HOT|COOL NO. 1/2020 - "How to District Energize your City"

NO. 1 /2020

INTERNATIONAL MAGAZINE ON DISTRICT HEATING AND COOLING

FOCUS

How to District Energize your City

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Contents

28 27 24 3 31

PREFACE HOW TO DISTRICT ENERGIZE YOUR CITY

FOCUS ARTICLES: How to District Energize your City

4 8 12 22 20 16

QUESTIONING THE VIEW THAT PRIVATE INVESTORS ONLY HUNT DOWN LARGE IRRs By George Robinson

ENERGY TRANSITIONED FUTURE By Isidore McCormack and John Flørning

THE BIG PUZZLE – STRATEGIC ENERGY PLANNING By Anders Hasselager and Lars Gullev

BUSINESS MODELS FOR SURPLUS HEATING By Grøn Energi

COMPENSATION TO NATURAL GAS COMPANIES WHEN THEIR HEAT MARKETS CONVERT TO DISTRICT HEATING By Ole Odgaard

HEATMAN By Alfred Heller

MEMBER COMPANY PROFILE: FRESE A/S

TRANSITION TO NET ZERO IN SCOTLAND By Guy Milligan

AQUATHERMAL ENERGY BY Arianne de Vries and Reinier Romijn

SMART SUSTAINABLE CITY By Astrid Birnbaum and Anders Dyrelund

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Editor-in-Chief: Lars Gullev, VEKS

Total circulation: 8,000 copies in 60 countries 4 times per year

Layout: DBDH /AGENCY.071

Coordinating Editor: Henrik Søndergaard, DBDH hs@dbdh.dk

Prepress and printing: Kailow Graphic A/S

info@dbdh.dk www.dbdh.dk

ISSN 0904 9681

HowtoDistrict Energize your City is the title of this issue of Hot Cool. And that's the essence of DBDH's work. Energize your City DBDH publishes Hot Cool but the main business is helping cities establish sustainable district heating or helping them integrate green technology into an existing district heating system. Any city, or utility in the world, can call DBDH and get help to find a green district heating solution suitable for their city. Very often a similar system is in operation in Denmark – being the most advanced district heating country in the world. DBDH then organizes visits to Danish reference utilities or expert delegations from Denmark to the city. How to District

DBDH is a non-profit organization - so guiding by DBDH is free of charge.

Just call us.

We'll love to help you district energize your city!

Best regards

Lars Hummelmose, Managing Director, DBDH lh@DBDH.dk +45 2990 0080

DRIVERS & APPROACHES In this article we discuss different drivers and development approaches and consider some basic necessary steps to take in order to district energize a city. First, we take some different case studies:

Isidore McCormack is Chief Project Manager and John Flørning is Chief Energy Planner based in Ramboll, Copenhagen. Both are working on district energy and energy supply decarbonisation projects across Europe and in the US. Based on over 40 years of experience, Ramboll offer full consulting service requirements to clients from economic modelling, energy planning and feasibility studies to detailed design and commissioning of networks and generation plants.

International Financial Institutions (IFI’s) There are many IFI’s globally (examples being European InvestmentBank(EIB),USAID,EuropeanBankofReconstruction and Development (EBRD), 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 on the basis of the UN agreements going back to the Kyoto Protocol. The District Heating (DH) sector has proven to be a useful investment sector for IFI’s in ex-Soviet countries in Eastern Europe and Central Asia, due to their existing systems and the potential for modernisation with associated carbon reductions. Such DH system rehabilitation projects are initiated by the IFI’s, in partnership with the identified City and its associated DH utility. The drivers for the projects tends 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 an existing 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 are politically sensitive issues, which creates its own issues for cost recovery. Western European Cities Here we look at examples of Western European Cities and their drivers for district energising. Both the cities of Dublin in Ireland and Antwerp in Belgium are progressing 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 which 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 are planning to utilise DH to deliver this heat, although this method of thermal

Cities in the USA Next we look at US cities, such as Cambridge or Sommerville, MA and University campuses (which are often like small cities) such as Dartmouth and Brown. These are looking to district energise to meet carbon neutrality or net zero targets which 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 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, in addition to future, demands such as data centres and the transport sector. This 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 common in the US. As a result, each has their respective barriers to address in order to realise the transition. Our work in the US decarbonisation projects has shown that to reach low carbon targets, this will almost always include district energy. This ensures a plug and play solution for potential future new technologies, improves resiliency, facilitates use of waste heat sources and is often the cost competitive solution when compared with electrification.

energy delivery is not well known or common in any of these countries. As a result, each city has their respective barriers to address in order to realise this transition, but these barriers are well-known in other countries with a developed DH sector and so are being addressed incrementally. What each of these cities have identified, which in line with larger studies such as the Heat Roadmap Europe studies funded by the European Union’s Horizon 2020 research and innovation programme, is that there is a lot of waste and ambient heat unutilised in Europe. If DH networks are available to distribute this heat, then 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 accumulator 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 production of cooling or from sewage, ground source, sea water, 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 experiences.

10 STEP Each of the above projects have taken different routes to project development and have different 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 road map for a district energy system. These ten steps are as outlined in the United Nations Environment Programme report, District Energy in Cities34F , which is an excellent resource tool to assist developers in the development of a district energy utility. Integrate district energy into national and/or local energy strategy and planning In Europe, the EU’s Buildings Directive, Energy Efficiency Directive and Renewable Energy Directive all support and require development of strategic energy planning and consideration of centralised heat supply. However, in practice to date, this has not transpired into many more DH projects in Europe, even though these directives have been in place for many years. 3

1

Strategic planning and understanding of thermal energy demand and supply is critical to the establishment of viable business cases for district energy utilities and is important to have as a requirement at a municipal or national level.

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

Why should your city district energise? As discussed above there are different drivers, and these are likely to 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 what the most economical way to deliver thermal energy will be when natural gas and oil are not available options. In the authors experience, developing a larger DH system on city level through concept to implementation and commissioning process in a new country can be a lengthy process and needs to be planned and developed a decade in advance.

4

Map local energy demand and evaluate local energy resources

Heat demand and energy supply mapping of local energy resources provide 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.

5

Determine relevant policy design considerations

2

Strengthen or develop the institutional multi-stakeholder coordination framework

To catalyse the establishment of DH as a utility in a new city, there is a need for wellconsidered 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 policy which 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 considered, or connection unless the developer can prove that the district energy solution is not cost effective through standardized city planning tools.

To establish a district energy utility, due to its nature and the need to capitalise on waste/ambient heat sources, there will likely be a need for multiple institutional stakeholders to be assembled to work within a coordinated framework. In order to provide input and discussion at various steps in the utilities development (as described below) they should however, be all unified under the same objective.

PS TO DISTRICT ENERGIZE YOUR CITY Carry out project feasibility and viability 6 9

Facilitate finance

This step will very much depend on the business plan developed and the model proposed for implementation. With all investment, the lower the risk and the higher the return, the more attractive an investment is. By derisking the project, the more available finance will be. For district energy projects, capital is typically invested prior to the connection of customer buildings; thus, the greatest risk in system deployment is load uncertainty i.e. how many consumers will be connected to the system within e.g. 10 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. To provide investor security and alleviate financial risks, local governments can use landuse and connection policies or designate district energy highpriority and opportunity zones.

Technical, economic and environmental viability feasibility studies are a critical project develop-ment step for investment realisation and project progression. Today’s benchmarks for viability are likely to change as fossil fuels are disincentivised 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.

7

Develop business plan and associated model

Once a viable project or projects have been identified, a business plan will need to be developed. A business plan consists of a set 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 objectives, policies and strategies. Although all stakeholders may be in agreement on the way forward, the interests of the financing parties may be very different with respect to the required rate of return, riskappetite, timing or with respect to the preferred legal terms and conditions of their involvement in the project. A wellstructured and thorough business plan is key to getting project finance and getting unified stakeholder agreement to progress, in addition to deciding the best business model for implementation.

10

Set measurable, reportable and verifiable project indicators

This is a critical step for any city in order to attain its objective of establishing a district energy system. It is important to work backwards from a target commissioning date to establish 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 timeline and to rectify this where progress is not being made. As with all projects, it is important that the milestones and their associated indicators identified are measurable and verifiable to facilitate reporting and progress or issue understanding. To establish a newutility which is in direct competition with existing utilities is a complex task, which will encounter issues as the project progresses. These issues need to be identified as they occur in order to resolve and not delay project progression.

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 ownership of the utility, whether through a concession contract or some form of Public Private Partnership (P3). There are many methods of procurement with different outcomes for consideration.

For further information please contact: jnf@ramboll.com / imc@ramboll.com

the big

By Anders Hasselager, Project Manager, Gate 21 and Lars Gullev , CEO, VEKS (Energy Company west of Copenhagen).

Looking into the future Lars Gullev, CEO at VEKS, explains: “We are looking into a future energy system with far more wind power and less combined heat and power (CHP) production from CHP plants. A system that must be fossil-free, but in the long term also reduces the current level of sustainable biomass in the electric and cogeneration sectors. In the future, biomass - including biogas - will be used increasingly in the transport sector. The strategic energy planning, initiated in the Capital Region of Denmark, will contribute to realizing the fossil-free energy system of the future.” Analyses indicate electricity becoming the dominant source of energy interacting with district heating – andmore electricity will be produced by wind turbines and solar cells. To accommodate more of this fluctuating energy, a flexible and integrated sectoral linked energy system is essential. Here, the EPT33 municipalities have the strengths to create the energy system of the future. The hard part is finding the right areas for energy production.

Cross Border Energy (EPT33) The parties behind the ambitious project for improving a sustainable energy conversion. are the Capital Region, all 29 municipalities in the Capital Region, four from the Region Zealand, and 11 District Heating companies (waste, district heating, natural gas) in the Greater Copenhagen area. The project is named Cross Border Energy (hereafter referred to as EPT33).

In addition, 27% of electricity consumption can be made technically flexible and adapted to wind and solar.

For sustainable energy, a technical potential of 37 TW h/year is estimated. The largest potential being heat production, including solar heat, geothermal energy, and surplus heat in combination with heat pumps.

Where are we going?

The first phase of EPT33 describes the ambitious route for the energy systems to reach the goal. In the period until 2050, considerable effort is required for energy savings. Despite increasing living space and more transportation in 2050, the final energy consumption will be reduced by almost 30% compared to 2015 (reduction from 38 to 27 TWh/year). But an increase in electricity, district heating, and biomass is expected. In the period until 2035, the use of biomass will increase significantly. This is mainly due to conversion to biomass at the CHP plants, while the use of biomass for energy production after this time will be reduced. This will happen as heat pumps, solar heat and geothermal energy integrate district heating production. A significant expansion with solar cells and wind turbines is assumed, which - in combinationwith other prerequisites - means the EPT33 municipalities will shift from net importing to net exporting electricity.

As a result of the ambitious conversion, total CO2 emissions are expected to fall by 75% from 2015 to 2035.

The Capital Region differs from the rest of Denmark in several ways: - 35% of Denmark's population lives in the EPT33 area - A large area is urban and only a small part is agriculture - The population density is 6-9 times higher than in the average Danish region - A further increase in population is expected until 2040, as many people want to live close to Copenhagen - More people live in apartment buildings - More people use public transportation for shorter distances - Most buildings in the urban areas are connected to district heating system

How do we get there? The joint strategic energy plan for the EPT33 municipalities recommends a Roadmap 2025 presenting 34 actions being implemented by 2025. The vision of fossil-free energy systems in 2035 and a fossil-free transport system in 2050 requires considerable effort from many parts. All elements must be brought into play.

The 34 initiatives in the Roadmap 2025 are organized in six focus areas covering the total energy system in the EPT33 municipalities. The focus areas are:

1. DISTRICT HEATING AND COGENERATION The conversion from fossil fuel to sustainable biomass is already well underway. With the planned projects, the conversion from natural gas and coal to biomass in the larger district heating systems is almost completed - no further action is needed here. The main challenges until 2025 are a reduction of greenhouse gas emissions from the remaining production units. The expansion of geothermal, solar, heat pumps and district heating boilers must be accelerated to prepare for a multi-strand supply and - in the longer term - a reduction of burning biomass.

3. THE POWER SYSTEM The electricity system plays a key role in energy conversion, as more wind power and solar cells enter the electricity system of the future. Electricity will account for a larger share of the total energy consumption - and an increase in electricity consumption of

4. THE NATURAL GAS SYSTEM Natural gas is well suited to serve critical functions in the energy system. The main challenge is a conversion from cheap and abundant natural gas for expensive and limited biogas. There are limited amounts of biogas, so you should prioritize and use it strategically - for example in heavy transport and as peak load fuel in the electric and district heating system.

70% is expected in 2050 compared to 2015. The challengewill be expanding wind and solar to efficiency, flexibility, capacity, and balance, in an energy system with unstable sources.

6. ENERGY CONSUMPTION The energy consumption of buildings plays a key role in the energy system. As previously mentioned, they account for 40% of the total energy consumption in Denmark. Therefore, Roadmap 2025 has six specific measures reducing energy consumption in the building stock.

Prioritization and continuous adjustment The transition to a fossil-free energy system is a complicated, long-term process. It requires new knowledge, new solutions, and a coordinated effort to make it a reality. There is a need for sustained efforts over the next several years, and therefore the initiatives in Roadmap 2025 are not exhaustive, but merely a collection of essential conversion elements that can help realize the energy vision. Who does what? The recommendations in Roadmap 2025 involve all players - region, municipalities, and utilities. Everyone must thus contribute to the transformation of vision into action - for example, by incorporating the recommendations into local climate and energy plans, or by the implementation of development projects. Actions are decided based on local conditions and priorities. However, the local effort cannot be seen isolated, but in the regional, national and global context. The recommendation is the actors continuously assess the need for cooperation supporting the transition. Perspectives: Energy conversion, sustainability and green growth At a global level, there is a growing demand for green solutions. And as a green pioneer country, Denmark can benefit from this. The analysis of Green Growth in Greater Copenhagen indicates an annual turnover of DKK 95 billion (€ 12 billion) and 42,000 new green jobs in Greater Copenhagen in 2035. However, this requires the actors in the EPT33 collaboration to maintain working hard for energy conversion.

For further information please contact: anders.hasselager@gate21.dk / lg@veks.dk

Main principles for a compensation scheme A compensation scheme was decided in 2012. It was based on three main principles: Firstly, the compensation scheme secures lower heat prices for the new district heating consumers. A standardized feasibility study based on levelized cost of energy must document that the new district heating supply will result in lower consumer prices and better socio-economic costs. Secondly, the compensation model secures repayment of debt in all natural gas distribution companies, whether they have a relative high debt or a low debt. Thus, the size of the compensation can vary from one area to the next, according to the economy of the gas distribution company. Thirdly, the compensation scheme must be as simple as possible. It was pointed out by all key stakeholders during the preparatory process that unclear rules and interpretation options could delay the conversion significantly. The reason is that one part could bring the case for a complaint body or court, which could result in higher costs and delayed investments. Thus, a fair and simple compensation scheme was deliberately asked for by all stakeholders. Relatively high indebted natural gas companies were secured, and the new district heating customers would only be asked to convert, if their district heating bill was lower than the previous heating bill with natural gas, incl. compensation.

By Ole Odgaard, Former Senior Policy Advisor on district heating at the Danish Energy Agency

In many places, lower consumer prices could be obtained by replacing natural gas by district heating. But such conversions are often countered by a remaining debt at the natural gas companies. This article suggests a solution based on several years of experiences in Denmark, which is applicable in other countries. Denmark supports a heat conversion from natural gas to district heating, which brings about lower consumer prices and lower CO2-emissions. However, a key issue is that the natural gas companies may still have a debt from the natural gas network's establishment. This debt must necessarily be settled by the remaining natural gas customers. When a significant conversion from natural gas to district heating is made, the remaining gas consumers will be charged with even greater repayments on the debt. In short, there are fewer to pay. Therefore, a fair compensation scheme could be considered for larger heat markets or heat zones. As many cities in other countries face the same challenge, this article will highlight the Danish solution, which could serve as inspiration for a similar solution adapted to the specific conditions elsewhere.

The future lump sum to be paid in compensation can only be adjusted on an annual basis. The base year for calculation of remaining debt and thus compensation is 2012.

Compensation = a part of the natural gas distribution company’s remaining debt The compensation scheme compen-sates the natural gas companies as follows: the district heating company compensates for the leaving natural gas customers' share of the outstanding debt. If a district heating customer exits the district heating supply, the customers must repay his or her share of the remaining debt, before the exit is approved. Thus, it is only fair that the same principle applies, if a group of natural gas customers convert to district heating. By adopting this principle, the natural gas companies will be able to receive compensation, which they would otherwise not receive, when customers on an individual basis exit from the natural gas supply. Thus, the natural gas companies benefit from the compensation scheme, as they get compensation due to an amendment in the natural gas zone affecting a large number of customers. As the district heating companies receive full compensation and the natural gas companies received no compensation from individual heat conversions, the following compromise was made: 50 % of the remaining debt is compensation to the natural gas companies to be paid by the district heating companies. Half of each natural gas customer's residual debt is paid as a one-time compensation. The other half is paid by the remaining natural gas customers via higher tariffs.

The compensation for the coming years is calculated as follows:

Compensation in 2013 = compensation for 2012 - 5 % + net consumer price index increase for 2012.

Compensation in 2014 = compensation for 2013 - 5 % + net consumer price index increase for 2013.

Likewise, the compensation for the coming years will continue until the end of the compensation scheme in 2020.

Thus, the compensation (lump sum) is typically lowered with about 3 % pr. year, as the inflation typically ranges around 2 %.

This is the set-up for all large andmedium scale customers. The Danish experience is that these institutions and industries etc. can pay the lump sum without any problems. The banks can receive the feasibility study’s documentation of the economic favourable conversion to district heating, in case the customer needs to obtain a bank loan for the lump sum payment. This is, however, quite rare, as most enterprises can pay the compensation up front. In order to give the natural gas companies an incentive to cooperate with the district heating companies, the compensation scheme has a deadline. By 2020 no compensation is given. Thus, if the natural gas companies do not support the economically sound conversion projects before 2020, they will not be compensated. Special arrangement for small-scale customers A more simple compensation scheme is adopted for the small-scale customers that consume less than 6,000 m3 natural gas per year. They will pay a fixed lump sum regardless of their actual natural gas consumption. The reason is that the size of the compensation does not justify an individual calculation and business transaction for each household. The transaction costs are simply too high, as some households can be expected to open up a relatively long and time-consuming dialogue with the gas company on minor details. Instead, the district heating company will quality assure the calculation on behalf of all the small-scale customers. The district heating company will also facilitate a smooth transition by paying the lump sum on behalf of all the small- scale customers. The compensation will be repaid via a slightly higher heating bill eachmonth for maybe 1-5 years, depending on the actual size of the compensation. Experience shows that this set up works well, and no complaints have yet occurred.

How to calculate the compensation? When the compensation is 50%of each customer’s share of the remaining debt, the customers remaining debt is calculated as follows: If a customer contributes with e.g. 0.02 % of the annual sales volume, the share of the remaining debt is 0.02 %.

Thus, the compensation = (Lost sale) / (Total sale) x (Remaining debt) x 0.5.

In thecase listedabove, thecompensationwouldhypothetically be: Compensation = 0.02 % x [million or billion Danish kroner] x 0.5. This compensation is paid as a lump sum. The customer’s share of the total sales volume is calculated as a) the average gas consumption in the past 3 years, and b) the consumers average price per m3 of gas in the past 3 years. The remaining debt of each natural gas distribution company is calculated once and for all. Current changes in the debt are not taken into account.

Size of compensation in Denmark’s 3 natural gas distribution areas

HMN

DONG

NGF

(Danish Kroner = kr.)

1 Euro = 7.45 Danish kr. Naturgas

(Now Ørsted)

(Now Nature Energy)

< 6,000 m3 per year

756 kr.

8,236 kr.

6,344 kr.

6 – 12,000 m³

0.380 kr./m3

4.123 kr./m3

3.168 kr./m3

12 – 45,000 m³

0.361 kr./m3

3.977 kr./m3

3.070 kr./m3

45 – 110,000 m³

0.312 kr./m3

3.382 kr./m3

2.622 kr./m3

110 – 200,000 m³

0.244 kr./m3

2.612 kr./m3

2.018 kr./m3

200 – 1,000,000 m³

0.117 kr./m3

1.296 kr./m3

0.994 kr./m3

1-10,000,000 m3

0.088 kr./m3

0.965 kr./m3

0.692 kr./m3

Compensation to Denmark’s three natural gas distribution companies in 2012.

The annual adjustment of the lump sum towards 2020 is exemplified below for individually owned houses and other small-scale customers.

(Kr.)

2012

2013

Compensation

After 5% reduction

Net Price Regulation

Compensation

HMN

756

718

1.9%

732

DONG

8,236

7,825

1.9%

7,974

NGF

6,344

6,025

1.9%

6,141

Annual adjustment in compensation for small-scale customers in 2013.

Thus, if it is economically sound to implement a new project or heat zone, even if the existing project etc. is relatively new or only has written off a modest part of the investment, compensation is offered. The size and the specific rules for such compensation follow a set of standardized rules.

A compensation scheme in other countries The specific conditions must be taken into account and must be reflected in the secondary legislation. One issue to consider is how to establish a feasibility study based on quality assured methods and calculations. This is needed to document the long-term economy and consumer prices of a new district heating supply versus a continued natural gas supply. Such a feasibility study – or a temporary, simpler method – must be developed. The Danish District Heating Assessment tool (DHAT) could serve as such a feasibility study. This excel-based tool and manual can be downloaded free of charge from the homepage of the Danish Energy Agency: https://ens.dk/en/our-responsibilities/global- cooperation/district-heating-assessment-tool-dhat.

Another issue is access to the required data on natural gas consumption, prices and remaining debt etc. from the (maybe private) natural gas companies must be ensured. Legal amendments may be required, before the data can be accessed. A third issue is the size of the inflation. If the net consumer price index increases with more than 5 % per year, the compensation will increase and not decrease from year to year. This may give the gas companies an incentive to slow down the compensation projects, as their compensation increases until the end of the compensation period. Alternatively, a fixed annual reduction of e.g. 5 % or X % can be used.

For further information please contact: Ole Odgaard, oleodg@mail.dk.

Cities in the UK can get a district heating mentor – for FREE! This Mentorship offer is sponsored by the Royal Danish Embassy, DBDH, Danish district heating companies, and supported by BEIS, and the Scottish Government, for improving district heating projects in England and Scotland.

How to get started Apply for a free Mentor at DBDH, describing your project and how you expect a DH Mentor from Denmark can help your project succeed.

Mentor Sponsorship If your city is inEnglandor Scotlandandplanning a district heating project, you can apply for a Danish district heating mentor supporting you. The mentor is a high-level manager from a Danish district heating company and his/her staff. The mentor will be selected to match the qualifications needed for the specific UK project. He/she will support the project manager in charge of district heating in your city.

Just send an e-mail to DBDH, Morten Jordt Duedahl, md@dbdh.dk

We’ll love to help you district energize your city!

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Guy Milligan is Principal Consultant in Ramboll’s UK energy division and leads on energy strategy and plan- ning, guiding clients’ ambitious future energy systems and infrastructure to meet net-zero carbon targets.

Since 1990 greenhouse gas emissions in Scotland have fallen by almost 50% driven by the power sector. And this was just the beginning. ‘The Climate Change Act 2019' introduced a net-zero target for all greenhouse gases in Scotland – only possible if district heating networks being rolled out at scale now. District heating is a proven way of delivering efficient, low carbon heat on a large-scale, which makes it a potentially valuable contributor to Scotland’s 2045 ‘net zero’ target. As such, there has been growing interest and support in district heating fromScottish Government. Public/private partnerships have increased, enabling the reach and scale of networks to be more ambitious and thereby increase the level of carbon savings. This article examines policies supporting district

heating in Scotland, describes the current market for district heating, and the opportunity for growth, and presents some examples of pioneering low carbon district heating projects in Scotland. The road to Net-Zero is under construction Potential for District Heating (DH) is large as penetration of DH in the UK is only 2% and Government research suggests that 14-20% of UK heat demand could be cost-effectively met by heat networks by 2030 and 43% by 2050. The main energy source used in UK heat networks today is natural gas and will have to shift towards zero carbon energy sources, notably biomass, heat pumps and industrial surplus heat recovery.

1 Market Report: heat networks in the UK. ADE (2018).

MAIN ENERGY SOURCE IN CURRENT HEAT NETWORKS

10,000 homes will be connected to heat networks – this year! Ambitious targets require improved Scottish Government policies and strong governance to drive a rapid, sustained transformation across all sectors of the economy – not least to ensure progress for the district heating industry. Approximately 30,000 homes are connected to district or communal heating in Scotland today. Scotland has set an ambitious target to connect 10,000 more this year reaching 40,000 homes to heat networks by 2020 (1 .

1% 1% 10%

Biomass CHP or boiler

Heat pumps

Energy from waste

– boiler 56% 32%

Natural gas – CHP

Natural gas

Delivery models for District Heating in practice There is no ‘one size fits all’ delivery model for heat networks. Their makeup and scale are influenced by local circumstances, particularly the availability of heat sources, buildings density and composition, whilst the delivery model depends particularly on the objectives for the project, as well as the degree of control and risk appetite of the lead organisation. Projects whose objectives involve higher levels of social benefits (i.e. fuel poverty alleviation, carbon savings, economic development) generally have stronger public leadership and control. However, with the rapidly growing decarbonisation agenda affecting all organisations, delivery models are increasingly involving public/private partnerships. Their combined resources can greatly enhance the benefits and reach of district heating.

Room for Improvement The Committee on Climate Change’s ‘Central scenario’ suggests that heat networks can deliver up to 5.7MtCO2 emissions reduction in buildings by 2030, which represents around a six-fold increase on today’s heat networks carbon emissions savings level (2 .

Scottish Government policies to support Transition to Net Zero

The Energy Efficient Scotland Programme, launched in 2018, aims to address heat decarbonisation under one long-term programme to transform Scotland’s buildings by 2040. Included is a Heat Networks Bill as well as secondary legislation setting minimum energy efficiency standards for homes in the private rented sector, revised energy efficiency standards for non- domestic properties and steps to place Local Heat and Energy Efficiency Strategies on a statutory footing. It is hoped that a combination of licensing and zoning will help to accelerate the deployment of heat networks.

The following examples show differing approaches by public bodies to deliver low carbon heat networks.

MIDLOTHIAN Public/private joint venture

Midlothian Council intends to build a low carbon DH network to supply heat to the new Shawfair town on the outskirts of Edinburgh, with heat supplied from the recently built Millerhill Recycling and Energy Recovery Centre (ERC). The ERC is a joint project between the City of Edinburgh and Midlothian Councils (5 . The project forms part of a wide range of projects that the Council is planning to deliver through their energy partnership with Vattenfall, announced on 11 February (6 . The joint venture will establish an energy services company (ESCo) to deliver the projects, combining private sector expertise and capital investment with the Council playing a key role in enabling projects to come forward. The ESCo will operate across Midlothian to deliver not only DH but other renewable energy generation, transport and energy efficiency projects. UNIVERSITY CAMPUS PROJECTS University ownership and operation, no third party sales Heat networks exist on many of the large university campuses in Scotland including Edinburgh, Glasgow, St Andrews and Strathclyde. They have generally been developed to supply heat to their own properties and are owned and operated by in-house engineering and technical teams. The University of St Andrews aims to become the UK’s first energy carbon neutral university. The Eden Campus Biomass DH Scheme at Guardbridge includes a 6.5MW biomass boiler that delivers low carbon heat via 6km of DH pipework to 17 building complexes. Not only did the project aim to achieve carbon emissions savings, it also aimed to establish a green supply chain with local economic benefit, and act as a low carbon exemplar. University campuses are major heat anchors and have the potential to catalyse wider heat network expansion if they can overcome commercial, legal and technical barriers to sharing energy resources.

Financial support to district heating under the District Heating Loan Fund since 2011, and the Low Carbon Infrastructure Transition Programme (LCITP), since 2015.

£50 million Heat Networks Early Adopter Challenge Fund for local authorities is included in the government’s 2020/21 budget.

Heat Networks (Scotland) Bill, laid before Parliament in March, aims to encourage greater deployment of heat networks. The Bill includes requirements for operators to hold a licence which will be subject to standard conditions, including consumer protections. Licence holders will have the power of compulsory land purchase and network wayleave rights, including ‘necessary wayleaves,’ which will allow license holders to install and maintain heat network apparatus on any land. Also included are powers for local authorities and Scottish Government to designate ‘heat network zones’ in which only holders of zone permits can operate. The zones could provide protection for license holders from competition and thereby incentivise long-term investment decisions.

2 Next steps for UK heat policy. Committee on Climate Change (2016). 3 Carbon savings from gas CHP are no longer achievable versus displaced grid electricity due to the lower carbon intensity of the grid compared with when the earlier Aberdeen gas CHP networks were installed. 4 The NESS Energy Project. http://www.nessenergy.co.uk/ 5 https://millerhill.fccenvironment.co.uk/ 6 http://www.midlothianview.com/news/midlothian-councils-joint-venture-with-swedish-energy-firm-vattenfall/

STIRLING COUNCIL Council ownership of heat network, private ownership of heat generation Stirling Council partnered with Scottish Water Horizons (SWH) to build the first large-scale DH project in the UK utilising low- grade heat from waste-water treatment. The Council built the low temperature heat network, supported by LCITP funds, and supplies heat to end customers. Heat is provided from a newly constructed energy centre built by SWH. The scheme was commissioned in 2019 and supplies low carbon heat to several large public buildings including a leisure centre, a secondary school and offices, and has the capacity to expand to other areas. UNIVERSITY CAMPUS PROJECTS University ownership and operation, no third party sales Heat networks exist on many of the large university campuses in Scotland including Edinburgh, Glasgow, St Andrews and Strathclyde. They have generally been developed to supply heat to their own properties and are owned and operated by in-house engineering and technical teams. The University of St Andrews aims to become the UK’s first energy carbon neutral university. The Eden Campus Biomass District Heating Scheme at Guardbridge includes a 6.5MW biomass boiler that delivers low carbon heat via 6km of DH pipework to 17 building complexes. Not only did the project aim to achieve carbon emissions savings, it also aimed to establish a green supply chain with local economic benefit, and act as a low carbon exemplar. University campuses are major heat anchors and have the potential to catalyse wider heat network expansion if they can overcome commercial, legal and technical barriers to sharing energy resources.

ABERDEEN CITY COUNCIL Council owned energy supply company

AberdeenHeat andPower (AH&P)was establishedbyAberdeen City Council in 2002 as an independent not-for-profit energy services company to deliver affordable heat, and thereby help to alleviate fuel poverty, and to reduce the Council’s carbon emissions. Under a 50-year Framework Agreement, guided by a strategic plan for DH, the Council specifies buildings to which heat is to be delivered and appoints AH&P to procure, install, operate and maintain DH schemes. Over the past 20 years, AH&P has converted 33 of 59 multi storey residential buildings from electric to DH. In supplying affordable heat, tenants’ heating bills have reduced between 20-50% and gas-fired CHP reduced carbon by 40% (3 . Flats are also warmer and healthier, and consequently there are less tenant complaints and lower levels of turnover. AH&P has also connected 15 public buildings, and through a for-profit subsidiary is supplying heat and private wire electricity to non- Council and non-domestic customers. The Council’s strategic plan for DH is to create a city-wide network in which the ‘island’ network’s generation plants can supply the singlenetwork, providinggreater flexibility, resilience and operating efficiencies. In line with the national net zero target, the Council will introduce its first low carbon heat source in 2022 by connecting to an energy from waste plant currently being constructed by Aberdeen City, Aberdeenshire, and Moray Councils in the south of the city (4 . Council owned heat network, privately owned heat generation Fife Council has progressed heat networks under its direct ownership, with the operation contracted to third parties. This approach has allowed the Council to progress its ambitions for decarbonisation, with two significant projects operating in Dunfermline and Glenrothes. The Glenrothes DH Scheme is a partnership between Fife Council and RWE. The Council built the heat network, supported by LCITP funds, and supplies heat to end customers. The heat is provided by RWE’s 65MWe biomass CHP plant at Markinch, the largest of its kind in the country. The first phase of the heat network was completed in 2019 and is focused on the area around the town centre close to the biomass plant which provides high density building demand and anchor loads. The intention is to expand the network in the future, with the potential to supply 24GWh/yr. of low carbon heat to Glenrothes.

District heating is a key pathway for securing net zero , recognised by Scottish Government in its Energy Strategy. Whilst there remain some structural challenges, notably the future of the UK gas grid, Scottish Government is implementing policies to support the expansion of district heating. Local authorities have been pioneering low carbon networks that demonstrate alternatives to gas and gas CHP are technically viable. With wider participation of the private sector in the delivery of such projects, low carbon district heating in Scotland presents a fantastic opportunity to move into deeper decarbonisation.

For further information please contact: guy.milligan@ramboll.co.uk

Aquathermal Aquathermal energy is a unique source of heat and cold. In the Netherlands it has a great potential to partly provide the heat demand of the built environment.

Earthquake victory for the environment The Netherlands has for a long time been able to sustain heat to houses and utility buildings with its own natural gas extracted in the province of Groningen, the northernmost part of the country. The comfortable and ‘unlimited’ supply of natural gas meant the insulation of houses was not first priority – until now. In recent years, due to the natural gas extraction, multiple earthquakes have occurred in the province. The earthquake issue in Groningen has a positive effect on the awareness of natural gas enhances climate change. This awareness plays an important role as the Netherlands is committed to the Paris Agreement. In regard to the alternatives for sustainable heat, the focus is on Denmark as one of the most energy efficient countries in the world because of a well-developed district heating (DH) infrastructure. By making rigorous choices decades ago, Denmark has a pole position in district heating >70˚C. The Dutch are inspired by this Danish District Heating Model, but the development of the DH is a challenge. Not only financial but also as forming new governance and ensuring enough sustainable heat to meet the demands. The Dutch Water Authorities are convinced that aquathermal energy, heat (and cold) from surface, waste and drinking water, is a new energy source that can provide sustainable warmth.

Foreign examples Ever since the Green Deal Aquathermie was signed, the participants have been working to make aquathermal energy an indispensable part in the energy transition. While working on raising awareness for aquathermal energy in The Netherlands, a search for aquathermal energy projects abroad started. Several TEA projects were found, for example in Turku, Finland, but TEO and TED projects are hardly developed. How does it work? Technically it is a simple concept to get the heat from the source to the building. The heat (or cold) is extracted from the surface, waste or drinking water using a heat exchanger. The technique uses low temperature heat (20-25˚ C) which is enhanced to the desired temperature (40-70˚C) with the aid of (collective) heat pumps and distributed to houses and utility buildings with a DH grid. The most energy efficient method for TEO and TED systems is to store the heat in the summer for use in the colder winter months. Dutch examples of a TEO-projects are Blaricum, Heeg and Amsterdam. In Blaricum over 700 newly built houses are connected to a DH grid using aquathermal energy. The grid will be extended to other houses. The latter two TEO projects are in advanced stages of preparation. The TEO project in Heeg is an initiative by the local people who want to make the heating of their houses sustainable by using the lake water nearby; in Amsterdam the municipality is constructing a new residential area Strandeiland, with a DH grid using aquathermal energy from the lake IJ.

Aquathermal energy as an alternative heat (and cold) source

The Netherlands is a country rich in water and no matter where you are, water is almost always near. The high density of waterways’ result in the fact that supply and demand of heat and cold from water can be achieved in nearby. Research from 2018 shows that aquathermal energy (in Dutch: TEO, TEA and TED )* can provide in a significant part (<50%) of the heat demand of Dutch households, utility buildings and greenhouses. TEO has by far the greatest potential due to the large availability of surface water. TED has the least potential, because the source is only available in small quantities and in specific locations. The Netherlands is continuously researching the possibility of using aquathermal energy as an alternative heat source for natural gas-free districts. In May 2019, a large number of parties signed the so calledGreenDeal Aquathermie with the Dutch Water Authorities, Rijkswaterstaat (the agency of the Ministry of Infrastructure and Water Management) and the Ministry of Economic Affairs and Climate. The Green Deal is used to bring aquathermal energy to the attention of stakeholders and to develop and share knowledge about aquathermal energy to further develop this technique.

350 PJ

100%

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200 PJ

150 PJ

43%

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16% 1%

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Heat demand built enviroment 2050

Potential TEO

Potential TEA

Potential TED

* TEO, TEA and TED = Thermal Energy from surface (Dutch: Oppervlakte), waste (Dutch: Afval) and drinking (Dutch: Drink) water.

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