NO. 1 /2019 INTERNATIONAL MAGAZINE ON DISTRICT HEATING AND COOLING FOCUS DISTRICT HEATING FINANCE AND ECONOMY TCO - secure the best possible long-term investment Internal rate of returN Sign up anD how it affects Development of DH projects to receive Hot Cool DBDH - direct access to distri CONTENTS 3 THE COLUMN: THE BENEFITS OF DISTRICT HEATING By Knud Bonde, Senior Vice President, Meters Heat & Cooling, Kamstrup, and member of the Board of DBDH 4 7 FOCUS FINANCIAL GAIN THROUGH HEAT AGREEMENT BETWEEN DISTRICT HEATING COMPANY AND SURPLUS HEAT SUPPLIER By Lars Gullev, Managing Direc P3 The Column By Knud Bonde, Senior Vice President, Meters Heat & Cooling, Kamstrup, and member of the Board of DBDH THE BENEFITS OF DISTRICT HEATING The benefits of district heating (DH) are certainly many, and the beauty is that there are also benefits to many of the different stakeholders. J P4 FOCUS FINANCE & ECONOMY By Lars Gullev, Managing Director, VEKS FINANCIAL GAIN THROUGH HEAT AGREEMENT BETWEEN DISTRICT HEATING COMPANY AND SURPLUS HEAT SUPPLIER Well thought out heat agreement between a producer of surplus heat and a district heating company ensured both parties an economic ga P5 After about two years of negotiations, the heat agreement was signed in December 2016, and the planning of the technical installations began. One year later, in December 2017, the surplus heat project was formally put into operation. Schedule as well as budgets had been met. HOW IS THE SURPLUS H P6 Each party prepared a budget for their own investments, freezing each party's share of the investments that would subsequently be included in Budget Net Investments. This Budget Net Investment is subsequently used as a distribution number between the parties for determining the heat price, when P7 FOCUS FINANCE & ECONOMY By Lars Gullev, Managing Director, VEKS & Morten Jordt Duedahl, Business Development Director, DBDH IRR INTERNAL RATE OF RETURN AND HOW IT AFFECTS DEVELOPMENT OF DH PROJECTS IRR is the theme discussed everywhere when looking at how to establish district heating (DH) s P8 THE LOWER THE IRR - THE MORE DH It is as simple as that.... The lower expectations to the IRR, the more or larger DH projects a company can invest in, within their economic framework. The picture below illustrates this fact. People familiar to the east of Scotland will recognise the map of Dunde P9 DEPRECIATION TIME MAY ALSO DIFFER The depreciation period (or pay-back period) used in different business models may also differ that again makes the comparison of IRR difficult as projects should be similar in order to make a correct comparison of IRR. For a classic end user owner / municipal P10 A DETAILED DISCUSSION OF HOW LOWER IRR COULD BE USED Price reductions The simplest way to reduce the IRR is to reduce the cashflow i.e. simply lower the price for the end-users. The definition of IRR mentions all cash flows. This means that if the cash flows are reduced, the IRR will go down. H P11 FOCUS FINANCE & ECONOMY By Peter Jorsal, Product and Academy Manager, LOGSTOR A/S TOTAL COST OF OWNERSHIP ANALYSIS SHOULD ALWAYS FORM THE BASIS OF INVESTMENTS IN PRE-INSULATED DISTRICT HEATING NETWORKS SECURE THE BEST POSSIBLE LONG-TERM INVESTMENT It ought to be a matter of course to include P12 INVESTMENT IN PRE-INSULATED MATERIALS There are more aspects to take into consideration when choosing pre-insulated pipe systems. Which pre-insulated pipe system you choose has a large influence on other elements in the Total Cost of Ownership analysis, such as the contractor costs of establish P13 The casing joint system you choose is important to ensure that you get the system service life you expect and not unforeseen expenses for repairing damages. So it is important to choose a casing joint system with the same service life as the rest of the pipe system. The casing joints must also P14 TOOLS FOR ANALYZING TOTAL COST OF OWNERSHIP There are different tools to assess the Total Cost of Ownership of different pipe systems. Below is an example of a tool to analyze a pre-defined pipe system. The tool gives an indication of which type of pipe system gives the lowest Total Cost of Own P15 The investment costs for materials, installation work, and excavation/backfilling can be adjusted, so they comply with the energy company in question. See below as an example of the calculation result: The energy company also has the possibility of comparing two different pipe scenarios and ca P16 FOCUS FINANCE & ECONOMY By Lars Andersen, CEO, Geotermisk Operatørselskab A/S GEOTHERMAL ENERGY FOR DISTRICT HEATING Geothermal energy is sustainable green energy source from the subsurface. Management of the exploration risk is key to successful geothermal projects. Once the geothermal reso P17 Build Own Operate Characteristics Pros Cons The district heating company buys the heat from a supplier. The supplier carries the exploration risk. The license to explore and produce geothermal energy is most likely held 100 % by the supplier / professional industry partner. The district P18 COST DRIVERS The major cost drivers in a geothermal project are listed below along with examples of actions that can be taken in order to reduce the heat price: The interest rate By reducing the interest rate by 1 %, the heat price can be reduced by up to DKK 20 per MWh Number of hours By inc P19 FOCUS FINANCE & ECONOMY By Tom Diget, Chief Operating Officer, Viborg District Heating Company MOTIVATION TARIFF THE KEY TO A LOW TEMPERATURE DISTRICT HEATING NETWORK Viborg District Heating Company constantly works to improve the efficiency of the network. Lowering the temperature is an im P20 The figure below shows the normal supply temperature at the consumer over a year in different building types. The different heat curves show the supply temperature for comfort heating in different buildings, where the heating system has been dimensioned to different supply temperatures mainly P21 If the consumer has a heating installation that delivers a return temperature above the calculated temperature plus 6 degrees, they will have to pay extra. The extra cost is 1 % per degree that they are above the threshold. The extra cost can often finance needed improvements in the heating sys P22 But that is not the entire picture and definitely not the correct way to look at the model. The reduced heat loss, due to the possibility to deliver at a lower temperature, more than compensates for the loss in the simple economy. The reduction in heat loss saves Viborg DH Company around 670,00 P23 By Torkil Hvam Sørensen, Member of the World Association of PPP Units and PPP Professionals (WAPPP) FINANCING THE 2030 AGENDA: PEOPLE-FIRST PUBLIC PRIVATE PARTNERSHIPS IN RENEWABLE ENERGY THE 2030 AGENDA AND PUBLIC-PRIVATE PARTNERSHIPS The 2013 Agenda for Sustainable Development and the 17 Su P24 In this context, the term Impact Investing has emerged as a popular description of private capital mobilised for sustainable investments, often aligned with the SDGs and ESG (Environment, Social, and Governance) considerations. Some institutional investors have already taken active steps to inv P25 Going forward, projects will need to incorporate the SDGthinking from an early stage and to work closely with civil society, governments and other stakeholders to identify what constitutes good impact in the local context and to then incorporate this in the project. Time will tell how these new P26 AN INDISPENSABLE TOOL IN SUPPLY CHAIN MANAGEMENT By Michael Søndergaard, CEO of Pernexus The work portal is today a software-as-a-service (SaaS) platform, where many of the different parties that make up a construction project come together and work through the same shared procedures and data. P27 Today, it is difficult to imagine starting a new project without the portal, which holds all the data. It gives us insight into the budget of a project, and how much and what kind of material our suppliers are using, creating value in the decisionmaking process. It also allows us to go back and P28 By Britta Kleinertz, Dr. Götz Brüh and Dr. Serafin von Roon, Forschungsgesellschaft für Energiewirtschaft mbH HEAT-DISPATCH-CENTER SYMBIOSIS OF HEAT GENERATION UNITS TO REACH COST EFFICIENT, LOW EMISSION HEAT SUPPLY Renewable heat sources underlie various constraints; hence, their interconnec P29 CONCEPT OF THE HEAT-DISPATCH-CENTRE In Figure 1 the, (in the following stepwise explained), connection of two consumers, three storages and four heat generation units is visualized. The relevant components of the Heat-Dispatch-Centre are the generation and storage units as well as their control P30 With this composition, an overall primary energy factor of 0.09 and a specific CO2 emission factor of 27 gCO2/kWhth can be reached, while the heat generation costs including funding lie at 12 €ct/kWhth. In contrast to this, network-based heat supply from gas with losses of overall 20 % lies at P31 MEMBER COMPANY PROFILE VERDO GREENER ENERGY FOR THE FUTURE Each day Verdo focus our passion on becoming the greenest and most efficient energy group. We are privately owned by ourselves and pay no dividend. All our efforts go to our vision of creating an abundant supply of green sustainable defining network efficiency An intelligent surveillance tool With the LOGSTOR Detect surveillance system you will immediately be informed of potential defects that can be repaired in time. This secures the lifetime expected for your district heating network and thereby the lowest possible Total Cos