By Drew Pierson
In several cases this semester, our class touched upon the importance of utility infrastructure in shaping the development of cities. From supporting industry and residential neighborhoods to generating value for owners in the form of utility rates, its clear that utility infrastructure serves a foundational role in advancing the sustainability and basic functionality of cities. Yet, while we’ve focused on the individual building, citywide, and regional scales, our class has paid less attention to one emerging niche of utility service provision: district energy systems.
“District energy” (DE) is a general term for self-sufficient heating, cooling, and electricity networks built to serve multiple buildings. In contrast to individual building level or city-wide systems, DE serves customers on a campus, neighborhood, or block-by-block scale through a central power source and network of shared distribution infrastructure. While some DE systems are built as an improvement to existing building stock, many are planned as components of greenfield developments with the expressed purpose of allowing further expansion as adjacent buildings make necessary retrofits and/or come online.
Image courtesy of NRG Thermal
In comparison to traditional large scale utilities, DE systems hold several advantages. First, DE can reduce risk and increase flexibility for customers by (i) reducing exposure to fluctuating fuel prices through improved energy efficiency and (ii) by allowing fuel switching in the event certain resources provide favorable price hedges. This “fuel switching” capability may give customers an opportunity to improve environmental performance as well, given DE’s frequent use of low-carbon resources such as waste heat, biomass, and geothermal power. Second, DE systems provide a high quality of service and reliability through their “stand-alone” status and independence from the larger electricity grid. This may be particularly important during times when catastrophic events or routine power outages pose major disruptions to traditional electricity services. Lastly, many DE providers have adopted business models that reduce first and lifecycle costs for customers; making this approach an increasingly attractive proposition for customers unsure about investing significant personal capital in the system. In this case, a managing district energy utility company pays upfront capital costs and recovers them from users through a specially-designed, ongoing rate. This approach stems from the fact that utilities typically face longer investment horizons and can design rates commensurate with asset life and risk.
Given the level of collective action required to put DE systems in place, however, the approach does face several challenges at the start-up stage. First, the “lumpy” nature of DE development can make it difficult to stage capital in ways that minimize carrying costs prior to securing customer revenues. Second, uncertainty around customer capture and retention may jeopardize the economies of scale needed to build the system and address investment risk. Third, DE barriers to entry exist in markets where significant coordination among land use and infrastructure planning is required to (i) reduce implementation risk, (ii) secure energy production sites, and (iii) take advantage of energy resources, such as waste heat, that require specific locational needs to be met.
Given DE’s long history and increasing market relevance, however, I anticipate that the approach will grow in popularity as concerns over climate change, fuel price volatility, and energy security continue to motivate cities to invest in alternative utility models.
 District Energy Partnership: http://www.districtenergypartnership.com/da-DK/DISTRICT-ENERGY/WHAT-IS-DISTRICT-ENERGY.aspx
 District Energy benefits taken from Revelstoke Community Energy Corporation: District Energy Backgrounder; a 2010 report by Compass Resource Management. It can be accessed at: http://revelstokecep.weebly.com/uploads/2/8/6/5/2865906/revelstoke_district_energy_backgrounder_final.pdf