P27
Municipal ownership and responsibility In the case where there were no energy companies who would serve the interest of the heat consumers, the municipalities established their own energy companies and engaged consultants to help with planning, design and procurement. They established for example all the gas distribution companies and heat transmission companies jointly owned by the municipalities they supplied, and they established new municipal heat supply companies whenever it was necessary. According to The Heat Supply Act, these companies were completely independent of the municipal economy and had to be operated with the aim to minimize the heat prices to consumers. The municipalities could guarantee loans obtained by these companies and were moreover allowed to guarantee loans to the district heating companies, which were owned by the consumers, organized as co-operatives or associations. As the citizens pay their taxes and the municipalities therefore are creditworthy, this guarantee also increases the financial efficiency. Stable tax base Tax is a key element to the stability of a project’s financial model. If there is a risk of changing tax rates on heat sales or the potential for the elimination of certain tax benefits related to the DHC investment, this may make the heat offering uncompetitive compared to alternative heat supply methods. As a result, tax stability is a key consideration for investors. Affordability solutions Affordability is an issue for all utilities in all countries. Customers who cannot make payments affect the profitability and sustainability of the utility. For a DHC utility to be successful, sufficiently targeted subsidies have to be available to low income consumers to ensure the financial stability of the company’s business model. These subsidies can be provided by the state or municipality via fossil fuel taxes to ensure the stability of the district heating company and the wellbeing of its citizens.
later on audit the investment accounts and annual accounts in accordance with national and international standards. Certainly, this has helped to attract financing and even created a strong competition among the financial institutions and banks. Conclusion In the case where all of the above factors are positive, finance provision is typically not an issue. The banks will approve financing and you can organize a financial tender. In the case where some of the mainly institutional factors are negative, there is the possibility that international financial institutions (IFIs) such as the World Bank, EBRD or ADB can assist. Such IFIs have access to grant funding which can be used to reduce the risk exposure financiers feel when funding projects which have negative responses for some of the involvement criteria they require. IFIs such as those highlighted above are usually operating already in countries which are developing and lack the institutional factors outlined above, and so should be contacted in such instances. IFIs typically provide institutional development and financing support to developing countries and their municipalities. For other mainly industrialized countries there are two options left. These will be either to improve the factors above or to rely on investors to take the risk and invest in theDH&C infrastructure within the given legal framework. The fundamental rule is, however, the more risk, the more expensive the financing will be. The risk and benefit have to be shared between the local community and the investor, but if the risk is too big, no investors or banks will be interested. Unfortunately it appears that in many countries it is very hard to find investors who will take the risk of such long-term investments. District heating and cooling infrastructure has a life-time of more than 40 years and is therefore a long-term investment with a longer payback period than traditional energy infrastructure projects. The only stakeholders that have a real interest in such long-term projects are those who own the private properties in the districts and in the cities, and those who are elected by the population to take care of their interest. Therefore we can observe in many countries that almost all campuses (e.g. military camps, hospitals, universities or airports, who are the single owners of all the property within the campus) have DH&C infrastructure established and that the campuses enjoy competitive pricing for their heat supply, whereas only few cities have been able to do the same. An exemption to this is most towns in Denmark, Sweden and Finland.
Good feasibility studies and a market for consultancy services
Denmark has a strong market for independent consultancy services. The municipal and consumer-owned companies could therefore engage consulting engineers to elaborate heat plans and feasibility studies, identifying the most optimal solutions as well as economical and financial analysis. This facilitated new district heating companies, even with a small staff, to present bankable projects both for the municipal authorities and for the banks. Transparency Denmark has a high level of transparency. There is, asmentioned above, a market for independent consultants, who can help to identify the best solutions independent of the products and take care of the procurement in accordance with the national and international standards. Moreover, there are certified auditors, which can help to oversee financial tenders and
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