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The Role of District Energy in Greening Existing Neighborhoods

A PRIMER FOR POLICY MAKERS AND LOCAL GOVERNMENT OFFICIALS

Preservation Green Lab, National Trust for Historic Preservation Center for Sustainable Business Practices, University of Oregon

SEPTEMBER 2010

This paper provides a detailed look at how district energy can be a critical element of a successful community energy plan for existing neighborhoods. It describes what district energy is, why it matters, how to develop district energy systems, and case studies and examples from around North America that illustrate the crucial role of city governments in promoting and implementing district energy.

It also addresses the challenge of increasingly aggressive energy performance expectations for our existing stock. While the compact design and authentic character of traditional urban communities yields many sustainability benefits, the small size of their can reduce the physical feasibility and economic viability of energy improvements to individual buildings. District energy offers new solutions to the smaller, older buildings that make up the vast majority of our existing building stock, and this paper addresses the specific challenges of integrating new district energy systems into neighborhoods of older and historic buildings with multiple owners.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 1

Table of Contents

Why district energy? ...... 3 About District Energy The Benefits of District Energy Key Benefits to Communities Key Benefits to Building Owners

Future Directions for Buildings and Energy: The Changing Scale of Opportunity, Policy and Investment ...... 13

The Critical Role of Cities in Making District Energy Happen ...... 16

Creating District Energy Systems in Existing Neighborhoods: A Policy Roadmap for Cities ...... 18 1. Create Community Energy Policies That Provide a Context for District Energy Development 2. Identify Appropriate Locations and Opportunities 3. Recognize and Respond to Catalysts 4. Build Institutional Capacity 5. Secure the Customer Base 6. Manage Finance and Policy Risk for System Construction and Operation

Conclusion ...... 35 Appendix 1: Case Studies Summary ...... 36

Appendix 2: Enwave Toronto District Energy Case Study ...... 37

Appendix 3: District Energy St. Paul Case Study ...... 41

Appendix 4: Nashville District Energy Case Study ...... 46 Glossary ...... 52

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 2 Why District Energy?

Cities across the country are seeking ways to improve the energy performance of buildings. While in the past these efforts have been focused on prescriptive standards for new construction and major building rehabs, priority is now shifting toward improving the operating performance of the entire existing building stock, which is the prevalent source of building-related greenhouse gas (GHG) emissions.1 New policy imperatives, steadily increasing energy prices, better , and new ways to finance the upfront investments needed to deliver improved performance have ushered in a period of rapid change for existing buildings. Recent efforts by the U.S. Department of Energy have directed unprecedented resources—now more than $500 million since 2009—to programs to dramatically increase efficiency efforts.2 In fact the newest programs address far more than efficiency; they are blending building retrofits that reduce energy use with advancements in infrastructure and the deployment of clean, renewable energy sources, supported by significant new initiatives that provide additional financing for these activities.

District energy systems—neighborhood-scale utilities that deliver heating, cooling, and hot —are emerging as a key strategy for cities that are pursuing aggressive environmental goals, including massive long-term reductions in building-related greenhouse gas emissions. Many existing buildings do not physically lend themselves to significant performance improvements in heating and cooling on an individual basis, because their small scale and intrinsic design can prevent them from taking advantage of some of the dramatic energy efficiency measures or on-site renewable energy options available to new construction. Also, many individual building owners already find it extremely challenging to pay for essential efficiency measures such as insulation, upgrades, and better energy management tools, and are unlikely to consider installation of on-site geothermal or solar hot water systems. Further, focusing only on performance of individual buildings may not represent a community’s optimal investment in clean, renewable forms of energy.

Buildings are part of a community, and resource sharing is a common practice in communities, from sharing public spaces to water to grids. Cities and building owners both, will be compelled to look to district-level solutions to meet their clean energy needs, and to meet their needs around other resource and infrastructure issues such as sustainable storm water management and waste water recycling. The aggregation of energy demand and the customer service model established for district energy can serve as the for these other “eco-district” services and infrastructure projects.

This paper serves as a primer for cities that are facing this challenging new reality. It will help local government officials understand what it takes to develop new district energy systems in existing neighborhoods.

1 www.eia.doe.gov/emeu/cbecs/cbecs2003/detailed_tables_2003/detailed_tables_2003. html#enduse03

2 www1.eere.energy.gov/wip/eecbg.html

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 3 The cities of Nashville, St. Paul, and Toronto are examined as detailed case studies because each has successfully integrated new district energy systems into existing downtowns. Each had distinctive reasons for developing these systems, whether tied to a vision based on The district energy system in St. Paul, MN is extensive, clean energy or linked to covering over 30 million square feet. Many of the buildings in the need to avoid future this photo are fed by the system. financial costs of Photo Credit: District Energy St. Paul conventional energy systems. The paper also references system planning and development efforts in British Columbia, , Wash., Portland, Ore., Dubuque, Iowa, and Montpelier, Vt.,3 and West Union, Iowa4 to help illustrate key points about district energy system development in existing neighborhoods.

DISTRICT ENERGY CASE STUDIES District Energy St. Paul (St. Paul, Minnesota): This system was created in 1983 to provide heating to downtown commercial buildings. The system added cooling service in 1993, and in 2003, converted to burn urban wood waste as the primary source of energy. The system has grown incrementally over time, adding a number of existing commercial and institutional buildings, and captured new buildings developed in its service area, including residential projects adjacent to downtown. The system serves nearly 200 buildings, totaling over 30 million square feet. The primary catalyst for developing this system came from the collective efforts of the building owners to come up with alternatives to fossil dependence, in direct response to the oil price shocks of the late-1970’s. Created as a private, non-profit, the system created a for-profit corporation in 2003 during the development of a wood waste energy plant. Metro Nashville District Energy (Nashville, Tennessee): Nashville’s system was originally developed in 1974 to capture the waste from a municipal waste incinerator, and convert it to heat and for 40 downtown buildings, nearly half of which were owned by the State of Tennessee or City of Nashville. In 2002 the system was re-built with a plant after a fire damaged the waste incinerator. The City owns the system, but contracts with a private energy service company for operations. Enwave Energy Corporation (Toronto, Ontario): This system provides heating and cooling service to the commercial and institutional customers in downtown Toronto. The system was initially created in 1982 by linking together five separate hospital and university campus systems, and has expanded to serve more than 140 buildings and 40 million square feet. Initially a heating-only utility, the system added cooling service using water from Lake Ontario in 2004, becoming a major example of deep-water cooling. The system was created as a public non-profit, but was privatized in 1999.

3 Montpelier has just received $8 million in Department of Energy grant funding to expand their existing system of 17 downtown buildings to serve more than 100 additional existing and historic buildings, both private and public.

4 Of particular interest and the subject of a PGL case study is the town of West Union, Iowa (www.preservationnation.org/issues/sustainability/green-lab/additional-resources/West- Union_FINAL.pdf/). West Union is a National Trust-designated “Main Street” community of 2,600 people which has chosen to apply most of the federal energy efficiency funds that it received through the Department of Energy’s Community Energy Block Grant program toward the development of a new ground-source district energy system that will deliver heating and cooling to its historic downtown buildings.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 4 About District Energy

District energy refers to the central provision of heating, cooling, and hot water within a defined service area. In order to deliver district energy services, some form of utility service provider (e.g., a local government or a privately-owned utility), assumes responsibility for capital investments (i.e., construction), and secures (i.e., generates or captures) and delivers energy that meets the end users’ needs, and ultimately charges building owners for use of the system.

District energy stems from our earliest urban energy systems at the onset of the 20th Century. It was more common in the early days of the electric power industry when electricity plants were smaller and located close to city centers. The recovery and use of waste heat by these small urban electric power plants aided the The original Seattle steam plant is still in use today development of early systems providing to many downtown which are known as “combined buildings. Photo Credit: Seattle Steam Co. heat power” (CHP) systems.5 The benefits of district energy were overlooked during the latter half of the 20th century, when energy and land were inexpensive and development was sprawling rather than compact. Now, in the context of increasing urbanization, energy insecurity and climate change mitigation, communities are tapping the potential of other sources of urban waste heat for thermal systems as well as lower-carbon combustible fuels for CHP systems.

Northern European countries and Japan have used district heating systems for decades. These are typically CHP systems which provide for nearly all of the heating and hot water needs in cities by using a variety of energy sources, from waste heat to biomass and other more conventional sources. In Stockholm, Sweden, for instance, the entire city of more than 800,000 people is served by two systems. As they incrementally expanded to serve more people, these systems added new sources of

5 Please see the sidebar titled “Mechanics of District Energy” for more discussion of Combined Heat Power (CHP), and the Glossary for general definitions of CHP as well as waste heat, biomass, geothermal energy, ground-source heat pumps and other energy-related concepts and technologies.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 5 energy. With such systems, technologies tend to evolve on a regular basis, approximately every 15 to 20 years.

These early CHP systems originally used and changed over time to use cleaner forms of energy, shifting to oil, natural gas and, most recently, to biomass and solid waste, or to dedicated thermal energy systems using sources of industrial waste heat or ground source heat pumps.6

UNDERSTANDING THE MECHANICS OF DISTRICT ENERGY

The focus of district energy is on the provision of heating and cooling. Electricity may sometimes be produced through the use of combined heat and power technologies (CHP). The waste heat from the CHP plant is used in the district energy system, while the electricity output may be used on-site or sold to the local electricity utility. There are three main components to a district energy system. Typically, a single utility enterprise would own all three components, and either operate directly or contract for operations through a service provider. In some cases, ownership can be split, with separate ownership of the energy production facility and the distribution system.

Central energy production – One or more energy-producing plants provide all of the heating and/or cooling energy required by customers within the defined service area. A single, central plant offers significant economies of scale compared to individual systems within every building, and simplifies system design and operation. However, several plants may be better in certain circumstances, notably where development is slow and/or dispersed, or where different energy sources are being integrated in different locations.

Distribution system – Hot and cold water are distributed to individual customers via underground pipes (one supply and one return pipe each for heating and for cooling). While older district heating systems distributed energy in the form of steam, newer systems almost all use hot water distribution. Systems often grow out of central distribution line, with smaller loops that link buildings together.

Energy transfer stations – Energy Transfer Stations (ETS) transfer the energy (which arrives as hot or cold water) from the distribution system to each building in the district energy service area . The district energy utility owns the ETS, and no other on-site energy sources would normally be required (except on-site in the event centralized cooling is not offered). The ETS consists of an assemblage of components that meter and control the heat energy passed between the distribution system and the building.

From the ETS, each building then has responsibility for distributing the energy within the building. The internal distribution system is designed to meet the space heating, cooling, and ventilation requirements for the individual suites, hallways/stairwells, and other common areas in the building, supplied from the ETS for each site. The domestic hot water (DHW) system also is designed to meet all DHW requirements for the individual suites, and for all common areas in the building, supplied from the ETS for each site. The ETS can also be used to transfer heat from the customer back to the district system. For example, in Vancouver’s Olympic Village the ETS transfers solar thermal from the rooftops back into the district thermal energy system.

Within individual suites, space heat may be provided via one of three general approaches at the discretion of the developer: • Hydronic (i.e., hot-water based) radiant systems (e.g., under- or panel) • Fin-type baseboard convectors or or floor-mounted perimeter radiators • coils with forced air Fan coils are typically used where both heating and cooling is required, although there are radiant systems that can be used for both. Radiant cooling, however, is relatively new in North America and performance has not been rigorously tested (particularly in residential construction). Radiant heating and cooling systems allow lower supply temperatures for heating and higher supply temperatures for cooling, but have higher capital costs.

6 Please refer to glossary for discussion of geothermal and ground source energy systems.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 6

Based on 2005 information from the International District Energy Association (IDEA), the U.S. and had about 650 district systems in operation, though a number of systems have begun operations since then. Of this number, more than 75 percent serve either university or hospital campuses, while the remainder serve portions of downtown urban areas. These district energy systems provide energy to about 10 percent of non-residential spaces in the U.S.7 New Photo Credit: St. Paul Energy district energy systems are being developed, but older CHP systems have been disappearing as power plant waste heat sources disappear (with the development of large regional power plants located outside city centers) and as old steam distribution pipes start to break down. However, there is a growing interest in revitalizing district energy to take advantage of new technologies, to increase efficiency, and to reduce greenhouse gas (GHG) emissions.

The Benefits of District Energy

District energy systems help cities to achieve their economic, environmental, and social objectives related to buildings and development, and provide long-term, efficient, and affordable energy to their building customers.

Key Benefits to Communities

District energy provides a platform for cities to increase efficiency, reduce greenhouse gas emissions, and adopt new technologies and fuel sources over time. Given the advantages achieved through diversification of peak load times and ‘right- sizing’ of equipment for aggregate loads, district energy systems can produce significant efficiency gains. Efficiency improvements of up to 20 percent are possible in areas where density and building mix contribute to an economically viable system.

District energy systems also provide opportunities for shifting to cleaner energy sources over time and for capturing available forms of waste energy (from industry, for

7 www.districtenergy.org/

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 7 example, or sewer systems) that individual buildings cannot get access to or justify the capital investment needed to do so.

A district-wide system simplifies such transitions, since MEASURING EFFICIENCY AND COST SAVINGS installing or upgrading a From an equipment perspective, district energy can offer up central generation plant to 20 percent efficiency gains through improved efficiency, to cleaner load diversification, and economies of scale. Actual efficiency comparisons will always depend on what types of can deal with an entire systems and fuels are being compared, and whether community. St. Paul, equipment is operating at its rated efficiency. For example, Minn., for example, was building engineers may question whether it is more efficient to burn natural gas in a central plant and distribute heat able to convert its through steam or hot water than to distribute the gas to system from coal and every building and use individual condensing gas burning natural gas to waste technology. District energy engineers will respond that high-efficiency condensing can also be used in wood as a primary central plants, where they can be monitored and maintained energy source, to get much closer to achieving maximum efficiencies, and that because individual buildings must oversize their dramatically reducing systems to handle their individual peaks, central plants offer emissions for the lower aggregate equipment cost (due to both load existing buildings diversification and equipment scale) to provide the same level of service. But, district energy systems require connected to the distribution piping, which implies both cost and system.8 The combined transmission losses (generally 3 to 10 percent in modern hot effect of greater water systems; the ASHRAE default assumption is 5 percent) which need to be factored in to calculations of system-wide efficiency overall efficiency gains and cost savings. and access to cleaner energy generation made In reality, a district energy system is rarely justified on the basis of differences in natural gas efficiencies, but rather on possible by district the ability to access and integrate energy sources that offer energy means that lower cost and lower greenhouse gas emissions than other alternatives and would be difficult, if not impossible, to emissions reductions exploit at individual building sites. These sources might be can be significantly biomass, garbage, , or other waste heat, or “free” higher than could be cooling sources such as deep lake water. Heat from small district-level combined heat power (CHP) plants is not realistically achieved on common in North America even though combined heat and a building-by-building power provides a diversified revenue strategy (through basis. It is estimated selling electricity in addition to thermal energy), because of our overall preference for large regional power plants. that Vancouver’s However there are many urban CHP examples in Europe Southeast False Creek where technology has been applied to cleanly combust free project achieved about local fuel such as garbage to efficiently generate and distribute both power and thermal energy. Cities will need a 70 percent reduction to look carefully at the numbers in any particular in greenhouse gas application, which will be influenced by many factors. emissions compared to a business-as-usual

8 Producing energy from wood is considered virtually carbon neutral. The primary reason for this view is that the growing of trees for production of wood for energy will sequester carbon during its lifetime, and so an equal amount of carbon is held in the wood during growth as is released during . In reality, production of wood for fuel may or may not involve new tree growth, but the overriding assumption is that new growth exists in equal proportion to wood used for energy generation.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 8 scenario, with the reduction equally split between the improved efficiency (one plant serving multiple buildings) and cleaner fuel/technology choice (in this case sewer heat recovery).9

District energy opens up new sources of capital for improving performance of a community’s existing building stock. As with other types of utilities, the revenue stream from the aggregation of customers paying for heating, cooling, and hot water systems enables access to capital, such as municipal bonds and/or state and federal grants, or even private project finance investors, that is usually unavailable to individual building owners. A city can create new tools to finance energy performance improvements to entire neighborhoods in one phase of work. This local utility approach to energy system development also gives communities the option, should they want it, of taking greater ownership of local infrastructure assets and providing long-term operating revenues back to the community. In any case, the system owner, whether a community-based or a privately-owned utility, can leverage long-term financing to cover the upfront capital costs with a rate structure that pays off the financing over time.

District energy provides a platform for managing energy costs over the long term. Aggregate demand for fuel, whether from natural gas, biomass or other sources, allows communities with district energy systems to negotiate long-term contracts for portions of their fuel costs, thereby moderating cost variability. St. Paul’s system was a response to concerns of building owners about long-term energy prices. Also, once a district energy service model for heating or cooling is established in a community, the aggregation of customers makes it easier for a community to negotiate such things as bulk installation of on-site equipment, such as solar panels, or bulk purchases of green power from remote sources through a utility contract.

District energy helps mitigate long-term risks. District energy systems can reduce risk for cities in terms of future energy and environmental policy, carbon costs, fuel availability and cost variability, and the future effects of climate change. For example: . Toronto’s investment in enabled the city to meet its Montreal Protocol obligations by reducing use in individual buildings. . In Nashville, significant upgrades to an established system were supported by the city in order to reduce risk from air quality violations.

In anticipation of the Securities and Exchange Commission’s disclosure rules about climate change impacts,10 district energy may prove to be a safe harbor for investors. And given the risks to owners posed by climate change regulation and energy prices, cities may also consider district energy as a way to “future-proof” their property tax base by protecting owners against future energy price and/or policy shocks. District energy can also serve to mitigate the risks and challenges associated with relying on our late 20th-Century model of big infrastructure, which includes the vulnerability of

9 In the Vancouver sewer heat recovery system, electricity drives two large heat pumps, which produce the large majority of thermal energy for heating and domestic hot water. Peak demand and emergency backup is provided through natural gas boilers. This system achieves 70 GHG emission reductions through very efficient buildings combined with the use of heat pumps that run on very clean electricity.

10 www.sec.gov/rules/interp/2010/33-9106.pdf

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 9 large systems to regional-scale failures, especially in areas prone to natural disasters (i.e., earthquakes, volcanoes). District-level thermal energy and CHP plants can create badly-needed redundancy of supply, and mitigate the impact of disasters, making communities more resilient.

District energy can help communities respond to broader environmental goals and advance their other district-level environmental services. In Vancouver, a community vision for carbon neutrality was the determining factor in bringing district energy into reality. Some communities want to reduce the “out of sight out of mind” effect and let people know more about where their energy comes from, instead of having smoke stacks and plants hidden far outside the city limits. Others are trying to “right-size” systems for energy and other services as a response to the limits of both large regional infrastructure and of individual buildings, and then trying to find synergies between different types of infrastructure and resources as they move to more environmentally friendly solutions. This integrated approach to district-level infrastructure is also known as “eco-district” planning, and discussed more in the next section.

More commonplace in the near term, however, may be cases like West Union, Iowa, where a pragmatic analysis of return on investment prevailed. After receiving federal and state funds to improve energy efficiency and implement a “Complete Streets” design that provides greater amenities for pedestrian, cycling, and transit users, and doing an energy audit of their existing and historic building stock, community leaders decided that selected retrofit measures combined with a new district energy system will optimize the community’s return (both economic and environmental) on the total sum of available private and public funds.

The town of West Union, Iowa will transform its downtown through the integration of a new district energy system in conjunction with construction of its ‘complete streets’ plan. Photo Credit: Jerry Wadian/Fayette County Union

Key Benefits to Building Owners

Making sure that energy consumers and building owners understand the ways that district energy directly benefits them is critical. Of course many of these benefits overlap with those of communities—what’s good for owners is good for communities, and vice versa. Nevertheless, in order to engage the participation of owners and tenants, cities need to analyze and articulate how district energy benefits them through cost savings and increased energy efficiency over the long term.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 10 District energy offers energy cost savings and price stability. The bottom line for any building owner is cost. Long-term net cost savings are a key selling point of district energy systems. District energy delivers lower cost energy through improved efficiency, load diversification, and economies of scale. Also due to the long-term aggregate nature of demand, a district energy system operator can negotiate long- term fuel contracts, which facilitates greater energy price stability for consumers. 11, 12

District energy responds to market and regulatory demand for higher energy performance. Buyers and renters are becoming more and more aware of the energy performance of existing buildings which makes energy efficiency a source of either opportunity or risk for owners, depending on how well their buildings compete. Cities are now adopting new policy initiatives around energy performance ratings and disclosure to accelerate the degree to which market forces will distinguish efficient buildings from those that use too much energy. Some cities, like Seattle and Vancouver, are already moving beyond disclosure policies toward regulations that will require buildings to meet aggressive post- retrofit energy targets in return for flexibility to DISTRICT ENERGY OFFERS NEW SOLUTIONS FOR SMALLER, OLDER BUILDINGS innovate in how they achieve such targets, More than half of commercial buildings in the including use of on-site are less than 5,000 square feet in area, and 95 percent of renewable generation them are less than 50,000 square feet. In general, the older equipment and/or low- the building stock in a community, the smaller the average building size. This is most evident in the traditional mixed- carbon district energy use “urban village” neighborhoods that are driving the sources. District energy rejuvenation of so many American cities (and likewise in offers an essential the traditional compact main street communities of rural opportunity to owners areas). While the compact design and authentic character in this emerging policy of these communities yields many sustainability benefits, the small size of their buildings can reduce the physical environment. feasibility and economic viability of energy improvements to individual buildings. District energy represents an District energy relieves opportunity to invest in renewable energy solutions for building owners of buildings with limited space for new energy-saving devices responsibility for or for which there would be unacceptable architectural delivery and impacts. For older and historic buildings, connection to district energy also represents an opportunity to retain or management of install hydronic heating systems and therefore reclaim and heating, cooling, and reuse valuable space taken up by boilers and , and hot water. With district to avoid (or rip out) unsightly ductwork and chases. energy, building owners receive reliable and predictable energy service from professional system operators. This means fewer worries for building management staff, in terms of fuel price uncertainty and system maintenance, upgrade and repair, compared to on-site systems.

11 This may not always be true in the context of certain technologies such as biomass, which can be subject to commodity pricing volatility and supplier problems (wood quality being one). However, St. Paul and many northeast facilities have operated with stable supply contracts for years.

12 www.na.fs.fed.us/pubs/werc/supply_agreements/wood_energy_facilities.pdf

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 11 District energy offers owners a platform to upgrade fuels and technology. District energy allows cities and building owners to “fuel switch” over time to take advantage of new clean energy technology options and access capital financing for these fuel/technology upgrades. District energy improves air quality. The hydronic heating and cooling systems that are often used with district energy produce less dust and airborne contaminants than forced air systems, and provide far more even and comfortable heat than electric resistance options. Many upscale residential buildings offer hydronic heating as an amenity.

District energy enables incentives and financing that would not otherwise be available. District energy systems can attract sources of financing, such as municipal bonds or community energy grants, which are not available to individual owners. The cost efficiencies gained with district energy utility can in some cases create enough of a revenue premium for cities to offer incentives to owners of existing buildings for installing systems compatible with district energy and connecting to the system. This in turn can enable owners to take into consideration the full spectrum of options for replacement of heating and cooling equipment without having to bear a first cost premium.

Montpelier, VT received grant money to expand their district energy system which currently includes 17 buildings, after expansion over 100 existing and historic buildings will be connected. Photo Credit: Vermont Perspectives, Linda Baird-White

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 12 Future Directions for Buildings and Energy: The Changing Scale of Opportunity, Policy, and Investment

Efforts to reduce future regulatory risk and achieve community energy performance goals are likely to be key drivers of district energy systems. In neighborhoods of existing and historic buildings, the desire to optimize the use of public and private funds targeted to energy retrofits will be a further motive. An individual building can only accomplish so much on its own with regard to performance, whether related to energy, or water, or even social goals. While some new buildings have achieved “net zero” operating performance (e.g., they produce as much energy as they consume over the course of a year), achieving this performance requires a significant cost premium upfront, and this cost premium is likely to be more significant for existing buildings where the ability to integrate renewable energy equipment can be limited based on the building’s size and design. A building-centric approach may miss opportunities to share equipment across buildings and to spread those costs over many buildings.

To illustrate these points, consider what steps a building owner in an existing building must take to reduce greenhouse gas emissions to very low levels (i.e., 80 percent or more below current levels). Conventional technologies—the use of insulation, weather- stripping, and other weatherization measures—can usually reduce energy usage by 50 percent at best. Further reductions in greenhouse gas reductions require the transition to cleaner sources of fuel. Without a district-oriented approach, every building currently using natural gas boilers for heating would need to identify and switch to a source of energy with lower greenhouse gas emissions. Such an undertaking would be expensive and take a lot of time, since each building owner has already invested in his or her heating equipment and the lifecycle of those investments vary.

Aware of these constraints, many cities are re-examining how upfront investments toward building energy performance can be spent to yield the best overall return on investment (in terms of both dollars and climate change mitigation), given the duplication of equipment, energy load, square footage loss, and sheer effort of taking the building-by-building approach. National organizations have responded to this opportunity with newly proposed legislation at the federal level that proposes to extend the energy production tax credits for power generation to generation of thermal energy.13

This shift in cities’ scale of thinking is happening not just for energy, but across a range of issues to do with urban resource management and infrastructure services, from storm water, waste water recycling and solid waste management to smart grid technologies, and even urban agriculture. The dialog and cooperation among building owners needed to facilitate district energy, and the utility service models that are developed to deliver energy services to these customers, can create a foundation for taking action around other resources and services. A neighborhood already organized around district energy can be a bulk buyer of, for example, solar panels or green power

13 Support for district energy has appeared in a number of proposed climate bills, and in July 2010 Al Franken introduced the Thermal Renewable Energy and Efficiency (TREEA) Act, which proposes to extend energy production tax credits (PTCs) for power generation to generation of thermal energy.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 13 tags, and a bulk provider of, for example, compost, combustible waste, reclaimed water, and urban rooftop real estate available for food production. There are also potential economic synergies and physical links that can be made between different resource categories; distributed wastewater treatment systems, for example, can be a source for community-scale thermal energy systems.

These efforts are sometimes referred to as “eco-districts” and although they are mostly focused on community energy performance, some take a wider view to include these other community resource issues. Examples include14: . Portland Sustainability Institute (PoSI) EcoDistrict initiative: a collaborative platform for fostering innovation in the region, with an explicit element for creating business models for district-scale utilities for key services, such as energy, water, storm water, etc.15 . International Living Building Institute’s “Living Building 2.0” Standard16: scale- jumping from the original Living Building standard for individual buildings to one that recognizes district-wide performance, generation, and infrastructure. . Living City Block (Denver, CO. and Washington, D.C.), and FortZed (Fort Collins, CO): energy district initiatives that look to achieve performance beyond the scale of individual buildings.17 . Oberlin Green Arts District: being pioneered by David Orr of Oberlin College, an early leader in the U.S. green building movement, who is now focused on creating an energy district in the town of Oberlin out of 13 existing blocks that would collectively be powered by methane gas from a nearby landfill.18

14 Additional examples of district-scale sustainability initiatives: . LEED ND recognizes the value of compact community design and encourages green design in a community context, but as of yet does not have a points structure that specifically awards district energy system or recognizes the environmental or economic value of leveraging rather than demolishing existing building stock or existing infrastructure. . Washington State’s “Climate Benefit District” legislative proposal is a framework for districts to create their own taxation and financing mechanisms for infrastructure and energy performance improvements. This approach is based on existing local government methods of infrastructure finance, where local improvement districts are created as a way to finance explicit investments that deliver key services (i.e., benefits) to the target neighborhood. (mithun.com/knowledge/article/climate_benefit_district/) . Climate Solutions ‘New Energy Cities’ program is designed to support Pacific Northwest cities that are working to pioneer new clean energy strategies. These efforts strive to help cities become the focal point for integrating deep energy efficiency improvements, next-generation energy infrastructure (e.g., Smart Grid, electric vehicle interface, urban energy storage, etc.), distributed, renewable energy and new financing opportunities. (climatesolutions.org/solutions/initiatives/NES) . Canada’s QUEST (Quality Urban Energy Systems) alliance, led by former BC premier Mike Harcourt, was formed to promote the cause of Integrated Community Energy Solutions (ICES), a framework being used across Canada for municipal planning. QUEST’s vision is that by 2050, every community in Canada will be operating as an integrated energy system. . The European Commission has recently launched the CONCERTO initiative, which supports sustainable energy projects in 45 communities. Although they serve buildings that are much older than those in the U.S., in compact communities, and have evolved in markets where energy prices are substantially higher, they represent a model for North America and illustrate the value of the systems to us as energy prices here continue to rise.

15 www.pdxinstitute.org/index.php/ecodistricts

16 www.ilbi.org/the-standard/version-2-0

17 www.livingcityblock.org

18 www.bnim.com/work/oberlin-green-arts-district-campus-plan

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 14

These efforts, which support a combination of neighborhood-oriented district energy with a new generation of policies and programs to drive efficiency and clean energy, provide a compelling motive for scaling up energy performance approaches. They reflect the need to evaluate and improve our entire building stock, not just selected buildings, and to consider district energy in existing neighborhoods by creating a focus point for policy, engagement of property owners, service delivery for urban utility services, and systems finance.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 15 The Critical Role of Cities in Making District Energy Happen

District energy can help cities improve the performance of their neighborhoods, and deliver value to building owners by improving energy efficiency and developing clean, renewable forms of energy for the heating, hot water, and cooling needs for buildings. However the successful implementation of district energy can be challenging, especially in neighborhoods of existing buildings with multiple private owners. The need to invest time and political capital, and possibly public resources, in district energy is not based on expediency—the benefits are less than tangible, hard to link directly to the average citizen, and are often not visible in the short term. Many times, an institutional disconnect between cities and developers/building owners means that they cannot justify making long-term investments, nor do they have easy access to financing that can accommodate the longer-term economic payback.

Cities have a unique and essential role to play, first in establishing a neighborhood- scale utility model, which allows communities to make different decisions about capital investments, risk management, and technologies than individual building owners or large utilities could. Once this model is established, cities can then play a direct role in attracting financing. Successful district energy projects have used city bonds as part or all of the significant capital financing needs. Both Nashville and Toronto used revenue and general obligation bonds in tandem to raise the necessary capital for infrastructure and energy plant construction. The use of municipal bonds can be an important factor for decisions by federal, state, and private investors, who look to municipal support as a key indicator of city priority and capacity for fostering district energy.

In addition to providing upfront financing, cities are in a unique position to facilitate system development when they make other key infrastructure improvements, such as replacing sewers or water pipes. Given the large capital cost of pipes to distribute hot or cold water throughout the planned service area, installing those pipes in tandem with other construction work can save significant amounts of money, and ensures the district energy system will be cost-effective to building owners. These opportunities not only help reduce costs significantly, but also create momentum for the system to expand over time.

Local jurisdictions (depending on specific structure and authority) can also set policies to help level the playing field for profitable district energy development. They can regulate building energy performance policy and exercise land-use controls to regulate/incent connections to district energy systems. Some cities won’t have the political will and/or financing capabilities to develop systems, but may have other tools to encourage development of systems by others and to secure a strong customer base and sufficient energy load to make private capital investments less risky.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 16 EVERY DISTRICT ENERGY SYSTEM TELLS A STORY ABOUT LOCAL GOVERNMENT LEADERSHIP

The case studies and other examples examined as part of this study, as well as other examples, illustrate the importance of city leadership in creating the policy framework, harnessing the collective energy demand of building owners, and turning possibility into reality. In St. Paul, where several building owners came together in a moment of clarity about future energy price instability, the city’s role was absolutely critical to translating general interest into a viable system. In most cases, city leadership was necessary to build awareness of the need for district energy among building owners. Even in Nashville, where the large majority of buildings in the system are public, the city was still instrumental in translating that easily-captured demand into a robust business case to support the infrastructure investments needed to create the system.

Without active, engaged local government officials opportunities to establish a district energy system may slip away. Cities such as Portland and Seattle have seen significant new projects, some of which tout best practices for sustainable development, yet many of these projects still fail to capture the additional benefits of a district system. In Portland, the major developers involved in South Waterfront proactively sought city help in developing a district energy system, but the lack of capacity among city staff meant that the opportunity did not lead to action. Now that the city has spent more time exploring district energy opportunities in other areas of the city, it is working to identify future of intervention to establish district energy. As adjacent properties move toward redevelopment in the coming decade, the city is now prepared to take the steps needed to encourage those existing buildings in South Waterfront to connect to a district system.

In Dubuque, Iowa, redevelopment of the city’s historic Millwork District provides the opportunity to build a district energy system to specifically serve existing buildings with multiple owners. These buildings have been largely vacant for many years, and building owners want to explore innovative strategies for thermal energy. The size and nature of the neighborhood is very conducive to district energy. The city has engaged a consultant team to examine the technical and economic questions surrounding district energy, and the local utility has expressed willingness to take a role. However, even with what seem like ideal conditions for district energy, success will depend on a supporting policy framework, strategic infrastructure planning, and explicit consideration of financing options, all of which will require decisive city leadership in establishing an energy service model for owners.

In summary, city leadership is needed throughout the long-term process of creating district energy systems, and should include strategic vision, stakeholder engagement, policy priority, and management capacity. This is especially true in neighborhoods of existing buildings, where the timing issues with respect to aggregation of demand requires cities to play a critical coordination role. In light of the long-term nature of district energy, cities need to begin crafting strategies, policy proposals, and infrastructure development plans today, with future district energy systems in mind.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 17 Creating District Energy Systems in Existing Neighborhoods: A Policy Road Map for Cities

The renewed attention being given to district energy presents the opportunity for cities to work with owners of existing buildings to identify new approaches that have not been a priority in the past. Cities need to be strategic and opportunistic, looking for the best opportunity to begin aligning policies, gaining support and commitment from building owners, and determining the specific elements of the system to match local circumstances.

A primary purpose of this paper is to help local government officials understand what it takes to develop new district energy systems in existing neighborhoods. The following steps identify policy elements and pragmatic methods for bringing existing building owners together to form the critical mass of customers needed for district energy systems.

1. Create Community Energy Policies that Provide a Context for District Energy Development

Strong citywide or regional energy efficiency and clean energy generation policies will help cities to identify districts and recognize catalysts. A strong and clearly defined energy strategy will set a tone for future decisions and help build capacity to address emerging issues and opportunities.

Many experts, policymakers, and businesses understand that the transformation of our energy system is not only a top priority, but also the focus of global competition for leadership. At the federal level the most obvious policy direction is focused on putting a price on greenhouse gas emissions. Such a policy, in whatever form it develops, will make clean energy sources and energy efficiency upgrades more financially attractive, and will improve the economic rationale for existing neighborhoods to invest in district systems to secure these efficiency and clean energy benefits. Some states and Canadian provinces have already established their own emission trading schemes or carbon taxes (as have many countries internationally, for some time). State policies can also promote development of new district energy systems, by creating new incentive programs or financing tools to support district energy, and by directing federal grant dollars for energy efficiency toward district energy projects, as is the case in West Union, Iowa. Within this context, cities should set community energy policy goals that reflect local opportunities, respond to current and future regulatory risks, and incorporate long-term objectives for efficiency and clean energy generation consistent with higher-level goals for climate change action and economic resilience.

Many cities are already leading the way on climate change and energy policy. More than 1,000 mayors have now signed the U.S. Conference of Mayor’s Climate Protection Agreement19, and while the agreement itself contains no direct mandates, it reflects the degree to which cities are involved in developing policies in this area. A large number of cities have established policies that go well beyond what is contained in the agreement. These policies include broad goals and specific actions, many of which are

19 www.usmayors.org/climateprotection/agreement.htm

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 18 directed squarely at buildings. The examples below illustrate the influence of emerging climate-related policies on existing buildings and the potential for district energy as one element of a strategy for radically reducing greenhouse gas emissions.

Voters in Boulder, Colo., passed a ballot initiative to levy a “carbon tax” on their own energy use, and have designated the revenues of that tax into a local carbon trust, which can be used to help invest in the transition to greater efficiency and clean energy.

A growing number of cities, including Seattle, Washington, D.C., Austin, and Boston, now require owners of existing buildings to disclose energy performance, using a third-party system that rates buildings on their energy performance. These policies will address both commercial and residential buildings in phases, and shift from voluntary to mandatory disclosure over time. The objective of such policies is to make energy performance information available to parties involved in real estate market transactions.

Austin, Boston, Chicago, Philadelphia, and Portland, Ore., and many other cities have created aggressive incentive programs to encourage owners of existing buildings to make investments in advanced energy efficiency and clean energy. These incentive programs go much farther than previous ones, and seek to create neighborhood-wide initiatives in which building improvements are financed with capital from a third party, with energy savings being used to pay for that financing over time. The U.S. Department of Energy recently announced grants of more than $450 million to help cities create these new programs, and have established an explicit focus on district-oriented approaches to building retrofits.

In addition, cities can provide building-specific policies that encourage developers to build or improve structures in a manner that is compatible with district energy. This compatibility issue is vital to efforts to bring district energy to neighborhoods that are already developed. City leaders need to develop policies that can ensure compatibility, so that over the course of several years they can accumulate enough buildings in close proximity to make it possible to connect them with district energy infrastructure and develop a centralized energy plant. Specific examples of compatibility policy measures are explored in the section of this road map titled “Secure the Customer Base.”

There are also examples of complementary municipal policies that support adoption of a district energy system—for example, strategic policy initiatives whereby the municipality requires by law the capture and reuse of waste heat from industrial processes. Denmark created such a law in the 1980s, making power production illegal without recovery of waste heat, which proved to be a huge impetus for development/expansion of district energy systems.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 19 The Minnesota State Capitol Complex receives heating and cooling from District Energy St. Paul and is their largest single customer. Photo Credit: District Energy St. Paul

Zoning policy can also contribute to viability of district-wide systems through co- location of different uses for load diversification (i.e., residential adjacent to office or strategically located large-scale retail, such as grocery stores, and data centers which kick out a lot of waste heat). Finally, audits of state utility regulation, municipal public works authority, and a host of other seemingly unrelated policies may be needed to identify barriers and misalignments that—intentionally or not—variously discourage and/or prohibit district energy development.

2. Identify Appropriate Locations and Opportunities Cities engage in planning processes, and these planning efforts can do a great deal to improve energy performance over time. These planning processes already consider specific neighborhoods, and look to set and address key livability objectives, such as affordability, access to local, neighborhood-serving businesses, and transportation. The addition of an energy performance component to neighborhood plans increases opportunities to foster district energy in established neighborhoods, and these planning efforts serve to help cities plan for and develop infrastructure over time.

Cities should systematically evaluate the energy consumption and performance of existing neighborhoods in their plans, and explore ways to address efficiency and clean energy at a larger scale than individual buildings. These efforts would help to identify an inventory of buildings, energy demand concentration, key Photo Credit: District Energy St. Paul players, and potential catalysts. With this

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 20 information, the potential for district energy will be much more apparent, and city staff can target efforts to those areas with the most promise. This kind of assessment is not something that existing building owners, no matter their motivation or knowledge about energy, can do effectively on their own. This is city planning at its core.

Cities that want to foster district energy development in their established neighborhoods need to carefully target areas that have a high probability of success. This is important to ensure that buildings are compatible (i.e. have or can adopt heating systems that work with thermal energy) and that a system can be economically viable. Equally important, success breeds success. If a city can succeed in integrating a district energy system into an existing neighborhood, this success will have a strong influence on subsequent efforts, both by building capacity and confidence of key city staff, and by illustrating to building owners the value of the system in their own community.

Several neighborhood characteristics can contribute to creating successful district energy systems:

Sufficient density. Cities need to target areas with sufficient building density, so that energy demand is high enough to make investing in district energy worthwhile. While there is no simple threshold of density required, district energy requires enough demand to justify a significant financial investment. Not surprisingly existing systems are located in the densest parts of cities or serve large institutions that use a lot of energy. Toronto’s system, for example, serves 40 million square feet of office and residential space. Nashville has about eight million square feet, but the system is still built around large buildings in the downtown core.

District energy is now starting to move into Photo Credit: Wally Gobetz areas that are slightly less dense than city centers, and recent examples in Vancouver, Victoria20 and Kamloops21 (all in British Columbia) point to new opportunities. The initial phase of Vancouver’s system was based on three million square feet, and the other two are both under one million square feet.

Density is not just a measure of total building square footage. The proximity of buildings to each other, and the intensity of usage of the buildings, also influences density. New technologies can provide for heating or cooling at smaller scales, but buildings still need to be reasonably close together to make investments in distribution

20 In Victoria BC, Dockside Green Energy uses a biomass to generate thermal (heat) energy for its district energy system. Gasification is a thermo-chemical process that uses heat to convert any carbon-containing fuel into a clean burning gas commonly referred to as syngas. www.docksidegreenenergy.com/the_energy_system.html.

21 The Sun Rivers community of Kamloops BC was the “first geothermal community in Canada,” based on a distributed heat pump system with a hydronic loop. www.venturekamloops.com/bio- energy.htm.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 21 infrastructure worthwhile. The smaller the number of buildings and total load in close proximity, the larger the share of the total cost that will need to be spent on pipes to connect the buildings (relative to building costs and plant costs). For many cities the most promising areas for district energy will be in “urban villages” or “neighborhood centers”, which generally have multi-story buildings with local retail businesses, apartments, and institutions. Traditional “main street” rural communities may also have appropriately compact footprints.

Mixed loads. Because district energy systems must be designed to handle peak energy demand (‘peak loads’) they perform better and are even more cost-effective when energy demands are spread throughout the day. Balanced loads allow for lower upfront costs and lower operating costs because the system can serve the same size community with lower total equipment capacity. All buildings have peak times when they need more heating or cooling. For residential buildings, those times usually are during mornings and evenings, when people are active at , using showers, preparing meals, and running the washer and dryer. In commercial buildings, demand is steadier and reaches its highest peak during working hours. Most commercial buildings typically have less demand for hot water, with the exception of laundry facilities or restaurants. Not surprisingly, dense mixed-use neighborhoods (outside of downtown office cores), which usually have a mix of commercial businesses, apartments, and service institutions, contribute to load diversification, since they have energy demands at different times of the day (i.e., mixed-use is a good indicator of mixed loads). This load diversification improves the economic performance of a system, since the heating or cooling capacity is used more evenly throughout the entire day.

Strategic development sites. Established neighborhoods that have vacant lots or underused buildings where new, infill development or adaptive-use projects are underway can contribute to the short-term customer base and create awareness among neighboring building owners. Likewise, clusters of under-utilized buildings, such as derelict /warehouse buildings that are slated for retrofit, can contribute to the demand for plant construction. Larger institutional buildings may be willing to participate if the cost of service is attractive, or they may be of sufficient scale that they generate energy on-site that could be shared. Hospitals and university campuses are prime examples of institutions with high energy demands that justify on-site generation, such as through a shared central . In this type of situation, increasing the capacity of the energy plant to serve adjacent, neighboring areas is quite economic given the large investment that would be made for a single customer.

Access to cost-effective local heating or cooling resources. Target areas should have ready access to local, clean sources of energy, such as sewers or wastewater plants, waste heat from industrial processes, waste wood or garbage, or ground-source energy. Even if the technology is capital-intensive, access to these fuel sources can make operating costs very low, even factoring in the natural gas boiler that is often needed for peak demand and backup.

Examples of cities using local energy sources include: . Toronto, where Lake Ontario is used as a source of chilled water. . Nashville, which built its system to use the heat coming from its waste incinerator.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 22 . Vancouver’s Southeast False Creek, which harvests heat from the sewer running under the neighborhood and from the equipment of the neighborhood grocery store. . St. Paul, where waste wood from the community is collected as fuel for the biomass plant.

Communities and neighborhoods where district energy is being considered can evaluate energy technology options in terms of their environmental and economic performance, and then make informed decisions about investing in both efficiency and clean energy generation. Recent studies in Portland and Vancouver analyzed these performance attributes together and Chart showing distribution of energy sources provided the cities with a range of used in St. Paul’s district energy system. options that could be matched against the priorities of the neighborhood and the building owners. Since technologies tend to change every 15 to 20 years, cities should focus on building a system first, and allowing it to switch to better and better local fuel sources as they become available over time.

Planned infrastructure construction. Cities are continuously planning infrastructure projects to upgrade sewer or water lines, install rail transit, or repair streets. Communities that have sub-standard streets and sidewalks may be eligible for “complete streets” or other government funding for pedestrian and bicycle thoroughfares, providing the opportunity to include district energy distribution pipes in a street rebuilding project. Coordinating the construction of a district energy system with other infrastructure projects helps to reduce the initial cost of the district energy system, since the same civil engineering and construction costs can serve more than one project. The civil engineering fees associated with district energy piping can represent a major portion of the distribution system, so if those engineering fees can be applied to more than one project, a city can achieve substantial cost savings.

Such savings can be an important factor in creating an economically viable district energy system. In St. Paul, the construction of a light rail line between downtown St. Paul and downtown Minneapolis has created an opportunity to extend district energy infrastructure several miles to a major industrial customer. This extension would not have been economical without being done in tandem with the light rail project. Over time, District Energy St. Paul will be able to identify and assess potential hubs and side loops along this corridor, based on emerging heating or cooling loads.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 23 Light rail and streetcar projects also often correspond with infill development projects along arterial routes. This sort of incremental development is a perfect opportunity to scan the existing buildings throughout that corridor in order to determine compatibility and assess a basic economic case for district energy. In Portland and Seattle, city leaders are assessing whether district energy can be pursued in tandem with Aerial view of Dubuque Millworks District which plans to lay piping for district energy when it rebuilds its streets. new rail transit, most Photo Credit: City of Dubuque notably around transit stations, which are targets for mixed-use, infill redevelopment.

Integrated infrastructure can be a complex undertaking, and in some cases there may be real policy barriers, especially among “Right of Way” users (state and local transportation and utilities), that need to be overcome. The benefits may be easier to capture in smaller more nimble communities such as West Union, Iowa, where district energy piping is being laid as an integrated part of a Complete Streets project. But even in large cities, locally-driven planning for integrated infrastructure represents an emerging direction for creating new energy districts (and other utility services, such as water and storm water systems). In Victoria, BC, for example, an “integrated resource management approach” has been proposed, where district energy is being considered as part of a new distributed waste water treatment system for the city.22

Existing systems, expansion opportunities, and modular thinking. Those cities that have district energy systems already in place should look at adjacent neighborhoods to screen for potential expansion opportunities based on building compatibility, degree of density, and planned infrastructure work. In the current energy technology cycle, where waste heat capture and biomass plants are attractive options for reducing greenhouse gas emissions, the minimum size of an efficient centralized plant is getting smaller. These technology advances can enable creation of smaller district energy systems and Photo Credit: Seattle Steam Co. the opportunity to treat these systems as

22 www.fidelisresources.com/

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 24 modules, as well as the potential to create and connect adjacent modules over time as more and more buildings come into the system. In Vancouver, for instance, for the first phase of the Southeast False Creek project, two large (1.5 megawatt) industrial heat pumps for sewer heat recovery have been installed, providing for redundancy in serving the 3 MW total load and allowing for additional pumps to be added when the demand increases due to adjacent development. In Seattle, city leaders supported expansion of the Seattle Steam system after looking at nearby buildings and new construction and analyzing the potential to incrementally expand to serve these new customers. An established system has some advantages including the existence of infrastructure already in place, broad familiarity with district energy and its infrastructure needs, and customer awareness of and support for district service.

Compatibility of existing building heating and cooling systems. Multi-unit office and residential buildings with electric resistant heat (such as electric baseboard or electric wall fan heaters) are not compatible with district energy (unless they are slated for a “gut rehab”) because they cannot be readily converted to another without major invasive alterations. The use of electric resistance heating varies among cities, depending on electricity prices and climate conditions. In general, buildings of a certain type and vintage tend to use the same type of heating equipment, and many older neighborhoods originally relied on hydronic () systems which are compatible with district energy. Cities can focus their efforts by identifying neighborhoods where electric resistance heating is not in use, or in very limited Standard steam radiator. use, and discouraging installation of electric heat in new Photo Credit: Russ infill developments in these neighborhoods.23 Thompson, 2010

For cities that want to actively foster district energy systems, one key way is to take a city map and create an overlay that highlights each of these considerations.24 In this way, cities can identify the most promising opportunities and develop outreach and engagement programs and/or target technical/feasibility assistance to “accelerate serendipity” at those locations so that building owners are informed and prepared to consider district energy when it becomes an option. By getting to this point of readiness, a city is prepared to respond to catalysts, i.e. to take action when the time is right.

23 In the Pacific Northwest, electric energy is not just very clean (sourced from hydro) but cheaper than almost anywhere in the country, which makes the first cost of hydronic pipe systems to landlord and tenant relatively much higher than electric heat. In spite of the extremely high interest in district energy in northwest cities, this makes the economics challenging. Power prices will eventually rise as the limits of hydro power are tapped, but in the short to medium term, without some financial incentive or outright mandate against electric based systems, most new commercial buildings will continue to be built with the cheaper, industry standard electric alternative, each one undermining the potential load of the energy district.

24 The City of Vancouver and BC Hydro are undertaking a study that maps heat demand densities and potential waste heat sources throughout the city.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 25 3. Recognize and Respond to Catalysts A review of successful district energy systems points to the existence of a specific event or driving force—a catalyst. Cities that want to pursue district energy need to have a system for recognizing and responding to these catalysts and create conditions that encourage the development of such catalysts. In addition, cities have to consider how to prepare for action in the event a catalyst emerges that can make district energy a possibility in a particular neighborhood. Some of those catalytic moments will be unexpected, which means this preparation is very important.

Catalysts can come from inside local governments, neighborhoods, or community organizations. They might include the establishment of local policies that encourage district energy, such as setting aggressive standards for existing building energy performance as part of cities’ climate action plans, or Right of Way policy mandates

CATALYSTS FOR DISTRICT ENERGY IMPLEMENTATION

Nashville: Two major factors influenced the evolution of Nashville’s district energy system. In the beginning, district energy was identified as an innovative way to solve two problems: disposal of municipal waste and the high cost of energy. While the historical details of how the system emerged are unclear, the idea of constructing a district energy system that used incinerated waste as a fuel provided an obvious way forward from an economic perspective. Thirty years later, an unexpected event became a catalyst for a major overhaul of the Nashville system. In 2002, a structural fire resulted in significant damage to the plant. This event presented a unique opportunity to replace a system that had come to be seen as an environmental hazard with a natural gas plant. In the absence of this fire, it is difficult to say whether the system would have been replaced as promptly, if at all.

This example also illustrates how technology choices change over time. In 2002 there was little interest in building new waste-to-energy facilities, and the few facilities in existence faced intense local opposition. Today, the problem of landfill shortages is beginning to make local governments reconsider waste-to-energy as a legitimate option for non-recyclable waste, and new technologies offer ways to more affordably capture energy from waste and significantly limit emissions. In Europe, these waste-to-energy plants are a key element of many district energy systems.

St. Paul: International energy price instability prompted the City of St. Paul to take action. In response to the high-energy costs and price volatility of the late 1970s, building owners in the city’s downtown neighborhoods focused on finding a source of energy with long-term price predictability. This concern was galvanized into action by strong relationships among building owners and a responsive city government, and they worked jointly to build an understanding of district energy, assess the best way to move forward, and to finance the construction of the system.

Toronto: A new technology—deep-water cooling—caught the attention of city officials in Toronto, at a time when downtown building owners were dealing with repeated energy outages (i.e., brownouts) during peak cooling hours due to utility power shortages. Operators of Toronto’s existing heating system first became aware of deep-water cooling from a system that had been implemented by Cornell University. This proof of concept led city planners and engineers to think about constructing such a system in Toronto.

Portland: An initiative called Solarize Portland has recently demonstrated that neighborhood aggregation can make investments in clean energy technologies easier and more cost-effective. In this case, a self-organized group of building owners initiated installation of solar photovoltaic panels on 300 . Their willingness to initiate this kind of project development reflects the potential for building owners to embrace new opportunities and create catalysts that cities need to be prepared to respond to. Solarize Portland is not by strict definition a district energy system—it is more a district social infrastructure initiative that deploys solar photovoltaic panels – but with active involvement from the city these efforts could have been combined with efficiency retrofits and other opportunities to interconnect buildings for heating and domestic hot water .

Another Portland initiative, Sunnyside District Energy, has sought to engage a neighborhood to create a district heating system that combines a new heating system for the elementary school with an infrastructure network to provide heating to the surrounding homes and commercial buildings, capturing waste heat from the central plant and from the two grocery stores in the commercial zones, where the large amount of cooling needed produces substantial amounts of waste heat. In this case the city has not been involved, and development of a district energy system here may not yet be economically feasible, given the cost of creating an infrastructure network for what is mostly a single-family residential neighborhood that has low demand for heating relative to the service area. However, it may be possible to conceptually plan the system and prepare for future projects that might make the system construction viable, such as street improvements, streetcar line construction, or water infrastructure improvements.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 26 (e.g., Complete Streets), or newly mandated public transit projects, as already described. Development incentives, such as upzones and density bonuses, might create an opportunity to introduce requirements for district energy compatibility. Other local climate or environmental goals around waste stream management may also stimulate opportunities for generating district energy

Catalysts can also take the form of broad market or policy changes beyond the control of municipalities. Energy price volatility, new federal or state energy policies, and new incentive programs to support district energy may spur future development. In the past year, the federal government has invested unprecedented money in projects related to energy efficiency, clean energy, and infrastructure as part of the economic stimulus efforts. The U.S. Department of Energy is continuing to fund new projects and programs, which represents a real convergence of a new energy policy era and a period of sustained federal economic stimulus.

Each of the established systems profiled in the case studies—Nashville, St. Paul, and Toronto—originated from a catalyst that is very obvious in hindsight. Without the benefit of hindsight, recognizing a potential catalyst is less obvious, but it is a key to the project’s success. The existence of strong, active community associations and engaged building owners may help provide just the right catalyst, as illustrated by two current examples in Portland, Ore.

4. Build Institutional Capacity Cities have unique and significant roles in providing the regulatory, policy, and financial conditions needed for the development of district energy. Yet district energy systems are challenging to develop, especially in existing neighborhoods, and a city interested in fostering a district energy system needs to establish policies that support such a system and commit staff time to develop it. This requires an investment to build expertise and shared purpose among city leaders and staff in advance of emerging catalysts, or opportunities will be missed. In Portland, Ore., the city recently created a new downtown transit mall, rebuilding two primary streets to provide infrastructure for light rail and consolidate bus traffic. Until the 1980s, all of the adjacent buildings were heated by an old steam system, so were compatible with district energy, in sufficient number to make new district energy economically viable. However the city of Portland was not yet staffed to figure out the size of the demand, the mechanisms to secure the buildings as customers, the precise distribution network to each building and the appropriate source(s) of energy. Likewise in Vancouver, the city recently opened a new transit rail line from the airport to downtown. A large part of the corridor was built as a tunnel, requiring street construction next to several neighborhood centers, including a large urban shopping center and a hospital complex. The City was not staffed at that time to analyze whether or not there was potential for district energy plants and/or connections along the corridor.

Engage and empower internal stakeholders and key city staff. Some cities unintentionally present obstacles through poor coordination, “silo-constrained practices” or conflicting missions of utilities. Cities must be willing to engage their employees as internal stakeholders and as innovators. City agencies—from finance to maintenance to community development—must work together to make district energy successful. Agencies must be on the same page and willing to recognize the significant

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 27 differences between district energy investments which pay back over time and more common municipal expenditures. In Vancouver, city finance and engineering staff participated in intense internal discussions in order to build support for and a sense of ownership in district energy. This effort took time, resources, and patience, and ultimately shifted the balance among senior managers from reflexive skepticism to advocacy. Local utilities can either be platforms for more rapid change or fiefdoms that can hinder progress, and so must be engaged to be innovative partners in the process of vetting district energy opportunities.

Developing district energy systems takes time. City leaders must be willing to place a priority on district energy and educate staff about its effectiveness. In cities where district energy systems have been developed in recent years, senior staff assumed responsibility for policy development, planning, outreach, and outright development. The District of North Vancouver, Resort Municipality of Whistler, and City of Vancouver all represent examples where senior staff led the efforts, whether ultimately developed privately or by the city directly. In Toronto and St. Paul the private utility led the process of engagement, but needed substantial support from senior staff of their respective cities to align interests and develop policies that made the system coherent and able to attract financing. In Portland, a public/private organization has recently been formed—the Portland Sustainability Institute (PoSI)—to engage both the public and private sector on district energy solutions.

Map of the Nashville neighborhood served by district energy.

Exercise financial authority. Private corporations have successfully operated district energy systems, but very few are willing to themselves commit the up-front

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 28 construction capital to such a long-term undertaking. Cities often have access to more patient capital, and can also regulate energy service rates, which can lead to more palatable financial conditions for private system developers.

. By assuming rate-setting responsibility, a city assumes a utility service role, similar to its existing roles with water, sewer and other utilities. This role creates a relationship of shared interests between the city and the building owners, and by providing quality, economical energy service to building owners, cities can build a long-term relationship with them. This builds on cities’ established responsibility for attending to the balance of public and private interests, and a governance process for ensuring long-term system integrity. . Given the efficiency benefits of distributed hydronic or heat pump systems, higher per unit energy rates could still deliver equal heating and cooling performance at a comparable cost to owners, which implies better financial performance for the utility and opens the to more financing options.

Lead by example. Most cities own and/or lease a number of buildings, and their role as an energy customer can be crucial to assembling the initial critical mass of demand, and thus revenues, necessary to initiate development of a district energy system. As owners, governments tend to hold buildings for longer and therefore be more inclined than the market as a whole to consider long-term costs and benefits. By engaging building owners in a targeted area, and by using the government buildings to illustrate the performance benefits of district energy, the city can more effectively convince other building owners about the advantages of district energy systems.

5. Secure the Customer Base Cities must create a solid business case for district energy, starting with a customer base that will provide revenues sufficient to secure the financing needed for construction. A critical step, especially in established neighborhoods of existing buildings, is to work with building owners to make their buildings compatible until such time when interconnection and plant construction become viable.

Engage building owners. City leaders need to work proactively with building owners in order to build a shared understanding of and subsequent support for the development of district energy. This effort is especially important in existing neighborhoods, where building owners do not necessarily have any reasons to consider district energy. Many debt-free owners of older buildings have no incentive to take on improvement projects that might require new debt or investment, or trigger the need to charge higher rents, at least not until requirements for significantly improved energy performance become more prevalent. (Unlike new construction, where permits or code requirements can drive adoption.) Building owners need information about district energy and how it affects them. Cities need to work with them to determine their specific needs, and to ensure their buildings remain or become compatible with district energy. By reaching out to buildings on the periphery of their service territories, cities can identify and prioritize opportunities to connect new customers incrementally. This amoeba-like expansion process is an effective way to bring more existing neighborhoods into district energy systems.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 29 A strategy to engage building owners in a target area would typically include SECURING THE CUSTOMER BASE the following elements: As an example, consider an established mixed-use . Prospecting for and neighborhood with at least a majority of buildings that would already be compatible with district energy. The surveying buildings— first step to interconnection would involve the city identifying the energy working with building owners (perhaps through a demands, compatibility neighborhood association or local improvement district) to set up the service model for a neighborhood-scale potential, and capital district energy utility, most likely by centralizing equipment cycle for ownership of existing boilers, with the building owners buildings in the target paying the newly formed city “utility” or other neighborhood-scaled special purpose entity for heat areas. services rather than paying their existing natural gas . Outreach and service provider. Over time, this model would allow for marketing—creating a boiler replacement so that infrastructure could be put in place to connect the buildings through a hot water customer-oriented network, and then the existing boilers could be replaced district energy guide for with energy transfer stations (owned by this new, emerging “utility”). Finally, a single energy center building owners and would be established for producing all the heating (or occupants to highlight cooling) needed for this community of buildings. In the the potential benefits of short term, this may simply be a centralized, large boiler (along with appropriate weatherization measures and district energy and wireless monitoring/ energy management identify the steps that infrastructure), which would offer improved efficiency. would enable buildings However, at this point, decisions about novel or more innovative forms of energy could be considered such as to connect. waste heat sources (sewer heat, process heat from . Providing tools and nearby operations, etc.) or clean energy sources to resources needed to displace fossil fuel energy, at least for the base load, since peaking and backup energy would almost certainly facilitate come from natural gas boilers. interconnection, including in-building system options, simple administrative billing system options, and access to loans for needed capital investments (beyond the utility capital necessary for interconnection).25

Establish an energy service model. A service model that provides high-quality, cost- effective energy service to its customers allows a new or expanding system to offer building owners turn-key solutions for their space heating and hot water needs, with stable and predictable rates to assure building owners that they have a long-term solution for their energy needs. In practical terms, it may be necessary to create a multi-year plan for implementing a district energy system, during which time building owners can take steps to become compatible with a central district energy system, but the central energy plant is not built until a critical mass of buildings reach that point where their systems need replacement. In the interim, a district energy utility could take over responsibility for heating and cooling equipment in individual buildings, and at the same time initiate baseline monitoring and energy efficiency investments.26 This

25 As an example, in both Portland and Vancouver, building owners and developers were given technical information about the types of building systems that are compatible with district energy, so their mechanical engineers had all the information they needed, and Vancouver provides technical support and a peer review process for building mechanical design.

26 Tracking these efforts will be key to demonstrating “additionality” if an ESCO is going to trade the carbon reduction value of connection to a district energy system. See glossary for

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 30 may include installing temporary, leased boilers in select buildings that need to replace equipment until such time as enough buildings are ready to build a central plant and distribution system. This step can establish the service model in advance of the system, reducing uncertainty and risk associated with the initial development.27

This service relationship and aggregation of demand can then be used for other services a community may wish to organize or purchase in bulk, such as green power, onsite renewable equipment, or mass installation of energy performance modeling equipment.

Set building policies that can make district energy a smart investment. Cities must establish policies that can make district energy a smart investment for owners. Examples include energy performance disclosure, flexible outcome-based performance codes, and incentives or financing programs for equipment needed to make buildings district-energy compatible. Even simple steps like waiving permitting costs and inspection fees have significant resonance with owners. Connection incentives can be an effective tool for enticing building owners to join a system. Energy Service Companies (ESCOs) must also be convinced of the benefits and integrate connection into the energy and financial models that they build for client owners.

Set building policies that establish the category of energy systems used by buildings and their interface for physically connecting. The requirement that buildings be built or retrofitted to be ready for district energy is an important step toward building a customer base, and could be mandatory for affordable housing or other projects that receive funding from state or local jurisdictions that have particular need to predict their energy security and operating costs. If resistance is used in new buildings or replaces old HVAC systems, then future conversion to district energy—if a system is developed—will be prohibitively expensive. This model may require legislative changes at the state level.

Cities that want to support district energy development can set minimum building size thresholds, above which all buildings must be compatible with district energy. Vancouver has introduced a requirement that all developments of a certain size, in this case more than two acres, consider district energy in their building permit application process. In certain areas, all projects seeking rezoning must be district-energy compatible even if a system doesn’t yet exist. Forcing developers to consider district energy will increase awareness among developers and provide insights for city leaders as to why developers do not prioritize district energy. This information will allow city leaders to create a regulatory environment that prioritizes district energy in established neighborhoods.

information about additionality of carbon emissions savings and about energy service companies (ESCOs).

27 Owners in Dubuque’s Millworks district currently find themselves challenged to meet the equity gap needed to finance building rehabilitation and sources for funding a district-level plant are not currently evident. This as an example of the need for a service model to deal with delayed system construction that installs DE-compatible HVAC and boiler systems in buildings in an interim service arrangement.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 31 Cities also need to be aware that the building retrofit industry is a growing and powerful market force that is very focused on selling improvements to individual buildings. Some Energy Service Company (ESCO) business models do not accommodate district energy particularly well. While some companies may embrace the opportunity to own or manage the energy transfer station, others actually recommend that building owners disconnect from existing district energy systems, so that the ESCO) can build and own on-site heating and cooling equipment. This may or may not save energy in the short term, but creates significant and lasting barriers to deeper long-term savings, and district energy Old and new buildings in downtown West Union will have the option to connect to district energy. The establishment in general. system encourages increased collaboration and community investment in the downtown. Use “carrots and sticks,” and educational Photo Credit: West Union Chamber of Commerce tools. Mandates can be paired with other incentives such as density bonuses, expedited permitting approvals, or transfer of development rights, for both building renovations and infill development projects. For example, communities can pair building retrofit codes for installation of compatible heating systems with permit and inspection waivers, along with other incentives to help finance those costs, and provide information to show the long-term economic benefit to building owners. Cities can also include incentives for district-energy-compatible heating and cooling systems in energy-efficiency financing incentive programs. An incentive for equipment replacement, tied to future interconnection to a district system, can make a big difference. Combined with a strong outreach effort to build a common understanding of district energy and the associated benefits, incentives of this kind could make the difference between assembling a critical mass of customers among existing buildings over time, and being unable to get to the scale where district energy infrastructure investments could ever be justified.

6. Manage Finance and Policy Risk for System Construction and Operation Municipal governments have a central role to play in addressing the risks, both real and perceived, associated with the significant capital investments in district energy systems. As discussed in the previous section, on the demand side, securing stable revenues from customers is essential to securing the necessary financing. On the supply side, financing must be obtained at the lowest possible cost of capital. Ideally this is in the form of local bonds issued by the local government, and all of the initial investments made to develop the systems described in the Toronto, Nashville and St. Paul case studies were made using local government bonds. However in the current economic environment, more creative combinations of grant funding, bonds and private finance are often necessary; however city backing is often still critical to success.28

28 In May 2010, Climate Solutions published a paper titled “Energizing Cities” that describes new finance solutions for community energy plans. Although mostly focused on implementing wide-

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 32

Seek public backing of project finance. In general, unless district energy expenditures are funded with grant money, capital must be raised through the issuance of long-term debt. 29 District energy systems generally have low customer delinquency rates, but due to lack of knowledge about district energy technology, creditors often require some form of loan guarantee from the municipalities, i.e. general obligation or specific revenue stream bonds. These guarantees allow access to lower interest rates, which greatly reduce the total project cost. In the case of Dubuque, city development officials were hesitant to back such bonds for fear of setting a precedent that could lead lenders to demand similar guarantees for future infrastructure projects. Financing there will need to be obtained from banks or other private lenders purely on future revenue streams from energy sales, likely at a higher interest rate. Even if guarantees are hard to obtain, cities must nevertheless play a key role in facilitating access to capital for district energy development. In St. Paul, long-term revenue bonds were issued, but were non-recourse, which meant the City did not have to guarantee debt coverage. This type of major project financing is usually only possible for projects that will clearly produce a revenue stream that can pay off the debt over the life of the project.

Efforts to analyze business models for district-scale utilities, such as those currently being pursued by the Portland Sustainability Institute, will help improve the ability of cities to identify and use a variety of capital sources to address energy. Policies and institutional approaches that establish the appropriate scale and create a service model in which revenues can be captured to support long-term capital investment will greatly enhance the creation of new district energy systems. 30, 31

scale building retrofits, many of the financing sources explored could also be applied to district energy systems. (www.newenergycities.org.)

29 Federal and state agencies can be a source of both grant funds and loan guarantees. USDA now will guarantee the construction phase of a renewable energy project, and it may be that DOE will ultimately follow suit. DOE, USDA and many state economic development agencies are currently providing grant funds that can be applied to district energy system development or upgrades, either to pay construction costs in full or to provide sufficient equity to buy down risk and make a project more attractive to project lenders. (www.rurdev.usda.gov/rbs/farmbill/index.html) (www.environmentalleader.com/2009/11/04/doe-awards-155m-to-make-industrial-sector-more- energy-efficient/) (www.dsireusa.org/)

30 In future years, new investment approaches may emerge that make it easier for private investments to play an early role in district energy systems. One possible idea is the creation of an Investment Trust specifically for district energy systems (or district-scale utility services of any type), very similar to widely known models of Real Estate Investment Trusts. In Portland's North Pearl District, some private sector interests are exploring possibilities along these lines, seeking to capture renewable energy incentives and leverage tax increment financing. The viability of these emerging models depend on policies and incentives related to efficiency and clean energy technologies, and would require coordinated efforts on the part of cities in order to facilitate their creation (at least initially).

31 Earth Economics, an ecological economic analysis firm out of Tacoma, Washington, are looking at more innovative accounting standards for Pacific Northwest utilities that would recognize resources as balance sheet assets. Using ecological accounting methods may free up additional value that can be leveraged to invest in upgraded infrastructure improvement such as district energy.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 33 Cities and public entities that choose to develop district energy systems should also be prepared to manage them on an ongoing basis to maximize their value and best position them for possible acquisition or refinancing down the road, i.e. taking ongoing steps to maximize cash flow, reduce risk, and minimize cost of capital requirements for the acquiring entity, and also maximizing strategic value by taking advantage of such things as exclusive franchises, access to low interest bonds, executed (future) thermal energy contracts, exclusive rights to waste heat sources, agreements to connect public buildings, etc.

Reduce policy uncertainty. The risk of unknown future changes in public policy can hinder long-term, large scale planning around energy systems. District energy requires a large up-front investment with a long payback period. Sending clear signals about future policy intentions and implementing current policies that reassure investors can help to unlock sources of public and private funding. Taking proactive action to anticipate future policy developments at the regional and federal level is better than a reactive wait-and-see strategy on energy systems.

Manage technology risk. The choice of district energy generation technology should be made on a case-by-case basis, reflecting regional climates and resources (fuels, waste heat sources). There are many low carbon technologies available that are proven and present little technical risk. Backup capacity, usually in the form of natural gas boilers, can be used to further reduce risk of system failure while covering unusual spikes in demand. Cities also can reduce technology risk by creating upfront feasibility studies (which often can attract funding support from state and federal government or foundations that support energy innovation). For example, development of the deep- water cooling system for Toronto and the sewer heat recovery system in Vancouver both represented new technologies for North American cities. Without substantial support from the respective city governments, significant investments in feasibility studies and business case development, and a willingness to use municipal bond financing, these systems would have faced serious obstacles to securing the necessary financing for construction. Finally, it is possible to craft procurement deals that transfer technology risk to the vendors supplying technology to ensure the system functions as intended.

Differentiate real risk from perceived risk. District energy systems can greatly reduce the risk to operators and users of budget shortfalls that result from market energy price volatility. The fuel source diversification and fuel price hedging abilities of a district energy operator who has a good handle on demand data and patterns can enable building owners to make more reliable forecasts of their future energy costs. These price moderation benefits are often ignored in performing district energy cost- benefit analysis. Rather than perceiving district energy as a risky investment, city governments should consider its value as a source of risk mitigation.

Building owners frequently are concerned that connecting to a district energy system will reduce their energy independence and increase their exposure to system failures. In fact, the opposite is true. District energy frees building owners from having to worry about heating and cooling equipment. District energy systems are extremely reliable, with a far lower system failure rate than individual building systems. A well-performing district energy system may have enough rate capacity and revenue to help cities or operators to finance owners’ costs to connect, and this can be an effective way to

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 34 manage perceptions of risk and build support by neutralizing any direct cost concerns by building owners. Some communities have combined finance of owners’ costs with a requirement that buildings within a defined service area connect to district energy, eliminating potential for a building owner to refuse to connect to a system.

Conclusion

Energy policies are changing dramatically. Driving forces include climate change, a desire for less reliance on fossil fuels (especially imports from unstable countries), and strong economic benefits that can come with greater energy efficiency and widespread deployment of clean, renewable energy technologies. In the future, the use of energy that contributes to greenhouse gas emissions will become increasingly expensive. Buildings that rely on these energy sources face higher energy costs, and will be well served by greatly improving their efficiency and finding cleaner forms of energy. However, investments in building efficiency and cleaner forms of energy will be financed less by individual building owners and more by new finance models that leverage capital from public and private sources that are interested in the returns available from clean energy systems.

A shift in scale from individual buildings to neighborhood districts is essential to helping to reduce the costs that regulation and more expensive energy will impose on building owners and occupants, and to creating the opportunity to use financing strategies that can make investments in improved community-wide performance. District energy is emerging as an important element of our future energy system because it creates a platform for migrating entire communities of existing buildings to systems that use less energy and can tap into cleaner forms of energy over time, all at lower cost than would be possible for individual buildings. This neighborhood-scale approach applies to a range of urban infrastructure services and resources, from urban food production and water treatment to smart grid technologies. The owner cooperation, aggregation of demand, and service model established for district energy can also serve as the foundation for these other “eco-district” services and infrastructure projects.

City leadership is central to district energy; the potential for district energy cannot be exploited without the engagement of city government. Our cities will set the policies that affect how buildings use energy, create plans that can identify the best opportunities to foster new district energy systems, create the institutional context in which district energy systems can be created, and provide the ongoing attention to energy that individual building owners cannot do on their own. To do so effectively, cities need to understand how district energy works and how to foster district energy development.

District energy requires holistic thinking about neighborhoods, with clear policy approaches that support the collaboration of building owners, utilities, and government to achieve efficiencies and reduce energy use and greenhouse gas emissions on a larger scale. The more a city can integrate district energy into its long-term plans and strategic objectives, the better the likelihood that systems can be integrated into existing neighborhoods when opportunities present themselves.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 35 APPENDIX 1: Case Studies Summary

St. Paul Nashville Toronto

Neighborhood Downtown, Downtown core Downtown, including with 2/3 of including financial Minnesota State customers and hospital Capital campus. comprised of districts. public buildings. Size (building square 31 m ft2 heating 8 m ft2 heating 40 m ft2 heating 19.2 m ft2 cooling and cooling and cooling feet) Energy sources and Heating dual-fuel Natural gas Natural gas boilers natural gas/oil and boilers 381MW production natural gas/coal 81MW Deep Lake Water with biomass CHP Electric chillers Cooling 289 MW 80MW Electric chillers 115 MW System phases Constructed in Original fuel Amalgamation in 1983 to replace source was a trash 1982 of three existing coal incinerator existing systems; supplied steam installed in 1974, Deep Lake Water system; cooling which was Cooling was added added in 1993. converted to in early 2000’s. natural gas in 2002. Catalysts 1970’s Energy Air pollution Deep Lake Water Crisis built concerns related expansion fueled by demand among to waste Cornell University’s building owners incinerator. proven use of for reliable and technology. predictably priced heating service. Financing Industrial revenue Municipal revenue Public and private bonds, non- bonds; small bonds recourse general obligation bond element Rates Information not Set at 10% Proprietary available discount from information expected market rates Coordination with Limited bundling Improvements Deep Water Cooling with infrastructure and potential added independent infrastructure projects projects, expansions to of other specifically coincide with infrastructure conduit for street infrastructure projects. lamps. projects. Environmental impact Biomass as a Deep water cooling source reduced improvements replaced use of greenhouse gas from high CFCs and HCFCs in emissions. efficiency boilers individual air and chillers conditioning units. reduced energy.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 36 APPENDIX 2: Enwave Toronto Case Study

Overview Enwave Energy Corporation delivers steam and chilled water through a distribution system spanning approximately 25 square kilometers in downtown Toronto. More than 140 commercial, hospital, university, and residential buildings are connected to the system. These buildings represent more than 40 million square feet of real estate.

District heating service is provided using 16 natural gas boilers, located at three downtown steam plants. The system has a maximum design capacity of 522MW, a maximum current capacity of 381MW, and faces an average annual peak load of 337MW. Steam is distributed at a pressure of 200psig (1.38 map) at a temperature of 375 degrees F. District cooling service is provided using the Deep Lake Water Cooling (DLWC) system, a major technical achievement in which pipes were lowered 5km into Lake Ontario to route cold water (4 degrees Celsius) to the City of Toronto’s water intake and plant. Eighteen stainless heat exchangers provide cooling to Enwave’s closed-loop chilled water distribution network. This lake water enters the City of Toronto’s potable water supply network after its use for chilling the cooling system.

Neighborhood

The Enwave system boundaries include the high-density downtown core of Toronto. Many of the tallest buildings in Canada are connected to the Enwave system. The system is an amalgamation of three older systems and therefore has a diverse client list. The downtown medical facilities are connected as well as major financial institutions and Toronto City .

Ownership

Ownership of Enwave Energy Corporation is divided between the City of Toronto and BPC Penco Map of Toronto neighborhood connected to the district energy Corporation (a subsidiary system. of the Ontario Municipal Employees Retirement System (OMERS). The City owns 43 percent and OMERS owns 53 percent. Enwave is governed by the Toronto District Heating Corporation Act. Both public and private bonds were used to pay for the DLWC system improvements. Customers were required to sign contracts or letters of intent to sign in order to secure the financing. Enwave’s board of directors is made up of six members, with both the city and OMERS holding three seats. The board of directors is responsible for overseeing the affairs of Enwave Energy Corporation, including future growth.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 37 History

Toronto District Heating Corporation (TDHC) was established by legislative act of the Ontario Legislature in 1982. TDHC was a nonprofit entity established to combine and operate three independent district energy systems in downtown Toronto. Eventually TDHC was reorganized as a for-profit entity named Enwave Energy Corporation, and jointly owned by the Ontario Municipal Employees Retirement System and the City of Toronto. Existing steam networks at University Avenue hospitals, Toronto Hydro, and Queens Park were combined to create TDHC. The University of Toronto chose not to participate in the combined system. Initial legislation limited the power of TDHC in the area of long-term financing, arguably hampering its ability to implement innovative solutions from the onset, including waste energy recovery.

In the late 1990’s TDHC considered a major reorganization in order to deal with limitations in financing options and a reliance on City permission in order to make new investments. In January 2000, Enwave District Energy Limited (later renamed Enwave Energy Corporation) began operations of the Photo Credit: City of Toronto formerly TDHC system with greater independence from the City.

System Creation/Expansion

The catalyst for investing in the deep water-cooling system was a demonstration case presented by Cornell University at the 1999 International District Energy Association (IDEA) Conference. Cornell’s demonstration project appeared to be readily applicable to Toronto and sparked Enwave to consider a similar investment. This catalyst came at a time when the city was trying to comply with the Montreal Protocol limiting the use of chlorofluorocarbons, which are used in standard building cooling equipment.

Role of Local Government

The City of Toronto owned and operated the district energy system until 2000. The City still holds three of six board of director seats and a large financial stake in the corporation. City support and investment was instrumental in bringing the cooling service to fruition. This system is integrated into the City’s drinking water system, which has created a long-term relationship between Enwave and the City. Additionally, the need for extensive underground infrastructure necessitated a strong partnership between the City and Enwave.

Demand

Based on information from Enwave representatives, the company was able to build a strong base of customers that were attracted to the system’s price, stability, and service. Enwave has used innovative technology and personalized customer service in order to capture and service the demand of a large, diverse service area.

The cooling system serves some of the most important banking institutions and data centers in North America. Reliability of service is therefore extremely important to these customers. This

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 38 system offered the potential to operate normally even in the event of an electricity blackout or brownout, something that the region had begun to experience. The cooling system also enabled building owners to save money thanks to the displacement of electricity for cooling. These savings represent the cooling load moving from electric chillers to chilled water. Finally, customers are closely integrated to the system with constant communication between parties to ensure adequate cooling. This personalized customer service plays an important role in meeting customer’s demand.

Enwave connected both existing and new buildings to the cooling system. Among the factors that determined whether building owners chose to connect, the life expectancy of chillers was the most important factor for owners of existing buildings. By connecting to district energy, these building owners were able to eliminate cooling equipment from their planning priorities and received superior service and cost savings in return.

System Details Area 25km2

Buildings 140

Capacity – Heat 381 MW

Average Annual Peak 337MW

Capacity – Cooling 34.4 million ft2 office space / 75,000 tons refrigeration (260 MW) Reduction in Energy Use – Cooling 90% over alternative systems

Economic Performance

Initial investment in the DLWC system totaled $200 million in Canadian dollars (CAD). That figure includes intake piping, pumps, heat exchangers, valves, distribution system, and building connections. The $200 million investment is expected to return $11.5 million CAD a year in electricity savings (roughly $9.8 million USD).

Policy Impacts

The Montréal Protocol motivated the development of Deep Lake Water Cooling. Reductions in chlorofluorocarbons (CFCs) and hydro chlorofluorocarbons (HCFCs) were needed to comply with the Montréal Protocol and Deep Lake Water Cooling was seen as a possible solution as early as the 1980s.

Another policy consideration was related to water use from Lake Ontario. Enwave was successful in securing agreement from Provincial regulators to waive the fees for the use of water. Normally, industrial water users would be charged a fee. Enwave was able to convince regulators that the system did not actually remove water from the lake; it only removed the cold from the water, and therefore was not subject to the same industrial use regulation.

Customer Profiles

One of Enwave’s heating and cooling customers is the City of Toronto. The home of Toronto city government is Metro Hall. Metro Hall is a 28-story office tower (772,870 ft2 built in the mid 1990s). Prior to connection to Enwave, Metro had two 1,050-ton chillers using CFC R11 as a refrigerant. The phase-out of R11 and operating energy savings led to the switch from in- building cooling to deep lake water cooling.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 39 Information for this case study provided by EnwaveEnergy Corporation with special thanks to Yianni Soumalias, Regulatory Affairs Advisor. Additional information provided by Canadian Urban Institute and C40 Cities Climate Leadership Group. Customer profile information provided by City of Toronto.

Appendix 2.A: Toronto District Energy Timeline 1964 – Toronto Hydro first supplies district heat from steam plant at Pearl Street. 1974 – City commission established to study potential future district energy expansion makes three recommendations to city council:

1. Integrate six steam distribution networks currently in operation under one new corporation. 2. Construct refuse-fired and fossil-fuel fired steam plant to provide base load. 3. Decommission Pearl Street Steam Plant. 1976 – Five district energy systems operating in Toronto agree to merge systems.

1982 – Lake cooled water distribution studied by Canada Mortgage and Housing Corporation with estimated cost of project $680 million.

1982 – Toronto District Heating Corporation Act passed by Ontario Legislature establishing nonprofit entity to run combined system.

1999 – TDHC undergoes corporate restructuring under Ontario Business Corporations Act as a for-profit company named Enwave District Energy Limited. 2004 – Deep Lake Water Cooling system is launched.

2007 – Deep Lake Water Cooling system at 73 percent capacity in February and expected to maximize capacity by the end of 2007.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 40 Appendix 3: District Energy St. Paul Case Study

Overview

St. Paul, Minn., is home to one of the oldest, largest and most successful district energy systems in the United States. The system supplies both hot and chilled water to buildings in the central downtown area of the city, with over 31.1 million square feet of heating and 19.2 million square feet of cooling. The system has experienced great growth, both in terms of service territory and annual operating revenues, since its inception in 1983 as a supplier of hot water to a small number of customers.

Neighborhood

District Energy St. Paul (DESP) encompasses the downtown core of St. Paul and adjacent residential areas. The system includes the Minnesota State Capitol, four hospitals, office and residential towers, and single-family homes. The current service territory represents a significant expansion of the original system, which covered a portion of the commercial downtown. At the time of publication, DESP is in the early stages of a system expansion which may offer significant potential to serve other existing buildings in the neighborhoods running from downtown St. Paul to a major industrial customer located on western edge of the city several miles from the downtown service area. The service extension has been enabled to a large degree by the construction of a light rail line. This expansion may offer the opportunity to incrementally expand the customer base in selected areas, connecting them to the system over time. In the near term, project planners will identify the potential for short-term aggregation of buildings (including any planned new construction) at points along the corridor, based on total customer demand and the cost of interconnecting the buildings.

Ownership

DESP is a private, nonprofit corporation. The board of directors includes three members appointed by the City of St. Paul. Originally the project was a public/private partnership between the City of St. Paul, the State of Minnesota, the U.S. Department of Energy, and downtown businesses. Once established, the new entity assumed responsibility, enabling the state and federal agencies to step away from ongoing responsibilities in the system.

History

Heating DESP began in the early 1980s as a response by downtown St. Paul building owners to the energy instability of the late 1970s. Downtown St. Paul had an existing coal-powered steam system, which served approximately one third of today’s service area. This system had become inefficient and the utility that owned it was hoping to divest. The city formed a coalition to investigate the viability of district energy and sent representatives to Europe to observe successful systems. Consultants were invited from Upsala, Sweden to design and construct a system in St. Paul.

The system was constructed and began operation in 1983. While bundling of other services in conjunction with installation of the hot water distribution pipes was limited, some other public services were installed, primarily conduit for electric street lamps. Over time, the coal-fired boilers were replaced with one biomass boiler which covers 70 percent of the load, and for peak/backup there are duel fuel CNG/oil and CNG/coal units, reducing emissions and improving efficiency and capacity.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 41 Cooling

In 1993, DESP installed a chilled-water cooling service at the request of three customers. These building owners perceived that cooling could be provided with higher efficiency and reliability by a centralized generation system. This district cooling system has expanded over time to encompass 19.2 million square feet of building area. Since DESP had not anticipated subsequent expansion into cooling services, the new system required new investment in distribution infrastructure construction. This construction was undertaken incrementally as new customers were added to the system over time.

Combined Heat and Power (CHP)

In 2003, DESP added a CHP biomass plant to its generation capacity. This plant uses wood waste from local sources—mostly tree trimming, diseased trees, parks, power lines, land clearing for new development, storm-related waste—as a feedstock (see chart). The project’s developers perceived several advantages to this type of generation system:

. Reduced emissions of GHGs.

. Local, renewable fuel increases energy security and independence and stimulates local economy.

. Technologies allow for improved efficiency through co-generation of heat and electricity.

DESP, a nonprofit corporation, did not have the necessary capital to develop the project. In order to raise funds, DESP created a for-profit branch called EverGreen Energy. EverGreen became a 50 percent owner of the new facility while the remaining 50 percent requirement was raised through investment by a private energy company and is currently controlled by Duke Energy, a publicly traded energy utility.

Public concern over the project impacts on local traffic presented the largest challenge. Delivery of fuel to the plant, which is located in downtown St. Paul, requires several daily deliveries by tractor-trailer. Public education about the benefits of biomass over fossil fuels was key to overcoming this challenge.

System Creation/Expansion

1970s

During the late 1970s, the price of fossil fuels, especially oil, experienced a period of high price and price volatility. Downtown building owners concerned with the uncertainty this created, began seeking a solution that would both improve operating costs and increase predictability. The presence of willing and motivated private customers was a driving factor in the establishment of DESP.

Competitive Advantage

At the time of the initial district hot water system construction, customer demand for heating services was driven primarily by desire for (in order of priority):

1. System reliability 2. Price predictability 3. Price competitiveness 4. Customer service

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 42 These factors favor a centralized system, which can be designed with backup capacity to increase reliability, hedge future fuel costs to increase the stability of prices, and operate more efficiently to reduce cost per unit of energy delivered.

Long-Term Service Commitment

Financing for the project was secured in the form of non-recourse revenue bonds, facilitated by the City through its Port Authority. The project was entirely debt financed. Thirty-year service contracts, guaranteeing demand for approximately 130 MW of thermal capacity, were required by the lending institution.

Photo Credit: District Energy St. Paul

The presence of a critical mass of customers willing to commit to 30-year service contracts was essential to securing the financing for system construction. These contracts played a pivotal role in permitting DESP to raise the requisite capital. In this case, well-informed and strategic customers were willing to assume much of the risk associated with district energy system construction.

System Details

Table 1 provides a general summary of DESP’s heating and cooling systems. In FY 2008, DESP’s total energy sales for heating reached 353,962 MWh. Heating capacity, at 289 MW, is supplied by two boilers natural gas/coal boilers, four natural gas/oil boilers, and one combined heat and power (CHP) biomass boiler. The system also includes back-up capacity boilers housed inside Regence Hospital and a mobile boiler. The transmission system consists of 212,000 total feet of piping ranging from 28” to 3/4” in diameter.

DESP had cooling sales in 2008 of over 33 million ton-hours of chilled water. Cooling capacity, at 33,000 tons of chilled water, is supplied by eight electric chillers, two steam absorption chillers, and a chilled water storage system. The transmission system consists of 71,000 feet of piping ranging from 30” to 3” in diameter.

Table 1: DESP System Specifications as of 2008 Heating Cooling Energy Sales 353,962 MWh 33,613,075 Th Capacity 289 MW 33,000 T chilled water Transmission 212,000 ft 71,000 ft

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 43 Photo Credit: District Energy St. Paul

Economic Performance

Table 2 summarizes DESP’s 2008 revenue and expense figures. Operating revenue from heating, including net demand and energy charges, reached $20.6 million. This represents 12.8% growth over 2007 operating revenue. Operating expenses from heating totaled $15.2 million, leaving net operating revenue of $5.4 million.

Operating revenue from cooling, including net demand and energy charges, reached $10.3 million in 2008. This represents 7.8% growth over 2007 operating revenue. Operating expenses from cooling totaled $5.6 million, leaving net operating revenue of $4.6 million.

Table 2: DESP Revenues and Expense Figures for FY 2008 (in millions) Heating Cooling

Operating Revenues $20.58 $10.28 Operating Expenses $15.17 $5.64 Net from Operations $5.41 $4.64

Customer Profiles Minnesota State Capitol Complex

The Minnesota State Capitol Complex is the single largest DESP customer. The Complex consists of thirteen state government buildings, including the State Capitol. The National Register of Historic Places added the State Capitol to its list in 1972. The architect, Cass Gilbert modeled the Capitol on Rome’s St. Peter’s Basilica.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 44 Photo Credit: District Energy St. Paul

The Complex has been a customer of DESP since its inception in the early 1980’s. The State of Minnesota purchased heat, but it was not until 2005 that the Complex connected to the district cooling system. Complex buildings all have heat exchanging equipment that transfers heating and cooling from the DESP distribution system.

The Lowry The Lowry Building is a historic building located in downtown St. Paul. Built in 1912, the twelve- story structure contains approximately 180,000 square feet of mixed residential and commercial space. The first two are comprised of commercial retail and office space while the upper ten floors are devoted to loft-style condominiums.

The Lowry underwent a major restoration in 2004, at which time it connected to the DESP heating and cooling systems. The building owner viewed connection to the system at this point as a simple, cost-effective alternative to stand-alone heating and cooling for the individual building.

Source for all images: District Energy St Paul website. Accessed: March 17, 2010. http://www.districtenergy.com/solutions/index.html

Information for this case study was provided by the International District Energy Association website and District Energy St Paul with special thanks to Anders Rydaker, President.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 45 Appendix 4: Nashville District Energy Case Study

Overview

Metro Nashville District Energy delivers steam and chilled water through a distribution system of more than 26,000 linear feet of piping to 40 municipal, state, and private buildings in downtown Nashville. These buildings total nearly 8 million square feet of real estate. District heating service is provided using four natural gas boilers located at one downtown plant. The system has a maximum design capacity of 260,000 pounds per hour of steam, about 81 MW. Committed customers use all of this capacity.

District cooling is provided using 9 electric chillers with a capacity of 23,400 tons (approximately 80 MW). Chilled water circulates at a rate of up to 42,000 gallons per minute with nearly 100 percent of the water returned and re-circulated.

Neighborhood

The Metro Nashville District Energy system boundaries include the high-density downtown core of Nashville. Connected buildings include the State Capitol campus, as well as a library, several high-rise hotels and offices, and the Nashville Convention Center. The generation plant is located approximately seven blocks south of the southern system boundary.

Ownership

Metro Nashville District Energy System (MNDES) was created in 2002 to take over and expand operations of Nashville Thermal Transfer Corporation (NTTC). The Metropolitan Government of Nashville & Davidson County (Metro Nashville) owns the physical infrastructure, including the generation plant, and outsources the operations to Constellation Energy, a private energy services company.

The system underwent substantial improvements during the ownership transfer. Metro Nashville provided all of the funding for these initial improvements: $66.7 million in revenue bonds in 2002; an additional $8.7 million in revenue bonds in 2005; and $2.8 million in general obligation bonds in 2007. All bonds are guaranteed by Metro Nashville.

History

Nashville Thermal Transfer Company began operations in 1974 as a waste-fueled steam and chilled water generation facility. Initial construction costs were $16.5 million, paid for by energy bonds. Nashville was the first city in the nation to operate a waste-fueled district heating and cooling system.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 46 Metro Nashville decided in 2001 to phase out the operation of this waste-fueled system, and move to natural gas for steam and cooling services. In 2002, a fire damaged the waste-receiving area forcing closure of the waste-fueled system earlier than had been planned. Natural gas was then substituted for waste, and the NTTC plant ran on natural gas until 2004. The new energy generation facility was fully operational in January 2004, at which time the NTTC plant was shut down and the land made available for redevelopment.

System Creation/Expansion Role of Local Government

Metro Nashville was the key driver of all of the system development and improvements. It provided all of the financing, continues to own the system assets, and oversees the operating service contract. The City of Nashville played a role in shaping the decision to convert the system to natural gas, and to connect city-owned buildings to the system during its initial creation. Metro Nashville also had the role in providing for solid waste disposal, which contributed to the initial decision to create a waste incinerator and opened the door for a steam heat and cooling service.

Demand

The State of Tennessee is the MNDES’s largest customer with 14 buildings connected to the system. Prices for both public and private customers are negotiated at a 10 percent discount below established market prices for in-building heating and cooling costs. All of the previous customers of the NTTC system continued under MNDES except for three smaller buildings, which had no impact on system viability or operation. All previous customers committed to an initial 15-year contract in order to allow Metro Nashville to issue bonds.

The new customers, all new facilities that were added to the system, were assured of both reduced initial capital outlay and long-term operational savings (approximately 10 percent) compared to operating their own energy system.

The upgrades were initially projected to save Metro Nashville more than $60 million in the first 10 years of operation, due to lower utility costs for municipal buildings. Metro Nashville is able to subsidize the 10 percent cost savings, acknowledging benefits to the city that include air quality improvements from moving away from trash as a fuel source, redevelopment potential from the former NTTC site, and reduced utility costs for municipal buildings.

Current marketing efforts have been halted because the system is expected to reach capacity as a result of commitments from future developments. No current plans currently exist to expand the system capacity or boundaries.

Catalysts for Improvements

Several factors played a role in making major investments in MNDES a reality:

• Metro Department of Health raised concerns about local air pollution. • Metro Division of Waste Management recognized the use of solid waste as a fuel source was not cost effective relative to other methods, such as waste diversion. • The NTTC system was aging and facing considerable maintenance costs in the near future. • A fire in the NTTC waste receiving plant necessitated a more rapid switch to natural gas. • Mayor Purcell’s “Clean, Green, Lean” Waste Management Plan emphasized switching from waste fuel to natural gas and was supported by the city council.

Incremental system improvements have been made as opportunities allowed. For example, in 2008 the Department of Public Works undertook a streetscape project for Deaderick Street.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 47 MNDES was notified and was able to complete several maintenance and improvement projects without negatively affecting the scheduled completion of the streetscape project. Opportunities to piggyback on other public works projects have presented considerable cost savings to MNDES.

System Details Linear feet of piping 26,000 ft

Buildings 40

Square feet of real estate Just under 8 million

Capacity – Heat 260,000 pph of steam (81MW)

Capacity – Cooling 23,400 tons of refrigeration (80MW)

*Heating conversion factor of 3.192 used to translate from pph of steam to MW. This conversion was actual conversion during 2008 operations as reported by Constellation Energy. Cooling conversion was estimated based on square feet of real estate and tons of refrigeration.

Economic Performance

The Metro Finance Department has reported that the system provides significant value. An audit reveals that the facility's value comes from declining subsidy and solid waste costs, combined with a more efficient energy source. FY08 Actual Cost FY09 Budget FY10 Budget Sub-total Operations $14,209,117 $16,896,700 $15,657,400 Sub-total Debt $5,410,975 $5,466,700 $5,315,100 Service Total Expenses $19,620,092 $22,363,400 $20,972,500 Linear feet of $17,953,792 $20,091,900 $18,488,100 piping

Total Metro Funding $2,193,075 $2,245,100 $2,460,400 *Costs may not add up exactly due to small costs incurred by Metro for oversight.

Load Information

In order to manage peak demand, a seasonal newsletter is sent to each customer with tips and best practices on saving energy. Efficiency improvements are aimed at reducing peak energy use among customers. Additionally, technical information regarding efficiencies of in-building pumps and heat exchangers are provided to all customers. See Appendix 4.B for load information.

Policy Considerations

The transition from NTTC to DES was made simple by the customer relationships already developed with the vast majority of prospective customers. No specific policy mechanisms were needed to force or incentivize customers, however, negotiating prices at a 10 percent discount to customers with Metro Nashville subsidizing the entire system provides a small financial incentive to each customer.

The DES does rely on nearly two-thirds of its revenues from state and municipal buildings. Additionally, Metro subsidies for debt service equal more than $2 million of general funds annually.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 48

Information for this case study was provided online at Metro Nashville’s website (www.nashville.gov/des/) and through the generosity of Metro Nashville staff Michael Bradly, Office of Finance, and Ken Fieth, Municipal Archivist.

Appendix 4.A: Timeline

1970 - Nashville Mayor Beverly Briley began studying the feasibility of building a plant that would address the city's solid waste disposal needs and recapture energy to heat and cool buildings in the downtown area.

1973 - The Nashville Thermal Transfer Corporation (NTTC), a nonprofit organization, was established to build, own, and operate the $16.5 million district energy system. Construction was financed by energy bonds.

1974 - The plant began operations in February, making Nashville the first city in the world to use solid waste as an energy source for both heating and cooling. The plant was capable of burning 1,000 tons of trash per day. The energy created by this waste-burning process was used to generate steam, which was then used to heat downtown buildings, or to produce chilled water to cool the buildings. 1976 - Electrostatic precipitators were installed to reduce air emissions at a cost of $8 million.

1984-1986 - The facility underwent a $36 million expansion, giving it the ability to generate electricity and expanding its capability to serve downtown heating and cooling customers.

1999 - The air pollution system was replaced with a combination baghouse-scrubber system to abide by new, stricter amendments to the Clean Air Act.

2001 - Despite several expansions and updates to improve operations and to increase its capacity during its 30-year life span, the NTTC struggled to meet pollution restrictions and to remain economically viable. Because of this, Metro Council voted in December to close the NTTC plant by 2004, and Mayor Bill Purcell announced plans to modify the DES from a solid waste-fired system to a fossil fuel system by 2004.

2002 - As part of the scheduled closing, the plant was to start fueling the facility with natural gas instead of trash by October 2002. This process was accelerated by a major fire on May 23, 2002, which immediately halted the burning of trash. The plant was back in operation only one business day after the fire, and continued to operate as a gas-fired facility, producing steam and chilled water as before. Mid-December 2003 - The new DES facility came online mid-December 2003 and was fully operational serving downtown customers in January 2004. The former NTTC facility was demolished to make way for riverfront development on the property which it had occupied for nearly three decades.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 49 Appendix 4.B: FY09 Annual Load Demand

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 50 Appendix 4.C: Images

The new district energy steam and plant has

a smaller footprint and more attractive facade relative to the old thermal plant. Photo Credit: Metro Nashville

System map for Nashville DES. Photo Credit: Metro Nashville

Old Nashville thermal plant in operation from 1974 to 2004. Photo Credit: Metro Nashville

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 51 Glossary

A ASHRAE—The American Society of Heating, Refrigerating and Air-Conditioning Engineers. ASHRAE sets the energy performance standards for buildings and building equipment which many jurisdictions in the United States uses as the basis for their energy code standards. ASHRAE’s stated mission is to advance technology to serve humanity and promote a sustainable world.

B BIOMASS—organic matter, usually plant material, which is grown or gathered to generate electricity or produce heat, often through incineration. Grassy crops, wood and waste wood products, forest residues (such as dead trees, branches and tree stumps), yard clippings, wood chips, and garbage are common elements used as biomass. See also ‘renewable energy’.

BIOMASS FACILITY—a facility that processes biomass in order to create energy or refine a product that can be used for energy. Facilities use a variety of conversion technologies that release the energy directly, in the form of heat or electricity, or convert it to another form, such as liquid biofuel or combustible biogas.

C ‘CAP AND TRADE’—SEE ‘EMISSIONS TRADING’.

CARBON CREDIT PROGRAMS AND “ADDITIONALITY”—additionality refers to the idea that some carbon emissions reductions will happen without policy intervention, and that in order to be paid “credits” for carbon reduction projects, recipients of these credits must demonstrate that the reductions are additional to those that might likely occur through the normal course of events. For example, the “additionality” achieved by payments to communities to halt their deforestation practices is often debated, because future deforestation is not sure to otherwise happen.

CARBON TAX—an environmental tax that is levied on the carbon content of fuels. A carbon tax is usually implemented by taxing the combustion of fossil fuels such as coal, products, and natural gas, in proportion to their carbon content. As a result, carbon taxing increases the competitiveness of non-carbon technologies and thus helps to protect the environment while raising revenues.

COMBINED HEAT AND POWER (CHP)—also known as cogeneration – is a way to increase the efficiency of power (electricity) plants and district energy (thermal) plants by combining them. Standard power plants are estimated to effectively use just 40 percent of the fuel they burn to produce electricity. Sixty percent of the fuel used in the electric production process ends up being rejected or "wasted" up the smokestack, as heat that could otherwise be used to heat buildings in a surrounding area through a district energy system. CHP plants are only possible when there is an area near the plant that has a need for the heat – a compact urban district, a college campus or an industrial development. More information is available at www.districtenergy.org/what-is-chp.

COMPLETE STREETS—are roadways that are designed and operated to enable safe, attractive, and comfortable access and travel for all users. A 'Complete Street’ is designed in such a way that pedestrians, bicyclists, motorists and public transport users of all ages and abilities are able to safely and comfortably move along and across a street through use of sidewalks, bike lanes, crosswalks and other features. Proponents claim that Complete Streets also create a sense of place and improve social interaction, while generally improving adjacent land values.

D DEEP-WATER COOLING—uses cold water pumped from the bottom of a water source as a heat sink for climate control systems. Because heat pump efficiency improves as the heat sink gets colder, deep water cooling can reduce the electrical demands of large cooling systems where it is available. It is similar in concept to modern geothermal sinks, but generally simpler to construct if a suitable water source is available.

DOMESTIC HOT WATER—water for interior commercial (non-industrial) and residential uses; includes tap water and other , and laundry water demands.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 52

E ECO-DISTRICT—is a neighborhood or district with a broad commitment to accelerate neighborhood- scale sustainability. Eco-districts are usually more innovative and committed to implementing sustainability measures than surrounding traditional neighborhoods.

ELECTRIC RESISTANCE HEAT—is a form of heat generation that uses resistance to generate heat. In electric heaters an electric current runs through a resistor which converts electrical energy into heat energy. Due to electricity generation and transmission losses, even with a 100% efficient electric heater, the amount of fuel needed for a given amount of heat is more than if the fuel was burned in a or boiler at the building being heated. A large portion of grid electricity around the world comes from coal and consequently there are efforts in some places such as Sweden to phase out this form of heat generation.

EMISSIONS—SEE ‘GREENHOUSE GAS EMISSIONS’ EMISSIONS TRADING (also known as cap and trade)—is a market-based approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants. An emissions trading system needs a central authority (usually a governmental body) to set a limit or cap on the amount of a pollutant that can be emitted. The cap is allocated or sold to firms in the form of emissions permits which represent the right to emit or discharge a specific volume of the specified pollutant. Firms are required to hold a number of permits (or credits) equivalent to their emissions. The total number of permits cannot exceed the cap, thereby limiting total emissions to that level. Firms that need to increase their emission permits must buy permits from those who require fewer permits and in such a way companies who can reduce emissions most cheaply will do so, achieving pollution reduction at the lowest cost to society.

ENERGY SERVICE COMPANY (acronym: ESCO or ESCo)—is a commercial business that provides a broad range of comprehensive energy solutions including designs and implementation of energy savings projects, energy conservation, energy infrastructure outsourcing, power generation and energy supply, and risk management. An ESCO performs an in-depth analysis of the property, designs an energy efficient solution, installs the required elements, and maintains the system to ensure energy savings during the payback period. The savings in energy costs is often used to pay back the capital investment of the project over a five- to twenty-year period, or is reinvested into the building to allow for capital upgrades that might otherwise not be feasible. The ESCO is often responsible to pay the difference if the project does not provide returns on the investment.

G GEOTHERMAL AND GROUND-SOURCE ENERGY—geothermal energy is power extracted from heat stored in the earth and involves drilling deep into the earth’s core to access consistent high temperatures. The term ‘geothermal’ is often used more broadly and somewhat inaccurately to include energy harvested from ground-source heat pumps. See ‘Heat pumps’ for an explanation of the differences between geothermal and ‘ground-source’ or ‘geo-exchange’ energy systems.

GREENHOUSE GAS (GHG) EMISSIONS—refers to the carbon, methane and other gases believed to be detrimental to air quality and to have long-term negative effects on climate, that are typically released when fossil fuels such as coal, natural gas or oil are combusted to create energy or heat.

GREEN POWER TAGS (also known as green tags, Renewable Energy Credits (REC), or Tradable Renewable Certificates)—are tradable, non-tangible energy commodities in the United States that represent proof that 1 megawatt-hour (MWh) of electricity was generated from an eligible renewable energy resource. Traditional carbon emissions trading programs promote low-carbon technologies by increasing the cost of emitting carbon whereas the green tag system incentivizes carbon-neutral renewable energy by providing production subsidies to electricity generated from renewable sources. It is important to note that a green tag is only a certificate that represents renewable energy use and the actual energy associated with a REC is sold separately and used by another party.

H HEAT PUMPS— are systems that tap the differential between ambient air temperature and the temperature of an adjacent source (such as ground or water) in order to provide heating or cooling. For example, a common use of a heat pump involves using the constant temperature of the ground to provide a base temperature for delivering heat to buildings. This approach is called 'ground-source' or 'geo-exchange' heating, and although not technically the same as ‘geothermal’ energy sources, which tap the high-temperature of the earth's core where it is readily accessible, the three terms tend to be used interchangeably for any heat pump system that taps into the ground. Heat pumps can also be used to capture waste heat sources from nearby liquids such as sewer systems or lakes (for cooling).

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 53 HYDRONIC HEATING—SEE ‘RADIANT HEATING’.

L LOAD(S)—refers to the aggregate demand for energy from a given customer base. Load estimates are used to size physical systems, and also to determine how much revenue will be generated from an energy system.

M MUNICIPAL BONDS— the two most common types of municipal bonds are general obligation bonds and revenue stream bonds. GENERAL OBLIGATION BONDS are a common type of municipal bond secured by a government's pledge to use its taxing power to repay bond holders. Bond holders have a right to compel the borrowing government to exercise this authority to satisfy the obligation. Because property owners are usually reluctant to risk losing their holding due to unpaid property tax bills, credit rating agencies often consider a general obligation pledge to have very strong credit quality and frequently assign them investment grade ratings. REVENUE BONDS are secured by project revenues such as tolls, charges or rents from the specific facility (e.g. road, bridge, airport, sewage treatment plant, district energy plant) that is built with the proceeds of the bond, and are often issued by special authorities created for that particular project.

P PLATFORM—a foundational layer of technology or services on top of which many different products can be built. Typically used in the computing and automobile industries, but in this case used to describe how the customer base that is aggregated for a district energy system can be used as the foundation for obtaining financing, upgrading energy plant technology and fuel sources over time, developing other green infrastructure projects in a district, and using the district’s collective purchasing power to negotiate “bulk deals” for owners to buy green power or purchase on-site renewable energy equipment.

R RADIANT HEATING— is a system by which "radiant energy" is emitted from a heat source and travels through a warm element to heat objects in a rather than heating the air. In many cases radiant heating systems are more efficient than heating. Radiant heating systems come in a variety forms including under-floor heating systems (can be electric or hydronic), wall heating systems, radiant ceiling (overhead) panels, and overhead gas fired radiant heaters.

RENEWABLE ENERGY— typically refers to energy which comes from natural resources such as sun, wind, tides, rivers and geothermal heat, which are naturally replenished. Biomass is also generally considered to be a ‘renewable’ fuel in the sense that new plant material can be re-grown to replace what has been harvested. It is also considered to be a low-emission fuel source to the extent that plants, as they grow, theoretically capture and sequester an amount of carbon that is equivalent to what is released into the atmosphere when they are combusted as fuel.

U UPZONE— policy change that increases the zoning capacity of a neighborhood.

URBAN VILLAGE— an urban planning concept referring to low- to medium-rise, mixed-use, compact traditional neighborhoods offering a high variety of businesses and services within a small area, that historically developed within walking distance of downtowns or were linked to downtowns by streetcars; the term is also applied today to new urban developments that try to incorporate the same characteristics.

UTILITY— often referred to as a ‘public utility’, is typically an organization that builds, operates and maintains an essential infrastructure service such as power, water, sewer or waste collection on a district- or city-wide basis. Utilities may be owned and operated by local government, by private companies, or by community cooperatives. A ‘utility service model’ or ‘utility customer model’ is a customer relationship whereby a customer pays for and receives such services from a utility provider (as opposed to providing it for themselves).

W WASTE HEAT— refers to the heat that is generated as a by-product of power generation or other industrial or manufacturing processes. Even sewer treatment plants and sewer pipes are sources of waste heat. ‘WASTE HEAT RECOVERY’ or ‘WASTE HEAT CAPTURE’ refers to the practice of capturing waste heat for productive uses instead of simply letting it dissipate into the air. Some district energy plants use waste heat as the source of thermal energy for heating their water.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 54 About the Authors

TOM OSDOBA, the director of the Center for Sustainable Business Practices at the Lundquist College of the University of Oregon, was formerly the director of sustainability at the City of Vancouver, BC, where he was responsible for creating the Southeast False Creek (Olympic Village) Neighborhood Energy Utility. He led efforts in Portland and Seattle to shape new policies and programs to support district energy system development, and is currently working as a consultant to Climate Solutions to help a handful of cities in the Pacific Northwest become pioneers in creating the policies and programs that can show other cities how to transform their energy systems. LIZ DUNN is the consulting director of the Seattle-based Preservation Green Lab, which was established with the mission to further the scientific understanding of the value of our existing building stock, develop and promote strategic policies for integrating the reuse and retrofitting of older and historic buildings into city and state sustainability efforts, and provide best practices in retrofitting older and historic buildings. Liz is also the principal of Dunn & Hobbes LLC , a Seattle-based developer of urban adaptive reuse projects.

HENDRIK VAN HEMERT is an MB A candidate (2011) in the Center for Sustainable Business Practice at the Lundquist College of Business at the University of Oregon. His primary areas of interest are energy efficiency finance and small scale renewable energy development. As a Graduate Research Fellow in the Center for Sustainable Business Practices, he assists small and medium sized communities transition to a new energy economy with a focus on reduced greenhouse gas emissions, increased energy security and increased economic development. Prior to pursuing his MBA, Hendrik worked in the office of then Anchorage Mayor, Matt Claman.

JAXON LOVE is an MBA candidate (2011) in the Center for Sustainable Business Practices at the Lundquist College of Business at University of Oregon. He is also President of the University of Oregon Net Impact chapter, a student group for advancing social and environmental change through business. Jaxon is pursuing a career in the electric and natural gas utility industry and has experience managing energy efficiency projects for Pacific Gas and Electric Company in California. Prior to beginning his MBA, Jaxon worked for EcoNorthwest, an economics consultancy, and served in the Peace Corps in Jordan.

Acknowledgements The authors wish to thank the following people for their contributions and peer review feedback: Stephen Antupit, Urban Strategies Designer, Mithun Chris Baber, Neighborhood Energy Utility (NEU) Project Manager, City of Vancouver Joel Banslaben, Sr. Sustainability Strategies Specialist, Green Building, Seattle Public Utilities Michael Bradley, Office of Finance, Metro Nashville Trent Berry, Partner, Compass Resource Management, Ltd. Jae Easterbrooks, VP Commercial Relationship Officer, ShoreBank Pacific Ken Fieth, Municipal Archivist, Metro Nashville Adrian Fine, Director, Center for State and Local Policy, National Trust for Historic Preservation Mark Frankel, Technical Director, New Buildings Institute Patrice Frey, Deputy Director of Sustainability, National Trust for Historic Preservation Lindsey Gael, Research Fellow, Preservation Green Lab Brian Geller, Sustainability Specialist, ZGF Architects Stan Gent, President/CEO, Seattle Steam Co. Hamilton Hazlehurst, Development Manager, Vulcan Inc. Jonathan Heller, Principal and Lead Engineer, Ecotope Consulting Hendrik van Hemert, MBA Student, University of Oregon Julia Levitt, Graduate Student in Real Estate, University of Washington Jaxon Love, MBA Student, University of Oregon Dave Ramslie, Sustainable Development Program Manager, City of Vancouver Anders Rydaker, President, Ever-Green Energy/ President, District Energy St. Paul Yianni Soumalias, Regulatory Affairs Advisor, Enwave Energy Corporation Mark Spurr, President, FVB Energy/ Legislative Director, International District Energy Association Jason Twill, Senior Project Manager, Sustainability, Vulcan Inc. Dennis Wilde, Principal, Gerding Edlen Development Royce Yeater, Director, Midwest Regional Office, National Trust for Historic Preservation

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 55 The work of the Preservation Green Lab would not be possible without the generous support of the following foundations and individuals: The Kresge Foundation Charles Evans Hughes Memorial Foundation City of Seattle Rockefeller Brothers Fund The Bullitt Foundation The Norcliffe Foundation Jessie Ball duPont Fund 4Culture David L. Klein Jr. Foundation Kevin Daniels Jonathan Rose John Goodfellow Ken Woodcock

About Preservation Green Lab (PGL): Launched in March of 2009, the Seattle-based Preservation Green Lab (PGL) was established with the mission to further the scientific understanding of the value of our existing building stock, develop and promote strategic policies for integrating the reuse and retrofitting of older and historic buildings into city and state sustainability efforts, and provide best practices in retrofitting older and historic buildings.

About the National Trust for Historic Preservation: The National Trust for Historic Preservation provides leadership, education, advocacy and resources to a national network of people, organizations and local communities committed to saving places, connecting us to our history and collectively shaping the future of America’s stories. For more information visit www.PreservationNation.org

About the University of Oregon, Center for Sustainable Business Practices: The Center, run through University of Oregon’s Lundquist College of Business, is aimed at building leaders who know how to balance social, environmental and financial responsibilities. The center promotes the Lundquist College of Business's research, teaching, and outreach activities in this vital area of inquiry. It is dedicated to preparing students by forging ties between curriculum, research, and practice.

THE ROLE OF DISTRICT ENERGY IN GREENING EXISTING NEIGHBORHOODS 56