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



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
Steam Driven
Chillers
Heating Steam
Exhaust
Heat
Electric Power
Chilled
Water
Electric Power
Fuel
Gas or Oil
PEPCO
Combustion Turbines
Electric Power
Heating Steam
UMCP Campus
Buildings
Boilers
6
Results
• $71M in improvements
• Energy use cut by 1/3
• $120M 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
>-5.1°C
• Poor quality of heat
supply
-6.0
• Lack of heat meters
-8.0
• Poor building insulation
and maintenance
-10.0
• Lack of qualified
personnel
-12.0
• Lack of financing to
improve facilities’ energy
efficiency
-14.0
OSProf. 3
<-15.0°C
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
Million Gcal
Million Gcal
%
$/Gcal
$/Gcal
$ billion
$ 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




$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
KyivEnergo Rehabilitation
Item
Boiler Plant Rehabilitation-1
Boiler Plant Rehabilitation-2
Pipe Replacement, Valves
TETS 5 Rehabilitation
TETS 6 Rehabilitation
Substation Rehabilitation
Distribution Pipe Rehab
Cost FRR
$M %
39
29
17
16
13
13
11
21
6
15
16
27
0.8
13
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 (1st 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 kW
gas-fired
combined
heat and
power plant
28
Economics of Combined
Heat and Power
Economics of a Typical Commercial Building Combined
Heat and Power Installation
Capital
950 $/kW
Size
1000 kW
Initial Capital
950,000 $
Power Sales
6,570,000 kWh/Year
Grid Power Price
0.090 $/kWh
Contract Power Price
0.081 $/kWh
Power Cost
0.040 $/kWh
Power Sales Margin
0.041 $/kWh
Annual Revenues
534,307 $
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 kWh.
4. Notional system: 13 MWe at $1,000/kW, 85 percent
capacity factor.
• Investment = $13,000,000
• 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
160
120
Central
Asia
Russia
Ukraine
100
80
Central Europe
60
40
20
3
20
0
2
20
0
1
20
0
0
20
0
9
19
9
8
19
9
7
19
9
6
19
9
5
19
9
4
19
9
3
19
9
2
19
9
1
19
9
0
0
19
9
Index, 1990=100
140
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
20
Percent Change on Previous Year
15
GDP
Power
10
5
Energy
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
-5
Source: Jeff Logan, International Energy Agency, private communication, 2005.
-10
35
Utility Bill Collections Rate, 2000
Russia
Bulgaria
Armenia
Albania
Ukraine
Belarus
Romania
Georgia
Uzbekistan
Azerbaijan
0
10
Source: EBRD, Energy in Transition, 2001
20
30
40
50
60
70
80
90
Revenues Over Billings (percent)
36
District Heating Subsidies
Percent of Local Budget, 2001
Murmansk
Chelyabinsk
Zhukovsky
Lytkarino
Yu.-Sakhalinsk
Kostroma
Orel
Dzerzhinsk
Zeleznogorsk
0
10
20
Percent
30
40
37
District Heat Pricing, Selected Countries
Russia
Ukraine
Kazakhstan
Romania
Bulgaria
Czech
Latvia
0
1
2
3
4
5
6
7
8
9
$/GJ
38
Electric Power Prices, 2002
Czech Republic
Hungary
Kazakhstan
Industry
Households
Poland
Russia
USA
0
0.02
0.04
0.06
0.08
0.1
US$ per kWh
Source: U.S. Energy Information
Administration, 2004. Note: Kazakh data are
for 2001.
39
Electric Power Prices,
November 2003 (US$/kWh)
City
Industry
Commercial
Homes
Peak
Off-Peak
Peak
Off-Peak
Beijing
0.047
0.047
0.121
0.077
0.054
Shanghai
0.110
0.065
0.114
0.067
0.074
40
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 (ACSePs)
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
10%
25%
7%
40%
16%
2%
Loan
Energy efficiency fund
Oblast budget
City budget
Heat supply companies
Population
Subsidy shift--from fuel to
capital
Local budgets and regional
efficiency funds
Heat supply company
investments
Foreign, multilateral banks
Consumer expenditures
Source: Center for Energy Efficiency, Moscow
50
Purchasing power limits:
Bashmakov’s wing
120%
collection rate
100%
80%
60%
Threshold 2:
rigidity of
collecting
payments
actions brings no
results
Threshold 1:
collection rate
starts
declining
40%
20%
0%
0
2/1
4/2
6/3
8/4
10/5
12/6
14/7
16/8
communal and housing (numerator) and energy expenditures
(denominator) as percentage of family income (%)
Source: Igor Bashmakov, Center for Energy Efficiency, Moscow
51
District Energy Efficiency Investment
Source: Mykola Raptsun, Arena-Eco, Ukraine
52