District Energy - 2005 Fourth Quarter

2005). Coal will become even more costly as oil and gas prices go up, and as environmental restrictions increase for both currently regulated pollutants and, inevitably,

A supply-side emphasis on fossil
fuels is a risky foundation for a
national energy policy.

for carbon dioxide. These restrictions will increase costs, due to costs for both stack pollution control and purchase of emission allowances. (See this column in third quarter 2005.)

A supply-side emphasis on fossil fuels is a risky foundation for a national energy policy, not only because demand is outstripping supplies, but also because of the environmental risks associated with fossil fuels. Although it can never be proved one way or the other, there is tragic irony in the thought that the hurricanes that devastated U.S. oil and gas production and refining capacity was caused or exacerbated by climate change.

Why District Energy and CHP
Reduce Risks

U.S. economic and environmental risks can be substantially reduced by using fossil fuels more efficiently and shifting to renewable sources. District energy can address both of these crucial goals. The key is district energy’s ability to provide energy source flexibility – a largely overlooked but critical

There is no quicker or more cost-
effective way to increase energy
recycling through CHP than
through district energy systems.

element in our energy infrastructure. This flexibility is crucial for managing and mitigating future energy risks resulting from supply disruptions, price volatility, environmental issues or new technology developments.

There is an enormous opportunity for boosting national energy efficiency by implementing more CHP in existing district energy systems. These systems have already made the capital investment in infrastructure for distributing thermal energy to end-users and

can cost-effectively ‘recycle’ energy produced and otherwise wasted during power generation. There is no quicker or more cost-effective way to increase energy recycling through CHP than through district energy systems. By reducing consumption, CHP frees up natural gas and oil supplies for other uses and takes the pressure off of gas prices. More than 250 trillion Btu of annual fuel consumption could be eliminated through increased implementation of CHP in district energy systems.

District energy systems can also be a key strategy for the transition to renewable energy sources. District systems have the ability, and proven track record, in tapping such diverse renewable resources as urban waste wood, low-temperature geothermal heat and the cool energy in deep ocean or lake water. Implementing renewable energy in district energy systems could eliminate an additional 150 trillion Btu of annual fossil fuel consumption.

Legislative Priorities

The U.S. is at a critical juncture and should pass comprehensive energy legislation that reflects the realities and manages the risks of the new energy era. Legislation should include a number of provisions that will take advantage of district energy infrastructure:

1. A Clean Energy Resource Standard that includes not only renewable energy but also recycled energy such as CHP. Standards for increasing use of renewable and recycled energy by power utilities will help reduce U.S. reliance on fossil fuel more quickly and flexibly.

2. A revolving loan fund to facilitate CHP implementation in universities and other nonprofit institutions. This ‘seed money’ will provide an ongoing funding source for U.S. energy infrastructure that will benefit students, travelers, patients and other users of our public institutions, while increasing energy supply reliability, reducing emissions of air pollution and greenhouse gases, and enhancing energy security.

3. Expansion of the production tax
credit to include renewable thermal
energy. There are significant opportunities

to implement renewable thermal energy, yet the renewable production tax credit also addresses power generation.

4. A 10 percent Investment Tax Credit for CHP. By restoring the CHP tax incentives originally in the Energy Policy Act of 2005, Congress can significantly increase the efficiency of fossil fuel use.

5. Funding for the Department of Energy and the Environmental Protection Agency to implement ‘barrier-busting’ programs. These efforts are important for overcoming informational and institutional constraints to implementing district energy and CHP.

Mark Spurr is legislative
director of IDEA. He also
is vice president of FVB
Energy Inc., a consulting
firm specializing in district
energy and CHP business
development, engineer-
ing and marketing, with
offices in the United States, Canada and
Sweden and extensive experience in the
Middle East. Spurr represents the United
States on the Executive Committee of the
International Energy Agency Implementing
Agreement on District Heating and
Cooling, including Implementation of
CHP. He may be reached at mspurr@
fvbenergy.com.