District Energy: A Pathway to More Sustainable, Self-Reliant Cities?

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.[1] 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.[2]

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.[3] 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.

[2] 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


4 thoughts on “District Energy: A Pathway to More Sustainable, Self-Reliant Cities?

  1. Drew,

    Another interesting take on your idea is what Chicago and the BOMA (Building Owners and Managers Association of Chicago) is doing to coordinate energy usage. “The experiment, which will begin this year with 40 of the association’s more than 260 buildings, will not only help cut energy usage and costs, it will eventually allow owners to renegotiate the agreements they sometimes make to curtail energy use at strategic times.” While they aren’t using coordinated utilities, they are using their collective power to help coordinate responses in reducing their demand, and also are sharing their energy usage information together to help save energy and best practices. It is an interesting take that is a 3rd party group that doesn’t benefit monetarily, only benefitting it’s members, but given that it is a member driven organization, it is a way that building owners can use their collective power to help each other but also help themselves save money and energy.


  2. By John Macomber

    It’s an ironic omission from the material since both Harvard and MIT have combined cycle district electric/steam facilities. For entities with multiple buildings (and cash and good engineers) both the scale and the technology make a lot of sense. Horizontal distribution from city-owned or utility-owned mega-plants maybe be harder and harder to justify, and make district facilities more competitive.


    • By Anonymous

      While the DE systems are at a scale of several buildings together, I couldn’t help but be reminded about the generator business post Hurricane Sandy and Irene. [1] Due to poor infrastructure and overland power lines, many households frequently lose power during hurricanes, snow storms or even regular summer thunder storms. In the spirit of resilience and adaptation, more households now turn to a personal generator in order to ensure the iPhone is always charged.

      Aside from the environmental impacts of personalized diesel generators, I am most concerned with the impact such adaptation has on the community will to invest in better infrastructure long-term. If I have my own generator that supports my home during a storm, why would I want to spend my tax dollars on better management and routing of electricity flows that would minimize the number of power outages or on below ground power lines that would eliminate many outages from downed trees? Encouraging collective action on cleaner energy generation becomes much more difficult if the generation market is fragmented and isolated at the generator or DE level.

      For a DE system what dimensions would you recommend for a cluster of buildings? A small city? A neighborhood? One side of the street? One office park? What about the DE system compared to a centrally operated electricity system that can transport power with no transmission loss? What trade-offs are we making between those two hypothetical worlds?

      [1] See for example: New York Times, The Generator Is the Machine of the Moment; Huffington Post, Amazon’s Sales Of Gas Cans, Generators Soar After Hurricane Sandy

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