Photo [manipulative] of what it could look like, with cooling tanks at Frederiksberg Utility

by Jakob Bjerregaard, Project Assistant - District Energy, Ramboll

SOCIETY'S STAKE IN DISTRICT COOLING

District cooling can often present the best business case to

building owners and tenants. But of equal importance, it can

offer a number of benef1ts to the surrounding community

locally and nationally.

District cooling (DC) is most often a more energy efficient

way of providing cooling than conventional central or single­

room air-conditioning, and thus it is a more resource efficient

solution. From an energy system perspective DC like district

heating (DH) can also provide a better background for the

implementation of renewable energy sources, solar and wind

in particular. It does so by offering to even out the demand

profile and enabling a more stable production.

Also the switch from central or single-room cooling solutions

to DC can smoothen the demand curve of electricity. As with

DH this is done through the use of energy storages, but also

the demand profiles are aggregated, which allows for a more

steady production. Moreover, the cooling needs not come

from an electricity dense production, but can make use of

free cooling, such as rivers and lakes, or surplus heat through

absorption chillers. In that case the demand for electricity in

the process is significantly reduced.

So, if DC is desirable, and we agree as well that cooling as a

service is needed, why is it then still so underdeveloped and

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isolated in a few places around the globe- even in countries

famous for their DH?

The answers may lie for a large part, with challenges common

with DH services. It requires large up-front long term

investment, a stable policy framework, and collaboration

between va rious stakeholders.

DC is a capital intensive business, just as DH, and thus the

barrier of financing is ever present. The required investment

in a network to supply the chilled water to the end-consumer

is relatively large. For a given amount of energy the DC pipes

are also much bigger than an equivalent pipe for distributing

heat as hot water The capital intensive issue makes DC not the

preferred business for many investors.

The lack of a stable policy framework (or the lack of a policy

framework at all). furthermore increases insecurity and makes

a sound f1nancing diff1cult. The lack of framework makes

interested companies, e.g. an established DH company, abstain

from taking initiatives in establishing DC schemes. Creating

a DC scheme ultimately means laying pipes on private and

public ground, and it wou ld benef1t from a clear set of rules

on how to gain access to laying pipes and wh ich cond itions the

investment is subject to.

www.dbdh.dk

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) SOCIETY'S STAKE IN DISTRICT COOLING

This also leads to the next point of collaboration between

stakeholders, it is often seen to be difficult for different

business and developers to work together and share risks. The

result is often bilateral agreements leading to small schemes

with only one or a few actors involved.

The result is potentially an unregulated market in which a

number of small schemes is scattered throughout a city

This can be a good baseline for connecting the DC "islands"

and establishing a citywide network, but in many cases the

technical specifications of each network system differ, making

an efficient city wide scheme difficult.

Even when citywide DC systems do emerge in an unregulated

environment, the result is a monopoly for fwst movers, which

may be desirable for the fwst mover but not necessarily for the

users and the community

To avoid a situation where the DC market is either characterized

by a number of small islands or a monopoly taking advantage of

the situation, the DC market could learn from other energy

markets such as the electricity market, and separate the

process in different business entities.

This is not naturally bound to happen, as e.g. transmission

capacity only serves as a service and market place. It may

either generate no revenue for the service or take advantage

of controlling the monopolized marketplace with the benef1ts

that follows. These market distortions are also likely to happen

if there is only one producer, or for that matter in a monopsony

with only one consumer.

Besides the monopoly challenges, the history of DH and DC

systems bears evidence that the scale of and return on the

investment make both the funding and the organizational setup

very important when considering a scheme. And the market

driven approach often shows a limitations in the development

and expansion of both DH and DC schemes.

So how do we go about creating a market place for cooling

services that secures a distribution of the benef1ts

between the parties; producers, consumers and facilitators

(distribution)?

The typical delivery of a scheme or system can be divided into

three main areas for boundaries of services:

Production

Distribution

End- user connections

In smaller schemes all three are often incorporated in one

supply and operational company whereas for larger schemes

the production is often separate. The distribution company

then buys heat or chilled water from the production company

to sell on to its customers. The responsibility of the end­

user connections often finishes with the individual dwelling

HOTICOOL

boundary, and the interface unit is the responsibility of the

end-user just as an individual gas boiler wou ld be.

If we investigate the lesson learnt from DH in Denmark, it is

based on a number of principles, which has been crucia l for its

success.

Central planning in the late 1970es was the one initiative

that kick-started the further expansion of DH in Denmark.

At that time the market share of DH was app. 30 % of the

heat demand. It highlighted the potential by laying out areas

dedicated for DH only. But at the same time set the boundaries

for DH expansion and where natural gas for individual boilers

was to be provided.

Production and distribution were set up as non-prof1t

organisations publicly or cooperatively owned. The setup

ensured that any prof1ts wou ld be paid back in terms of

improvements to the system or though reduced heating

charges, but it has also prevented accumulation of capital

which made all investments debt f1nanced.

Last but not least all changes and expansions of the DH

schemes had to be evaluated based on socio-, company- and

user economic principles to ensure that the solutions were

good, not only for business, but for the customers and society

as we ll.

The effect of these principles has been instant expansion of

DH with solid economic ground, which proved a success for

society, DH companies and the users. In the case of Denmark,

DH has been vital in decoupling economic growth and C02

emissions and in general the transition to renewable energy

sources and urban air quality.

These advances have not come without a cost. Consumers are

locked into their heat provider. Some schemes have proved

uneconomically despite the preparatory work. Capitals for

future investments have not been accumulated.

The consumer lock-in is a trait of collective solutions, which

cannot be solved, as competing collective solutions would

cannibalize each other and remove the benef1ts. But it is also only

a disadvantage, when the collective solution is not optimized.

Uneconomical schemes have often related to a reliance on a

single fuel, where prices have grown disproportionally, whereas

the lack of equity and venture capital has resulted in lack of

expansion of schemes and, at least in Denmark, in a lack of

investments in e.g. DC.

The consequence of that is not only for users not getting

access to cheap cooling or heating, but also for society failing

to reap the benef1ts of converting to more clean and efficient

form of cooling.

"?ENERGY AND ENVIRONMENT

Therefore separation of production and distribution is needed,

as mentioned earlier. The distribution could be owned by the

stakeholders, to avoid the powers of the monopoly belonging to

a private company. We also need to ensure third party access

for producers to the network - this will ensure competitive

energy prices and minimize the risk of uneconomical schemes.

Capital needs to be accumulated in distribution companies in

order to secure the development of the schemes. But until

capital is accumulated, local authorities should guarantee

loans, as well as highlight the potential of DC in road maps and

the like.

expansion of district heating and cooling, by committing

member states to assess the potential and take initiative

for the execution. These initiatives have to ensure the right

market conditions. If they do, district cooling can become a

very important tool for delivering on national energy efficiency,

C02 emission and renewable energy.

0 For further information please contact:

Ramboll

Att.: Jakob Bjerregaard

Hannesmanns Aile 53

DK-2300 Copenhagen S

Phone: +45 51615677

jakb@ramboll.com

wwwramboll.com/energy Now, why should authorities get involved

in the project? The thing at stake is

whether the result wi ll be schemes for

the good of the local community, in terms

of cheap, sustainable energy contributing

to the stability of the energy systems

and helping to achieve local climate

ambitions. Or if it is going to be a cash

heaven for the fwst mover capitalizing on

the lack of energy regulation or rather

lack of consumer protection, possibly

with the effect of further destabilizing

the electricity market due t o demand

peaks on electricity driven cooling.

MAKING MODERN LIVING POSSIBLE

The delivery and operating company seen

within DH is frequently referred to as an

Energy Services Company (ESCO]. There

are a number of models that can be

identified which can be used to establish

an ESCO. Each of these models has been

driven by Local Authority leadership,

influenced by specific local priorities, and

constrained by policies governing the

apportionment of risk and public sector

borrowing.

It is here important to point out that

Ramboll is not familiar with any DH

scheme (in the world] that has not had

invo lvement by a local authority at some

leve l in its delivery.

Therefore the recommendation is for

authorities to get involved in the DC

market. Not by subsidizing the core

business but by setting a framework

that allows for financing of the

infrastructures, building a strong market

with third party access and ensures

the socio-economic optimization of

solutions.

The newly adopted European Energy

Efficiency Directive paves the way for

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