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

2. 2 OutlineOutline Technology of rehabilitation Economics of upgrading Financial engineering of projects New solutions

3. 3 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

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

5. 5 After Before Improvements to CHP Nothing needs reforming quite so much as other peoples bad habits. -- Mark Twain

6. 6 Steam Driven Chillers Chillers ChilledWaterChilledWater Details of the Deal Integrated Utility System Electric Power Combustion Turbines Electric Power Heating Steam PEPCOPEPCO Electric Power HighPressureSteamHighPressureSteam ExhaustHeatExhaustHeat Back Pressure SteamTurbine SteamTurbine HeatRecoverySteamGeneratorsHeatRecoverySteamGenerators Heating Steam Fuel Gas or Oil Fuel UMCP Campus Buildings Buildings BoilersBoilers

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

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

9. 9 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

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

11. 11 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

12. 12 Typical Problems of District Energy Aging Equipment, Poor Maintenance

13. 13 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

14. 14 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

15. 15 Russian District Heating Indicators IndicatorUnits Volume CHP plantsNo.485 Heat generationMillion Gcal2,300 Network lossesMillion Gcal442 Final heat consumptionMillion Gcal1,784 Fuel efficiency%72 Heat tariffs, average$/Gcal14 Heat tariffs, range$/Gcal8-300 Heat sales$ billion30.0 Potential savings in efficiency $ billion10.0 Source: Igor Bashmakov, Center for Energy Efficiency, Moscow

16. 16 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

17. 17 ChernobylAerial View

18. 18 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

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

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

21. 21 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. Kiev Institutional Buildings Program

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

23. 23 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.

24. 24 Cost of Saved Energy in Czech Apartments 1 - TRVs, Allocators, & Balancing (15%) 2 - Weatherization (3%) 3 – External Wall Insulation (19%) 4 – Roof Insulation (7%) Cost-Effective Total = 44% Note: Interactions between measures not included. 5 – Floor Insulation (2%) 6 – Thermal Windows (16%) Saved energy (GJ/year)

25. 25 Plutonium and District Heating

26. 26 205191281224394232711151081626 Measure Number (see definitions) CSE, $/Gcal CSE 26 $/Gcal 14,8 $/Gcal 9,1 $/Gcal 4,8 $/Gcal Cost of Saved Energy (CSE) Versus Energy Price, Zheleznogorsk Source: CENEf and PNNL

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

28. 28 How to Start a Power Company? 317 kW gas-fired combined heat and power plant Mini CHP Technology in China

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

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

31. 31 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

32. 32 PolicyPolicy

33. 33 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

34. 34 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.

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

36. 36 Utility Bill Collections Rate, 2000

37. 37 District Heating Subsidies Percent of Local Budget, 2001

38. 38 District Heat Pricing, Selected Countries

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

40. 40

41. 41 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

42. 42 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

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

44. 44 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

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

46. 46 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 China CHP Barriers/Opportunities

47. 47 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

48. 48 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)

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

50. 50 Project Financing in the Municipal Sector 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

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

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