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

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.


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.


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.


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.

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