The POWER Interview: District Energy Embraces Innovation

District energy systems are evolving across the power generation sector. Downtown business districts, college and university campuses, hospitals and healthcare facilities, airports, military bases and more are utilizing these systems to create economies of scale that reduce energy costs, and promote energy efficiency.

These systems, used to provide power, hot water, heating, air conditioning and more, are growing in importance as commercial and industrial enterprises seek better reliability and resiliency for their critical operations. Innovations, enabling the use of high-efficiency equipment, are transforming technologies such as combined heat and power (CHP) and HVAC (heating, ventilation, air conditioning).

Rob Thornton is president and CEO of the International District Energy Association (IDEA), a role he has held since 2000. IDEA was formed in 1909 as the National District Heating Association, and today represents nearly 3,000 members from 28 countries involved in design, operation, and optimization of highly-efficient district heating, district cooling, and CHP and microgrid systems in cities, communities, at business complexes, and on college campuses.

Thornton, in San Francisco, California, over the next week for IDEA’s CampusEnergy2024 conference, said the district energy sector “is experiencing an exciting period of innovation, integration and investment,” with systems serving cities, communities and campuses provide mission-critical heating and cooling services to connected customer buildings 24/7 year-round. He added, “By aggregating the heating/cooling needs of dozens or even hundreds of buildings, district energy systems create economies of scale to enable investment in highly efficient, lower-carbon technologies that may not otherwise be competitive on an individual building basis.”

Thornton provided POWER with insight into the district energy landscape ahead of the CampusEnergy2024 event.

POWER: What are some of the technologies being used today in C&I power systems?

Thornton: Many systems are integrating renewable power (on-site generation or through power-purchase agreements) and actively exploring solutions like energy recovery, geo-exchange, electric boilers and renewable fuels and transitional fuels like hydrogen.  As the electricity grid integrates more renewable power, many district energy systems on the wholesale electricity market will be able to leverage cleaner power, convert it to useful thermal energy and help customers avoid the uncertainty and risks of HVAC conversions and exposure to exorbitant real-time power costs.

POWER: What groups represent customers for commercial and industrial power systems? Are there customer groups not yet represented that should be targeted?

Thornton: There are over 900 operating district energy systems across North America.  Virtually every major U.S. and Canadian city has a district energy system serving buildings downtown, including locations like Washington, D.C., New York City, Boston, Philadelphia, San Francisco, Houston, Toronto, Vancouver, and many, many more.

Most public and private college and university campuses use a district energy system for heating and cooling campus buildings, and often generate on-site to increase overall efficiency and enhance reliability and resiliency.  Many large institutional systems often serve a contiguous medical, healthcare or research campus, so mission-critical reliability and resilience are of paramount importance.

We are seeing more and more deployment of district energy systems in industrial, manufacturing and clustered campus settings.  For instance, Microsoft headquarters campus in downtown Seattle harvests the heat from a contiguous data center to heat three adjacent buildings. Apple, Google and other high-tech firms have embraced district energy infrastructure for office and research spaces for over a decade and have turned to harvesting huge amounts of heat from data centers around the globe to supply adjacent district heating networks, converting cost centers into useful and productive sources of community energy supply.

We are seeing across New York state a growing interest in deployment of geo-exchange district energy for communities, clusters and new development. Laws in New York have created opportunities for electric and gas utilities to build, own and operate district thermal systems.  There is strong awareness that customer aggregation enables lower carbon solutions at scale.  As state and local policies curtail growth of natural gas, it will be important to create new opportunities for a skilled utility workforce. We are also seeing rise in deployment of district energy for new residential clusters and edge cities, utilizing private partnering strategies to more effectively allocate roles, responsibilities and risks.

POWER: Is there still a market for thermal-based C&I power systems?

Thornton: One of the problems for thermal-based power systems historically has been the sole focus on power production, often dumping huge volumes of useful heat into rivers, bays and oceans.  One power plant in Massachusetts, once the largest generating station in New England at over 1,500 MW and now demolished and gone, released an average of 34.7 trillion BTUs per year into Narragansett Bay.

That heat, if captured in a district heating network for distribution to customers, would have a present-day value of nearly $400 million per year. Consider that added revenue over a 50-year life. How many businesses can throw away 66% of their product, forego $20 billion and remain viable?  Recognizing and monetizing heat will be critically important for thermal-based systems to compete going forward.

In many markets, CHP still provides the lowest, dispatchable source of power and heat on a basis of marginal carbon intensity.  While the grid is getting greener, on an 8760 basis (a method for representing variable generation), and particularly during extreme summer heat or intense winter cold, the power from local CHP can be extremely valuable, especially in constrained distribution grids.  Harvesting heat to create more value will be important as carbon restrictions also come into play.

POWER: What are the trends that will shape the C&I power market over the next few years?

Thornton: Reliability and resilience will never go out of fashion and will always be a fundamental requirement. With increased frequency and severity of weather events causing greater societal and economic disruption, distributed generation resources will likely grow in value and importance. We know that electricity is vital to a functioning community and local economy, but thermal energy (heating and cooling) often represents more than 50% of annual energy usage per capita and has emerged as a critical area of focus for utilities, governments and industry.  A principal focus across most sectors and regions is to accelerate decarbonization of both sources and uses of energy.

For instance, around the globe, innovators, governments and savvy investors are recognizing that a robust district energy system serving a city or campus can not only curtail demand on an aging, overtaxed electricity grid, but also reduce concomitant risks from urban heat island effects or global vortex during intensifying seasonal temperatures. District energy systems facilitate utilization of local and renewable energy resources while also enabling cross-sector integration and optimization.

Across most segments of the market, expectations from the energy transition will still involve uninterrupted or in the least, highly resilient energy services that also aggressively pursue carbon reductions. The winners in this race will be able to produce the most useful energy, with the lowest carbon intensity and least waste, that also conserves water and generates local economic growth at the lowest annualized lifecycle cost.

This will not be easy, and simply “electrifying everything” is not a real strategy.  It will require innovation and investment across a range of technologies, including heating, cooling and process uses.

POWER: What role should government play in supporting C&I power systems? Are there goals beyond decarbonization?

Thornton: In my view, a productive role of government on a state, provincial or local level is to support private investment in more efficient energy infrastructure by helping to assemble markets and mitigate capital risk through thoughtful, longer duration policies. Capital markets abhor uncertainty and will price risk into investments. As a result, some technologies remain dormant or wait on the sidelines while status quo or business as usual rules the day.  Today, shifts in political majorities can swing policy pendulums fiercely.

Many cities are now rightly regulating efficiency, water and carbon emissions performance reporting for larger buildings. But I have concerns that overly prescriptive policy solutions focused on single buildings may overlook or prevent more productive holistic solutions such as district energy, leading to unintended consequences like unrecoverable HVAC capital and massive tenant disruption and migration.  Fortunately, the district energy industry has never relied substantially on tax or policy mechanisms to drive growth.  I think the investor community and our primary markets understand that our sector competes fundamentally and effectively on delivering value and benefits to multiple levels of stakeholders.

On a federal level, we are pleased to see the flexibility and opportunities from (the Biden administration) through the Inflation Reduction Act and the Infrastructure Investment and Jobs Act of 2021. We have some concerns that policy details currently under review do not result in over-reliance on electricity-only solutions and still enable opportunities to leverage low-carbon thermal energy from local resources.

IDEA values agency support from the U.S. Department of Energy (DOE) and we are releasing a Best Practices Report on District Energy/CHP from a three-year cooperative agreement with the DOE, available on our website.

On a global level, I recently participated in COP28 in Dubai, where IDEA and our host member Empower curated a Global District Cooling Summit showcasing the value of large chilled water networks for cities, communities and campuses. Over 60 nations signed onto a Global Cooling Pledge organized by the U.N. Cool Coalition and COP28 Chair to encourage deployment of more efficient cooling systems for global environmental and health reasons.

And for the first time in 28 sessions, COP negotiations resulted in a commitment that “signals the ‘beginning of the end’ of the fossil fuel era by laying the ground for a swift, just and equitable transition, underpinned by deep emissions cuts and scaled-up finance.” While multinational commitments set the stage, the important work of action lies ahead.  As Shakespeare cautioned, now is not the time to merely strut and fret upon the stage, full of sound and fury, signifying nothing …  now is a time for actors to act.

—Darrell Proctor is a senior associate editor for POWER (@POWERmagazine).