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Developing Smarter Cities: District Energy and Microgrids

District Energy" is a term widely known in the energy field, but seldom enters the conversation of city planning. District energy describes a system that produces and distributes cooling, heating, and power to buildings in a neighborhood-scale distribution network. Many cities, including New York, have initiatives to study these small power networks because they enhance the resilience of energy services during extreme climate events. District Energy is struggling because market pressure to develop has outpaced regulatory reform, capital availability, and public awareness. City government can help relieve the myriad market barriers to a cleaner, more resilient grid.

One kind of District Energy is a microgrid, a local electricity network. Microgrids serve as islands of reliability within the larger regional and national electricity grids, seamlessly providing power through grid disturbances. They rely on 'smart grid' technologies that resynchronize and reconnect to the grid after the disturbance. Central data hubs are the 'brains', using command and control protocol to manage electricity distribution among a group of buildings, up to the neighborhood scale. Electricity, heat and cooling can be generated centrally, eliminating the need boiler and chiller rooms in individual buildings.

The most popular and mature technology uses gas turbines to co-generate heat and power (CHP), utilizing waste heat to drive absorption chillers for cooling. Once the grid is set up, users can plug and play renewables like solar or wind. As net metering advances, they will be able to generate revenues by selling back to the grid. Some microgrids are self-sufficient, but most are intended to cover mission critical systems like data servers and lighting.   

How City Government Can Help

Cities can help. Many barriers to microgrid deployment are due to perceptions of risk which is reflected in the expected return of a project- whether it be commercial real estate or infrastructure. For example, investments in Class A office command similar returns nationwide, but capital lenders adjust expected returns depending on risk, like the market stability or location in a flood zone. Public entities don't have control over the market, but they can reduce risk to make development sufficiently attractive. Cities have historically mitigated risk through fiscal and non-fiscal incentives. 

Non fiscal incentives include outreach and education while fiscal incentives include zoning upgrades and access to capital. 

Development Incentives

Cities have used development incentives to promote sustainable practices. Increasing the Floor Area Ratio (FAR), or buildable square footage of a parcel, is often exchanged for public space provided on private land.  The same tactics can be used to incentivize uptake of district energy. Cities may consider a blanket increase in FAR over a district, like +.5 FAR for anyone connecting to a microgrid.

Alternatively, the incentive could be performance based. The Hudson Yards Uniform Tax Exemption Policy is a great example of performance based incentives. The first 5M square feet of office space to be built receives a 40% tax exemption , the next 5M receives 25%, and so on for the first 20M square feet. Consider a performance based FAR incentive for hosting local energy in a building. If a building supplies 10% of its own demand, the parcel receives a +.5 FAR increase. For 20% supply, a 1 FAR increase, and so on.

Education and Outreach is needed to build the argument for end users of district systems. Cities can provide general studies and reports illustrating the cost and benefits of these systems aimed at concerned parties. Education and outreach should emphasize service reliability, spark spread (cost per KwH among energy choices), and environmental benefits.

The trademarked Perfect Power Seal of Approval™ (PPSoA) program was developed by the Galvin Electricity Initiative to mitigate the concerns of end users. Similar to LEED Green Building standards, the PPSOA seek to transform the energy market, making reliability and quality standards transparent.

In 2001, the Battery Park City Authority (BPCA) adopted the first green buildings standards in the US based on a pilot LEED program. Located in New York City, the BPCA and its building owners are recognized as founders of the green building movement. Cities who are first movers to adopt PPSoA may receive similar clout.

Credit enhancements improve the chances that a lender will be repaid for the investment in a district system. Credit enhancements can lower the interest rates, lengthen the loan term, or broaden the underwriting criteria.

The National Renewable Energy Laboratory of the U.S. Department of Energy created the HOMER® hybrid optimization software that helps energy providers overcome the technical complexities of local energy planning. HOMER Energy is working to create certification and training programs to qualify islanded microgrid projects for financing and credit enhancements. 

Land Use and energy demand are intimately linked. Residential, office and industrial buildings all use energy in different patterns throughout the day and year. When you agglomerate these together, it produces an aggregate energy demand of a district. With the right mix of uses, the aggregate demand can make the systems more economical.

Cities can consider mixed-use zoning to maximize the potential environmental and economic benefits of an energy district. Modeling the district-wide aggregate energy demand can reveal where certain uses may be lacking, which can be used to justify land-use decisions already in process.

Land Allotment for energy generation will be required unless private property owners want to host generation within their building. Publicly owned parcels can be used in-kind or generate rents for the city based on the district system ownership model. As real estate is phased in, more generators can be added and connected within the microgrid. Project economics will dictate that supply meet demand  throughout the phasing, which means space should be allotted for future growth of the system. See the figure below showing both central and distributed power generation.


Resilience and Risk Perception: the Off-Grid Advantage

Cities should consider microgrids wherever there is new development or large scale redevelopment, such as Boston's Innovation District which just announced the $2B extension of the Boston Convention & Exhibition Center. Capitalizing on local energy generation keeps power tariffs local, enhances workforce development, and provides resilient energy supply to firms. The economic losses during Hurricane Sandy were tremendous, much of which was due to business downtime. The more businesses are competetive and resilient, the more competitive a city will be in attracting and retaining talent.

This post was co-authored by Ajay Prasad, Managing Director of  India Investments at Taurus Investment Holdings in Boston, MA.