in Danish Cities, where the District Heating & Cooling (DHC) systems are not only capitalising on available waste and ambient heat, but also being used to utilise low-cost electricity from intermittent energy sources through heat pumps, hot water storage tanks and electric heaters.

In these Western European instances, the cities are district energising themselves and acting as the project champions by utilising an existing attractive low-carbon heat source to supply an identified local heat demand. Starting to future-proof themselves for a transition from fossil fuels to alternative heat sources for use in renewably (RES) driven heat pumps (waste heat, e.g., from the production of cooling or sewage, ground source, seawater, ambient heat, and deep geothermal), will then need to be distributed to consumers. These energy sources have been utilized in the Scandinavian countries for decades, and obstacles have been overcome through extensive experience.

Cities in the USA

Next, we look at US cities, such as Cambridge or Sommerville, MA, and University campuses (often like small cities), such as Dartmouth and Brown. These are looking to energize districts to meet carbon neutrality or net zero targets they have committed to. In addition, however, DHC provides a resiliency component for energy supply in these cities.

The transition to low carbon thermal supply in the US is often planned through electrification and supply to individual buildings. However, with the electrification of thermal supply (which tends to be 50% of a city’s total energy consumption) comes increased dependence on the electrical grid to provide current and future demands such as data centres and the transport sector. T

his will require extensive electrical system investment. DHC networks often provide a lower cost option by comparison in heat demand-dense areas while improving the resilience of the city’s energy supply.

In these instances, the Cities and Universities are the project champions who drive these projects forward. This method of thermal energy delivery through hot water supply has shown to have the lowest possible long-term costs but is not well known or expected in the US. As a result, each has its respective barriers to address to realize the transition. 

Our work in the US decarbonization projects has shown that to reach low carbon targets, district energy will almost always be included. This ensures a plug-and-play solution for potential future new technologies, improves resiliency, facilitates waste heat sources, and is often the most cost-competitive solution compared to electrification.

10 STEPS TO DISTRICT ENERGIZE YOUR CITY

Each of the above projects has taken different routes to project development and has additional drivers propelling them forward. However, each has followed some basic steps. We outline ten key steps below to support the development of a policy and investment roadmap for a district energy system. These ten steps are outlined in the United Nations Environment Programme report, District Energy in Cities34F[1], which is an excellent resource tool to assist developers in developing a district energy utility.

Step 1:

Assess existing energy & climate policy objectives, strategies & targets and identify catalysts

Why should your city district energize? As discussed above, different drivers will likely change and strengthen with the ongoing energy transition. In Europe, the EU Green Deal will likely lead to the phasing out of fossil fuels, and each city will need to determine the most economical way to deliver thermal energy when natural gas and oil are unavailable. In the author’s experience, developing a more extensive DH system on the city level through the concept of the implementation and commissioning process in a new country can be lengthy and needs to be planned and developed a decade in advance.

Step 2:

Strengthen or develop the institutional multi-stakeholder coordination framework

To establish a district energy utility, due to its nature and the need to capitalize on waste/ambient heat sources, there will likely be a need for multiple institutional stakeholders to be assembled to work within a coordinated framework.

To provide input and discussion at various steps in the utilities development (as described below), they should be unified under the same objective.

Step 3:

Integrate district energy into national and local energy strategy and planning

In Europe, the EU’s Buildings Directive, Energy Efficiency Directive, and Renewable Energy Directive all support and require developing strategic energy planning and considering centralized heat supply. However, this has not transpired into many more DH projects in Europe, even though these directives have existed for many years.

Strategic planning and understanding thermal energy demand and supply are critical to establishing viable business cases for district energy utilities. It is essential to have as a requirement at a municipal or national level.

Step 4:

Map local energy demand and evaluate local energy resources

Heat demand and energy supply mapping of local energy resources provide a critical understanding of a city’s potential for district energy development and are a key component for viability assessment. Development of such mapping requires good data on demand.

Step 5:

Determine relevant policy design considerations

To catalyze the establishment of DH as a utility in a new city, there is a need for a well-considered policy design to encourage its establishment. There are many options available for policy design to establish a new utility, and this should be studied further to develop a policy that best fits the route the respective city wishes to take to achieve its objective.

Policy design should consider both the existing developed zones and proposed zones for development. Such policy design should consider connection policy options to ensure consumers connect to the new utility. Options such as mandatory connections could be regarded as connections unless the developer can prove that the district energy solution is not cost-effective through standardized city planning tools.

Step 6:

Carry out project feasibility and viability

Technical, economic, and environmental viability feasibility studies are critical project development steps for investment realization and project progression. Today’s benchmarks for viability are likely to change as fossil fuels are disincentivized due to the UNFCCC COP21 Paris Agreement and in Europe through the EU Green Deal, and this needs to be considered by project promoters and investors, as projects are being initiated and evaluated from now on.

Step 7:

Develop a business plan and associated model

A business plan must be developed once a viable project or project has been identified. A business plan consists of documents prepared by project initiators to summarize the project’s operational and financial objectives for the future and how they will be achieved on time. It serves as a blueprint to guide and supervise the project’s goals, policies, and strategies.

Although all stakeholders may agree on the way forward, the interests of the financing parties may differ regarding the required rate of return, risk-appetite, timing, or the preferred legal terms and conditions of their involvement in the project. A well-structured and thorough business plan is critical to getting project finance and a unified stakeholder agreement to progress, in addition to deciding the best business model for implementation.

Step 8:

Analyse procurement options

Once a project is defined and the business model and plan are established, the preferred method of Utility Operator procurement should be assessed (if the respective city will not operate itself). This is primarily applicable where the city plans to maintain ultimate utility ownership through a concession contract or some form of Public Private Partnership (P3). There are many methods of procurement with different outcomes for consideration.

Step 9:

Facilitate finance

This step will depend significantly on the business plan developed and the proposed model. With all investment, the lower the risk and the higher the return, the more attractive an investment is. By de-risking the project, the more available finance will be.

For district energy projects, capital is typically invested before the connection of customer buildings; thus, the most significant risk in system deployment is load uncertainty, i.e., how many consumers will be connected to the system within, e.g., ten years. This is difficult to forecast if it is not required to connect to the system and if the tariffs are high compared to the alternative production. Local governments can use land-use and connection policies to provide investor security, alleviate financial risks, or designate district energy high-priority and opportunity zones.

Step 10:

Set measurable, reportable, and verifiable project indicators

This is a critical step for any city to attain its objective of establishing a district energy system. It is essential to work backward from a target commissioning date to develop a critical path timeline for district energy implementation, identifying key milestones and their associated indicators, which need to be addressed to indicate progress in line with the timetable and to rectify this where progress is not being made.

As with all projects, the milestones and associated indicators must be measurable and verifiable to facilitate reporting, progress, or issue understanding. Creating a new utility in direct competition with existing utilities is a complex task that will encounter issues as the project progresses. These issues must be identified as they occur to resolve and not delay project progression.

[1] file:///C:/Users/imc/Downloads/-District_energy_in_cities_unlocking_the_potential_of_energy_efficiency_and_renewable_ene.pdf