LinkingHeatandElectricitySystems PDF

Linking Heat and
Electricity Systems
Co-generation and District Heating and Cooling
Solutions for a Clean Energy Future
Linking Heat and
Electricity Systems
Co-generation and District Heating and Cooling
Solutions for a Clean Energy Future
INTERNATIONAL ENERGY AGENCY
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OECD/IEA2014 LinkingHeatandElectricitySystems
Tableofcontents
Foreword................................................................................................................................................5
Acknowledgements................................................................................................................................6
ExecutiveSummary................................................................................................................................7
Appliedsolutionsandlessonslearned............................................................................................7
Keypolicyrecommendations..........................................................................................................8
Introduction..........................................................................................................................................10
CogenerationandDHCSolutionsAnalysis.........................................................................................13
Technologyselectionjustification.................................................................................................16
Financingmechanisms..................................................................................................................19
Businessstructure.........................................................................................................................22
Conclusions...................................................................................................................................26
CogenerationandDHCCaseStudiesCompendium...........................................................................27
Industrialcogeneration:Segovia,Spain.......................................................................................27
Industrialcogeneration:Tabasco,Mexico...................................................................................31
Industrialcogeneration:Fife,Scotland,UnitedKingdom............................................................36
DHC:Marstal,Denmark.................................................................................................................40
DHC:Paris,France.........................................................................................................................45
DHC:Riyadh,SaudiArabia.............................................................................................................49
TheIEACHPandDHCCollaborativeandRelatedInitiativesSupportedbytheIEA..........................53
AbbreviationsandAcronyms...............................................................................................................54
UnitsofMeasure..................................................................................................................................55
References............................................................................................................................................56
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LinkingHeatandElectricitySystems OECD/IEA2014
Listoffigures
Figure1 Globalpowerandheatgenerationenergyflows,2011.....................................................10
Figure2 KeyfactorsindevelopmentandoperationofcogenerationandDHCprojects...............15
Figure3 Interconnectionsofelectricityandthermalenergyinanintegratedenergysystem........23

Figure4 OpenDHCbusinessmodel..... 24
Figure5 Eresmacogenerationsystemsankeydiagram..................................................................27
Figure6 NuevoPemexcogenerationsystem..................................................................................31
Figure7 Offsiteindustrialprocesseselectricitypurchases.............................................................33
Figure8 Mexicanelectricitysectorstructure...................................................................................34
Figure9 ProcessflowdiagramdescribingSunstore4plantadditions.............................................41
Figure10Sankeydiagram(MWh)ofMarstalDHproduction............................................................42
Figure11ProcessflowdiagramofBercycoolingplant......................................................................45
Figure12SystemdiagramofthePNUWsolarthermalDHplant.......................................................50
Listoftables
Table1CogenerationandDHCcasestudiesanalysed.....................................................................14
Table2EresmaCogencapacity,generationandefficiency..............................................................28
Table3NuevoPemexcapacity,generationandefficiency...............................................................32
Table4NuevoPemexelectricityprices.............................................................................................35
Table5Markinchcapacityandefficiency..........................................................................................37
Table6Markinchsteamcharacteristics............................................................................................37
Table7HistoricexpansionoftheMarstalSunstoreprojects............................................................41
Table8AnnualenergyinputandoutputoftheMarstalDHsystem.................................................42
Table9PNUWdistrictwaterheatingenergyinput,outputsandefficiencies..................................50
Listofboxes
Box1StrategicheatingandcoolingplanningtrendsinEurope........................................................19
Box2Russia:policyeffortstomoderniseDHinfrastructure............................................................21
Box3India:financialandfiscalincentivesforindustrialcogeneration...........................................22
Box4Sweden:OpenDHCbusinessmodel........................................................................................24
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Foreword
Our energy systems are becoming increasingly complex, underpinning the need for efficient and
flexible technologies and networks. At the same time, the realities of climate change mean that
sustainable solutions must be implemented in the near term to avoid longterm environmental
consequences.Inordertomeetthesechallengesandmaximisetheimpactofourefforts,wemust
considerthesustainabilityoftheenergysystemasawhole.
Cogeneration and efficient district heating and cooling (DHC) can support an integrated energy
systembyprovidingaflexiblelinkbetweenelectricityandthermalenergywhiledeliveringenhanced
energy efficiency. These technologies are ready for implementation today, yet global progress in
deployment has been slow. Recently, some countries have recognised the contribution that these
technologiescanmaketoasustainableenergyfuturebysettingupdeploymentprogrammes.
ThisreportbuildsonacompendiumofcasestudiesofsuccessfulcogenerationandDHCprojectsto
analyse the impact of existing barriers and opportunities to the deployment of cogeneration and
efficientDHC.Theanalysishighlightstheneedtocreatealongtermstablemarketenvironmentthat
incentivises energy efficiency as a critical factor for the uptake of these technologies, as well as
strategicplanningforenergyinfrastructuretooptimisetheuseoflocalenergysources.
As we move forward, efficient and flexible technologies will become increasingly important, and
policymakersandprojectdevelopersshouldlearnfromtheexperiencesofothersinordertofully
realisethepotentialofcogenerationandDHC.Bybuildinguponpastsuccesses,wecanuselessons
learnedtohelpcreateabetterintegratedenergysysteminthefuture.TheIEAhopesthatthisreport
canserveasaguideforpolicy makersdevelopingsustainableenergypolicystrategies.
ThispublicationisproducedundermyauthorityasExecutiveDirectoroftheIEA.
MariavanderHoeven
ExecutiveDirector
InternationalEnergyAgency(IEA)
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Linking Heat and Electricity Systems OECD/IEA 2014
Acknowledgements
This report was prepared by Araceli Fernandez Pales, John Dulac, Kira West and Marc LaFrance of the
IEA. The authors would like to thank the following people and organisations who provided case study
information, comments and expertise: Javier Rodrguez Morales (Acogen), Ennis Rimawi (Catalyst
Private Equity), Javier Dintn Fernndez and Jaime Igea Lpez-Fando (Cogen Energa Espaa), Ana
Delia Crdova Prez and Jorge Armando Gutirrez Vera (Cogenera Mexico), Claire Wych and
Jonathan Graham (CHPA), Marco Gangichiodo and Antonio Dicecca (Climespace GDF Suez), Krzysztof
Laskowski (Euroheat&Power), Niko Wirgentius (Fortum), Angelika Cerny, Tamara Khoury and Meera
Drabkah (Millennium Energy Industries), Per Alex Sorensen (PlanEnergi Nordjylland), Jorge Javier
Maon Castro and Carlos Azamar (Pemex), Tomas Jumar (RWE Innogy) and Stephan Renz (Swiss
Federal Office of Energy). The Finnish Ministry of Employment and the Economy, VTT Technology
Research Center of Finland, IEA Committee on Energy Research and Technology and IEA Working
Party on Energy End-Use Technologies, as well as other members of the IEA CHP and DHC
Collaborative provided support for this project. Thanks are also due to IEA colleagues such as
JeanFranois Gagn, Didier Houssin, Cecilia Tam, and Christelle Verstraeten who provided
thoughtful comments. Finally the authors would like to thank Jonas Weisel for editing the
manuscript, as well as the IEA publication unit, in particular Muriel Custodio, Cheryl Haines, Astrid
Dumond, Bertrand Sadin and Hanneke van Kleeff for their assistance on graphics, editing and layout.
Page | 6
ExecutiveSummary
Cogeneration1technologiesandefficientdistrictheatingandcooling(DHC)networksprovideclear
environmental benefits due to their enhanced conversion of energy and use of waste heat and
renewableenergysources.CogenerationandDHCcanalsoserveasflexibletoolstobridgeelectrical
andthermalenergysystems,whichwillplayanincreasinglyimportantroleinachievingintegrated,
sustainableenergynetworksinthefuture.Thesetechnologiescanthereforebeanessentialpartof
strategiesforgreenhousegas(GHG)emissionsmitigationandenergysecurity.
Whilethesetechnologiesrepresentaconsiderableshareoftheenergygenerationportfolioinsome
countries, global deployment of cogeneration and efficient DHC has been much less successful
global electricity generation from cogeneration was reduced from 14% in 1990 to around 10% in
2000, and it has remained relatively stagnant since then. Significant barriers prevent extensive
penetration and modernisation of these technologies. These barriers are mostly related to poor
strategic planning for heating and cooling infrastructure, local energy market conditions failing to
ensureenergypricesthatarereflectiveofgenerationcosts,andlackoflongtermvisibilityofrelated
energypolicies.
However, despite the lack of progress globally, some countries and regions have recently shown a
renewed interest in cogeneration and efficient DHC networks. This interest includes the 2012
European Energy Efficiency Directive calling for an assessment of the potential additional
deployment of these technologies (EU, 2012), a 2012 US Executive Order aiming to achieve
40gigawatts(GW)ofindustrialcogenerationby2020(US,2012),thestrongindicationthatPeoples
Republic of China will reach 50GW of gasdriven distributed cogeneration by 2020 (NDRC et al.,
2011)andthecreation,in2012,ofacogenerationroadmapinJapantargetingafivefoldincreasein
cogenerationbasedelectricityby2030(EEC,2012).Althoughthesedirectivesandtargetsrecognise
the potential of these technologies, significant efforts have yet to be made to realise all their
benefitsforasustainableenergyfuture.
Appliedsolutionsandlessonslearned
The report builds on real case studies from a selected range of applications, technologies and
locations to analyse the impact of existing barriers and opportunities. This includes a detailed
assessmentofthedifferentphasesofthedevelopmentofcogenerationandefficientDHCprojects,
from conception to operation. The case studies analysed in this report include three industrial co
generationapplicationsandthreeDHCsystems:
The Eresma Cogen project consists of a gas enginebased 13 megawatts electric (MWe)
cogeneration system that supplies electricity and heat to a distillery factory in Segovia, Spain.
Thegenerationsystemprovides70%ofprocesssteamandalltheelectricityrequirementsofthe
industrialsite,anditexportstheexcesselectricitytothegrid,savingroughly16kilotonnes(kt)of
carbondioxide(CO2)everyyear.
The cogeneration plant located in the gas processing complex of Nuevo Pemex in Tabasco,
Mexicoprovidesheatandpowerforonsiterequirementsandexportselectricitytootherusers.
The generation system has a 300MWe installed capacity and includes two natural gas turbo
1
Cogenerationisalsocommonlyreferredtoascombinedheatandpower(CHP).Thisreportusesthetermcogenerationtorefertothe
simultaneousgenerationofheatandelectricity.
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generatorswithheatrecoveryequipmentthatresultin430ktCO2peryearsavingscomparedto
conventionalgenerationtechnologies.
The Markinch biomass project consists of a 60 MWe cogeneration plant at the Tullis Russel
paper mill in Fife, Scotland. The generation unit provides heat and electricity to support the
paper production process, and it exports excess electricity to the grid. It is estimated that the
plantwillavoid250ktCO2peryear.

TheSunstore4projectisadistrictheatingplantlocatedinMarstal,Denmarkthatwasdeveloped
to demonstrate the production of 100% renewablebased district heating and flexible
managementofdifferentintermittentenergysourceswiththeassistanceofthermalstorage.The
plant combines solar thermal, a biomass boiler coupled with an Organic Rankine Cycle (ORC), a
heatpumpandthermalstorage.Itisestimatedtosave10.5ktCO2annually.
The Bercy cooling plant is a district cooling facility in Paris, France with a current capacity of
44megawatts(MWth).Freecoolingassistancehasbeenappliedtothissystemresultingina34%
increaseoftheaveragecoefficientofperformance(COP)oftheplantschillers.Overall,theplant
isestimatedtosave7.4ktCO2annually.
ThesolarthermaldistrictheatingsysteminstalledinthePrincessNouraBintAdbulAlRahman
University for Women (PNUW) in Ridyadh, Saudi Arabia is the worlds biggest operating solar
heatingprojectwith36610m2ofrooftopflatplatecollectors.Thesystemprovidesspaceheating
andhotwatertotheuniversitystudentsandsaves5ktCO2peryear.
These realworld examples were used to inform the analysis of barriers impeding increased
penetration of cogeneration and efficient DHC in markets across the world, as well as to
demonstrate the applied value of these technologies to achieve sustainable, efficient energy
systems. Longterm stability of a policy strategy rewarding energy efficiency was demonstrated by
thecasestudiestobethemostimportantlevertounlockdeploymentofcogenerationbylimiting
associatedinvestmentrisk.Theanalysisoftheserealapplicationsalsoshowedthatinnovativeand
highlyintegratedDHCsystemsposetechnological challenges,which canbesolvedthroughthe co
operativeeffortofexperiencesharingand,insomecases,financialsupporttodemonstratepioneer
systems.
Keypolicyrecommendations
Thereportprovidesasetofpolicymeasuresandrecommendationstoovercomemarketandpolicy
barriersfromanenergysystemsintegrationapproach.
Policy strategies to support the costeffective selection of cogeneration and efficient DHC
technologies
Ensurethatmarketconditionspromotetransparentandfairfuelpricesandreflecttherealcostof
electricityandheatgenerationtopromoteefficientuseofenergy.
Consider cobenefits of promoting the most efficient use of lowcarbon and renewable energy
sourcesthrougheffectivecoordinationandcomplementarityofenergyefficiencyandrenewable
energypolicies.
Ensurestreamlinedandcleargridinterconnectionstandardstofacilitateexploitingtheflexibility
potentialofcogenerationtechnologies.
Developstrategiclocal,regionalandnationalheatingandcoolingplanningbasedonmappingof
demand and source points to identify costeffective opportunities for cogeneration
development,andrefurbishmentorexpansionofcogenerationcapacityandDHCnetworks.
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PolicystrategiestoreinforcetheeconomicfeasibilityofcogenerationandDHCprojects
Ensure longterm stability of energy policies and market regulation to secure investments in
efficientelectricityandheatgenerationanddistributiontechnologies.
Considerfinancialandfiscalincentivesthatmitigatetheimpact ofmarketsfailingtoreflectfair
energy prices and that take into account the environmental benefits of efficient generation
technologies.
Facilitateinvestmentin modernisationandimprovementoftheoperation ofexistinginefficient
DHCnetworksthroughfinancialincentives.
Policy strategies to support the optimisation of cogeneration and efficient DHC networks in
integratedsustainableenergysystems
Support research activities to design sustainable business models that reward flexibility, low
carbon energy sources and energy efficiency in complex and highly interconnected energy
systems.Promotetheirimplementationandsharelessonslearnedfromthoseexperiences.
Coordinatethedevelopmentoflocal,regionalandnationalstrategicinfrastructuredeployment
plans with developers of smart business models for energy networks. Define joint measures to
minimise costs, capture energysaving opportunities and support the prioritisation of energy
efficiencymeasures.
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Introduction
Cogeneration and DHC can play a fundamental role in a lowcarbon economy, yet their potential
remains an untapped resource that has not been effectively pursued within energy policy and
technology initiatives. Large quantities of heat are currently wasted in power stations and heavy
industry.Inendusesectors,suchasresidentialandcommercialbuildings,heatingandcoolingneeds
couldbemetthroughbetteroptimisationoftheenergysupplyanddemand matrix.Cogeneration
andDHCcouldplayamuchmoreimportantpartinachievingthisoptimisationthroughtechnology
solutionsforamoreefficient,integratedenergysystem.
Cogeneration technologies enable the simultaneous generation of heat and electricity, increasing
the overall energy efficiency of the conversion process in comparison with conventional thermal
generation technologies. This efficiency is achieved by partially recovering heat produced during
electricitygenerationtomakeitavailableforenduseapplications.
Globally, thermal power plants achieved a conversion efficiency of 36% in 2011 (IEA, 2013b). By
contrast,cogenerationunitsconvertedabout58%2ofenergyinputintoelectricityandheatinthe
same year (Figure 1) (IEA, 2013b). Stateoftheart cogeneration units can reach conversion
efficienciesofasmuchas90%(IEA,2013b).
Figure1 Globalpowerandheatgenerationenergyflows,2011
Wind 1.6 EJ
Non-combustion
Hydro 13 EJ electricity plants
Electricity
17 EJ
Geothermal 2.4 EJ 80 EJ
Biomass and Heat plants
waste 5.6 EJ 9.5 EJ
Oil 12 EJ Co-generation
plants 24 EJ Heat 14 EJ
Natural gas 47 EJ
Conventional
thermal electricity
Coal 99 EJ plants 158 EJ
Nuclear 28 EJ
Conversion losses 115 EJ

Notes:followingIEAenergybalanceconventions,forautoproducercogenerationplants,onlyheatgenerationandfuelinputforheatsold
areconsidered,whereasthefuelinputforheatusedwithintheautoproducersestablishmentisnotincludedbutisaccountedforinthe
final energy demand in the appropriate consuming sector. Totals may not equal the sum of their components due to rounding.
Transmissionanddistributionlossesarenotincluded.
Source:unlessotherwisenoted,alltablesandfiguresinthisreportderivefromIEAdataandanalysis.
Key point Only about 36% of the energy going to thermal power plants is converted into electricity in
comparisontoa58%averageconversiononcogenerationsites.
2
FollowingIEAenergybalanceconventions,forautoproducercogenerationplants,onlyheatgenerationandfuelinputforheatsoldare
considered,whereasthefuelinputforheatusedwithintheautoproducersestablishmentisnotincludedbutisaccountedforinthefinal
energydemandintheappropriateconsumingsector.
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Efficient DHC networks provide the required infrastructure to distribute recovered heat from
cogeneration sites to end users. These networks can benefit from locally available, carbonfree3
energysources,suchassolarthermalheatandwasteheatrecoveredfromindustrialprocessesthat
can be injected into a district heating network or converted into cooling capacity using absorption
chillers.Naturalcoolingsources,suchaswaterfromlakes,seasandrivers,canalsobeused.4DHC
networksbasedonthesecarbonfreeandnaturalenergysourcescouldachieveenergyefficiencies
five to ten times higher than traditional electricitydriven equipment (DHC+ Technology Platform,
2012).
Duetotheirflexibilityandenhancedefficiency,cogenerationandDHCcanplayarelevantroleinan
integrated energy system by providing a sustainable option to help balance a greater share of
variable renewable energy sources. In addition to their turndown range and capability,5
cogenerationtechnologiescanoperatewithinarangeofpowertoheatoutputratios,allowingunits
toadapttospecificenergydemandrequirementsovertime.Theadditionofenergystoragecapacity
tocogenerationplantscanalsoprovideanaddedlevelofflexibilitytoregulateelectricityandheat
outputswhileminimisingenergylosses.Thesetechnologiescanuseawiderangeofenergysources,
fromfossilfuelstowasteandrenewablesources,suchasbiomass,solarandgeothermalenergy.
DHC networks can similarly be designed and operated as energybalancing tools. By incorporating
other technologies, such as heat pumps and thermal storage capacity, DHC networks can absorb
excess electricity generation when needed by the system. DHC networks can also help to mitigate
peakdemandelectricityloadsbyprovidingalternativeheatingandcoolingsupplyoptions.
Despite these benefits, cogeneration technologies and highefficiency DHC systems are still not
extensively deployed. Only 9% of global electricity generation uses cogeneration technologies
(Figure 1) (IEA, 2013b), and penetration has remained stagnant over the last decade. While some
countries have achieved a high share of cogeneration in electricity production (for instance,
Denmarkhasmorethan60%andFinlandalmost40%),mostcountrieshavenotbeenthatsuccessful.
ExperiencefromcountrieswithhighlevelsofcogenerationandefficientDHCproductionillustrates
that strategic decisions to consider cogeneration and DHC as key energy security and climate
solutions are critical to achieving increased penetration. In these countries, deployment did not
necessarily require substantial financial incentives. Rather, targeted policies were crucial to
effectivelyaddressingbarrierstofurtherdeploymentofcogenerationandDHCtechnologies.
ExistingbarrierstocogenerationandefficientDHCnetworkdeploymentcanbegroupedbyspecific
phase of project development, including project conception and technology selection, project
financingandeconomicfeasibility,andbusinessstructure.
BarrierspreventingtheselectionofcogenerationandefficientDHCtechnologiesinclude:
Marketconditionsandenergypricesfailingtorewardenergyefficiency.
Energypoliciesnotfairlyrewardingtheuseofindustrialwasteheatornaturalcoolingsourcesin
comparisontorenewableenergysources.
Nontransparent,inconsistentinterconnectionproceduresandbackupcharges.
3
Industrial waste or surplus heat refers to heat contained in sidestreams, product or wastestreams produced as part of the normal
operation of industrial processes; this heat, unless recovered, would be released to the environment, and thus the use of recovered
surplusheatisconsideredcarbonfree.
4
Theuseofnaturalcoolingsourceswillneedtocomplywithlocalenvironmentalregulationandrequiredimpactassessments.
5
Turndownrangereferstotheratiobetweenmaximumandminimumoperatingloadsofaplant,whileturndowncapabilitydefinesthe
rateatwhichtheoperatingloadcanbedecreased.Bothtermsprovideanindicationofthedegreeofflexibilityofagenerationunit.
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Lackofknowledgeinsocietyaboutcogenerationbenefitsandsavings.
Lackofintegratedheating/coolingsupplyplanning.
BarriersreducingeconomicfeasibilityofcogenerationandDHCinclude:
Higherupfrontinvestmentscomparedtoconventionalgenerationanddistributionsystems.
Economicandmarketissuesrelatedtodifficultiesinsecuringfairvaluepricesforelectricityfrom
cogenerationexportedtothegrid.
Uncertainenergypolicieslackinglongtermvisibility.
Barriersreducingflexibilityofthebusinessstructureofcomplexenergysystemsinclude:
Lackofenergyefficiencypolicycoordinationonsupply,distributionandenduse.
Lackofbusinessmodelsthatrewardenergyflexibilityandsustainability.
Thisreportprovidespracticalexamplesandapproachestohowthesebarrierscanbeovercometo
achieve increased penetration of cogeneration and DHC technologies in support of an efficient,
integrated,lowcarboneconomy.Thefollowingsectionsdescribespecificcogenerationandmodern
DHC solutions and analyse them from different angles, including the technology selection made,
business structure developed and financing mechanisms used. The report also considers the role
playedbytheregulatoryframeworkwithinwhichprojectshavebeenimplemented.
Inaddition,thereportpresentssixspecificcogenerationandDHCprojects,includingthreeindustrial
cogenerationcasestudiesandthreehighefficiencyrenewableDHCcasestudies.Thesecasestudies
offerpracticalexamplestodistilreallifesolutionsoftechnologychoices,financialtoolsandmarket
structures,includinglessonslearnedandpossibleapplicationinothercontexts.
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CogenerationandDHCSolutionsAnalysis
Cogeneration represents a series of proven technologies, covering a wide range of enduse
applications,capacityranges,fuelbasesandtechnologyuses.Themajorityofthesetechnologiescan
be grouped into three categories: industrial processes, DHC, and small commercial and residential
applications.ThisreportfocussesonindustrialandDHC6applications.
Cogenerationunitsinstalledinindustrialprocesses
Energyintensive industrial sectors such as chemicals, refining, pulp and paper, and food and
beverage typically have high processheat requirements and considerable electricity needs.
Cogenerationtechnologiesarecapableofprovidingheatupto400degreesCelsius(C).Almostall
processheatdemandinthefoodsectorisbelow400C,aswellasapproximately51%and83%of
the total heat demand of the chemicals and pulp and paper sectors, respectively. Taking these
characteristicsintoaccountglobally,theestimatedmaximumtheoreticaltechnicalpotentialforheat
cogenerationrepresents4.8exajoules(EJ)and3.3EJinthechemicalsandpulpandpaperindustrial
sectors, respectively, based on 2011 energy use data (IEA analysis based on Ecoheatcool, 2006).
However,thecosteffectivepotentialoftheseapplicationsishighlydependentonlocalenergyprices
and regulatory conditions. Data availability limitations on existing global industrial cogeneration
capacitymakeitdifficulttoestimatetheshareofadditionalcapacitypotentialwithintheindicated
maximumtheoreticallevel.
Some industrial processes also generate waste streams that are suitable for use as cogeneration
fuels that can reduce a sites operating costs by reducing fuel expenditures. Personnel at these
industrial facilities are often qualified to operate the necessary cogeneration units, providing a
suitableenvironmentforcogenerationtechnologiestobeapplied.In2011,industrialcogeneration
facilities generated 26% of total global electricity generation from cogeneration (37% and 15% in
Organisation for Economic Cooperation and Development [OECD] member countries and non
membereconomies,respectively).
CogenerationapplicationsconnectedtoDHCnetworks
Districtheating(DH)networkssupplyheatforlowandmediumtemperatureapplications,suchas
space heating and hot water in residential and commercial buildings. District cooling (DC) can
similarly be produced from heat via absorption chillers and from natural cooling sources such as
riversandtheocean.HeatsupplyapplicationsforbothDHandDCcanincludeheatrecoveredfrom
cogenerationunits,industrialprocessesandothergeneratingsources,includingrenewableenergy.
Thepotentialfortheseapplicationsdependsonthecharacteristicsofthethermalload(temperature
andregularity)aswellasonelectricitypricesandpopulationdensity,whichdirectlyaffectsrequired
capitalinfrastructureinvestmentsandtheassociatedpaybackperiod.
In 2011, 79% of total DH in OECD countries was produced by cogeneration plants (IEA, 2013). In
Europe,roughly12%oftotalheatdemandwasmetbyover6000DHsystems,whereasDHsalesin
China (2.81EJ) (Euroheat&Power, 2013) represented about 23%7 of residential and commercial
heating demand. This level of demand represents a growth of 25% between 2007 and 2011 in DH
salesinChina(Euroheat&Power,2013).
6
ThesectiononcogenerationapplicationsconnectedtoDHCnetworkscanalsoincludestandalonedistrictenergynetworks.
7
BasedonIEAETPBuildingsmodeldataforresidential/commercialheatingdemand.
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CurrentDCsalesarestilllimitedcomparedtoglobalcoolingdemand.ThegreatestDCsalesareinthe
United States, accounting for 24.71 terawatt hours (TWh) (Euroheat&Power, 2013), although this
amountstillrepresentsonly6%ofthecountrysspacecoolingdemandinresidentialandcommercial
buildings.8 Significant potential exists for DC growth. The capacity of DC through chilled water in
Koreaalonemorethantripledbetween2009and2011(Euroheat&Power,2013),andasglobalspace
cooling demand continues to increase more than doubling by 20509 DC solutions will have an
importantroleinprovidingefficient,lowcarboncoolingsupply.
Challengesandsolutions:analysisofreallifeexamples
Often, cogeneration projects look attractive when analysed independently from market and
regulatory conditions. In practice, implementation of cogeneration technologies has been
challenging, as proven by current limited cogeneration penetration in the global energy market:
only9%oftotalelectricitygenerationcomesfromcogenerationplants.DHCprojectssimilarlymay
be attractive from an energysaving perspective, but often they require both more investment in
infrastructurethanisfinanciallyviableinthecurrenteconomicclimate,andanestablishedlongterm
urban planning strategy, which is sometimes lacking. Little progress in practical implementation of
efficientDHCnetworkshasbeenachievedinrecentyears.
To assist policy makers in addressing barriers to implementation of successful cogeneration and
DHC solutions, this report has developed a compendium of case studies, including industrial
cogenerationandDHCapplications,asthebasisforthereportsanalysis.Thesecasestudiesaddress
diverseapplications,locations,capacities,energysourcesandachievedCO2savings(Table1).
Table1CogenerationandDHCcasestudiesanalysed
CO2savingscompared
Capacity toconventional
Projectname Typeofapplication Location Energyinput
(MW) generation
technologies(kt/year)
Markinchproject Industrialcogeneration:Papersector United 127 Biomass 250

Kingdom
Eresmaproject IndustrialcogenerationBeverage Spain 23 Gas 16
sector
NuevoPemex Industrialcogeneration:Gasprocessing Mexico 730 Gas 430
project andRefiningsector
*
Marstalproject Biomasscogenerationandsolarthermal Denmark 6 100% 11
DHwithstorageandheatpump renewable
**
Bercyproject DCnetworkassistedwithnaturalcooling France 44 Naturalcooling 7
assisted
PNUWproject DHnetworkwithsolarthermaland Saudi 25 Solar,diesel 5
storage Arabia (aux.boilers)
Note:CO2=carbondioxide;kt=kilotonnes;MW=megawatts.
*
Assumedsavings(seecasestudyfordetails).
**
IncludesCO2emissionsfromrefrigerantreleases.Notconsideringrefrigerantrelatedemissions,CO2emissionssavingsforthisproject
are5.5kt/year.
Sources: RWE Innogy representatives (2013), Personal communication; Cogen Energa Espaa representatives (2013), Personal
communication; Pemex representatives (2013), Personal communication; PlanEnergi Nordjylland representatives (2013), Personal
communication; Climespace GDF Suez representatives (2013), Personal communication; Millennium Energy Industries representatives
(2013),Personalcommunication.
8
BasedonIEAETPbuildingsmodeldataforresidential/commercialspacecoolingdemand.
9
BasedonIEAETPbuildingsmodeldataforresidential/commercialspacecoolingdemand.
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The studies examine in greater detail the technology choices, business structures, regulatory
contexts,andspecificbarriersandchallengesthatareencounteredduringprojectdevelopmentand
implementation. The case studies also demonstrate how these challenges can be overcome. Their
conclusionsinformedthereportsanalysisofcommonobstaclestodeploymentofcogenerationand
efficientDHC,andsubsequentanalysisaimstoprovideinsightforpolicymakersandstakeholdersin
movingtowardsamoreefficient,lowcarbonenergysystemusingthesetechnologies.
The project development phase examined in the case studies is divided into two sections: one, an
analysis of technology selection and the other, a look into the financing mechanisms used in the
projects.Thecasestudiesanalysesubsequentsystemoperationintermsofthebusinessstructureto
understandhowinteractionsbetweenenergyusersandproducerscanhelpdriveenergysavingsin
the overall system. Each case study also assesses market and regulatory conditions and draws
conclusionsandlessonslearned.
Several factors can affect the decisions made at each of the project development phases or the
definitionofthesystemsbusinessstructure(Figure2).Theprojectssuccesscanbeinfluencedbya
goodunderstandingoftheenvironmentalandflexibilitybenefitsofcogenerationtechnologiesand
modern DHC networks, as well as the existence of appropriate policy measures and fair market
conditionsrewardingthesebenefits.
Figure2 KeyfactorsindevelopmentandoperationofcogenerationandDHCprojects
PROJECT DEVELOPMENT SYSTEM OPERATION
TECHNOLOGY SELECTION FINANCING MECHANISMS BUSINESS MECHANISMS

Energy efficiency Company self-financed Generator/end-user
Technology flexibility Loans contract structure
Energy prices and availability Third party Sale contract
Purchase contract
Thermal/electricity loads Joint venture
Generator/market
Existing local infrastructure Publicly financed
operator structure:
Grid interconnection possibilities Any combination of the wholesale market bids
above financing options
End-user/distribution
contract structure
POLICY AND MARKET MEASURES

TECHNOLOGY SELECTION FINANCIAL AND SMART BUSINESS
INCENTIVES FISCAL INCENTIVES MODELS SUPPORT
Energy efficiency Low interest loans Support related
rewarding policies Capacity grants R&D and international
collaboration
Complementary policies Feed-in tariffs
rewarding efficient use of Promote pilot models
renewable energy sources Fiscal incentives
Integrate lessons learned
Interconnection measures from pilots and existing
Local infrastructure and models into infrastructure
heating/cooling planning development plans
REGULATORY FRAMEWORK LONG-TERM STABILITY

Key point Many factors determine the success of cogeneration and DHC projects. The most important
factortofacilitatelongterminvestmentsisastableandeffectiveregulatoryframework.
Page|15
Technologyselectionjustification
Several factors determine which technologies and configurations are suitable for cogeneration
applications,includingquantityandqualityofheatandelectricitydemandloads,thepatternofthe
consequent powertoheat ratios over time, and enduser location. Economic and environmental
aspects, such as energy efficiency, local fuel prices and availabilities, and existing local distribution

infrastructures and the ability to interconnect to them also affect the relative competitiveness of
cogenerationtechnologiesandDHCnetworksincomparisontootherconventionaltechnologiesand
technicalapproaches.
Enduseenergyefficiencycomesfirst.Energydemandprofilesdirectlyinfluencegenerationand
distributionsystemcapacities.Implementationofenergyefficiencyimprovementsanddemand
side management measures on enduse applications should be considered prior to defining
potential supply system solutions, to ensure that the resulting heat and electricity needs are
minimised when possible. This approach avoids excessive capacity on generation equipment,
which can affect production energy efficiency performance if the system is not operating at its
optimalloadlevel.
Temperature counts. Industrial processes are very diverse, and their heat demand ranges from
ambient temperatures (25C) to temperatures above 1500C. Heating needs from processes
operating at temperatures below 400C can technically be supplied by cogeneration
technologies. In those industrial processes that generate exhaust and waste streams at high
temperature levels, steam can be generated by partially recovering the heat that otherwise
wouldbereleasedtotheenvironment.Thissteamcanbeusedtomeetonsiteheatdemandsor
integratedinlocalDHCnetworksiftemperaturecompatibilityisfavourable.Inthecaseofsteam
temperaturesabove430C,electricity maystillbe generatedthroughsteam turbinesifthermal
demandisnotlocallyavailableorfavourable(EPA,2008).
ExistingDHnetworkstypicallyoperateatsupplyandreturntemperaturesintherangeof110Cto
80Cand60Cto50C,respectively.NewerDHCsystemscanoperateatlowertemperaturesof
90C (supply) and 40C (return), and research is also under way through the IEA Implementing
AgreementonDistrictHeatingandCoolingtodevelopnextgenerationDHsystemsthatoperate
attemperaturerangesof55Cto50C(supply)and30Cto25C(return)(Wiltshire,2013).
Reducing supply and return temperatures is a critical first step to improving DHC network
efficiency (in addition to addressing demand and building energy efficiency), because it has a
positive impact on energy savings by decreasing required heating energy input, thermal energy
distributionlossesandnetworkpumpingrequirements.Beyondthesesavings,additionalenergy
reductioncanbeachievedthroughthedirectuseoflowtemperatureindustrialsurplusheatand
cogenerationapplicationsthathavelowernetenergyinputtoprovideDHneeds.Forinstance,
the ORC is an example of applying lowtemperature energy sources such as waste heat,
geothermal, solar thermal and biomass, by using an organic fluid in the heat generation cycle
insteadofwater,enablingthesystemtooperateatalowerboilingpoint.
Get the right heattoelectricity ratio. For cogeneration technologies to be a costcompetitive
optionin comparisonto conventionalseparateproductionof heatandelectricity,simultaneous
demand needs to exist for both electricity and heat. Under these conditions, cogeneration
options can pay back the additional investment requirement associated with greater technical
complexityofequipmentthroughenergysavingsgeneratedbyahigheroverallenergyefficiency
levelsubjecttoexistinglocalenergyprices.Generally,thecapacityofacogenerationsystemis
set to meet the required thermal load, because this is usually the limiting factor; however,
optimumdesignneedstobeassessedonacasebycasebasis.Fromanoperationalperspective,a
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cogenerationunitshouldaimtomaximisetheexergy10output(heatandelectricity)withinlocal
constraints, thus optimising the systems environmental benefits. The heattoelectricity ratio
determinesthemostsuitablecogenerationprimemover.Typicalheattopowerratiorangesare
0.5to1.5forinternalcombustionengines,1to10forgasturbinesand3to20forsteamturbines
(CutticaandHaefke,2009).
Finding the optimum generation technology can become more challenging in demand
applications, including DHC networks, whose heattoelectricity ratio varies daily or seasonally.
Thesesystemsoftenrequireacombinationofseveralgenerationtechnologiestooptimisesystem
energy performance on an annual basis. A portfolio of generation and storage technologies in
theseDHCnetworksistypicallyneededtohelpthesystemadapttothedemandrequirements.
Bridge energy demand locations with generation. The business case for cogeneration
applications canbenefitfromtheexistenceoflocalheatendusersthatcan absorbexcessheat
generated. These end users could be neighbouring industrial processes with a temperature
compatible heat demand or a local DH network. In the case of industrial cogeneration
applications,thepossibilitytoexportexcesselectricitytothegridasanaddontotheindustrial
sites core business can enhance the profitability of the site and provide additional flexibility to
operations.
DHC networks often require considerable infrastructure to distribute the heating and cooling
fromthegenerationsitetoendusers.Thenecessarycapitalinvestmentcanonlybereasonably
paidbackinareaswithhighpopulationdensitieswheresignificantheatingandcoolingdemand
can be ensured. These networks can be highly efficient and reduce their carbon footprint by
taking advantage of locally available, renewable energy sources such as biomass, solar thermal
andgeothermalpower,aswellassurplusheatfromindustrialprocessesandnaturalcooling.
Agreatvarietyofenergysourcescanbeused.Cogenerationtechnologiescanoperatewithina
widerangeoffuelsandenergysources,rangingfromfossilfuelsandwastetorenewableenergy
sources such as biomass, geothermal and concentrated solar. Combining cogeneration
technologieswithrenewablesourcesprovidesatwofoldcarbonbenefit:energysavingsthrough
enhanced conversion efficiency levels and direct CO2 emissions reduction achieved through the
use of carbonneutral energy sources. The final selection of energy sources for cogeneration
systemsishighlydependentondiversefactors,suchaslocalavailabilityandenergyprices.
Value flexibility. Cogeneration technologies provide a flexible bridge between heat and
electricity.Bothformsofenergycanbebalanceddependingonenduserneeds,sothateitherthe
electricity or the heat output is maximised over the other to meet system requirements. This
cogeneration feature allows multiple solutions and operating modes to be explored. For
instance,industrialcogenerationapplicationstypicallyoperatetomeetasetheatoutput,which
is required to sustain the industrial process. The electricity output in this case would fluctuate
with the heat output for the specific established heattoelectricity ratio. In contrast, the plant
could also choose to maximise electricity generation during periods when electricity prices are
attractive in comparison to fuel prices, thus compensating for the reduction in heat generation
through the use of auxiliary boilers. Even in shutdown periods for maintenance work, when
significantly less or no heat demand exists, an industrial facility may still decide to keep the
cogenerationunitinoperationtoexportelectricitytothegrid,providedthesystemsdesignand
sizeallowthisalternative.Theimpactonheatsupplyofapplyingtheseoptionscanbeminimised
withtheuseofthermalstoragecapacityandseparateboilersonthesite.
10
Exergyisameasuretoindicatetowhatextentenergyisconvertibletootherformsofenergy.
Page|17
DHCnetworkscanreachsignificantlevelsofflexibilitydependingontheirsupplysystemdesign.
Apart from cogeneration technologies, DHC networks can integrate other equipment, such as
heat pumps, absorption chillers and thermal storage capacity, as well as free energy and
renewable energy sources. These highly integrated networks can absorb power from the grid
during excess electricity periods and convert it into heat for end uses through heat pumps
integrated in the system. Conversely, the DHC networks can help mitigate electricity peak
demand periods by providing heating or cooling from cogeneration systems, thereby reducing
electricitydemandedbyendusers.Thermalstoragecapacitycanalsohelpreducethefluctuation
ofheatsupplyproducedbychangesintheoperatingmodeofthenetwork.
Howcanpolicyandmarketregulationshelptomaketherightenergytechnologychoice?
Policies and market regulations can help unveil the benefits of cogeneration technologies and
efficientDHCnetworks.Marketconditionsshouldensuretransparentandfairfuelpricesandreflect
the real cost of electricity and heat generation to promote efficient use of energy. Crosssubsidies
between heat and electricity markets should be avoided since they can result in artificially
imbalancedenergyprices.Bypromotingthemostefficientuseoflowcarbonandrenewableenergy
sources, energy policies can also help to provide a twofold contribution to meet climate targets
from the use of renewable sources, while achieving higher levels of energy efficiency in the
conversionprocesstofinalenergy.
Streamlinedandclearinterconnectionstandardsthatfacilitateconnectionofcogenerationsitesto
the distribution grid to export excess electricity can improve the business case of projects. By
enablingabidirectionalflowofelectricityfromcogenerationfacilitiestothetransmissiongridand
viceversa, these sites can maximise added value through system flexibility. Policy tools, such as
strategic heating and cooling planning, can help identify costeffective opportunities for
cogeneration technologies and DHC networks. These assessments identify, locate, quantify and
characterisethermalsourcesandthermalendusersinaspecificregion(Box1).Thisinformationis
criticalwhenexploringlocationsfortheimplementationofnewDHCnetworksorassessingpossible
upgradesorexpansionsofexistingnetworks.Inthecaseofindustrialcogeneration,heatmappingof
the area surrounding the industrial site can help identify the possible opportunities for additional
heatprovidersandcustomers.Thisinformationtypicallyhasadirectimpactinthedesignphaseof
theproject.
The policy and market conditions briefly described here have been key in the development of the
projectsanalysedinthisreport(Table1).Thethreeindustrialcogenerationprojectsanalysedinthis
reportareinterconnectedtothelocalpowergridandtypicallyexportelectricityaspartoftheircore
business structure. For instance, policy measures jointly promoting lowcarbon and efficient
electricityundertheRenewableObligationCertificatesintheUnitedKingdomwereessentialforthe
economicfeasibilityoftheMarkinchcogenerationproject.Theprojectalsocouldbenefitfromother
policy measures, including the proposed future electricity market reform as a capacity mechanism
incorporatingdemandsideresponseandstorage.
ThedevelopmentoftheDHCprojectsanalysedinthisreportalsobenefitedfrompolicyprogrammes
complementarilyrewardingenergyefficiencyandtheuseofrenewableenergysources.Forinstance,
the Paris Climate Action Plan was taken into account in the choice of free cooling technology
introduced in the Bercy Climespace cooling plant in Paris, France. The Marstal solar thermal DHC
network integrating storage and biomassbased cogeneration was similarly developed under the
framework of the Danish governments climate targets aiming for 100% renewable heat and
electricitygenerationby2035.

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Box1StrategicheatingandcoolingplanningtrendsinEurope
Article 14 of the 2012 European Energy Efficiency Directive (EE EU Directive) requires that member
countriesperformanassessmentofthepotentialforfurtherdeploymentofcogenerationandefficient
DHC systems by December 2015, as well as an analysis of policy strategies to be adopted by 2020 and
2030torealisethatpotential.Thisexerciserequiresthedevelopmentofnationalmapslocatingheating
andcoolinggenerationanddemandpoints,asabasisforassessingcosteffectiveopportunitiesforthese
technologiestomeetexistingheatingandcoolingdemands.Thisassessmentincludes:
Heating and cooling sources, including electricity generation facilities with an annual generation
greaterthan20gigawatthours(GWh),wasteincinerationplants,andexistingorplannedDHsystemsand
cogenerationsites.
Heating and cooling demand points, including industrial areas with an annual consumption greater
than20GWhandmunicipalitieswithaminimumplotratioof0.3.*
The Directive also calls for the analysis of energy efficiency improvement potentials in existing DHC
systemsandacostbenefitanalysisfornewinstallationsorsubstantialrefurbishmentprojects,including:
Thermalelectricityplantsorindustrialfacilitiesgeneratingsurplusheat(atarecoverabletemperature
level).
New DHC systems or existing networks with a thermal input greater than 20MW where a new
generationfacilityisexpected.

*
Plotratioisdefinedastheratioofthebuildingfloorareatothelandareainagiventerritory.
Source:EuropeanParliamentandtheCouncil(2012),DirectiveoftheEuropeanParliamentandoftheCouncilof25October2012on
energyefficiencyamendingDirectives2009/125/ECand2010/30/EUandrepealingDirectives2004/8/ECand2006/32/EC,EP,
Brussels.
Financingmechanisms
Financing is a key consideration in project development and continues to be a limiting factor in
progresstowardshighercogenerationandefficientDHCpenetrationincountriesacrosstheglobe.
Cogenerationtechnologiestypicallyrequiregreaterupfrontcapitalinvestmentsthanconventional,
separatethermalgenerationtechnologiesduetotheadditionalheatrecoveryequipmentrequired.
TheinvestmentcostsforcogenerationunitsusingagasturbinerangefromUSD900perkilowatt
electric(kWe) to USD1500/kWe (ETSAP, 2010a), in comparison to USD900/kWe required for a
conventional opencycle gas turbine (ETSAP, 2010b). In the case of naturalgasbased combined
cycles(NGCC),thecogenerationarrangementrequiresaninvestmentbetweenUSD1100/kWeand
USD1800/kWeorhigher(ETSAP,2010a),comparedtoUSD1100/kWeforaconventionalNGCCwith
noheatexport(ETSAP,2010b).
Efficient DHC networks are also capital intensive due to the significant infrastructure needed to
distributeheatorcoolingfromgenerationlocationstoendusers.Highcostscanalsobeassociated
withthedevelopmentandintegrationofthedifferentenergysupplysourcesandtechnologiesthat
aretobelinkedtothenetwork.
To encourage greater penetration of cogeneration and DHC, economic feasibility studies need to
clearly reflect the environmental and flexibility benefits of these technologies in economic terms
withinthelocalregulatoryandmarketframework.Thisinclusiveevaluativeapproachhelpstoensure
thatprojectsarefairlyassessedagainstconventionaltechnologyoptions.
Page|19
MultiplemechanismscanbefoundtofinancecogenerationandefficientDHCprojects,depending
onthereturnoninvestment(ROI),theestimateduncertaintyofnotfulfillingtheROIintheexpected
time period, the acceptable risk for different parties involved and their financial situations. While
large generation projects can often be selffinanced or financed through the development of joint
ventures, small and mediumcapacity systems developed by smaller entities typically require
alternative financing mechanisms due to lower cash flow flexibility. Mechanisms used range from
selffinancedprojectstodiverseformsofthirdpartyandpublicfinancing.
Selffinancing. This financing mechanism can be attractive when important net cash flows are
availableandtheprojectalignswithstrategicperformanceandenvironmentaltargets.Thelackof
other projects simultaneously competing for the same entitys funding can also influence the
selectionofthisfinancingoption.
Partialortotalloanfinancing.Thistypeoffinancingcanbeanalternativemechanismtoproceed
withthedevelopmentofaprojectandmitigatetheriskofexcessivelyaffectingnetcashflowof
the entity. Loans can typically be provided for up to 80% of total construction cost at different
interestrates,dependingontheguaranteethatinvolvedcompaniescanoffertosecurepayment
oflentcapital(EPA,2013).
Thirdpartyfinancing.Companiesorpublicentitieswithnoabilitytotakeonhighupfrontcapital
investments may seek an agreement with a third party, typically energy services companies
(ESCOs).Thelatterown,financeandoperatethecogenerationordistributionsystem,andthey
provide heat and electricity to the energydemanding body at set or indexed price rates. The
ESCOcanoperatethefacilityfortheentiretyoftheplantslife(e.g.abuildownoperatescheme),
ortheplantcanbetransferredtotheenergydemandingcompanyafteraspecificoperationtime
(e.g.abuildownoperatetransferscheme).
Financing through joint ventures. When developing projects that may present greater risks for
individual companies (for instance, because of lack of expertise in a specific technology or
because of a less prevalent position in a specific market), companies often form joint ventures
speciallydesignedtominimisepotentialinvestmentrisks.Thesejointventuresopenawiderange
of flexible financing solutions in which the parties involved contribute differently to project
funding through diverse financing mechanisms, often involving plant operation and associated
energyprovisionrights.
Public financing. Cogeneration and DHC projects can be fully or partially financed by
governments, either through public energy companies with the same ownership rights on the
facility,orthroughdirectfinancialsupport,suchascapacitygrantsorlowinterestloans.
Howcanpolicyandmarketregulationshelpmitigatemarketfailures?
Policy measures including financial and fiscal incentives can help mitigate the impact of markets
failing to reflect fair energy prices that reward the environmental benefits of efficient generation
technologies,andtoreducehigherinvestmentcostsforthesetypesofprojects.Theseincentivescan
be applied not only to new installations but also to refurbishments of existing facilities aiming to
improve energy efficiency performance and reduce their carbon footprint. Freeing up investments
for modernising and improving the operation of existing inefficient DH networks is critical to
achieving decarbonisation of heat generation in countries that are bound to extensive, old and
frequentlypoorlymaintainedheatdistributioninfrastructures(Box2).

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Box2Russia:policyeffortstomoderniseDHinfrastructure
Russiahasthemostextensive(173100kilometre[km]trenchlengthofDHpipelineand7EJDHsalesin
2007),andoldestDHinfrastructureintheworld(manynetworklinesaremorethan100yearsold).An
estimated60%oftheRussianDHnetworkneedsmajorrepairorreplacement,andanestimated20%to
30%ofheatislostinthedistributionnetworkbeforereachingconsumers.
HeattariffsinRussiadonotreflecttherealheatgenerationcostduetotheexistenceofcrosssubsidies
between the electricity and heat markets, because part of heat production costs are allocated to
cogenerationbasedelectricity.Thiscrosssubsidisedsystemresultsinanartificiallyhighelectricityprice
forcogenerationcomparedtolessefficientconventionalgenerationtechnologies,whichinturnmakes
efficient cogeneration technologies less attractive to investors. Imbalanced energy prices also do not
incentiviseconsumerstouseheatefficiently,becauseheatpricesareratherlow.
Policy efforts have been implemented in recent years to drive market conditions to reward energy
efficiency.Significanteffortsarestillneeded,butthesepolicieswillsupportnetworkimprovementsand
moreefficientuseofheatbyconsumers.
Sources: Euroheat&Power (2013), District Heating and Cooling: Country by Country Survey 2013, Euroheat&Power, Brussels; IEA
(2009a),CHP/DHCountryProfile:Russia,IEAPublishing,Paris.
Policy measures can either alleviate higher upfront investment requirements for project
development or help reduce the associated operation and maintenance costs of systems. For
instance,afueltaxexemptionsystemforcogenerationunitsorefficientenergyproviderscanhelp
promotetheprogressiveuseoflowcarbonfossilfuelsandrenewableenergysourcesforelectricity
andheatgeneration.Feedintariffscanensureahigherpriceincomparisontothemarketbaserate
forelectricityandheatexportedtothedistributionnetworkfromcogenerationfacilities.Different
bonus conditions may apply, depending on the fuel or energy source used by the cogeneration
plant,orfeedintariffscanbeappliedtothetotalelectricityorheatgeneratedatthesite.Feedin
tariffs can also be applied at a fixed rate, independent of marketbased electricity prices, or in
combinationwithanobligationfromdistributiongridoperatorstopurchaseelectricityfromefficient
generators,suchascogenerationplants.
Longterm stability of energy policies and market regulations is key to securing investments in the
deploymentofefficientelectricityandheatgenerationanddistributiontechnologies.Thesepolicies
enable a more accurate assessment of project ROI, minimise the risk for supply plants and grid
operators, and encourage progressive deployment of efficient and lowcarbon generation
technologies.
Thepolicyandmarketconditionsbrieflydescribedaboveinfluencedthedevelopmentoftheprojects
analysed in the case study section of this report. The financing mechanisms used by the three
industrialcogenerationcasestudiesrangefromselffinancedprojectstothirdpartyfinancing.The
MarkinchbiomassbasedprojectintheUnitedKingdomwasalsoawardedwithacapacitygrantto
meetpartoftheinvestmentrequirements.Twooftheotherprojectssimilarlybenefit(orarevery
likely to benefit in the near future) from electricity export feedin tariffs and fiscal incentives,
includingreductioninfueltaxes.
The DHC case study projects also benefited from fiscal and financial incentives, including capacity
grants in the combined cogeneration and storage project in Marstal, Denmark. Two of the three
DHCprojectsusedatotalorpartialloanfinancingmechanism.
Page|21
Box3India:financialandfiscalincentivesforindustrialcogeneration
According to recent studies, the sugar industry in India holds the largest potential for industrial
cogenerationdeploymentinthecountry,accountingfor5.2gigawatts(GW)ofthetotalestimated14GW
ofpotentialcogenerationintheoverallindustrialsector.
The government of India is pursuing this potential through financial and fiscal incentives specifically
targeted to cogeneration applications in the industrial sector. Bagassebased cogeneration plants
benefitfromacapitalsubsidythatrangesfromINR1.5milliontoINR1.8millionforprivatelyownedsugar
mills,appliedto65%oftheunitcapacityinMW.Thesubsidyalsoisavailabletoexistingcooperativeor
public sugar mills, up to a maximum of INR80million per project, and includes INR 4 million to INR
6millionperMWofsurpluspowerexportedtothegridfornewpublicorcooperativesugarmills.Fiscal
incentives are also provided to biomassbased cogeneration projects, including 80% accelerated
depreciationandconcessionalimportandexciseduties.
TappingthetotalindustrialcogenerationpotentialinIndiawouldrequirewiderpolicyprogrammesthat
also include nonbagasse cogeneration applications. Measures such as a more comprehensive
cogenerationfeedintariffsystemthatincludesbiomassandothercogenerationapplicationsandopen
accesswithoutcrosssubsidysurchargescouldhelpachievegreatercogenerationdeployment.
Note:1USD=approximately62.5INR;Bagasseisafibrouswasteproductgeneratedinsugarmillsaftercrushingandextractingthe
juicefromsugarcane.Thismaterialcanbeusedasafuel,anditiscategorisedasbiomass.
Sources:Singh,M.,B.SinghandS.K.Mahla(2013),Combinedheatandpowerincommercialsector,InternationalJournalon
EmergingTechnologies,Vol.4/1,pp.8187;MinistryofNewandRenewableEnergy(India)(2013),www.mnre.gov.in.
Businessstructure
As greater shares of variable renewable generation technologies are integrated into the energy
system, networks will face new challenges to effectively balance supply and demand due to the
greater level of uncertainty in energy generation from these sources. Additionally, the increasing
trend towards decentralisation in energy generation, driven by the aim of reducing transmission
lossesandimprovingenergyselfsufficiencyofendusers,hasincreasedthecomplexityoftheenergy
systembyintroducingbidirectionalenergyinterconnectionsbetweensupplyanddemand.
In an energy environment of increased complexity, flexible technologies are highly valued:
technologies that can rapidly adapt to operating loads, absorb or release energy when needed, or
convert a specific final energy into another form of energy are increasingly important in energy
systems. A number of technologies featured in this report offer this flexibility, including
cogeneration technologies bridging electricity and thermal systems, industrial sites transferring
surplusheatingorcoolingtolocalDHCnetworksorabsorbingexcessheatfromthethermalgridto
convert it into electricity, DHC systems absorbing power from the grid through heat pumps and
storingitasheatinexcessgenerationperiods,absorptiontechnologiesbridgingheatingandcooling
inDHCsystems,andelectricalandthermalstoragecapacitiescontributingtosmootherpeakdemand
periods(Figure3).

Page|22
Figure3 Interconnectionsofelectricityandthermalenergyinanintegratedenergysystem
Electrical storage
Thermal electricity
Transport
and heat utilities
Electricity grid
Industry Heat pumps Building
Heat grid Renewable and natural

energy sources
Sorption Wind
Solar
Cooling grid
Geothermal
Natural cooling
Heating storage Cooling storage

KeypointElectricityandthermalenergysystemsarecomplexandoffernumerousopportunitiesfordeep
integration.
Flexibletechnologiesasstandaloneunitsarenotabletosignificantlyimprovethecarbonfootprint
of energy systems. Instead, their adequate integration into energy networks will play a key role in
achieving efficient and sustainable energy systems. Currently, diverse options exist to manage
energy interactions between generation, distribution and end uses, but these options need to be
integratedbetterintobusinessstructuresinamarketthatisincreasinglydecentralisedwithmultiple
actorsandbidirectionalenergyinterconnections(Box4).
Current business structures can range from conventional supplyanddemand (generatoranduser)
contracts to more complex arrangements involving end users, distribution markets or generators.
Themostappropriateapproachwilldependonthetechnicalspecificationsandneedsofaparticular
generatororenduser,aswellasfinancialconsiderations,andishighlydependentontheparticular
context and internal business structure of the parties involved. For instance, whereas electricity
transmission grids generally are extensive, heating and cooling transmission networks are highly
localised because interconnections over larger areas are not technically or economically feasible.
Therefore,electricitytransmissiongridstendtobecentrallyoperated,whiletheoperationofheating
andcoolingdistributionsystemsisoftenverticallyintegratedwithinthelocalgeneratingcompany.
Additionally,thegeneratoroftenmayhaveachoicebetweendifferentbusinessstructures,ormay
optforacombinationofseveralapproaches,especiallyinthecaseofcogeneratorsandintegrated
DHCnetworksthatbridgeelectricityandheatmarkets.Forexample,anindustrialcogeneratorcould
enterintoabilateralcontractforheatsupplyandthenexportsurpluselectricitytothetransmission
gridoperatoratmarketrates.
Page|23
Box4Sweden:OpenDHCbusinessmodel
Fortum launched the Open DHC business model in Stockholm (Sweden) in 2012 with the objectives of
utilisingthemostefficientenergysourcesavailableandenhancingtheprofitabilityoftheDHCsystemby
minimisingcostsrelatedtoheatsupply.OpenDHCtreatsalltypesofthermaldeliveriesconnectedtothe
networkequallybasedonthemarketpricethatispaidforanyheatdeliveries,regardlessofproduction
type or heat source.At thesame time, only thermal deliveries from renewable sources or sourcesthat
haveahigherconversionefficiencythantheutilitycompanycanbeaccepted.Heatingandcoolingmarket
prices are defined daily for three different types of surplus heat deliveries, including primary and
secondaryheatdeliveredtothesupplyandreturnpipelinesoftheDHnetwork,respectively,andrecovery
heatdeliveredtothereturnpipelineoftheDCnetwork.ThesamemechanismisappliedtoDHandDC
capacitiesofnetworkusersthathelptoreducetheutilitycompanysrequiredheatgenerationcapacity,
whichcanbeachievedthroughdemandsidemanagementorthermalstoragesthatrewardloweroverall
heat/coolingenduse.OpenDHCencouragesthesesynergieswhileseekingtoensurereasonableheating
andcoolingpricesforDHCcustomers.
EnergyintheOpenDHCnetworkcanbeproducedbytheutilitycompany,byconventionalcustomersor
byanyotheroperatorconnectedtothenetwork.OpenDHCalsoallowstheuseoflocalwasteheatthat
otherwisewouldbelost,therebyachievingamoreefficientsystembyencouragingconsumerstorecover
theirexcessenergy.Thisoptionhelpstoimproveoverallsystemefficiencywhilereducingtheemissions
footprintrelatedtothermaldeliveries.
Last,bestavailabletechnologyisautomaticallyconnectedtoopennetworks.Inthisway,OpenDHCisa
concrete step towards smarter DHC that takes into account local energy sources while reducing the
networkscarbonfootprintandensuringtransparentenergyprices.InadditiontotheOpenDHCmodelin
Stockholm, Fortum has developed several Open DHC pilots in Finland, and these systems could be
replicatedinothernetworksacrosstheglobe.

Figure4OpenDHCbusinessmodel

Solar
Local bio
Data centres
Co-generation
DH network
Customers
Customers
New solutions
Industry

Source:Fortumrepresentatives(2014),Personalcommunication.
KeypointSmartbusinessmodelscanhelpintegrateawiderangeofenergysources.

Page|24
The wide diversity of intervening factors means that each project is best suited to a different
business arrangement. Below are some of the major options currently available, as well as
limitationsandstrengthsforprojectdeveloperstoconsider.
Generator and enduser contract structure. Bilateral contracts can be established between
generators and end users either through a sale or a purchase contract. For some applications,
especially industrial cogeneration, the entity can be either producer or user depending on
supply/demand balance. This type of contract can provide generators with a stable revenue
source, and end users with predictable longterm energy prices. However, depending on the
specificsofthecontract,thisstructurecouldlimittheflexibilityofasystem(eitheronthesupply
or demand side), given the need to supply or purchase predetermined amounts of heat or
electricity.
Generator and market operator structure. Generators can offer wholesale market bids to the
electricitymarketoperator,dependingonthelocalelectricitymarketstructure.Tobesuccessful,
this approach requires interconnection to the grid and attractive prices. This structure can
accommodate systems that function as both generators and end users, allowing bidirectional
flows,wheretheentityoffersbidswhenoperatingatasurplus,andpurchasesenergyatmarket
rates when necessary. Selling into a market system can also provide a complementary revenue
source for generators that have steady heat demand and surplus electricity. However, this
structurealsoallowsmoreuncertainty;fluctuationsinelectricitypricescouldmakecogeneration
economicallyunattractive.
End useranddistribution contract structure.Contractscanbeestablished between consumers
andthedistributionoperatororretailersfortheprovisionofelectricity,heatingorcooling.Within
electricity retail markets, end users can choose the most attractive electricity supplier from
competing retailers. Regarding heating and cooling in most cases, the end user can set up a
provision contract directly with the generator, because the same entity often operates the
generation and distribution aspects of a specific local network. The majority of these contracts
areunidirectionalfromdistributiontoenduser,rarelyallowingconsumerstoexportenergyto
thedistributiongridandtherebylimitingthesystemsflexibility.
How can policy help develop and implement tools to optimise integrated sustainable energy
systems?
Current energy market structures and legal frameworks have limitations that prevent them from
fully meeting the increasing flexibility needs of complex and highly integrated energy systems. For
future energy systems, smart business models are needed to effectively manage multiple
technologies and optimally balance complex interactions between supply and demand. These
businessstructuresshouldaimtominimiseenergylossesandoptimisetheuseofsustainablelocal
energysourcesbyconsideringthefollowingaspects:
Optimummanagementofmultipletechnologieswithdiversegenerationpatternsovertimeand
flexible capabilities. This management includes finding optimal balances between variable
carbonfreegenerationtechnologies,flexiblelowcarbonorcarbonfreegenerationtechnologies,
andstoragecapacity(thermalorelectric).
Flexible management of bidirectional energy flows among multiple generators and users.
Generators(orconsumerswithsurplusenergy)thatprovideagoodlevelofenergyefficiencyin
boththegenerationanduseofenergy(aswellasalowcarbonfootprint)couldhavepreferential
accesstointerconnectwithenergygrids.
Energypoliciesandprogrammescansupportthedevelopmentofthesebusinessmodelsandmarket
mechanisms and improve the sustainability of infrastructure projects, through measures such as:
Page|25
Supportresearchactivitiestoexploreanddesignsustainablebusinessmechanismsthatcanmeet
thetechnicalandsocietalneedsofcomplexandhighlyinterconnectedenergysystems.
Support the implementation of smart business model pilots and promote international
collaborationandexperiencesharingtohelpfindoptimumsolutionsforlocalcontextsfromthe
widerangeofpossibleoptions.
Ensure that these models reward flexibility, lowcarbon footprint generation technologies and
energyefficiency.
Coordinate the development of local, regional and national strategic infrastructure deployment
plans with developers of business models for energy networks, and define joint measures to
minimise costs of future refurbishments, expansions or new installations; avoid missing
opportunitiestouselocallyavailablesustainableenergysources;andsupporttheprioritisationof
energyefficiencymeasures.
Thediverse businessstructuresandpolicyframeworksillustratedinthe casestudiesofthisreport

demonstrate the influence of policies and market mechanisms to encourage the uptake of flexible
and efficient energy systems in different contexts and regions. For instance, the Nuevo Pemex
industrialcogenerationprojectinMexicobenefitsfromanenergybankingsystemthathasallowed
efficientcogeneratorsandrenewablepowergeneratorstodepositexcesselectricityinthegridand
importthatpowerwhenneeded.TheParisClimateActionPlan(LePlanClimatdeParis)similarlyhas
encouraged the adoption of free cooling to meet expected energy consumption and emissions
targets, while the Princess Noura Bint Adbul Al Rahman University for Women (PNUW) in Riyadh,
Saudi Arabia has established specific energy and performance metrics with possible penalties for
underperformancetoensurethatproductionandtechnicalcapacitiesaremaintained.
Conclusions
Cogeneration technologies and efficient DHC networks can provide significant added value in a
sustainable energy future thanks to their multiple benefits. These benefits include CO2 emissions
mitigation and improved energy security through the enhanced conversion efficiency of the
technologies, and improved flexibility resulting from the ability of the technologies to bridge
electricityandthermalsystemsandtotakeadvantageofawidediversityofenergysources.
Despite these benefits, global deployment of these technologies is limited, and has remained
stagnantoverthelastdecade.Importantbarriersexist,mainlyrelatedtolocalenergypricesignals
that poorly incentivise energy efficiency, lack of strategic planning on energy infrastructure and
difficultyofensuringlongtermstabilityofenergypolicies.
The development of cogeneration and DHC projects requires assessing the main parameters and
localconditionsthatdefineasuitableenvironmentforthesetechnologies,identifyingopportunities
to use locally available energy sources, exploring possible financing mechanisms, and setting a
flexiblebusinessstructurethatcanhelpoptimisepossibleinterconnectionswithlocalenergyplayers.
Policystrategiesandmarketregulationscanhelpmakeenergyefficienttechnologiesacosteffective
option,mitigatetheimpactofmarketsfailingtorewardenergyefficiencybyreinforcingthebusiness
case for these technologies, and support the development of smart business models for optimum
managementofhighlyintegratedandcomplexenergysystems.
The following section contains detailed descriptions of real cogeneration and DHC projects that
provide great examples of how barriers can be overcome and how opportunities within different
localframeworkscanbefoundtoimplementthesetechnologies.
Page|26
CogenerationandDHCCaseStudies
Compendium
Industrialcogeneration:Segovia,Spain
CasestudyinformationsubmittedbyAcogenandCogenEnergaEspaa.
Keyfacts:
The Eresma Cogen project is a cogeneration unit at the Destileras y Crianza del Whisky (Whisky DYC)
distilleryinSegovia,Spain(Figure5).Thedistilleryproduceswhisky,aniseandgin.Asof2008,theannual
total production of malt liquor from the distillery was 796700 litres. The cogeneration plant, which
began commercial operation in May 2008 after a twoyear project development period, is managed,
operated and maintained by Cogen Energa Espaa, and jointly owned with the distillery owners
(InfoPower, 2008). The cogeneration plant replaced the distillerys older conventional generation
capacity;beforethisproject,thedistilleryusedboilerstogenerateheat.Theprojectbeganastwodistinct
plants:onecogenerationplanttoprovideheatandpowertothedistillery,andoneplanttoprovideheat
for the waste treatment process. Because of changes in the regulatory framework, the two units, each
with a 6.5MW gas engine and boiler system and operated by the same control centre, are now both
categorisedascogeneration(Table2).
Figure5 Eresmacogenerationsystemsankeydiagram
Steam
45 GWh
Superheated
water
14 GWh
Hot water
28 GWh
Natural gas Co-generation Electricity

250 GWh unit 118 GWh
Generator Radiation Stack Cooling

losses losses losses towers
39 GWh 59 GWh 18 GWh 18 GWh
Source:CogenEnergaEspaarepresentatives(2013),Personalcommunication.
Projectdescription
Energysupply
TheEresmaCogenunithastwo6.5MW,16cylindergasenginesthatproduceelectricityusing100%
naturalgasfuel,withanannualaveragefuelinputof902terajoules(TJ)(lowerheatingvalueLHV).
GasisimportedfromENAGAS(originallyEmpresaNacionaldelGas),theownerandoperatorofthe
national gas transmission network. Two heat recovery steam generators produce steam from the
exhaust gases (4 tonnes per hour [t/h] each), and compact heat exchangers produce superheated
water at 140C. The distillery also uses hot water from the cooling circuits of the gas engines. The
unit always runs on a heatcontrolled mode. The plant operates 24 hours a day, except during
plannedannualmaintenanceperiodsoffivedays.
Page|27
Table2EresmaCogencapacity,generationandefficiency
Electricity Heating Total

Installedcapacity 13MWe 10MWth 23MW
Annualaveragegeneration 113.4GWh 87.2GWh(314TJ) 200.6GWh
Annualaverageefficiency 45.3% 34.8% 80%
Sources:CogenEnergaEspaarepresentatives(2013),Personalcommunication;Acogenrepresentatives(2013),Personalcommunication.
Energydemand
Thecogenerationplantsuppliesheatandpowertothefollowingeightindustrialprocesseswithin
thedistillery:
Distillationcolumn:104TJheatload,1.5GWhelectricityload.
Rectificationcolumn:53TJheatload,0.4GWhelectricityload.
Subproductstreatment:70TJheatload,1.3GWhelectricityload.
Otherdistillationandheating(includesmolassesconcentration,maltwaterheating,grainwater
heating,maltery,andheating):87TJheatload,2.7GWhelectricityload.
Thedistillerystotalheatloadfromthecogenerationplantis314TJ,anditstotalelectricityloadis
5.9GWh. The steam production from the cogeneration plant meets 70% of the distillerys total
steamdemandof11.4t/h(82%ofthetotalheatdemandof106.6GWh).Conventionalgasboilers
areusedtogeneratethe19.4GWhofadditionalheatrequiredtomeetthedistillerysdemand.The
systemcannotsupplyheattoanythirdparties.
The5.9GWhelectricityloadmeetsallofthedistilleryselectricitydemand,andmakesupabout5%
ofthecogenerationplantstotalelectricityoutput.Excesselectricityabovethedistillerysdemandis
exportedtothegrid.Ifthedistillerystopsoperating,thecogenerationplantisalsoshutdown.The
plant is under no commitment to export electricity to the grid, and in the current business
environment, exporting electricity is not economical when no heat is demanded by the industrial
processesatthedistillery.
Technologyjustification
Usingcogenerationoverseparateheatandpowerfortheseprocessessaves280TJofenergyeach
year, which is about 28.8% of the plants total annual energy use, and avoids the release of
15522tonnesofCO2peryear,abouta22%reduction.11Thetotalcostsavingsassociatedwiththe
CogenEresmaplantisEUR2.47million.
Theplantwassizedtomeetasmuchheatdemandaspossiblegiventhelimitationsoftheelectricity
grid.Theexistinginfrastructurecanonlysupportaunitwithupto13MWeelectricitycapacity,sothe
planthas13MWeofinstalledcapacity;thiscapacityallowstheplanttoexportasmuchelectricityas
possible while also supplying most of the heat demand at the distillery. Within this limitation, the
plant supplies 70% of the distillerys heat demand and all of its electricity needs, and exports the
remainingelectricitytothegrid.Becausethetotalheatdemandofthedistilleryexceedstheoutput
ofthecogenerationplant,nothermalstoragewasincludedinthesystem.

11
Compared to best available conventional sources: natural gas combined cycle power generation with 55% efficiency (LHV) and heat
generationusinggasboilerswith90%efficiency.
Page|28
Economicandregulatoryframework
National/regionalregulatorycontext
Spainsnationalelectricitygridoperator,RedElctricadeEspaa(REE),wascreatedin1985when
transmissionserviceswereunbundledfromgenerationanddistribution.In1998,Spainselectricity
market began the liberalisation process, and soon after, the market opened electricity generation
andretailtocompetition,subjecttoregulationbytheNationalEnergyCommission(CNE).The1998
liberalisation also created dayahead and intraday wholesale markets for electricity generation,
thoughtradingoutsidethismarket(suchasthroughbilateralcontractsandcapacityauctions)isalso
permitted. Operador del Mercado Ibrico de la Energa (OMIE) operates these markets, where
producers bid to generate electricity. Special regime generators, including renewables and
cogeneration,hadtwooptionsforsellingpowerintothegrid;theycouldreceivethefixedfeedin
tariffrate,ortheycouldoperatelikeatypicalgeneratorandeitherbidinOMIEswholesalemarkets
orestablishabilateralcontractforpowergeneration(IEA,2009b).
Lately the Spanish energy sector regulatory framework has undertaken deep changes, particularly
with regard to incentives, due to the high cost of this programme and fiscal constraints. Until the
middle of 2013, in addition to the feedin tariff for electricity exported to the grid, which was
adjustedquarterlybasedonSpanishgasprices,bonusescouldbeaddedforreactivepowercontrol,
efficiencybasedonprimaryenergysavings,operationwithtimediscriminationandotherpotential
services for system operation. Since July 2013, cogeneration plants have stopped receiving all
additional incentives, receiving only the feedin tariff according to the prior framework (Boletin
OficialdelEstado,2013a).AnewlegislationenteredintoforceinDecember2013,thislawproposed
a feedin tariff framework for cogeneration systems that considers each plants revenue,
operational costs and initial investment to ensure a reasonable ROI (Boletin Oficial del Estado,
2013b).Specificparametersforthecalculationoffeedintariffsaffectingcogenerationplantswere
announced in February 2014, and site operators are currently assessing the impact of this new
compensationsystemontheeconomicfeasibilityofthesefacilities.
Projectfinancing
The cogeneration plant was designed, built and commissioned by Axima Sistemas y Instalaciones,
andisownedbyCogenEresma,acompanythatisownedjointlybyCogenEnergaEspaa(90%)and
thedistilleryowners,BeamGlobalSpirits&Wine(10%).TheprojectsIRRmadeiteconomical,based
primarily on savings compared to the distillerys previous separate heat and power generation. Its
total cost was EUR10.3million, which was financed using the companys own funds and a
shareholder loan. The project did not receive any preferential financing, subsidised loans or
incentives for the initial investment in the project. The projected financial payback period is seven
years,thoughthisperiodwilldependonregulatorychangesandelectricityprices.
Businessstructure
TheEresmaCogenplant,whichismanaged,operatedandmaintainedbyCogenEnergaEspaa,sold
electricityintothegridunderafeedintariffscheme,providingadayaheadscheduletothemarket
operator,andreceivingafixedpriceforallelectricitygenerated.Tobeentitledtoreceivethefeedin
tariff, facilities were required to meet minimum efficiency conditions (IEA, 2009b) (Ciaretta and
GutirrezHita,2009).
Thenewfeedintariffforcogenerationplantsaffectsthepaybackperiodforthisplant.Priortothe
changes, the cogeneration unit at the Whisky DYC distillery received the fixed tariff, plus bonuses
forreactivepowerandefficiency.
Page|29
Lessonslearned
The Cogen Eresma project would not have been possible without the supporting regulatory
framework for cogeneration that was in place at the time of its development, and the future of
thoseregulatorysupportswillhaveaneffectontheprojectsbusinessmodel.Similarprojectscould
be developed in other countries and regions with favourable policy environments; the regulatory
framework and corresponding incentive mechanisms are key to providing the longterm stability
necessaryforsecureinvestments.
Page|30
OECD/IEA 2014 Linking Heat and Electricity Systems
Industrial co-generation: Tabasco, Mexico

Case study information submitted by Pemex and Cogenera Mxico.
Key facts:
The Petrleos Mexicanos (Pemex) gas processing complex (GPC), known as Nuevo Pemex, commissioned
a new co-generation plant in 2013 (Figure 6). This unit produces heat and electricity for on-site use and
supplies excess power to other off-site Pemex-owned industrial end users. The project allows Pemex to
reduce energy costs by reducing electricity purchases from the CFE (Comisin Federal de Electricidad)
state-owned grid to become more self-sufficient and to produce electricity more efficiently. The electricity
produced by this co-generation project allows Pemex to save 30 million cubic feet of natural gas per day
(mmscfd), and reduces carbon dioxide (CO2) emissions by 430 ktCO2 annually, as well as reducing nitrogen
12
oxide (NOx) and sulphur oxide (SOx) emissions (Table 3).
Figure 6 Nuevo Pemex co-generation system
Sources: Cogen Energa Espaa representatives (2013), Personal communication; Pemex representatives (2013), Personal communication.
Project description
Energy supply
The co-generation plant consists of two natural gas turbo generators, coupled with an exhaust gas
heat recovery system. The unit has a total electricity generation capacity of 300 MWe and heat
generation capacity of 430 MWth in the form of high-pressure steam (typical generation is 550 t/h,
with the possibility of supplementary gas firing leading to a maximum production of 800 t/h). The
twin turbo generators have an 18-stage compressor and a 3-stage turbine configuration and are
entirely run on natural gas, which is produced at the GPC.
The plants expected annual average energy input is 27 petajoules (PJ), reaching an efficiency of
81.4% annually on average. The co-generation plant has planned maintenance shutdowns of about
12.9 days annually, including some partial shutdowns.
12
Compared to previous natural gas use at this and several other power generation sites.
Page | 31
Table3NuevoPemexcapacity,generationandefficiency
Electricity Heating Total

Installedcapacity 300MWe 430MWth 730MW
Annualaveragegeneration 9 PJ(2 537GWh) 13PJ 22PJ
Annualaverageefficiency 81.4%
Sources:CogenEnergaEspaarepresentatives(2013),Personalcommunication;Pemexrepresentatives(2013),Personalcommunication.
Energydemand
The cogeneration plant operates to target a predetermined heat output (heatcontrolled mode)
withtheelectricitygenerationfluctuatingaspertheestablishedpowertoheatratio.Thetotalityof
the heat produced an expected annual average of 13PJ is used at the Nuevo Pemex GPC site,
coveringaround70%ofsteamneeds,alongwith2537GWhofelectricity,ofwhich274GWh(10.8%)
coversthegasprocessingneeds,whiletherestisexportedtootherPemexsites.
Heatissenttotheenduserfromthecogenerationplantthroughaheatingdistributionnetworkof
1.3km,withasupplylineof0.6mdiameter,andareturnlinewith0.3mdiameter.Theinsulation
thicknessinthemainlinesis0.203m,madeof100%mineralwoodinsulation.Energylossesinthe
distribution network are monitored, to ensure that steam conditions at the enduse point meet
processrequirements.Providedthatheatoutputcontrolisusedtooperatethecogenerationunit,
the need to install heatbuffering capacity has not been identified, with the distribution network
(includingsteamheadersatdifferentpressurelevels)actingasstorage.
TheelectricitynotconsumedbytheNuevoPemexGPC,anaverageof2261GWh,isprovidedtosix
industrialoffsiteprocesses:
6refineries:1175GWhelectricityload.
6gasplants:165GWhelectricityload.
6petrochemicalplants:80GWhelectricityload.
34explorationandproductionprocesses:300GWhelectricityload.
32distributionfacilities:80GWhelectricityload.
20pumpingfacilities:80GWhelectricityload.
The remaining electricity load (annual average of 381GWh) is fed into the national grid and
distributedto82nonindustrialsites.13
InSeptember2008,Pemexpresentedaplantodevelopenoughcogenerationpotentialintheshort
termtoincreaseitslevelofselfsufficiency,andinthelongterm,tobecomefullyselfsufficientby
developing the rest of the cogeneration potential estimated at about 3GW, mainly in existing
refining,petrochemicalandgasprocessingplants.Withintheframeworkofthisstrategy,theNuevo
Pemexcogenerationprojectwasdevelopedtoreduceelectricityandheatgenerationcosts,increase
energyefficiency,andimprovesupplyreliability.Pemexandthecontractorforthisprojectselected
sites based on the level of electricity and steam demand, as well as unit costs. The cogeneration
13
Thesevaluesareannualaverageelectricitygenerationnumbers,andcouldvarydependingonoperatingconditionsandsteamdemand
fromtheNuevoPemexGPC.Anyexcesselectricity,aftermeetingtheGPCandotheronsiteenduserdemand,isexportedtothegrid;this
isnotlimitedto381GWh.
Page|32
project allowed Pemex to reduce purchases from CFE by 150MW and reduce its own lower
efficiencygenerationbyabout140MW,whilealsoreducingnaturalgasuseandemissions(Figure7).
Figure7 Offsiteindustrialprocesseselectricitypurchases
300
240
180
MW
120
60
0
Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13
Portage (self-supply) Purchases from grid
Sources:Pemexrepresentatives(2013),Personalcommunication.
TheMexicanelectricitymarketislargelycontrolledbythesemipublicutilityCFE(Figure8).CFEowns
over75%oftheinstalledgenerationcapacity,anditownsalltransmissionanddistributionassetsin
Mexico(EIA,2012).A1992amendmenttothePublicElectricityServiceActof1975markedaturning
point for the Mexican electricity sector, partially opening the electricity sector to privately owned
electricity producers, including foreign investors. With a permit from the Comisin Reguladora de
Energa(CRE),privatecompaniesthatfallintooneofthefollowingcategoriesareallowedtoproduce
power and connect to the grid: selfsuppliers, cogeneration projects, small producers (< 30MW),
power producers that are importing electricity for selfsupply or generating for export, or
independent power producers (IPPs) with 25year power purchase agreements (PPAs) to sell all
output to CFE. With the 2008, 2011 and 2012 regulatory changes, efficient cogenerators and
renewablepowerproducerswerealsopermittedtotakeadvantageoftheenergybankingsystem,
and costs for connection to the grid and transmission of electricity were lowered (OECD, 2004,
2013).
The private sector is responsible for the majority of the growth in capacity in recent years, almost
quadrupling from 2000 to 2008, from 4.3GW to 21.0GW (Sener, 2009). In 2011, cogeneration
installed capacity was 5% of the national total, and 32% of privately owned capacity (Cereceda,
2013).
Overall, Pemex now owns about 2GW of electricity generation capacity, some of which will be
retired. In 2012, the company produced 7600GWh for ownuse, but about a third of it was
produced with low efficiency;14 additionally, Pemex still did not meet all of its own needs, and
purchased2500GWhfromthegrid.
14
Onaverage,retiredgenerationcapacityproducedwith28%electricalefficiency.
Page|33
Figure8 Mexicanelectricitysectorstructure
Generation Transmission Distribution Consumption
CFE

OTHER PRODUCERS:
Renewable CFE CFE
energy sources End-users
Independent Power
Producers (IPPs)
Cogeneration
Small power producers

(< 30 MW)
Self-suppliers
Self-suppliers

Projectfinancing
The service provider took on the investment of USD504million in the cogeneration plant and
associated transmission lines. Maintenance costs are estimated at USD 7.7million per year. The
projectdeveloperusedafinancingstructurebasedon37%oftheinvestmentinprovidedcapitaland
63%bankcredit;theprojectdidnotrelyonanygovernmentsupport.Itdidnotreceiveanysubsidies
orpreferentialfinancing,butdidbenefitfromthenewregulationallowinglowertransmissioncosts
andtheeliminationofbackupcharges(demandafacturable)forcogeneratorsthatselfsuppliers
previouslypaidtoCFE(Davisetal.,2012).Projectdevelopersestimateapproximatelya5to6year
paybackperiodforthisproject,consideringthesavingsfromavoidingelectricitypurchasesfromthe
grid and replacing inefficient electricity and heat generation with efficient selfgeneration of
electricityandheatrecoveredfromexhaustgases.
Businessstructure
Pemex contracted with a thirdparty service provider to develop and operate the Nuevo Pemex
cogeneration project. This contractor has a 20year contract with Pemex to operate the
cogenerationplantusingnaturalgasprovidedbytheNuevoPemexGPCandtosendelectricityto
offsite Pemexowned industrial processes and to the grid, upon the condition of providing steam
andelectricitytotheNuevoPemexGPCsite.
On an annual basis, the cogeneration unit meets about 90% of overall electricity demand, due to
variability in demand from the end users. The remaining 10% of demand is met with electricity
importedfromthegrid.Forendusersoftheelectricity(whicharePemexsubsidiaries),pricespaidto
the thirdparty plant operator are fixed. Overall, prices are more than 40% lower than purchasing
directly from CFE through the grid (see Table 4). A fixed amount is paid to the grid operator for
transmissionservices.

Page|34
Table 4 Nuevo Pemex electricity prices
Level Schedule CFE price* Voltage Transmission Total delivery

(MXN/kWh) level charge for efficient cost
co-generation (MXN/kWh)
(MXN/kWh)
1 Baseload 1.022 High 0.0337 0.817
2 Intermediate 1.227 Medium 0.0674 0.851
3 Peak 2.053 Low 0.1347 0.918
Note: Average cost, not including capacity charges, of Pemex electricity demand in different time periods.
USD 1 = MXN 12.88
Source: Cogenera Mxico and Pemex (2013), Cogeneracin eficiente: Proyecto de Nuevo Pemex, Green Expo Mxico, Mexico City, 25-27
September 2013.
Participation in Mexicos energy banking system also gives the Nuevo Pemex co-generation project
some flexibility to deal with demand variability. The banking system allows generators to deposit
extra electricity generation when a surplus of generation exists and withdraw that energy at a later
date when generation does not meet demand. Because of the generation system and the on-site fuel
availability, Pemex also has significant flexibility in its own power generation levels (Cogenera
Mxico, 2013).
Though the project mainly produces heat and power for use by the Nuevo Pemex GPC and other
Pemex processes, it also sells excess electricity to the CFE grid when electricity output surpasses
demand at prices indexed to short-term prices defined by CFE. However, because no preferential
tariffs are provided to efficient generators, the Mexican electricity market offers little incentive to
become an electricity exporter, except when demand variability creates a surplus of electricity.
Lessons learned
Future co-generation projects in Mexico would benefit from further streamlining of the regulatory
process for co-generation, including simplification of the process for receiving permits,
standardisation of technical specifications, and better alignment of electricity tariffs with fuel costs
to incentivise co-generation capacity that provides surplus generation to the grid (CONUEE and CRE,
2009).
The same scheme can no longer be replicated at large scale, since Nuevo Pemex covered most of the
demand not linked with steam generation in refinery and petrochemical processes, but smaller-scale
projects could be possible. Most of the Pemex industrial sites produce electricity using conventional
steam-condensing turbines.
Page | 35
Industrialcogeneration:Fife,Scotland,UnitedKingdom
Case study information submitted by Combined Heat and Power Association (CHPA) and RWE
Innogy.
Keyfacts:
TheMarkinchbiomassprojectconsistsofa60MWe15cogenerationplantattheTullisRussellPaperMill,
inFife,Scotland,makingitthelargestsuchplantintheUnitedKingdom(RWEnpowerrenewables,2013).
TheplantisownedbytheUKsubsidiaryofRWEInnogy,whichinJanuary2014changeditsnamefrom
RWEnpowerrenewablestoRWEInnogyUK.Theconstructionphaseoftheprojectisclosetocompletion
and is currently being commissioned. This cogeneration unit will provide heat and power to the Tullis
RussellPaperMill,aswellassupplyingpowertothegrid.Theplantwillreplacea60yearoldcoaland
gasfired power plant, which was retired on 30August 2013. The plant allows Tullis Russell to continue
operatinginitscurrentlocation,reduceemissionsandhelpScotlandcomeclosertomeetingitstargetof
30%ofenergyconsumptionfromrenewablesourcesby2020(IEA,2012).RWEestimatesthattheplant
willavoid0.25megatonnes(Mt)fossilCO2emissionsannually.16
Projectdescription
Energysupply
Theplantconsistsofasinglecirculatingfluidisedbed(CFB)boilerandacondensing/passoutsteam
turbine. An aircooled condenser will provide cooling to the plant. The plant will be typically
operated in heatcontrolled mode, supplying heat to the paper mill as demanded, whereas the
electricity generated will fluctuate according to steam demand and the predetermined powerto
heat ratio. Electricity generation will be maximised only in the case of the mill being turned down
(lower heat demand) or in an environment of peak electrical demand from the grid and attractive
prices. At maximum heat generation, the electrical capacity is 39MWe (gross), and with no heat
demand,theplantselectricalcapacityis60.3MWe(gross)(Tables5and6).
Plannedmaintenanceisexpectedtooccurtwiceperyear,andthetotalannualplannedshutdown
time will be about 30 days, or around 8.2% of the total operation time. RWE expects the
cogenerationunittoprovidesimultaneousheatandpowertothepapermillforabout89%ofthe
time,equivalenttoabout7800hoursperyear,accountingforplannedandunplannedoutages.The
restofthetimeRWEwillsupplysteamtothepapermillfromthreegasfiredboilers,andelectricity
forthepapermillwillbeimportedfromthegrid.Cogenerationunitoutageswillcoincidewithpaper
milloutageswheneverpossible.
Theplantsaverageannualenergyinputwillbe4800TJ,ofwhich99%comesfrombiomassfuel,and
the remaining 1% from natural gas. Of the biomass, about 90% will be recovered waste wood
supplied through a number of contracts, and 10% will be virgin biomass. RWE estimates that the
plantwillrequire405Mtofbiomassperyear.
15
Maximumelectricitygenerationcapacity.
16
CO2savingsarecalculatedbasedondisplacedcarbonemissionsfromthepreviouspowerplantandelectricityimportedbythepaper
mill. The calculation also considers carbon savings associated with electricity exported to the grid by the CHP plant, compared to grid
average emissions published by the Department of Energy & Climate Change (DECC). CO2 emitted by sustainablysourced biomass is
consideredcarbonneutral.Carbonemissionscalculationsfortheplantaccountforgasburnedonstartupandinthebackupgasboilers,
aswellascarbonemissionsfromprocessingandtransportofwoodfueltotheCHPsite.Woodfuelcarbonemissionswereestimatedusing
theOfgemcarbonemissionscalculationtool(Ofgem,2012).
Page|36
Table5Markinchcapacityandefficiency
Electricity Heat Total

Capacity(maxheatoutputmode) 39.1MWe 88MWth 127MW
Capacity(maxelectricityoutputmode) 60.3MWe
Annualaverageefficiency 24% 28% 51%
Netefficiencyinmaxheatoutputmode 68.3%
Netefficiencyinmaxelectricityoutputmode 31.5%
Sources:CHPArepresentatives(2013),Personalcommunication;RWEInnogyrepresentatives(2013),Personalcommunication.
Table6Markinchsteamcharacteristics
Steamcharacteristics
Steamflow Average57t/h,maximum120t/h
Steampressure 2.9and10.3bar
Steamtemperature 165and230C
Sources:CHPArepresentatives(2013),Personalcommunication;RWEInnogyrepresentatives(2013),Personalcommunication.
Energydemand
TheMarkinchcogenerationplantwillsupplyupto120t/hofsteamand21MWeofelectricitytothe
primaryenduser,theTullisRussellPaperMill.Additionalelectricitywillbeexportedtothelocalgrid,
withenoughadditionalcapacitytosupportelectricityexportsevenwhenthepapermillisoperating
atfullload.Typicalexportstothegridwillbeabout30MWe.However,peakheatdemand(about
100t/hofsteam)fromthepapermillwilloccurforonly2to3hoursperyear.
RWEchosebiomassastheprimaryfuelforthisplantbecauseofthestrongregulatorysupportfor
biomasscogenerationplantsundertheUKsRenewablesObligation.RWEidentifiedanopportunity
todeveloptheplantmoreeconomicallybyprimarilyusingrecoveredwoodfuel,ratherthanmainly
virginwoodfuel.
Boiler and fuelhandling technologies were selected to ensure compliance with environmental
regulatoryrequirementsaswellastoattainhighthermalefficiency;RWEdecidedtousefluidised
bed technology that would be wellsuited to a plant with some fuel flexibility. CFB technology in
particularwasselectedduetoitsloweremissionscharacteristics,itsabilitytoachievehighercycle
efficiencies,anditscapabilitytoallowtheplanttooperatewithasingleboilerunit.
The Electricity Act of 1989 privatised the previously stateowned organisations responsible for
electricity generation, transmission and distribution. Market liberalisation in the United Kingdom
continued in the 1990s and early 2000s, with increasing competition and vertical deintegration.
Page|37
Electricity prices are determined competitively, and generation, transmission and distribution are
unbundled,thoughsomeverticalreintegrationhasoccurred,promptingproposalsfornewelectricity
marketreformlegislation.ExportsofelectricitytothegridoccurintheframeworkoftheUKsBritish
Electricity Trading and Transmission Arrangements (BETTA), through which generators can sell
electricitytosuppliersonasinglewholesalemarket.Additionally,mediumandlargegeneratorsare
required to participate in the grid operators Balancing Mechanism to help balance supply and
demandonthegrid.Plantsmustalsoprovidebasiclevelsofreactivepowerandfrequencyresponse
(IEA,2012).
Currently, the UK government promotes lowcarbon and efficient electricity generation through
severalincentives,mostnotablytheRenewablesObligation.Theproposedelectricitymarketreforms
would add several other mechanisms to facilitate longterm investment in infrastructure, promote
lowcarbontechnologies,andincreaseelectricitysupplysecurity.Proposedpoliciesincludeafeedin
tariff for lowcarbon electricity generation, a carbon price floor outside the European Emissions
Trading System (EUETS), an emissions performance standard, and a capacity mechanism that
incorporatesdemandsideresponseandstorage(IEA,2012).
Cogeneration projects can be certified under the Combined Heat and Power Quality Assurance
programme (CHPQA) run by the Department of Energy and Climate Change (DECC). The voluntary
annual certification program provides an efficiency benchmark for highquality cogeneration
projects, and is used to determine eligibility for various incentives, including Enhanced Capital
Allowances, exemption from the Climate Change Levy, tax benefits, and eligibility for Renewables
Obligation Certificates (ROCs) for biomass and wastetoenergy cogeneration plants (DECC, 2013).
For April2014 to March2015, the Renewables Obligation level for suppliers in Scotland will be
0.244ROC/MWh(Ofgem,2013b).Biomasscogenerationplantswillreceive2ROCsperMWhsoldto
the grid in 2013 (Ofgem, 2013a). The Office of Gas and Electricity Markets (Ofgem) estimated the
valueofanROCin2013tobeaboutGBP46(Ofgem,2013b).
Projectfinancing
Theplantwentthroughanumberofstagesofcostassessment.Afteraninitialbasicfeasibilitystudy
using budgetary information provided by plant suppliers indicated the positive economics of the
project,adetailedfrontendengineeringdesignstudywasconducted,andRWEbegannegotiations
withthecustomertodeveloptheenergysupplycontract.Adetaileddiscountedcashflowmodelwas
developedtoevaluatetheprojectandsupportthefinancialinvestmentdecision.Thecapitalcostfor
theproject,whichwasfinancedfromRWEsbalancesheet,wasmorethanGBP200million,andthe
annualoperationsandmaintenancecostisaboutGBP6million.
The Scottish government awarded the project a Regional Selective Assistance grant of GBP
8.1million, based on the safeguarding of jobs within an area identified for regional aid (Scottish
government,2009).Thegrantcontributedtofinancingforthesitepreparation,aswellasadditional
expenses associated with building a cogeneration plant instead of a poweronly plant, such as
additionalgasboilersandsteamdistributionpipework.
The project, once operational and CHPQAcertified, will also benefit from revenue from ROCs. The
ROCsareanessentialaspectoftheMarkinchprojectsfinancing;withoutthem,theplantwouldnot
haveapositivespreadbetweenfuelcostandrevenueforelectricaloutput,andwouldnothavebeen
built.Thesalesofpowerandheatfromtheplantmakeuparelativelysmallpartofthetotalplant
revenue.

Page|38
The Renewables Obligation only relates to electricity generation. At present, the plant does not
qualify for the Renewable Heat Incentive (RHI), which provides a feedin tariff for heat generated
from renewable sources (Ofgem, 2013c). Therefore, when assessing potential users of heat in the
area, the project had no additional incentive to build a system that would allow exports of heat
beyondthepapermilldemand.IftheplantdecidestoqualifyfortheRHIinthefuture,RWEwould
considersupplyingadditionalheattoothercustomers.
Businessstructure
Thebiomassattheplantwillbesuppliedthroughseveralcontracts,thelargestbeingwithSITAUK,a
national waste management company, which will provide recovered waste wood from its existing
sites in Scotland and northern England (SITA UK, 2012). Additionally, the Scottish Forestry
commission will provide 75000 tonnes of small round wood from sustainably managed forests.
Becausethepapermillimportsvirginpulpratherthanproducingitsownpulpfromlogs,itdoesnot
producesignificantamountsofbiomasswastesuitableforuseinthecogenerationplant.
Thepowerandheatsuppliedtothecustomerwillbepricedbasedonagreedunittariffs,specifiedin
a20yearenergysupplycontract,whicharepartiallyindexedtothecostofbiomassfuel.Theplant
will export excess power to the national grid at market rates for electricity. The plant will also
participateintheBalancingMechanism,withbidofferpricessetbyRWE.
Lessonslearned
As in many other markets, developing the Markinch cogeneration facility required financial
incentives to successfully compete with cheaper conventional sources of heat and power. The
implementationofthisbiomassbasedcogenerationprojectwascommerciallyviableonlythanksto
regulatory support from the UK government. Expected revenue from certificates under the UKs
Renewables Obligation, in particular, was essential to making this project financially feasible. After
CHPQA certification, the Markinch cogeneration unit will also be eligible for a number of other
incentivesthatmakethisprojectattractive.TheUKspolicyenvironmentencouragesinvestmentin
efficient cogeneration by creating a level playing field that allows cogeneration to compete with
conventional power and heat generation technologies, and by promoting stability that allows
investorstomakelongtermfinancialdecisions.
Page|39
DHC:Marstal,Denmark
CasestudyinformationsubmittedbyPlanEnergiNordjylland.
Keyfacts:
TheSunstore4projectisaDHplantinMarstal,Denmarkthathasbeendevelopedtodemonstratethe
potential to produce DH using 100% renewable energy assisted by a large heat storage capacity in the
production system. The project also sought to demonstrate flexibility of renewable energies (solar,
biomassandelectricityfromlocalrenewablesources)relativetothecostsoftheenergysources.These
objectives were targeted under the broader goal of achieving lowcost solar thermal heat production
usingstoragethatcouldbeadaptedtoregionalconditionsandenergyloadsinotherEuropeancountries.
The Sunstore 4 plant combines solar thermal energy, a biomass boiler paired with an ORC unit, a
compressingheatpumpand75000cubicmetres(m3)oflocalheatstorage.Bycombiningtheseelements,
thesystemisabletoutiliselowstoragetemperatures,whilealsoreducingrequiredstoragesizeandheat
losses from using a larger storage pit. The Sunstore 4 project is an extension of previous solar heat
production for DH uses in Marstal (Table 7). The entire Sunstore DH plant is estimated to save roughly
10.5ktCO2annually.17
Sinceimplementationoftheproductionsystemin201112,theSunstore4projecthasdemonstrated10%
better efficiency of the new solar collectors compared to the previous solar installations due to
technologicalimprovements.
Projectdescription
Energysupply
TheSunstore4plantwasconceivedasademonstrationofa100%renewableenergysystemforDH
thatisflexibleandcandealwiththechallengesrelatedtoavariablesolarflow.Thestoragepitand
heatpumpsystemalsoprovidepossiblepowersystembenefitsbeyondthenetwork.Forexample,
electricitycanbeconvertedintoheatandstoredduringperiodsofhighwindpowerproductionor
canofferadditionaleconomicbenefitswhenelectricitypricesarelow.
In1994,MarstalFjernvarmeA.m.b.a.,theDHprovider,successfullybuiltasmallscaledemonstration
solar collector heat plant, which led to the development of a solar heating plant connected to the
localDHnetwork.By2001,thesolarheatingplantaccountedforroughly9000squaremetres(m2)of
solar collectors and an accumulating tank capable of providing district heat for shortterm supply
(twotothreedays).Thesolarplantwasexpandedagainin2001undertheSunstore2projecttoa
total of 18365m2 of collectors, and a heat storage pit of 10000m3 was completed in 2004 to
achievelongerstoragetimes.
TheSunstore4projectisanextensionofthiscapacity,adding15000m2ofadditionalsolarcollectors
and 75000m3 of new pit storage in 201112 (Figure 9). The Sunstore 4 plant also comprises a
4.0MW CHP unit. This unit consists of a lowemission wood chip thermal oil boiler with a 750kW
ORCunitanda1.5MWthermalheatpump.
The new collectors also cost nearly 12% less than the previous additions, and storage prices are
roughly EUR28/m3,resultinginaverageDH production prices ofEUR50to EUR60per megawatt
17
The Marstal heating plant (including the Sunstore 4 plant) provides 31996MWh of district heat (see Figure 10). If this heat were
providedusingaconventionaldieselboiler(assumingahigheraverageoperatingefficiencyof90%),theplantwouldproduceroughly9.5
ktofCO2annually.Inaddition,theORCunitproduces3233MWhofelectricity,whichsavesroughly1ktofCO2(applyingthe2011average
of302gCO2/kWhforelectricitysupplyinDenmark).
Page|40
hour(MWh).TheheatpumphasoperatedatanaverageCOPof3.1,or310%efficiency,whilethe
biomassboilerandORCunithaveacombinedoutputefficiencyof100%.
Table7HistoricexpansionoftheMarstalSunstoreprojects
Year Installation Capacity

1994 Smallscalesolardemonstration 75m2
19942001 FirstSunstoresolarDH 9 043 m2 solar collectors and 2100m3 accumulating
implementation tank
200104 Sunstore2project Additional 9 322 m2 solar collectors and 10000 m3
collectorpit
201112 Sunstore4project 15 000 m2 solar collectors, 75000m3 collector pit,
1.5MWheatpumpandORCunit
Totalinstallation: 33 365 m2 solarcollectors,87 100m3storage,1.5 MW
heatpumpandCHPunit
Source:PlanEnergiNordjyllandrepresentatives(2013),PersonalCommunication.
Figure9 ProcessflowdiagramdescribingSunstore4plantadditions
Electricity out
80o
o
Wood 300
chip Water Oil
boiler ORC
o o
45 250
Condensing unit
Either pump
is active
40o
Heat Electricity in
pump
Heat
Solar exchanger
collectors
80o
60o Storage
Either pump
is active o
40

The Sunstore 4 plant operates differently throughout four seasonal periods, where the solar
collectorsprovideMarstalwithDHthroughoutthesummerwhilealsoloadingheatinthestoragepit.
From the end of September, when temperatures are still relatively moderate, the solar collectors
supply the DH network, while either the wood chip boiler or the heat pump supplements heat
demand, depending on the cost of electricity. In the winter, the wood chip boiler is operated
regularlytosupplyrequiredheat,whilebackupboilersconvertedin2005fromwasteoiltobiooil
maybeoperatedforafewhoursoncolddaystomeettotalDHdemand.Theheatpumpcanalsobe
operatedduringtheseperiods,althoughathigherelectricityprices.InFebruary,thesolarcollectors
starttosupplyheattothestoragepitagain,whilethewoodchipboilercontinuestooperatetomeet
totaldemanduntilApril.
Page|41
The Sunstore 4 plant consumes approximately 81terajoules (TJ) of wood chips and an additional
1gigawatthour (GWh) of electricity (for heat pump operation) annually (Table 8). It produces
roughly88TJofannualheatgeneration(includingnearly17TJofheatoutputfromtheSunstore4
solar collectors and heat pump), for roughly 109% system efficiency. The ORC unit also produces
3.2GWhofelectricity.WhenpairedwiththeexistingsolarcollectornetworkandSunstore2storage
pit,theentireMarstalDHsupplyproducesroughly115TJ(about32GWh)ofannualheatingoutput,
for a total DH efficiency of 142% (including electricity output from the ORC unit). Losses from the
Sunstore4storagepitaccountforroughly9TJofenergyannually(Figure10).Asystembuffertank
alsoincursslightheatlosses(roughly0.5TJ).
Table8AnnualenergyinputandoutputofMarstalDHsystem
Fuelenergyinput Heatoutput/(Losses) Electricityoutput

(MWh) (MWh) (MWh)
WoodchipboilerwithORC 22 709 19 476 3233
Solarcollectors(directheat) 0 8 384 0
Heatpump 1 043 3 278 0
Biooilboiler 1 065 990 0
Losses(buffertank) (132)
Total 24 817 31996 3233
Figure10 Sankeydiagram(MWh)ofMarstalDHproduction
Wood chip boiler Electricity Bio oil boiler

22 709 3 233 990
BUFFER TANK
ORC
19 476
Direct supply
1 702 31 006 31 996 DH network
Long-term
storage 3 278
2 235 6 682
Solar to heat pump
collectors
(15 000 m2)
Heat losses
Heat losses Electricity heat buffer tank
2 475 pump 1 043 Existing solar system 132
(18 300 m2 solar
collectors + 10 000 m2 pit)
Energydistributionanddemand
The Sunstore 4 plant functions best using low return temperatures; that is, the production of the
solar plant under local conditions is approximately 1% higher if the average return temperature is
lowered 1C. The Marstal DH network, therefore, uses local storages (typically 110 to 160litre
tanks) at consumer substations to absorb incoming (flow) temperatures and to provide low return
temperatures(roughly33Cinwinterandashighas40Cinsummer).Theseconsumersubstations
alsominimiserequirednetworkpipingtohouseholdsandhelptoreducenetworkheatlosses.The
consumers own the substations in the houses and are responsible for their operation. Supply
(forward)temperaturesareregulatedaccordingtooutdoortemperaturesandtypicallyarebetween
72C(summer)and76C(winter).

Page|42
TheMarstalDHnetworksuppliesroughly1550buildings,whicharemostlysinglefamilyhouseholds
builtpriorto1970.Heatsalesin2012wereroughly26500MWh(95TJ);heatlossesfromnetwork
distributionaccountedfornearly5500MWh(orroughly17%ofsystemoutput).Networkpipingfor
Marstal DH can be as much as 30 years old, although it is being continuously upgraded with
polyurethanepipingwithpolymercasing.Systemflows(ratesandtemperatures)arealsomonitored
regularly, and consumer substations with high return temperatures are visited to manage demand
control.
OnlytwoDHplantsinDenmarkusedsolarenergyforlargescaleheatingproductionpriorto1994.
While solar radiation represents approximately 200 times the amount of energy used in Denmark,
meeting system demand through adjustable flows (depending on seasonal solar fractions) was a
majorbarriertofullscaleimplementationofyearroundsolarheating,especiallybecausemostDH
plants run at constantly high flows. Early in 1994, Marstal DH consequently implemented a
demonstrationsolarcollectorplantwithanaccumulatingtanktocoverroughly15%ofheatdemand.
ThedemonstrationplantwassopromisingthatMarstalDHdecidedtoexpandsolarcapacitiesinthe
DHsystem.
BeforechoosingtheSunstore4concept,MarstalDHcompareddifferentalternativesfordistrictheat
productioncombiningsolar,storage,biomassandheatpumptechnologies.Comparisonsweremade
using heat production prices for the different combinations with the expectation that the new
district heat plant would have a 20year lifetime. The Sunstore 4 concept was chosen as the best
combination of solar, storage and renewable technologies. It offered the least expensive heat
productionpricesthatwouldalsodemonstratethepotentialfor100%renewableenergyuseinthe
districtheatnetwork.
DH in Denmark is regulated by heat planning guidelines, which stipulate that municipalities are
responsibleforensuringthatheatproductionbyutilitycompaniesistheleastexpensiveoptionfor
consumerswhilemeetingtargetssetbytheDanishgovernment.Currenttargetsforheatproduction
callfor100%renewableenergysystemsforallelectricityandheatproductionby2035.Fossilfuels
are consequently taxed heavily, while solar energy production is not taxed. In addition, taxes on
electricityusedforheatpumpswerereducedinearly2013.Biomasswillbetaxedbeginningin2014,
although the feedin tariff for electricity produced using biomass will still be quite favourable
(11Eurocentsperkilowatthour[kWh]).
Projectfinancing
Total investments for the Sunstore 4 plant were EUR 15.5million with EUR 4.1millionin support
from the European Commission and project financing with municipal guarantee for 100% of the
investment.Theinterestratefortheloanis3.05%fora25yearannuityloan.Yearlymaintenanceis
approximately EUR50000, and the expected payback period is less than 10 years (including the
support).
Businessstructure
Danish DH utilities are nonprofit companies. Marstal DH is a consumerowned cooperative, and
morethan95%ofbuildingsinMarstalarecustomers.Newcustomershavealsobeenaddedfroma
nearbyvillageusinga2kmtransmissionpipe,andadditionalcustomerscanjointhenetworkfreeof
Page|43
charge.MarstalDHhasappliedthispolicytoattractmorehouseholds,therebyreducingthecostsof
the Sunstore 4 project and annual maintenance by economies of scale. Typically, new customer
installationsarerevenuepositiveafterfouryears.
Annual district heat prices are decided at the yearly general assembly to which all customers are
invited. The heat price is a combination of a fixed price based on the size of the building and a
variable price, which is determined based on annual consumption. Metering is wireless, and
paymentisperkWhconsumed.Householdscanbepenalisedforhighreturntemperaturestoensure
overall network efficiency, although the utility company will typically send a technician to address
anypotentialproblemsathouseholdsifthisisthecase.
Lessonslearned
TheSunstore4projectisaninnovativeplantthathasexceededexpectationsanddemonstratedthat
solarthermalenergywithstoragecansupplyyearrounddistrictheat.Sunstore4producesheatat
roughly EUR 50/MWh to EUR 60/MWh, which is considerably lower than previous DH production
pricesofEUR70/MWhfromheatproducedusingbiooil.
Between 2000 and 4000 people from Denmark and elsewhere visit the Marstal DH project each
year, and similar concepts will be developed in other regions of Europe. While design and
implementationwillbethesameforsimilarplantsinotherregions,energypricesforproducedheat
(or cooling) and electricity will affect the market viability of a similar project. Existing policy and
financing support to these technologies will also influence project economics. If alternatives are
cheaper, the Sunstore concept will not be costeffective. Interest rates on investments will also
affectthefeasibilityoftheSunstoreconcept.
Page|44
DHC:Paris,France
CasestudyinformationsubmittedbyClimespaceGDFSuez.
Keyfacts:
TheBercycoolingplantisadistrictcoolingfacilityinParis,France.Thefacilityhasbeendevelopedasa
coolingproductionplantwithfreecoolingcapacity18usingriverwaterfromtheSeineRiver.TheBercy
project was built over six phases between 1995 and 2009. It consists of seven electrical centrifugal
chillers, four river water pumps, condensing and evaporating circuits, and onsite generator equipment
for emergency and ancillary electricity demand (Figure 11). The plant has a current total generation
capacityof44MW,anditsuppliesmorethan40clientsalong10kmofnetwork.FreecoolingattheBercy
plant has been applied since the end of 2009, and since then, the average COP of the plants chillers
increasedby34%,withmaximumCOPsof20havingbeenachieved.Theplantisestimatedtoavoid7.4
ktCO2annually.19
Projectdescription
Energysupply
The Bercy cooling plant is an independent extension of the Climespace district cooling network in
Paris that was opened in 1991 and now constitutes the largest district cooling network in Europe,
distributing chilled water over 71km to more than 520 clients. In total, the Climespace district
coolingnetworkaccountsforeightcoolingproductionsites,includingtheBercyproductionplantand
twoothersitesalongtheSeineRiverthatnowusefreecoolingaswell.TheClimespacenetworkalso
includesthreeenergystoragesites,includingonechilledwaterstoragesystemandtwoicestorage
plants, and a new geothermal energy plant will be added by the end of 2013. When finished, the
entire Climespace network (chillers, storage and new geothermal plant) will have a total nominal
coolingcapacityof285MW.
Figure11 ProcessflowdiagramofBercycoolingplant
13oC
Refrigeration units
for production 13oC
without free cooling
9Co o
27 C 13oC
4.5oC 32oC
o
Heat 3C
exchanger Heat
exchanger
o
5.5 C
Pumping and
discharge station 4oC
o
Seine river 1C
Cooling unit for

decreasing mode
Sources:ClimespaceGDFSuezrepresentatives(2013),Personalcommunication;MairiedeParis(2007),LeplanclimatdeParis:plande
lutte contre le rchauffement climatique, www.paris.fr/pratique/energieplanclimat/leplanclimatdeparis/leplanclimatde
paris/rub_8413_stand_69591_port_19609.
18
Freecoolingisatermusedthatisassociatedwiththeuseoffreeoravailablenaturalresourcestoprovidepartialorfullcoolingto
buildings.Inthiscasestudy,freecoolingisusedasacoolingassistedapplicationforoveralldistrictcoolingprovision.
19
IncludesCO2emissionsfromrefrigerantreleases.CO2emissionssavingsforthisprojectare5.5kt/yearwithoutrefrigerantemissions.
Page|45
In 2012, the total Climespace network delivered more than 410GWh of chilled water for district
cooling.
Chilledwaterproductionbymeansoffreecoolingtypicallyoccursinthewinterseasonwhenriver
temperatures are low enough to use free cooling. At the Bercy plant, free river water cooling has
contributedtoimportantelectricalsavingssince2009.Thehighestmonthlyelectricalsavingsduring
winterhaveequaledasmuchas400MWhofelectricity(ornearly60%ofaveragemonthlyelectricity
consumption during those months if the use of free cooling had not been available). Partial free
cooling is also possible at slightly warmer river water temperatures, and a total of 3.2GWh of
electricityweresavedattheBercyplantbetweenJanuary2010andMarch2013,orroughly8%of
totalenergyconsumptionforthatperiod.Thissavingscorrespondsto1568tonnesofCO2emissions
reduction.
When paired with free cooling improvements made in the two additional Climespace production
plants,totalannualClimespaceCOPhasreachednearly4.03in2012(or403%efficiency),whichisa
30% improvement over 2002 Climespace network COP levels. Potable water consumption for
Climespacenetworkcoolingproductionalsodecreasedby50%over2002levels.
The Climespace cooling network operates at working supply temperatures of 2C to 4C, and
network return temperatures are roughly 10C. Each of the seven chillers in the Bercy plant has a
nominal cooling capacity of between 3.75MW and 9.5MW, with nominal electric power between
0.8MW and 1.9MW, respectively. Annual Bercy electricity consumption is roughly 47TJ, although
thisleveldependsonrivertemperaturesandtheamountoffreecoolingachievedeachyear.Annual
salesareroughly198TJ,foratotalannualnetworkefficiencyofroughly420%.
Freecooling usingtheSeineRiverisusedtoreducereturn temperatureswhenrivertemperatures
arebelow8C.Riverwateristypicallybelow5Cduringthecoldestwintermonths,and100%free
coolingmaybeusedatthesetemperaturesusingriverwaterpumpsandheatexchangers.Inwarmer
months,ifriverwatertemperaturesremainbelow8C,partialfreecoolingisstillpossible.Onceriver
temperatures go above 8C, the network uses only the conventional chillers to meet cooling
demand.Theseconstraintsareduemainlytonetworkcontractualdeliverytemperatures,although
Climespacemustalsomonitorriverwaterreturntemperatures.Forenvironmentalreasons,highest
rejected water temperatures cannot exceed 30C, and the temperature difference between river
waterandrejectwatercannotbehigherthan5C.
Since free chilling or partial free chilling is dependent on the aforesaid thresholds, total cooling
productioninfreecoolingmodecanfluctuateattheBercyplant.Forinstance,averagedailywater
temperatureswerehigherin2011,leadingtoonly1.6GWhoffreecoolingproductionintheBercy
network, for a total savings of roughly 3% of annual energy consumption. By contrast, electricity
savingsin2010wereroughly11%oftotalannualelectricityconsumptionattheBercyplant.
Bercy cooling distribution serves more than 40 clients, including predominantly offices and
commercialspace,fornearly55MWofsubscribedpower.20Somehotelsandinstitutionalbuildings
arealsoconnectedtothenetwork,andadditionalbuildingscanbeaddedtothenetworksolongas
they are geographically within the distribution network and sufficient hydraulic and thermal
availabilityispresent.Mostbuildingsintheexistingnetworkwerebuiltinthelast25years,andthe
totalfloorareacooledbypresentdistrictcoolingproductionismorethan700000m2.Theaverage
20
Totalsubscribedpowerisgreaterthanpeakproductioncapacity,althoughpeakdemandbyallclientsishighlyunlikelygivenbuilding
demandprofiles.
Page|46
operational cooling demand is 18MW, and peak demand can reach 30MW.21 Pipes 0.6m in
diameterareusedforboththesupplyandreturnlines;polyurethaneinsulatedpipeswithpolymer
casingaccountfor80%oftheBercynetwork.Theremaining20%ofnetworkdistributionconsistsof
pipesinsulatedwithfoamglassandpolyurethane.Maintenanceanddistributionimprovementsare
expectedevery15years.
Flowrate,supplyandreturntemperatures,pipinglosses,heatlossesandnetworkpressureareall
monitoredthroughouttheBercynetwork,andpressure,flowrateandtemperaturearemeasuredat
eachdeliverypoint.Thesedataareusedtoestablishplanningstrategiesforthenetworktoincrease
energy production efficiencies and to forecast cooling demand and energy supply according to
expectedweatherconditions.Climespacealsousesthisanalysistoworkwithclientstounderstand
coolinguse,althoughenergyauditsofindividualbuildingsaredoneindependently.
TheClimespacedistrictcoolingnetworkinParishashistoricallyexploitedfreecoolingfromcooling
towersthroughoutthenetwork,althoughthistechnologyhasnotproducedsignificantreductionsin
netenergyconsumptionforchilledwaterproductionbecauseofthehighenergyconsumptionofthe
tower fans. When outdoor wet bulb (humidity) temperatures are low enough to satisfy the
requirements of the operating chilled water temperatures, free cooling can be taken directly from
thecoolingtowers.However,thehigherbenefitsfromriverwaterfreecoolingresultedinacooling
productionstrategytoinvestinriverwaterfreecoolingforimprovedsystemefficiencies.
A fiveyear study was conducted between 2003 and 2008 to measure free cooling capacity at the
Bercy plant. During the study, water temperatures fell below 5C for roughly 6% of the year.
Approximately 17% of the year had river temperatures between 5C and 8C. Given these results,
riverwaterfreecoolingcapacitywasaddedtotheBercyplant,andtheuseoffreecoolinghassince
allowed substantial energy savings. Like free cooling from the cooling towers, river water free
coolingisstilldependentonlocalconditions(watertemperatures).However,theannualcapacity,as
demonstrated in the fiveyear study and subsequent use of the Seine River, offers much greater
potentialfreecoolingcapacitythanadditionalcoolingtowercapacity.
TheBercycoolingplantwasconstructedthroughaconcessionagreementbythecityofParisundera
public service contract.22 Free cooling at the Bercy plant was part of a strategic decision by
ClimespacetoimprovenetworkenergyefficiencyandrespondtotheParisClimateActionPlan(Le
PlanClimatdeParis).ThisplanseekstoreduceenergyconsumptionandGHGemissionsinParisby
25%by2020,whilealsoincreasingrenewableenergyusebyasmuchas25%duringthesameperiod
(MairiedeParis,2007).
Projectfinancing
Total capital expenditures for the Bercy cooling plant were EUR 34million, including the initial
installation of the energy plant and the onsite generators. Approximately EUR 350000of that
investmentcanbeattributedtoworksassociatedwiththeimplementationoffreecoolingusingthe
21
Averagecoolingdemandreferstothetypical(average)operationalcoolingoutputsuppliedfornetworkdemand.Bycontrast,average
dailycoolingload(MWh)referstothetypicaldailycoolingenergyconsumedthroughoutthecourseofaday(oraveragecoolingdemand
multipliedbyaveragehoursofoperation).
22
Aconcessionagreementisaformofpublicprivatepartnershipunderwhichaprivatefirmentersintoagreementwithgovernmentto
provide public services with certain exclusive rightsto operate, maintain and/or make investments in a public utility (such as a district
coolingnetwork).
Page|47
Seine River. The project was financed using a 20% equitytoloan ratio with an expected 15year
paybackperiod.
Projectfinancing
Total capital expenditures for the Bercy cooling plant were EUR 34million, including the initial
installation of the energy plant and the onsite generators. Approximately EUR 350000of that
investmentcanbeattributedtoworksassociatedwiththeimplementationoffreecoolingusingthe
Seine River. The project was financed using a 20% equitytoloan ratio with an expected 15year
paybackperiod.
Businessstructure
Climespace manages and operates the entire Parisian district cooling system, excluding electricity
supply.UndertheconcessionagreementfromthecityofParis,thedistrictcoolingnetworkcanbe
expandedbutonlyintheareacoveredbytheconcession.Inrecentyears,theClimespacenetwork
hasexperiencedanannualincreaseofabout15MWofsubscribedconnectedpower.
As a utility company exceeding 400 GWh of energy sold, Climespace needs to comply with the
French CEE (Certificat dconomies dnergie), which places some constraints and penalties on
energy providers that are not complaint with energy efficiency standards. The CEE also provides
some financial benefits to providers that are compliant with energy efficiency targets. To date,
Climespace has met required efficiency targets and has not placed any constraints on subscribed
contractswithclients.
Lessonslearned
TheBercyprojectandClimespacenetworkhavedemonstratedthatdistrictcoolingusingfreecooling
is an effective way to face present and future energy and environmental challenges for cooling
buildings in highdensity cities. Highefficiency district cooling using free cooling sources can be
developedtomeetincreasingdemandforcomfortcoolinginofficeandcommercialbuildings,andit
can also help to reduce risks for peak electricity demand, especially in warmer summer months.
WhilefreecoolingusingtheSeineRiverislimitedbyriverwatertemperatures,itstillprovidesnet
benefits to the system. Geothermal energy, such as the new plant being added to the Climespace
network,andenergystoragesystemscouldalsoreducetheneedforextrainstalledcoolingcapacity,
whilealsodecreasingpeakelectricitydemandandstrengtheninggridinfrastructure.
Different types of piping material could have been used in the Bercy network, and these
considerationswillbetakenintoaccountasthenetworkisupdatedovertime.Existingsteelpipingin
thenetworkrequiresinternalprotectionlayersandissubjectedtohigherlevelsofcorrosionwhen
compared with other materials. Leakage detection and more isolation valves could also be used
throughout the network to monitor and control flow, and energy storage, which has not been
appliedtotheBercynetworktodate,couldprovideadditionalbenefitssimilartothecurrentcooling
towers in the larger Climespace network. An ice slurry likewise would help provide better energy
densityintheBercynetwork.
Page|48
DHC:Riyadh,SaudiArabia
CasestudyinformationsubmittedbyMillenniumEnergyIndustries.
Keyfacts:
The Princess Noura Bint Adbul Al Rahman University for Women (PNUW) in Riyadh, Saudi Arabia
commissioned Millennium Energy Industries (MEI) to build the worlds largest operating solar heating
project in 2010. The largescale solar thermal DH application was opened in July 2011. The project
providesspaceheatingandhotwaterneedsfornearly40000studentsandstaffincombinationwiththe
universitys conventional diesel boilers (Figure 12). The solar system accounts for 36610m2 of rooftop
flatplate collectors, and it includes 996 m3 of storage capacity in six buffer tanks to store excess heat
during times of high solar radiation or low demand for hot water. The PNUW solar thermal project is
estimatedtosavenearly52millionlitresofdieseland125ktCO2duringitsexpected25yearsystemlife,
incomparisontostandarddieselboilers.
Projectdescription
Energysupply
ThePNUWsolarheatingprojectwascommissionedtoprovidecleanDHsolutionsfortheuniversity
campus.TomeettheextremeconditionsoftheRiyadhdesert,includingdesertsandstormsandboth
freezingandhighoperatingtemperatures(70Cto90C),thePNUWsolarheatingprojectrequireda
sealedsolarsystemandsolarequipmentthatcouldwithstandfreezingtemperaturesoncoldnights
while maintaining high efficiencies on hot days. Design considerations also included hydraulic
balancing(heatdistribution)andfrictionlosscontroltopreventsystemstagnation23andvaryingheat
loadprofiles,aswellasacustomfasteningsystemthatcansustainwindloadsupto160kilometres
perhour(km/h).Regularcleaningisalsorequiredtotreatfinedustsfromdesertstorms.
Performance results of the installed system, in comparison to theoretical performance yields,
demonstrated in late 2011 that system yield was close to expected results (91%). Losses during
testing were most likely from dust accumulation on collectors and possible thermal losses from
piping and system equipment. Demand for temperatures above normal operating levels at certain
times during the day also contributed to some efficiency reduction. Many of these issues will be
addressedwithsystemmaintenanceandcontinuedexperiencewiththesolarthermalnetwork.
ThePNUWsolarthermalsystemuses3616large(10m2)flatpanelcollectorsthatminimisetheneed
forpipingandthathaveahighefficiencyathighworkingtemperatures.Thesolarapplicationusesa
Tichelmannpipesystemdividedintosixzonesforhydraulicbalancingtoallowparallelconnections
up to 110m2 between collectors (Figure 12). The Tichelmann system also limits the number of
necessary regulating valves and limits pressure losses to manageable values, while allowing for
emptyingincaseofstagnation.
23
Stagnation, or overheating due to insufficient heat rejection relative to heat absorption within the solar thermal network, is an
importantissueinthedesignofsolarthermalsystems.DuetothevaryingheatloadsofthePNUWdistrictheatingsystem(fromstudent
presenceoncampusandtimingofdemand),thePNUWsystemhadtobesizedtopreventexcessiveheatbuildupwithinthesystem.Daily
storageinthebuffertanksaccommodatessomeofthisexcessheat;althoughlowdemandinsummermonthsalsohadtobetakeninto
accountintheultimatesizingofthenetwork.
Page|49
Thesixbuffertankscanalsobeheatedto100Cinasecondarycircuittoavoidstagnation,anddry
coolersareoccasionallyusedtomaintainsystemtemperatures.Finally,anantifreeze,glycolwater
mixisusedtoprotectthesystemagainsttemperaturesaslowas15C,andsolarcirculatingpumps
areusedtocirculatetheheattransferfluidbetweenthecollectorsandstoragetanks.
Figure12 SystemdiagramofthePNUWsolarthermalDHplant

Solar
collectors
Dry
cooler Heat Heat
exchanger exchanger
Storage
tanks
Boiler

Sources: MEI representatives (2013), Personal communication; Heron, Chris (2013), Princess Noura University (PNUW) solar heating
system(2013),GlobalSolarThermalEnergyCouncil,http://solarthermalworld.org/content/princessnourauniversitypnuwsolarheating
system2013.
The3616solarcollectorshaveatotalnominalgenerationcapacityof25MWwithaheatgeneration
capacity of 17 megawatts thermal (MWth). The collectors provide supplemental heat to the
universityDHnetworkseightconventionaldieselboilers,whichhavegenerationcapacityof8.5MW
eachandapeakcapacityof68MWth.Averageannualefficiencyofthesolarcollectorsis43%,with
an annual heat output of roughly 25000MWh. The conventional diesel boilers, which have an
average nominal operating efficiency of 85%, output roughly 22 500 MWh annually (Table 9). This
totaldoesnotincludedistributionlosses,whichcanbeasmuchas10%to15%ofheatoutput.
Table9PNUWdistrictwaterheatingenergyinput,outputsandefficiencies
Fuelenergyinput Heatoutput(direct) Averageefficiency

(MWh) (MWh) (%)
Dieselboilers 26 390 22 430 85
Solarcollectors 0 25 229 43
Total 26 930 47 659 177*
Source:MEIrepresentatives(2013),PersonalCommunication.
*
Thesystemefficiencyshownhereonlyreflectsdirectheatoutputrelativetonetfuelinput.Itdoesnotincludesolarefficiencyrelativeto
potentialremainingsolarinput,nordoesitincludedistributionallosses.

Page|50
The operation and output of the solar thermal plant vary throughout the year, depending on
ambient temperatures and university heating demand. During the summer period, the thermal
demandoftheDHnetworkistypicallylessthan30MWth,whichthesolarcollectorsarecapableof
supplyingalmostindependentlyoftheconventionalboilers.Ingeneral,thesolarthermalcollectors
provide enough heat during this period to fill the buffer tanks with water at 93C during the first
hours of the morning sun. Throughout the rest of the day, the solar thermal system continues to
provide hot water needs to the campus while maintaining storage temperatures, and by nightfall,
theremainingstorageheatfromthebuffertanksistypicallyabletomeetsystemheatingneedsuntil
early morning. When the buffer tanks can no longer provide hot water demand, the diesel boilers
provideremainingsupply.Thisdieselsupplygenerallyisforlessthantwohoursintheearlymorning
duringsummermonths.
Duringcolderwintermonths,thesolarcollectorsreducenetdieselconsumptionintheDHnetwork
byheatingtheboilerreturnline.Theeightboilersproduceamaximumsupplytemperatureof90C,
whereaveragereturntemperaturesarenear72C.Thesolarsystemraisesreturntemperaturesbya
minimumof3C,therebyloweringrequiredheatinputbytheboilers.
ThePNUWDHnetworksuppliesspaceheatingand hotwaterto13universityfaculties,coveringa
total heated floor area of 36160m2. The DH network is 6.25km in length with both supply and
return lines at 0.152m in diameter. All supply and return lines are fibreglass insulated (0.05m
insulation)withmetalcasing.
Asheatingdemandvariesacrosshotsummerdays,colddesertnightsandcoolwintermonths,total
heatingsuppliedtothenetworkdiffersthroughout theyear.Dailyaverageloadforthenetworkis
roughly15MWh,wheredailypeakloadcanbeasmuchas48MWh.
Toavoidstagnationinthesolarheatingsystemandtoensurethatheatdemandismetefficiently,
the university DH network is monitored and managed by a sophisticated Building Management
System (BMS).TheBMSincludesenergymeters,pressuresafetyvalves,pressureand temperature
indicators,andstagnationmonitorsinthesolarcollectornetwork.TheBMSalsomeasuresdailysolar
insolation and efficiency values, as well as system flow rates and supply and return temperatures.
ThecollectedinformationallowstheBMStoimproveoperationsbasedondistrictheatdemand.This
control by the BMS includes turning off the conventional boilers during daytime hours when the
solarnetworkisabletosupplyrequireddistrictheat.TheBMSalsoallowsautomaticcommissioning
logisticsfortimelystartupofheatsuppliestoavoidsystemidling.
The initial PNUW request for proposal issued by the Saudi Arabian Ministry of Finance considered
the use of concentrated solar power, although MEI recommended the use of fixed solar collectors
because of their lower capital expenditure and maintenance costs. Technical and commercial
analysisofsolaroptionsalsoshowedthatflatpanelswerebettersuitedtotheextremeconditionsof
theariddesertclimate,especiallybecausefixedcollectorsavoiddamagetomoveableparts,suchas
thejointsoftrackingsystems.Theflatpanelsystemalsouseslessspacethanotherproposedsolar
technologies.
Fuel choice for the network boilers was also considered in the system design. Although current
operationsusediesel,theboilershavebeenequippedwithdualburnersforfutureintroductionof
liquefiedpetroleumgas(LPG)fueltoallowforcontinuedenergyefficiencyimprovementsrelativeto
fuel price and efficiency targets. This dual burner installation will support longterm goals of
improvingoverallPNUWDHefficiencies.
Page|51
The PNUW project was developed under a broad set of objectives, including both national and
university targets to reduce overall energy demand and increase sustainable energy supply in the
energymix.Theprojectalsoservesasademonstrationforfutureprojectsthatcanbeintegratedinto
the broader national energy plan to improve energy efficiency and increase renewable energy
supply.
Projectfinancing
Total investment for the PNUW solar system was USD 23million. Yearly maintenance is
approximatelyUSD450000,andthefinancialpaybackperiodisexpectedtobelessthanfiveyears,
depending on the cost of diesel fuels. This expected ROI was estimated compared to global diesel
pricesandopportunitycostsfornationaloilsavings.
Businessstructure
MEI has a fiveyear operations and maintenance contract with PNUW that includes technical
operation, performance monitoring and a preventative maintenance programme. System
performance and maintenance are also occasionally monitored by a thirdparty consultant who
verifies that the DH system is meeting specific energy and performance metrics. Penalties can be
incurredifperformanceindicatorsdonotmeetthesemetrics,althoughthiskindofnoncompliance
hasnotbeenanissuetodate.Expansionofthesystemisalsopossibleifnewuniversitydivisionsare
added, but such growth is unlikely in the near future, because the university was recently
constructed.
Lessonslearned
ThePNUWsolarthermalapplicationdemonstratesthatsolarDHisaviabletechnologyintheMiddle
East and North African regions and that sustainable renewable energy systems can reduce
conventional fuel use while also reducing emissions. The PNUM project shows that the choice of
solarcollectorsandthepropersizingofsystemequipmentareimportantintheplanningofsystem
design. These design elements are especially critical to avoid stagnation within the solar thermal
system, although network distributional temperatures are another design element that could be
considered for similar projects to lower required input heat energy and improve overall system
efficiencies.
The PNUW solar thermal project illustrates that cost reductions and design optimisation can be
achievedifsolarsystemsaredesignedatearlystagesalongwithothersystemcomponents.Indesert
locationssuchasRiyadh,designprocedureswilldifferfromconventionalsystemsduetosolarheat
gain variables and safety considerations for large projects. Nevertheless, when planned carefully,
solartechnologycanbeacosteffectivesolutionforDHenergysupply.
Page|52
TheIEACHPandDHCCollaborativeand
RelatedInitiativesSupportedbytheIEA
TheIEACHPandDHCCollaborativewasinitiatedin2007toacceleratedeploymentofcosteffective,
cleancogenerationandefficientDHCtechnologies,leadingtoreducedCO2emissionsandincreased
overallefficiencyofenergysystemsthroughincreaseduseofwasteheatandlowcarbonrenewable
energyresources.TheCollaborativealsoseekstoprovideaplatformforstakeholderstosharebest
practices, policies, experiences and applied solutions with regard to these technologies.
Collaboratorsincludegovernments,internationalorganisations,regionalindustrialassociationsand
privatesectorcollaborators,includingequipmentsuppliersandutilitycompanies.
Thisinitiativehasalreadycompletedseveralpublicationsthatprovideavisionofcogenerationand
DHC energy potential, along with an overview of policy best practices and recommendations of
options to consider when implementing these policies. The Collaborative results have also
highlighted the benefits of an integrated energy system approach that uses cogeneration
technologies to assist in balancing electricity production from variable renewables. For more
informationabouttheCollaborative,pleasevisitwww.iea.org/chp/.
Inaddition,theImplementingAgreementforaProgrammeofRD&DonDistrictHeatingandCooling,
includingtheIntegrationofCombinedHeatandPower(DHCIA),isamultilateraltechnologyinitiative
supportedbytheIEA.TheninemembercountriesoftheDHCIAdealwiththedesign,performance
andoperationofdistributionsystemsandconsumerinstallations.Inoperationsince1983,theDHC
IAisdedicatedtohelpingmakeDHCandcogenerationpowerfultoolsforenergyconservationand
the reduction of environmental impacts of supplying heat. For more information, please visit
www.ieadhc.org.
Page|53
AbbreviationsandAcronyms
2DS 2degreesscenario
BETTA BritishElectricityTradingandTransmissionArrangements

CFE ComisinFederaldeElectricidad(FederalElectricityCommission)
CHP combinedheatandpower
CHPQA CombinedHeatandPowerQualityAssurance
CNE ComisinNacionaldeEnerga(NationalEnergyCommission)
CO2 carbondioxide
CRE ComisinReguladoradeEnerga(EnergyRegulatoryCommission)
DC districtcooling
DECC DepartmentofEnergyandClimateChange
DH districtheating
DHC districtheatingandcooling
ESCO energyservicecompany
GHG greenhousegases
GPC gasprocessingcomplex
IA implementingagreement
IPP independentpowerproducer
IRR internalrateofreturn
LHV lowheatingvalue
NGCC naturalgascombinedcycle
OECD OrganisationforEconomicCooperationandDevelopment
Ofgem OfficeofGasandElectricityMarkets
OMIE OperadordelMercadoIbricodelaEnerga
ORC organicRankinecycle
Pemex PetrleosMexicanos
PNUW PrincessNouraBintAbdulAlRahmanUniversityforWomen
PPA powerpurchaseagreement
RD&D researchdevelopmentanddemonstration
REE RedElctricadeEspaa
RHI RenewableHeatIncentive
ROC RenewablesObligationCertificate
ROI returnoninvestment
Page|54
Units of Measure
C degree Celsius
EJ exajoule
EUR Euro
GBP British pound
GW gigawatt
GWh gigawatt-hour
GWth gigawatt thermal
INR Indian rupee
km kilometre
kt kilotonne
kWe kilowatt electric
kWh kilowatt-hour
m metre
2
m square metre
3
m cubic metre
mmscfd million standard cubic feet per day
Mt megatonne
MtCO2 megatonne of carbon dioxide
MW megawatt
MWe megawatt electric
MWth megawatt thermal
MXN Mexican peso
NOx nitrogen oxides
PJ petajoule
SOx sulphur oxides
t/h tonnes per hour
TJ terajoule
TWh terawatt hour
USD United States dollar
Page | 55
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Linking Heat and

Linking Heat and Electricity Systems OECD/IEA 2014

Conversion losses 115 EJ

Markinchproject Industrialcogeneration:Papersector United 127 Biomass 250

PROJECT DEVELOPMENT SYSTEM OPERATION

TECHNOLOGY SELECTION FINANCING MECHANISMS BUSINESS MECHANISMS

POLICY AND MARKET MEASURES

REGULATORY FRAMEWORK LONG-TERM STABILITY

Industry Heat pumps Building

Heat grid Renewable and natural

Heating storage Cooling storage

Thediverse businessstructuresandpolicyframeworksillustratedinthe casestudiesofthisreport

Natural gas Co-generation Electricity

Generator Radiation Stack Cooling

Electricity Heating Total

OECD/IEA 2014 Linking Heat and Electricity Systems

Industrial co-generation: Tabasco, Mexico

Figure 6 Nuevo Pemex co-generation system

Electricity Heating Total

Generation Transmission Distribution Consumption

Small power producers

OECD/IEA 2014 Linking Heat and Electricity Systems

Table 4 Nuevo Pemex electricity prices

Level Schedule CFE price* Voltage Transmission Total delivery

Electricity Heat Total

Year Installation Capacity

Fuelenergyinput Heatoutput/(Losses) Electricityoutput

Wood chip boiler Electricity Bio oil boiler

Cooling unit for

Fuelenergyinput Heatoutput(direct) Averageefficiency

OECD/IEA 2014 Linking Heat and Electricity Systems

International Energy Agency

Tel: +33 (0)1 40 57 66 90

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