District heating and cooling (DHC) systems are generally long-term investments and are relatively cost-intensive to implement. Systems will be in operation for many years, and some system elements will be buried in the ground, hence not easily accessible. Therefore, significant consideration must be given to the choices made when procuring components for a DHC-system.
By Joao Ricardo Elias, Project Manager, Ramboll
The components incorporated in a DHC-system represent a substantial share of the system’s Capital Expenditures (CapEx) and Operating Expenses (OpEx). Hence the choices made by the owner regarding these components are a decisive factor in the competitiveness of the system.
Components are also determinants for the entire system’s levels of security of supply, energy efficiency (EE), greenhouse gas (GHG) emissions, and health, safety, and environment (HSE).
The choices of components must therefore take all these factors into account.
The specification of each component must consider the component’s contribution to the performance of the DHC-system to optimize the system. It is crucial to prioritize the system’s optimization concerning the optimization of the component itself. This is because the system’s performance results from the combined performance of its elements, and the different parts contribute differently to the various indicators of the system’s performance.
The aspets of the component’s performance that contribute crucially to the system’s performance are therefore those that must be optimized. These aspects must thus be identified to focus on them when setting the requirements for the specific component. To do so, it is necessary to determine how and when the component both must, as a requirement, and can, during an incident, interact with other elements of the specific system.
This requires knowledge of the system’s overall objectives and an understanding of how the system’s structure supports the fulfilment of these objectives under the identified system’s constraints. It is only through careful engineering of the overall DHC-system that the full potential of the DHC-system can be established.
Therefore, the specification of each component should be built upon a top-down process, starting with the specification of the system, and moving down to sub-systems until the component level has been reached.
Procurement of components at different project delivery methods
Various project delivery methods like Design-Bid-Build (DBB), Design-Build (DB), and Design-Build-Operate (DBO) are being employed for the development of DHC-systems. The choice of delivery method depends on several factors like the project’s risk profile, the technology used, and market traditions.
The procurement of the system’s components must reflect the delivery method employed in the project. Therefore, the level of detail of the component’s specification must be adjusted accordingly without compromising the earlier mentioned focus on the aspects of the component’s performance that contribute crucially to the system’s performance.
Traditionally in Denmark, the preferred delivery method for DHC-projects is Design-Bid-Build. The project’s owner is responsible for the design and is supported by the Owner’s Engineer, typically an engineering consultant, who develops the actual design. Based on the fully developed design, the works and materials are sent for bidding, and the Contractor behind the winning bid is responsible for executing the design. In such projects, there are typically two options regarding the procurement of components, and often both options are used under the same project.
One option is that the Contractor purchases the components, which the Contractor installs, and ownership of the components is transferred from the Contractor to the project’s owner.
The other option is that the owner purchases the components and transfers these to the Contractor for installation. The latter option is known as Owner Direct Purchase (ODP).
The owner has complete control
Common to both options is that the owner has complete control of which components are purchased to the level that the owner decides both on manufacturer and type. This allows the owner to choose the equipment that best fits the owner’s existing assets and asset management structure. These considerations should be balanced with the earlier mentioned considerations on choosing components whose performance contributes crucially to the system’s performance.
Market research based on a detailed specification
The choice of the component may be supported by market research based on a detailed specification. In this process, the owner makes an informed choice of the component to avoid a disproportional focus on CapEx while overseeing other factors that contribute to the total cost of ownership or other aspects that are crucial to the system’s performance.
Another potential danger is the owner’s loss of focus induced by the suppliers’ focus on highlighting unique selling points, which are valid but do not necessarily meet the owner’s specific needs. These dangers can be considerably mitigated by a pre-defining detailed specification for the component during the earlier mentioned top-down specification process as part of the engineering of the DHC-system.
Contractor has design responsibilities
Design-Build is relatively common in Denmark for contracts. The scope is an easily definable sub-system, e.g., a heat/cooling production unit like a boiler system or a heat pump/chiller system. Per definition, the Contractor has design responsibilities under this type of contract. The Contractor’s design must comply with the owner’s specification—this specification results from the concept design developed for the sub-system by the Owner’s Engineer.
On the one side, the specification must be sufficiently detailed within the identified focus areas to enable the envisaged integration of the specific sub-system in the DHC-system to support the optimisation of the entire system’s performance adequately. On the other side, the level of detail in the specification must not unnecessarily limit the Contractor’s design. Otherwise, the expected benefits from transferring some of the design processes to the Contractor may be lost.
The interactions between the sub-system and other elements of the DHC-system, which have been identified during the concept design, may also lead to the sub-system’s specification, including specific details on some of the sub-system components, e.g., instruments.
Typically, the Owner’s Engineer both produces these specifications and supports the owner in reviewing the solutions proposed by the Contractor concerning the specified requirements. Both must ensure that the owner’s interests prevail in a project delivery method where the owner does not entirely control the design or the installed equipment.
A potential risk in a Design-Build contract is that the specification is not detailed enough in setting the requirements, thereby allowing for a chosen component that may be cheap to buy but expensive to operate and maintain. Subsequently, the overall cost of the system is higher than it ought to be.
Design-Build-Operate is less used in Denmark, but there are other countries where it is a relatively standard procedure. Many of the considerations described for the projects under the Design-Build delivery method also apply here. The difference between these two project delivery models is that the Contractor will operate the DHC-system for a while, after which the owner takes over the DHC-system. In this case, the specification and the review of the solutions proposed by the Contractor concerning the specified requirements must support the contractual terms in securing the system’s business case when the contract is due.
A potential risk is that the Contractor makes components choices to optimize the Contractor’s return without considering the owner’s total cost of ownership after the contract has ended or other performance factors that the owner has focused on.
A carefully planned and conducted component procurement process is essential for the success of any DHC-system. The Owner’s Engineer has a vital role in supporting the owner in this process.
For further information, please contact: Joao Ricardo Elias at email@example.com