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

Green Energy provides an overview of the four most common business models concerning surplus heat, but it could as well be describing district cooling, a supply of district heating by incineration of residual products, etc.

MODEL 1 The District Heating Company invest and own the facility The District Heating Company can utilize surplus heat from the Enterprise's energy return, i.e. flue gas or wastewater, and the Enterprise's operation is unaffected by the surplus heat being used for district heating. The Enterprise will usually not invest in such facilities as there is no improvement in production. This type of surplus heat streams will usually be low-energy heat, where utilization requires significant investment and a long period before Return-Of-Investment. A business won’t invest like this. But a District Heating Company usually will if the Enterprise has a good operation and a stable future. The contract should hedge the District Heating Company’s risk: The Enterprise's future operations and the risk of a decrease in the Enterprise's energy flow. The Enterprise's fee for the surplus heat in these projects is usually low because the District Heating Company invests the money and has the operational responsibility. But the future district heating supply for the Enterprise is often negotiated at a low price.

MODEL 3 District Heating Company and the Enterprise both invest and own the facility

The Enterprise requires full control of the process influencing their operation and the installation linking the project to the existing district heating network owned by the District Heating Company. An example is the operation of cooling systems with combined cooling/ heat pumps, where the cooling side of the system is fully integrated into the processes of the Enterprise and the connection to the district heating network entails high costs. Here, the parts ownership will split at either one side of the cooling/heat pump. New examples show the District Heating Company, or the Enterprise, own the heat pumps. The significant costs on the district heating side could be extensive pipework, investment in accumulation tanks and possibly an electric heater, etc. Split ownership can be an ideal form of cooperation when combined with sharing the economic benefits. Such joint projects require "open books" where the parties are transparent about the economic benefits of the project. This can be a difficult step to take, especially for Enterprises. Experience shows, however, that the joint projects with "open books" provide much more constructive dialogue and mutual benefit. This type of agreement is complex as all essential issues must be addressed before the project is implemented. Conflicts will show if subsequent doubt arises as to who has the obligation to pay a cost or who has financial benefit in the project. As a result, such surplus heat agreements contain detailed rules on the share of the economic benefits, including the method of repayment of the parties' investment and subsequent sharing of the economic benefits.

MODEL 2 The Enterprise invest and own the facility

MODEL 4 Third-party investments

The Enterprise's processes of operation are integrated or closely related to the utilization of surplus heat or surplus heat from the process is produced with low investment costs. The Enterprise thus benefits by replacing old cooling towers with a new cooling system/heat pump for district heating. In this situation, the Enterprise must be sure of its process control and control of the refrigeration system. In Denmark the electricity consumption tax will (regardless of ownership) ensure the Enterprise tax reimbursement. If surplus heat can be extracted without using heat pumps it will be even more attractive. That is, if excess heat has a high temperature suitable for district heating. Here, the total cost of producing the surplus heat will be low, and the payback time for the Enterprise's investment will be short. The Enterprise commits to allocate surplus heat in a specific flow temperature to the District Heating Company, and the agreements have relatively long maturities for both parties. Fee for the surplus heat will be substantially higher in model 2.

Third-party investing in utilizing surplus heat from an Enterprise and subsequently sell it to a District Heating Company. Three parties having separate contracts: Between Investor and the Enterprise, and another contract between Investor and a District Heating Company. The model may be of interest, in the future, for external investors wanting to invest in green energy projects. However, the authors of this inspiration catalog are not aware of this model having ever been practiced – yet! Cooperation directly between the Enterprise and the District Heating Company seems more obvious.

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