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Volume XII, Number 18


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Here’s an Energy Idea More Municipal Leaders Need to Consider

Municipal leaders, both first-termers and seasoned incumbents, are reviewing energy usage by and within their municipalities. The buck often starts and stops with using CFL light bulbs, installing LED traffic lights, and adding insulation. Here’s one idea that more municipal leaders need to consider.

It’s a new year. And in 2014, the mission for municipal leaders remains the same: to deliver services efficiently, to promote community investment, and to secure their respective community’s future. Energy opportunities offer a significant chance to accomplish many of these goals. To maximize their opportunities in the energy sector, municipal officials must solve problems creatively, build consensus among stakeholders, and provide bold leadership for their communities. One energy idea that municipal leaders need to consider is district energy.

What is District Energy?

In a nutshell, district energy systems provide heat (through steam or hot water) or air conditioning (through chilled water) from a central plant to buildings connected on a loop system that transfers the thermal properties of the loop (either heat or cold) to those buildings. Common installations of district energy systems occur in downtowns, college or university campuses, hospitals and other developments or redevelopments with sufficient density or energy load to support the system.

District Energy Delivers Heating and Cooling Services Efficiently

A district energy system can greatly increase efficiency in the delivery of heating and/or cooling services to a downtown area. Paired with combined heat and power (CHP or co-generation) technologies, district energy can boost efficiencies into the 80 percent range – far above traditional power plants, which are closer to 30 percent in their efficiency. 

District Energy Promotes Economic Development

Every municipal official is eager to attract investment to his or her community, especially when it comes to revitalizing downtown areas and supporting existing businesses. Being a magnet for investment helps the community maintain and strengthen its vitality. Infrastructure has long been a major concern that businesses consider when reviewing whether to expand or relocate their operations. With a well-operated district energy system, the municipality can ensure that this element of the infrastructure puzzle will not be a reason businesses decide to locate, or worse relocate, elsewhere.

Too often, municipal leaders do not grasp the connection between energy and municipalities. Andy Wales, Sustainable Development Officer for brewing giant SABMiller, asserted in a November 2011 interview that municipalities may not always be on the cutting edge of energy issues. Wales identified three main challenges to solving problems with the energy/water/food security nexus. Municipalities play a leading role in two of the three challenges. Wales stated that solutions “can only really be achieved if you get a number of different companies, owners and municipalities involved.” 

To get involved and lay the foundation for a community’s vibrant energy future, municipal leaders need to understand the economic importance of energy issues. Municipal leaders seizing the district energy opportunity can capture these energy dollars. By building a central plant and related infrastructure – essentially establishing a thermal utility – the municipality can bring the initial investment to its own local economy and can market local energy control to prospective businesses. A recently announced transaction demonstrates the value of these thermal utilities – a downtown district energy system in Omaha, Nebraska, was sold debt-free for $120 Million in cash.

Multiple strategies to finance district energy systems exist. These strategies range from straight revenue bond financing to tax increment financing to new markets tax credits to public-private partnerships, such as that identified by the City of Seattle.

Energy Independence Can Start Locally

When a municipal official actively takes the reins on his or her community’s energy infrastructure, that official is securing the community’s energy future. If disaster strikes and the traditional electric grid fails, the local government has the ability to stay open to serve its residents through district energy, especially when paired with CHP.

In the aftermath of Hurricane Irene, some businesses in Connecticut were able to keep the power on because they had taken control of their energy supply. The same is true for business caught in Superstorm Sandy.

This type of energy supply control can also help to reignite interest and investment in areas challenged for economic development, like a downtown business district. While district energy and other clean energy strategies boost efficiency and economic development over the long run, they also support energy independence.

District Energy Systems Are Sustainable

District energy systems provide significant sustainability benefits. The systems deliver sustainability benefits from both a fiscal perspective and an environmental standpoint. Connected building owners pay rates, just as with any utility, to support the overall system. These rates are typically competitive with traditional electric and gas utility rates, especially when considering life-cycle costs associated with on-site infrastructure.

Environmentally, the systems operate at a high efficiency, can integrate renewables and other clean energy sources, and allow greater control of emissions. The high efficiency of the systems makes better use of available resources and lowers overall emissions because less fuel is needed to meet the energy output required. The fuel flexibility of the systems allows fuel switching and the integration of renewables. Greater renewable energy inputs mean fewer emissions and better overall environmental sustainability.

Finally, the systems eliminate the need for each building to produce energy for heating and cooling. This greatly reduces if not eliminates building-by-building emissions. Instead, one central source generates the thermal energy needed for connected buildings and allows greater control over emissions than is possible with multiple buildings each emitting individually. Because district energy systems operate at high efficiencies (check outthis video to learn about a system that recently achieved 87% efficiency), more usable energy and fewer emissions are produced for each unit of input fuel.

District Energy Systems Provide Fuel Flexibility

Fuel sources vary from fossil fuels such as coal or natural gas to biomass systems such as those used by Seattle Steam Company. Solar thermal and wind have also been integrated into district energy systems. Geothermal systems are also gaining ground. In fact, Ball State University in Muncie, Indiana, installed the largest geothermal district energy system in the United States. Jim Lowe, Ball State’s Director of Engineering, Construction, and Operations, told Contractor Magazine that the energy system is projected to save the school $2 million per year in energy costs.

District energy systems have existed for over a century. Over 700 systems currently operate across the United States, and the systems exist in every state. As municipalities discover district energy and recognize the opportunity it presents, more and more systems are being planned.

District energy isn’t just for mega-cities or mega-systems. District energy systems are scalable, and can be developed for specific areas such as a downtown district. The City of Richmond, British Columbia, established a district energy utility in November 2010 targeting strategic areas within the city. The initial phase of the district energy system is projected to cost C$3 million and operational costs are projected at only C$80,000 per year at full capacity. The system started operation in late 2012.

A district energy system’s efficiency can also have secondary benefits for ancillary municipal services. For example, if a city is paying substantial sums for solid waste disposal, it can consider a waste-to-energy facility using municipal solid waste to power the district energy system and offset those costs. Also, with the potential for reduced energy costs from a district energy system beyond what other energy efficiency measures have brought, a community may save even more money on its energy bills.

Consider a Hypothetical Example

A municipality engages in negotiations for a new hotel in its downtown and wants to upgrade and revitalize its downtown. By locating a central plant downtown to serve the hotel, the municipality provides a source of heating and cooling for the hotel to which other downtown buildings can connect. The district energy system benefits the hotel and other downtown buildings by freeing up space otherwise used for air conditioners, boilers, stacks, and other infrastructure typically associated with on-site heating and cooling systems. Without the need for on-site infrastructure, building owners can make better and more efficient use of space, including roof space, formerly occupied by boilers, stacks and air conditioners.

The downtown district energy system provides additional, corollary benefits. The absence of stacks, air conditioners and other visible heating and cooling infrastructure promotes a more aesthetically appealing downtown. Better aesthetics leads to more businesses locating downtown. Centralized emissions, paired with greater control over those emissions and with more efficient thermal generation, lowers total overall emissions. Lower emissions promote better health and lead to greater economic benefits. More benefits accrue to the municipality when the scope of analysis widens to the greater downtown.

As the municipality connects other downtown buildings to the district energy system, the fiscal, aesthetic and air quality benefits all increase. Additionally, the municipality can connect its own buildings to the system and save money on its energy bills. Look at any municipality’s energy bill – the dollars spent on energy are significant. With district energy, that money can stay in the community. Combined heat and power might also be an option that the municipality could use to offset its electrical needs from the local electric utility (and perhaps even establish a microgrid).

The Next Step Happens Now

Municipal leaders have the opportunity to make and save money, attract economic development, provide environmental benefits and build energy independence by implementing district energy systems. There are myriad ways to bring energy projects to fruition, but one thing is true for all of them: they require municipal leaders with vision and tenacity. The question is, “Which municipal leaders are bold enough to seize the district energy opportunity and secure the energy future of their communities?”

©2022 All Rights Reserved. Lewis Roca Rothgerber LLPNational Law Review, Volume IV, Number 7

About this Author

Dave McGimpsey, Lewis and Roca Law Firm, Energy Attorney
Special Counsel

Dave McGimpsey represents utility, energy, government, and private clients in regulatory and transactional matters. His core practice includes representing energy and water/wastewater utilities in regulating proceeding and transactional matters. He has been involved in over 1,700 MW of renewable energy development and has counseled energy clients on a wide spectrum of issues including tariff matters, regulatory proceedings, and other transactional matters. Dave has lead counsel experience in rate, financing, service area certification, asset transfer cases, and other regulatory...