District Heating and Distributed Energy Practical Experience Relevant

District Heating and Distributed Energy: Practical Experience Relevant to Northeast Asia Security William Chandler Laboratory Fellow Battelle Memorial Institute Pacific Northwest National Laboratory 1

Outline • Technology of rehabilitation • Economics of upgrading • “Financial engineering” of projects • New solutions 2

Why “District Energy” Matters Matter of survival in cold climate Large share of heating (70 % in Russia) Financial burden on governments and individuals Politically sensitive l l l Consumer cost Stranded assets Economic efficiency 3

Centers Created: Russia, Poland, Ukraine, Czech Republic, China, Bulgaria Functions • Policy reform • Technology transfer • Demonstration • Public information 4

Improvements to CHP “Nothing needs reforming quite so much as other people’s bad habits. ” -- Mark Twain Before After 5

Details of the Deal Integrated Utility System Back Pressure Steam High Turbine Pressure Steam Heat Recovery Steam Generators Exhaust Heat Electric Power Steam Driven Chillers Heating Steam Chilled Water Electric Power Fuel Gas or Oil PEPCO Combustion Turbines Electric Power Heating Steam Boilers UMCP Campus Buildings 6

Results • $71 M in improvements • Energy use cut by 1/3 • $120 M Savings • Low cost, off-balance sheet financing 7

Typical Problems of District Energy: Financial Burden on Governments Pensioners protest “monetization” of utilities and other benefits, St. Petersburg, 17 January 2005 (Photo: A. Maltsev, Sipa Press, via MSNBC) 8

Russian Government Interest in Energy Management is Cost-Driven 1. Water and heat for public buildings cost $5 billion in federal subsidies, or 6 percent of budget 2. Savings of 30 percent could readily be obtained. 3. Subsidies to pensioners cost another 5 percent of GDP. - The U. S. and Russian governments have an agreement to cooperate on “Federal Energy Management” 9

Typical Problems of District Energy: Low Thermal Integrity of Buildings 10

Typical Problems of District Energy: Low Thermal Integrity of Buildings • Shortage of funds to pay for heat services • Poor quality of heat supply • Lack of heat meters • Poor building insulation and maintenance • Lack of qualified personnel • Lack of financing to improve facilities’ energy efficiency 11

Typical Problems of District Energy Aging Equipment, Poor Maintenance 12

Major Problems of Heat Supply: Boilers Lack of financing and low fuel stocks Shortened heat supply season and lowered temperatures Absence of fuel and heat metering Shortage of qualified boiler personnel 13

Major Problems of Heat Supply Networks: Pipeline Maintenance Wear, failures, leaks, broken insulation, inefficient pumps, old heat exchangers, poor controls, multiple owners, non-collection of heat bills, overcharging of customers. . Source: Center for Energy Efficiency, Moscow 14

Russian District Heating Indicators Indicator CHP plants Heat generation Network losses Final heat consumption Fuel efficiency Heat tariffs, average Heat tariffs, range Heat sales Potential savings in efficiency Units No. Million Gcal % $/Gcal $ billion Volume 485 2, 300 442 1, 784 72 14 8 -300 30. 0 10. 0 Source: Igor Bashmakov, Center for Energy Efficiency, Moscow 15

Heat Transportation Problems in Russia Heat losses range from 20 to 70% Maintenance requires 50% of DH costs Only 2% of pipes are replaced annually High leakages ratio, lack and low quality of insulation; Buildings are overheated or under-heated 16

Chernobyl—Aerial View 17

Closing Chernobyl by Saving Energy How did it work? U. S. AID/DOE grants through PNNL and others to develop project l l $30 million financing developed for buildings Kyiv City Administration invested $5 million World Bank invested $17 million in buildings and $100 million in DH system Results: ~30% savings in buildings alone $100 million financing developed for heat supply system 18

District Energy Efficiency, Kyiv Source: Arena-Eco and PNNL 19

Upgrading District Energy: Adding Heat Controls in Buildings Source: Pacific Northwest National Laboratory 20

Kiev Institutional Buildings Program • KIBA, a $30 million energy efficiency project in 1, 300 schools, hospitals, and cultural buildings in Kyiv • Savings equivalent to the output of a 160 MW power plant. 21

Source: Year 2004 Review, Austrian Federal Ministry of Agr. , Env. , Water 22

Kharkiv District Heating Project • Add six steam turbines (84 MW) • Replace 50 km of transmission pipelines • Replace 200 km of distribution pipelines • Replace 443 old infficient boilers • Installation of 3, 870 individual heat substations - Total cost = $173 million. - Saves ~$37 million per year. 23

Cost of Saved Energy in Czech Apartments 50 6 Savings Cost (USD/GJ) 40 5 1 - TRV’s, Allocators, & Balancing (15%) 5 – Floor Insulation (2%) 6 – Thermal Windows (16%) 2 - Weatherization (3%) 3 – External Wall Insulation (19%) 30 4 – Roof Insulation (7%) Cost-Effective Total = 44% 20 Current heat price from DH 10 4 3 2 1 0 0 200 400 600 800 1, 000 1, 200 Saved energy (GJ/year) 1, 400 1, 600 Note: Interactions between measures not included. 24

Plutonium and District Heating 25

CSE, $/Gcal Cost of Saved Energy (CSE) Versus Energy Price, Zheleznogorsk 90 80 70 60 50 40 30 20 10 0 CSE 26 $/Gcal 14, 8 $/Gcal 9, 1 $/Gcal 4, 8 $/Gcal 22292527216 1413205 191 2812243 9 4 232 7 1115108 1626 Measure Number (see definitions) Source: CENEf and PNNL 26

Definitions of Measure Numbers, Zheleznogorsk 22 29 25 27 21 6 14 13 20 5 19 1 28 12 24 3 9 4 23 2 7 11 15 10 8 16 17 Hydropneumatic cleaning of in-house heating pipelines DHW regulation unit upgrade in open-type district heating systems Installation of a balancing valve at the building input Replacing hydroelevators with pumps and regulation and automation control system Restoration of re-circulation in the DHW system Insulation of outer walls from the inner side Insulation of windows (installation of heat reflecting films) Insulation of windows (doors) + elimination of holes between window (door) frame and the wall Insulation of in-house DHW pipes Insulation of attic floor Installation of electric water heaters Insulation of basement from the inner side Installation of individual heating points Insulation of flat roof Installation of heat meters on the building level Insulation of the floor (1 st floor) Insulation of walls from the outer side with molded board lining Insulation of floor on the logs Installation of efficient faucets Insulation of basement ceiling Insulation of walls from the outer side with mineral wool and thin plaster Installation of heat mirrors Installation of energy efficient windows Insulation of walls from the outer side with plastic or aluminum siding Insulation of walls from the outer side with thermo-insulating slabs Installation of ceiling-mounted ventilators Installation of thermostatic valves on the radiators 27

Mini CHP Technology in China How to Start a Power Company? 317 k. W gasfired combined heat and power plant 28

Economics of Combined Heat and Power Source: W. Chandler 29

New Cement Plant in Zhejiang: Potential for 13 MW Heat Recovery 30

Cement Plant Heat Recovery 1. Zhejiang Cement Company, a 5, 000 ton per day manufacturing plant near Hangzhou. 2. Waste heat recovery has been proven in Wan An plant in Shanghai. 3. Price of power is $0. 065 per k. Wh. 4. Notional system: 13 MWe at $1, 000/k. W, 85 percent capacity factor. • Investment = $13, 000 • Internal Rate of Return = 22% • Project financial life = 5 years 31

Policy 32

What Can Government Do? • Stabilize the investment environment • Develop legal and policy infrastructure • Conduct market reforms and decentralization • Share risk (financing) • Demonstrate new approaches and technologies • Provide information 33

Energy Intensity Improvement in the Transition Economies, 1990 -2003 Source: William Chandler, Energy and the Environment in the Transition Economies (Boulder: Westview Press, 2000), updated by the author 2005. 34

Reported Growth in Chinese GDP, Energy Consumption, and Power Demand Source: Jeff Logan, International Energy Agency, private communication, 2005. 35

Utility Bill Collections Rate, 2000 36

District Heating Subsidies Percent of Local Budget, 2001 37

District Heat Pricing, Selected Countries 38

Source: U. S. Energy Information Administration, 2004. Note: Kazakh data are for 2001. 39

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District Energy Policy in Hungary Mandatory purchase of cogenerated electricity up to 20 MW with favorable prices Investment support for small scale CHP Investment boom in gas systems Regulatory issues in cost allocation between heat and power generation Source: International Energy Agency 41

Poland: Four Cities’ Experience, 1992 – 1999 • 22% energy savings in district heat • Heat tariffs dropped more than 50%. • Consumer subsidies eliminated • Customers able to control heat level Source: Ira Birnbaum, U. S. AID 42

WADE* Survey of Poland’s Electric Power Sector *World Alliance for Decentralized Energy Source: World Survey of Decentralized Energy, 2005, www. localpower. org 43

Steps to Reform Russian DHS markets Mandating municipal energy plans Transition to metered heat, gas and water Creating associations of communal services payers (ACSe. Ps) Attracting ESCOs Launching “profits-from-savings” mechanisms to pay for rehabilitation Eliminate cross-subsidies and getting prices right Ending “cost plus” approach Source: Igor Bashmakov, Center for Energy Efficiency, Moscow, presented to the International Energy Agency, Prague, 2004 44

WADE* Survey of Russia’s Electric Power Sector *World Alliance for Decentralized Energy Source: World Survey of Decentralized Energy, 2005, www. localpower. org 45

China CHP Barriers/Opportunities Lack of well-prepared projects Lenders’ inexperience with efficiency projects Regulatory issues Lenders’ perceived risk for small and medium borrowers and for efficiency Source: Chandler, International Finance Corporation, 2004 46

China CHP Investment Risks Technical risk Uncertain regulatory environment Non-transparency of customer finances Lack of collateral Source: Chandler and Gwin, International Finance Corporation, 2004 47

Overview of Privatization and Competition Privatization of natural monopolies requires special steps: Determining competitive parts of the system, separating them, introducing competition. Creating legal, institutional framework to regulate prices and return on investment. Commercializing–introducing hard budget constraints for–all power sector enterprises. Attracting investment through concessions or privatization. Source: Coming in from the Cold: Improving District Heating Policy in the Transition Economies (Paris: International Energy Agency, 2004) 48

Frontier Financing Russia World Bank Housing Divestiture, $500 M Czech Republic: ESCO promotion, $30 M Ukraine: Kyiv City Buildings, $30 M 49

Project Financing in the Municipal Sector Source: Center for Energy Efficiency, Moscow Subsidy shift--from fuel to capital Local budgets and regional efficiency funds Heat supply company investments Foreign, multilateral banks Consumer expenditures 50

Purchasing power limits: Bashmakov’s wing Threshold 1: collection rate starts declining Threshold 2: rigidity of collecting payments actions brings no results Source: Igor Bashmakov, Center for Energy Efficiency, Moscow 51

District Energy Efficiency Investment Source: Mykola Raptsun, Arena-Eco, Ukraine 52