RENEWED FOCUS ON THE GREEN TRANSITION IN THE UNITED STATES – SO FAR SO GOOD! BUT WHAT ABOUT DISTRICT ENERGY?

The calendar shows March 2021. A renewed focus on green energy is a reality in the United States. The big question is what it means for the district energy (DE) industry and local markets (hereafter referred to as low temperature/low carbon district heating and district cooling) and for Danish companies in the future. I will try to elaborate on that in this article.

By Niels Vilstrup, Head of District Energy Advisory, Royal Danish Embassy / Ministry of Foreign Affairs Denmark

Challenges in the US DE market

First, it is worth noting that most district heating systems in the US are still based on steam with supply temperatures up to 220 °C / 430 °F or sometimes even higher. That goes for cities and campuses like universities, medical campuses, military bases, etc.

Therefore, the general perception in the U.S. about hot water as surplus heat from, e.g., industries, power plants, etc., with a temperature less than 70 °C / 160 ° F, is mainly viewed as a waste product.

As a result, DE has not been high on the political agenda, neither on the federal level nor at the state level. That might still be the case in the future. However, the fact that the U.S. has a renewed focus on climate change has re-joined the Paris Agreement, and plans to approve trillions of USD for a greener transition, and climate change adaptions will, without doubt, boost the DE market in the USA.

The fact that DE has not been high on the political agenda has advantages and disadvantages.  One disadvantage is that DE is not strongly regulated. Therefore, financial incentives and support schemes on federal and state levels to support and boost the development and implementation of DE have been limited. 

Compared to Denmark, the limited federal regulation also presents challenges when working with DE projects because the states can regulate as they see fit, which means the local landscape is generally more challenging to navigate. 

For instance, some states are against putting up individual energy meters in households, e.g., billing hot water and cooling water, because they can be viewed as someone trying to resell energy through the meters rather than ensuring you only pay for what you use.

Another challenge is the lack of financial incentives and support schemes. The business case for larger DE systems is often not in place, especially in cities. As a result, we experience a great need for knowledge-sharing and expertise to create a long-term and profitable business case for DE. This is one of the areas where Denmark has excellent potential to contribute going forward.

The return on investment horizons for implementing DE systems is often down to 5-7 years. And this is one of the main barriers to why many DE systems cannot materialize in the U.S.

DE is crucial in reaching carbon neutrality – colleges are leading the way.

The fact that low carbon DE is not high on the political agenda also has its advantages. Private actors mainly drive the DE sector without any fundamental limitations. The higher education campuses currently represent approximately 75 % of the market for Danish companies within DE Ivy League campuses. Stanford University, Harvard University, M.I.T., Princeton University, and Dartmouth College lead the way with campus-wide steam to hot water DH conversions.

This transition often includes replacing old fossil-fuelled steam boilers with geothermal heating and storage, heat pumps, biomass, C.H.P., Renewable Fuel Oil, and solar thermal DE production, to mention a few. 

Additionally, a rapidly growing number of state-owned universities and colleges are planning for and currently implementing DE. They work closely with the private sector to make that happen. Now, DDEA is connected to more than 30 educational campus projects in various stages, and that number is rapidly growing.

More and more local utilities are also developing and implementing DE systems – either as new systems (heating and cooling) or steam-to-hot water conversions (heating and cooling).

We also see an increasing trend in big-scale national and international utilities and utility investors expanding their market in the U.S. and Canada. They often acquire outdated steam and DE systems on, e.g., an educational campus or a city.

Within that deal, the utility would guarantee to transform the entire system so that the campus or city meets its carbon emission goals, energy efficiency goals, and climate action plans. The utilities would then operate and maintain the system for several years, selling heating and cooling to the client. This market is growing rapidly as well. Danish companies are currently representing approximately 20 % of the market.

Lastly, more and more cities are becoming aware that DE is crucial in becoming carbon neutral, reducing GHG emissions, and reducing air pollution. They want to integrate more renewable energy production and intelligent energy infrastructures in their cities. D.D.A. is currently working with several cities in the U.S. and Canada that have seen the potential of DE systems. This market is also growing for Danish companies, now representing approximately 5 % of the market.

Federal funds for transformative clean energy open the door for D.E.

As mentioned, the renewed focus on climate change will, without doubt, boost the DE market in the U.S. Even though DE is not explicitly mentioned in any green transition relief packages or any major green energy transition announcements so far, the outlook for DE is still very positive. 

For example, a USD 100 million fund for transformative clean energy technology research and development was announced through the U.S. Department of Energy (DOE) on February 11th, 2021.  

With the right local partners for Danish companies and suitable project applications, the fund through DOE could very well tie directly into supporting new DE systems and boosting the industry in general. The first deadline for submitting applications to this fund is April 6th, 2021. More similar funds directly and/or indirectly tied into DE will likely be announced under this current administration. DDEA is continuously monitoring that.

Relaunching the Danish District Energy Alliance to boost the implementation of DE

DDEA also focuses on promoting DE implementation through different channels at the state and city levels and through local DE industry associations and NGOs.

DDEA estimates an export potential for Danish companies in the U.S. and Canada (mainly within DE production and distribution) totaling more than USD 1 billion over the next 5+ years. It is heavily supported by global financial export potential outlooks that estimate DE market potential in the U.S. alone of roughly USD 50 billion over the next 6-7 years.  

DDEA is committed to growing and expanding, supporting Danish companies, and facilitating knowledge-sharing with the local DE industry to develop the growing market further. This is also why the DDEA Alliance is relaunched later in 2021. It will increase focus on project scouting for Danish companies, financing opportunities, project development, partnerships, lead generation, and knowledge-sharing locally. We cannot wait to welcome your company on-board DDEA in 2021.