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Smart cities, district energy and decarbonization

Treasure beneath the streets

Older cities, industrial complexes, colleges, and universities all have many things hidden beneath their streets. In those mazes of pipes there may be a decarbonization accelerator, a central power steam and cooling system. These “district energy” capabilities, also known as micro-grids, were usually part of planned urban/campus infrastructures and reflected the technology and cost of capital of their time. Many have been abandoned over the years as new buildings were equipped with their own boilers and chillers but are now looking at a second life in support of decarbonization and methane (natural gas) reduction targets.

District energy solutions are often tied to a rethinking of economic development goals for cities that want to entice companies to relocate or establish operations. By providing cost effective and cleaner energy, cities support improved business profitability, increase consumer purchasing power and ultimately drive employment growth. So, it’s not just about decarbonization, it’s about people.

For 2020, the U.S. Environmental Protection Agency (EPA) reports that approximately 13% of total emissions in the US came from commercial and residential buildings, with emissions from natural gas consumption specifically representing 79% of the direct fossil fuel CO2 emissions from the residential and commercial sectors. These emissions are being targeted by communities as part of their local “net-zero” and alignment with the Kyoto/Paris objectives for controlling global temperature increases as well as meeting state decarbonization and emissions reduction targets. Estimated by some including the EPA as 25 times more potent at trapping heat in the atmosphere, methane is a prime target for regulations and policies to limit its role, particularly in heating, to help address this issue.

Examples include:

  • New York City: Local Law 97 places carbon caps on most buildings larger than 25,000 square feet—roughly 50,000 residential and commercial properties across the city. These caps start in 2024 and will become more stringent over time, with a goal of reducing emissions 80% by 2050. In addition, the city enacted a law in December 2021 that would prohibit gas use in most new buildings under seven stories tall beginning at the end of 2023, as well as new large buildings over seven stories beginning in 2027.
  • Westchester and Tompkins County, New York: Moratoriums on new natural gas loads
  • San Francisco: Ban on natural gas for space and water heating and cooking in new buildings
  • Vancouver, British Columbia: Ban on natural gas allowed for residential buildings three stories and under as of Jan. 1, 2022, and for all buildings by 2050. Renewable Natural Gas (RNG) is allowed.

Overall, 39 cities in California have banned natural gas use in new construction within the last year. In addition, there are active stakeholder groups pushing for similar laws in many other cities, including Washington, D.C. and Brookline, Massachusetts. Many of these cities have a hidden district energy capacity.

District energy solutions can leverage existing local infrastructure and be tailored for regional needs, providing central heat in some climates and central cooling in others. Projects around the globe have shown results delivering from 20% - 70% reductions in emissions, but this is just a starting point. While today under New York City’s Local Law 97, steam from Consolidated Edison’s Manhattan-based district energy system is considered the lowest carbon content heat source due to its being produced from Combined Heat and Power (CHP) systems, where can the energy transition take us?

Near and long-term solutions

Communities and owners of individual buildings have options on how to decarbonize heating and cooling requirements, as well as address topics like infrastructure resilience which are driven by continued innovation in energy transition solutions and increasing extreme weather events. Some of these solutions are available now to help address decarbonization, while others will require innovation and investment better suited to the district energy model. Supported by a decarbonization roadmap, district energy platforms can fill today’s needs while being a key building block in the transition to a cleaner, more efficient tomorrow.

Heat pumps

Heat pumps do not create heating or cooling; they move heat around, taking advantage of the temperature differentials to move heat in or out of a building. Simply put, heat pumps are bi-directional air conditioners. Most air conditioners move heat from the inside of the building to the outside using special heat transfer fluid, which collects and releases energy by changing phase from liquid to gas and back to liquid. A compressor moves the liquid back to a gas and the cycle continues.

Heat pumps allow that cycle to run both ways, “pumping” heat in and out of a building based on the need to heat or cool. Where air-based exchange is not sufficient, “ground source” heat pumps can be used to capture heat from underground and improve the efficiency of the heat transfer process. In addition, water source heat pumps can capture the heat from year-round cooling loads like data centers, further increasing overall system efficiency.

Heat pumps can deliver an efficiency of three to four times that of boilers for heating, and because they do not use natural gas to create the heat, they have an immediate impact on methane and related emissions. When paired with district energy solar and storage designs or 100% renewable grid-tied power, heat pumps can deliver excellent efficiency and cost reductions, while making a significant impact on decarbonization goals for communities, campuses, or companies.

Renewable Natural Gas

Renewable Natural Gas (RNG) is derived from organic waste material including plant and animal-based waste, oils, paper, compost, wastewater sludge, animal fat and manure. As these materials decompose, they release gasses which are processed to be interchangeable with traditional pipeline-quality natural gas. RNG is being looked at as a drop-in replacement for Compressed Natural Gas (CNG), driven in part by Low Carbon Fuel Standards (LCFS) in California, Oregon, and British Columbia. In Virginia, an example of the building momentum around RNG is Ingenco, who has built a power generation business deploying retrofit diesel engines that burn RNG and has numerous college campuses and other large commercial entities who want to balance their need for energy with their commitment to decarbonization.

RNG credits are an accounting mechanism recognized under the LCFS whereby the environmental attributes of RNG are decoupled, allowing potential users to purchase RNG without regard to physical traceability of the fuel or change to the gas supply of a given facility. This framework is known as book-and-claim accounting, which is well established in the transportation market but nascent in other sectors such as space heating.

This allows companies to preserve their investment in existing infrastructure and processes, manage their costs and risks through well understood hedge and other instruments, enjoy the benefits in some areas of a carbon credit market, while being able to buy “fractional” CNG, replacing a percentage of their total gas consumption (e.g., 10% RNG) to smooth cost impacts and ease adoption. Recently Gas South and Element Markets have brought FlexRNG to the market. It is a blend of RNG, and certified carbon offsets generated by a range of projects that reduce carbon emissions, an interesting development of mixing physical and financial elements to achieve a “decarbonized” fuel stream.

Centralized electrification

Electric boilers/heaters for hot water are commercially available technology today and electric chillers are very common. If the building system is using grid power, the decarbonization impact is dependent upon the carbon intensity of the regional electric grid, which in parts of North America could result in higher carbon emissions over natural gas because the carbon intensity per MWh of the grid is higher than that produced by direct combustion of natural gas, based on today’s grid’s carbon intensity.

Working with energy brokers and advisors, companies can increasingly purchase “green power” contracts for all or part of their electric energy supply. Many district energy projects are being deployed with a combination of local “clean” generation (e.g., solar) and central storage to provide economic, carbon and emissions benefits during operating cycles. An increase in central energy capacity can require extensive capital improvements for energy delivery infrastructure in coordination with local utilities, but the general push towards electrification will challenge the capacity of every utility in the nation to meet consumer needs as gas use is phased out and new electrification mandates emerge.

Renewable diesel/biodiesel

Various types of renewable or biodiesel can be used to fire boilers and generators. Some of these fuels may be a drop-in fuel and some may require modifications to equipment before use. The market tends to use terms like renewable diesel, biodiesel, and green diesel interchangeably. However, the feedstock used to make the fuel and the process used to convert the feedstock into “diesel” matter. Knowing the process (e.g., hydrotreating versus esterification) will tell you what modifications, if any, to your equipment are required and how much they may cost to use the fuel in question. Some types of these fuels may show higher degrees of variability in fuel properties from delivery to delivery and/or faster degradation- requiring more testing, both upon delivery and in operational storage. Also, depending upon the original feedstock and the process to produce it, the carbon intensity of these fuels may vary. Before adopting any of these fuels as part of a decarbonization strategy, their provenance and resulting carbon intensity should be examined.


Hydrogen produced by the electrolysis of water using renewable electricity currently lacks the infrastructure for full implementation for space heating applications, its most likely use. It has a significant environmental impact in its consumption of clean/potable water, which is an increasingly scarce commodity in numerous cities and requires a tremendous amount of energy to “crack” it out of underlying materials like methane or extract it from water. As a result, less than 1% of total global hydrogen production is considered “green”, that is manufactured using carbon neutral energy sources. Most is produced using natural gas as the feedstock and a process called “steam reforming” which, when combined with carbon capture gives us “blue” hydrogen. Hydrogen is expensive, tough to transport and has a significant environmental footprint. Although there is a tremendous amount of investment and innovation going on in this space, it’s not yet ready for primetime as a standalone fuel.

Gary Leatherman
Managing Director
Andy Roehr
Managing Director
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