high level district heating feasibility study - … · reference: cork docklands high level...

CORK DOCKLANDS HIGH LEVEL DISTRICT HEATING FEASIBILITY STUDY

CORK DOCKLANDS

HIGH LEVEL DISTRICT HEATING FEASIBILITY STUDY

March 2009



Reference: Cork Docklands High Level District heating feasibility study Issue Prepared By Contribution By Checked by

Draft 11 – 11 – 08 Richard Linger Sarah O’Connell Emma Mooney/Richard Linger Draft for final

comment 9 – 01 - 09

V1 26 - 02 - 09 V2 20-03-09 V3 1.0

File Reference: CE07077 /C006954-SOC-051108-Eng Strat WYG (Ireland) Ltd., Unit 2, University Technology Centre, Curraheen Road, Bishopstown, Cork Telephone: +353 (0)214933200 Facsimile: +353 (0)21 4933250 E-Mail: [email protected]


Contents

1. EXECUTIVE SUMMARY 2. INTRODUCTION 3. IMPERATIVE FOR CHANGE IN IRELAND 4. LEGISLATIVE DRIVERS 5. BENEFITS CASE TO CUSTOMERS* 6. BENEFITS CASE FOR DEVELOPERS 7. BUSINESS CASE FOR ESCO OR MUSCO* 8. FINANCIAL MODELS 9. PROPOSED DELIVERY PLAN 10. PROPOSED NEXT STEPS 11. STAKEHOLDER ANALYSIS VIEWS 12. RISK AND MITIGATION STRATEGIES 13. ROLE OF LOCAL GOVERNMENT 14. PARTNERSHIP MODELS FOR ‘UTILITY COMPANY’ 15. UTILITY COMPANY (ENERGY SERVICE COMPANY) MODELS 16. FINANCING OPTIONS 17. SCALABILITY AND PROJECT PHASING 18. SITE OPTIONS 19. SCOPE OF SUPPLY 20. TECHNICAL OPTIONS 21. FUEL SUPPLY OPTIONS 22. EXAMPLES OF SIMILAR SCHEMES GLOSSARY AND LIST OF CONTRIBUTORS

C O N T E N T S


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1. EXECUTIVE SUMMARY

In a world of fluctuating utility prices, changing legislation, climate change and increased focus on costs it is important for us all to re-evaluate how we traditionally have gone about

our business. Ireland is in a particularly difficult position due to our dependency on imported fossil fuels and the impact this has on our international competitive position. Part of the

vision for the Cork South Docklands is to support a sustainable future for the City of Cork. A sub-component of this sustainable approach is the energy strategy and upon

implementation future-proofing energy supply at reduced cost and lower environmental impact for the residents and businesses.

This high level energy strategy was commissioned by Cork City Council –Docklands Directorate and sponsored by Bord Gais Networks. The strategy has focused on the business

case which has at its core a district heating and cooling scheme. The business case has many facets and the most important components are the business model, financial and legal

frameworks. Technical solutions for the Energy strategy are well established proven technologies and have been addressed but are not the main theme of review.

A large number of stakeholders were interviewed during the strategy development. They were selected based on their interests or potential interest in the project. They included

developers, energy service companies, financial experts, semi-state bodies and government agencies. Their views are summarised in the report, in general the consensus was very

positive towards an efficient, cost effective and environmentally friendly district heating and cooling solution.

The financial model indicates that the entire scheme or a subset is a viable business and with City Council support through the installation of the main pipe runs while building the

infrastructure makes the strategy very attractive for both investors and users. The capital cost of installing the entire infrastructure is estimated to be €35m and the annual turnover

when fully operational is extimated to be €22m.

Energy Strategy Benefits include:-

Environmental and Carbon savings (minimum 20%) Reduced energy and utility costs for occupiers (5% to 15%) Reduced installation costs for developers (€1,000 per residential unit) Compliance with Building Regulations 2008 renewable requirements ‘Future Proofing’ docklands energy supply Increased rental income for more sustainable developments Significant increase in overall Sustainability of Docklands Our thanks to all those listed at the rear of this document for their sponsorship and time. Without their input this strategy would not have been possible to complete.

E X E C U T I V E

S U M M A R Y


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2. INTRODUCTION

INTRODUCTION

This document provides a high level review of the efficient energy options and opportunity of installing a district heating scheme in the Cork South Docklands. The process

undertaken in the development of this report is as important as the documents itself as one of the core objectives is to engage with key stakeholders and raise awareness of the

benefits of a comprehensive, considered, sustainable and innovative energy strategy. The objectives of the project were as follows.

Articulate the business basis for a docklands-wide scheme

To engage with key stakeholders

Identify key risks and mitigation strategies

Ensure the strategy and options are developed objectively and impartially

Communicate effectively the benefits of the proposed scheme and address any issues

Ensure the proposed models provide the flexibility to minimise any risks for multiple stakeholders

Develop high level options for the business model, operating model & technical/fuel options

Stimulate discussions between stakeholders as to how they might participate in delivering a scheme

Develop an outline plan for next steps

Demonstrate the potential financial viability of the scheme

Promote energy efficiency as a key strategic driver in tandem with the district heating scheme. FOCUS It must be noted that the focus of this project is not to develop the technical solution. There are sufficient examples of this

in the US and Europe which negate the need at this stage to review this in detail. The focus is on the following:-

What organisational options are available for an energy service company and their relative merits

What financing structures might be used

What are key financial requirements from the lending institutions

What operational options could be used

High level analysis of the business model

I N T R O D U C T I O N

I N T R O D U C T I O


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Kick off meeting

Stakeholder Engagement

Preliminary Energy Strategy Report

Interim Presentation of Key Findings

Approach (Simplified)

Revised Energy Strategy Report

Development Plan

Presentation of Key Findings

LEVEL OF INNOVATION The hypothesis used as the basis for the business case sits at a moderate level of technical innovation (see below). This does not mean more innovative technical solutions could not

be adopted later on in the life of such a scheme, however, the approach was pragmatic and based in technologies currently available and in use.


Development as usualNo innovation and standard minimum compliance

Fully integrated heating / cooling / electricity / communications / waste management centre. Localised enhancements

Fully integrated heating / cooling / electricity management centre. Localised enhancements.

Low innovation High innovationHypothesis Assessed

APPROACH The approach adopted had two key themes 1 - Engagement with the key stakeholders gathering information and views, 2 - Development of a strategy document focusing on the

business model options available, the financing options and the types of Utility Company that could be employed to deliver the solution.


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STAKEHOLDER ENGAGEMENT Key stakeholders engaged with included Developers, Semi-State bodies (SEI, ESB, Bord Gais), financial institutions, financial consultants, public bodies (Cork City Council),

Engineering Consultancies and Energy Service Companies. All of these stakeholders have a vested interest in the development and are impacted in some manner by the opportunity.

The meetings with the stakeholders were generally carried out with representation of the City Council and Bord Gais Networks.

SCOPE OF STRATEGY The scope of the strategy has a number of components. These help to clarify the basis of the approach and support the objectives.

• Stakeholder scope – The stakeholders were selected based on availability and influence.

• Technical scope – This is a high level strategy review not a detailed specification for a district heating scheme hence currently available technical options we reviewed and their

relative merits discussed. In the future different technologies could be incorporated in the scheme.

• Geographical scope - The strategy addresses an energy strategy for the Cork South Docklands only. This does not mean the scheme could not be expanded to include other

areas.

• Energy strategy options scope – At one end of the spectrum we have a traditional approach to providing heating and cooling to buildings. This traditional model has been shown

to work all across Ireland and does not need to be evaluated. The district heating/cooling model was reviewed and the positive benefits between it and the traditional approach

identified.

• Financial modeling scope – A high level financial model has been developed and a sensitivity analysis carried out. This model is not to be used for robust investment decision

making. Further due diligence is required.

KEY FEATURE Due to the significant scale of the south docklands a district heating scheme could

be implemented in part or all of the docklands. A scheme does not have to include

all the property developers. In theory some could opt out and adopt a traditional

approach or even set up their own independent district heating scheme. Although

opting out would reduce some economies of scale and mean users in these areas

would not be able to take advantage of the benefits.



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3. IMPERATIVE FOR CHANGE IN IRELAND

I M P E R A T I V E

F O R

C H A N G E

INTRODUCTION At present, Ireland’s Carbon Dioxide emissions are currently at 28% above 1990 levels. Added to this, less than 3% of Ireland’s energy needs are met by sustainable indigenous

sources. While there is an increasing awareness of the importance of energy efficiency and sustainability, significant changes are required in how energy is generated,

distributed and used in order to reduce Carbon Dioxide emissions and meet our energy needs in a sustainable way.

High Carbon Dioxide emissions and lack of energy self-sufficiency also bring financial costs to the country. As Ireland has not been able to meet the commitments entered into in

the Kyoto protocol, the government has been purchasing carbon credits, at a cost of millions to the taxpayer. If the current economic situation continues, it is likely that the cost of

these carbon credits will be passed on in the form of a carbon tax. The lack of energy self sufficiency results in Ireland not having control over its own energy prices. 57% of our

energy comes from oil and 25% from gas, with the result that Ireland is particularly exposed to fluctuations in international prices.

The energy strategy for the Cork Docklands is a major step change from conventional energy solutions. It has the potential to reduce the carbon dioxide emissions and energy

costs for the whole of the Docklands.

Key Drivers Carbon dioxide reduction

Energy self-sufficiency

Security of supply

Exposure to rising international energy costs

Future carbon tax

Energy & renewables targets for buildings

Oil57%Gas

25%

Renewables3%

Coal10%

Electricity Imports

1%

Peat4%

Irelands Kyoto Limit Source: EPA

Source: SEI


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4. LEGISLATIVE DRIVERS

INTRODUCTION Local, national and international regulations and guidance has meant that developments now have increasingly demanding regulatory requirements placed upon them in order to

achieve compliance. The Energy Strategy can assist the developments in the Docklands to meet, and exceed where possible, existing legislation as well as take into account

future legislative developments,

Future legislative trends can generally be predicted and it is imperative that the development addresses emerging controls in a proactive and progressive manner to ensure that by

the time the development becomes habitable, it offers the highest standard of accommodation and operation to all of its residents and workers. By keeping abreast of regulatory

changes the development can hope to encompass and manage such changes in an effective and efficient manner with minimal disruption to the operation and management of the

site in the coming years.

The EU Directive on the Energy Performance of Buildings (EPBD) is one example of new legislation and contains a range of provisions aimed at improving energy performance of

residential and non-residential buildings, both new-build and existing. This Directive was adopted into Irish law as Regulation in 2006. The EPBD obliges specific forms of

information and advice on energy performance to be provided to building purchasers, tenants and users. This information and advice provides consumers with information

regarding the energy performance of a building and enables them to take this into consideration in any decisions on property transactions. As part of the Directive, a Building

Energy Rating (BER) certificate, which is effectively an energy label, will be required at the point of sale or rental of a building, or on completion of a new building.

L E G I S L A T I V E

D R I V E R S

The Department of Environment, Heritage and Local Government ‘Urban Design Manual - A Best Practice Guide 2008’ established a series of high-level aims for successful and sustainable development in urban areas including:

Deliver a quality of life which occupiers and visitors are entitled to expect, in terms of amenity, safety and convenience

Provide a good range of community and support facilities, where and when they are needed

Present an attractive, well-maintained appearance, with a distinct sense of place

Are easy to access and to find one’s way around

Facilitate walking, cycling and public transport, and minimise car use

Promote the efficient use of land and energy, and minimise greenhouse gas emissions

Promote social integration, and provide accommodation for a diverse range of household types and age groups

Enhance and protect the built and natural heritage.

http://www.sei.ie/Your_Building/EPBD/deap_1_.pdf�

http://www.sei.ie/Your_Building/BER/�




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L E G I S L A T I V E

D R I V E R S

Guiding Principles

The main legislative drivers for this energy strategy are summarised as:

South Docks Local Area Plan 2008

Cork Docklands Development Strategy 2001

Cork Area Strategic Plan 2001 – 2020

Cork City Development Plan 2004 - 2010

National Spatial Strategy 2002 - 2020

South West Regional Planning Guidelines 2004

Building Regulations for Dwellings 2008 Part L

Building Regulations 2008

Building Energy Rating Certificates 2007 (Energy Performance of Buildings Directive 2002)

Planning and Development Act 2000

Building Control Act 2007

Building Control Bill 2005

Energy Performance of Buildings Regulations 2006

National Spatial Strategy for Ireland 2002 – 2020

Objectives - Legislative

To ensure that the energy strategy meets every regulatory requirement for and exceeded where possible

To seek to future proof the Docklands by assessing potential amendments to existing regulations and monitor the potential

emerging regulatory requirements in a proactive manner

Ensure that all residents, be they commercial or residential, are assured of the commitment to providing an energy source and

distribution mechanism that is above and beyond current legislative requirements

To set a new standard in sustainable energy implementation that will push the boundaries of existing guidelines and challenge

policy makers to increasing efficiency and sustainability in planning for Ireland’s energy needs.


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5. BENEFIT CASE TO CUSTOMERS

INTRODUCTION

The traditional approach to providing heating and cooling to residents and

businesses offers little in terms of potential savings and reducing GHG emissions. A

strategy that uses a combination of enhanced building performance with new

technologies and a district heating / cooling scheme offers significant savings and will

help meet if not exceed legislative requirements.

New regulations go some way to increase efficiency in buildings, 2008 Part L building

regulations will generally be of a higher standard. Most dwellings and non-domestic

buildings in the Docklands are being designed to level 30% to 60% more efficient

than current regulations as a marketing enhancement leading to real user benefits.

Well designed buildings provide an environment which enhances health and

productivity. If these buildings have reduced energy consumption and a district

heating/cooling scheme the benefits to the user could be in the range of the following

benefits outlined below.

C U S T O M E R

B E N E F I T

Benefits

• Reduced energy costs

• Reduced Green House Gasses

• Increased reliability

• Enhanced re-sale values


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BENIFITS 1. A district heating scheme providing hot water and heating for building would cost in the region on 5% to 15% less per year.

2. A district heating scheme will negate the need for expensive annual inspections of gas boilers.

3. Legislative requirements for the use of renewables can be met easily met using district heating/cooling, which can be otherwise difficult for residential apartments.

4. District cooling could also be integrated in the scheme providing lower cost cooling to commercial users

5. New heat exchanger technologies eliminate the need for water tank storage in the apartment reducing purchase costs or providing additional storage space. However, if a

backup calorifier & immersion are provided, these savings will be negated.

6. District heating schemes tend to be more reliable than individual boilers as they have back-up systems.

7. The resident also has the assurance that the charges for heating are less than they would usually be as information is provided on the bills detailing the equivalent costs for a

standard heating system.

8. Reducing GHG emissions – a district heating scheme could use a mix of fuels including biomass which could reduce the overall CO2 emissions for the development and

customer targets. Note – many blue chip companies are looking to have offices which meet their own GHG reduction targets – e.g. HSBC, Marks and Spencer, Google.

9. The use of the district heating and cooling network does not mean additional technologies cannot be used locally on SPECIFIC buildings. E.g. Heatpump and Photovoltaic

technologies could be used to further augment the developments.

10. District heating schemes also reduce the risk of gas leaks and the risk of explosion.

11. Well designed buildings can reduce consumption rates by 50% and therefore will reduce the cost of heating and hot water for residential customers by a similar amount. This

could be about €500 per residence per year.

C U S T O M E R

B E N E F I T

PERCIEVED RISK TO THE CUSTOMERS?

If the Utility Company is set up appropriately – as is the case in the

US, UK and mainland Europe there is little risk to the customer.

Contractual safeguards when in place are robust. During this study

we were unable to find examples where the model had failed or

the customers were taken advantage of. What is not clear as yet

is what the CER is preparing regarding regulation of District

Heating and Cooling projects to safeguard the customer.

Benefits

• Reduced energy costs

• Reduced Green House Gasses

• Increased reliability

• Enhanced re-sale values


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6. BENEFIT CASE FOR DEVELOPERS

BENEFITS - SUMMARY Reduced capital costs for heating/cooling system

installation – up to €1,000 per residential unit.

Buildings meet & exceed renewable energy requirement

of the Building Regulations Part L for dwellings

Increased lettable area in buildings as plant space

requirements are significantly reduced.

Assists in attracting high profile anchor tenants who have

incorporated sustainability into their business models

To meet and exceed where possible local and national

planning guidance

Future proof the development of the Docklands.

INTRODUCTION Benefits for the developers are significant and should not be under-estimated. In a large number of case studies

reviewed and interviews with Developers and Energy Service Companies we summarise the benefits to the

developer as follows:-

1. Commercial - Reduced capital costs – it is estimated that the Mechanical and Electrical costs for a

developer on commercial projects can be reduced by 10 to 20%. This is due to the reduced amount of

equipment required to be installed by the developers.

2. Commercial – The developer can offer the property to the market at a reduced operating cost. This coupled

with the increased efficiency now being designed into buildings can lead to a reduced operating cost of up

to €2/square foot. For a development in the Docklands with a rental target of about €25/square foot this is a

significant proportion of costs at 8%.

3. Commercial – future proofing against Carbon Taxes – A district heating and potentially cooling scheme

could use different technologies and fuels to provide the service. An energy centre could plug and play

equipment which would not be as easily accommodated in a basement of an apartment block.

4. Commercial – Space is a premium in large developments. Car parking spaces can cost up to €20,000 each

to build. Removal of plant and fuel storage out of buildings offers the developer a further benefit.

5. General – Centralising an Energy Centre removes the need for the developer to take fuel deliveries. These

are often viewed as inconvenient and time consuming

6. General – If the plant is centralised the operations and maintenance requirements for the developer – who

often sets up their own service company, are eliminated

7. Residential – The developer has a reduced project build cost per residential unit of approximately €1000.

8. Residential – The new Part L requires 10kWh/m2/yr heating or 4 kWh/m2/yr electrical energy consumption

to be provided from renewable sources in domestic dwellings. An energy centre burning biomass for a

portion of its hot water production is ideal to meet this requirement for apartment blocks.

C U S T O M E R

B E N E F I T


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7. BENEFIT CASE FOR ESCO OR MUSCO

BENIFITS Significant Business Opportunity. This would be the largest district heating scheme in Ireland.

High profile showcase project. As the ESCO in Docklands scheme, the provider would become a widely recognised brand name.

Large customer base. The South Docks area will have a residential population of 20,000 and employ approximately 25,000 people.

Public or semi-state involvement will decrease financial risk & increase customer confidence in project. The involvement of Cork City

Council and/or ESB/BGE would give customers considering connecting to the district heating network a sense of security. The involvement

of such parties also decreases the risk for financial institutions.

Large scale – scope for increased plant efficiencies. The total installed capacity may be up to 25 -30MW. Increased boiler and CHP sizes

will increase the overall efficiency of the scheme.

If the main spine network is installed by council, the project becomes much more commercially attractive. This is similar to the model for

broadband connections, i.e. the state will provide the street connection and the ESCO will provide the connection to the door of the building.

Guaranteed take up of electricity by national grid. Proximity to high voltage lines & transformer station at ESB Marina advantageous.

Chance for growth in Irish market

Phasing & long time scale of approximately 20 years means that not all infrastructure capital is required at start of project. Capital spending

can be phased as the precincts in the docklands come on line.

Current market conditions in Ireland are stagnating and many Irish ESCO’s have been forced to focus their attentions abroad. Participation

would allow them to grow their business in Ireland.

INTRODUCTION A project of this size represents the largest business opportunity in Ireland for an Energy Supply Company (ESCO) or Multi Utility Supply Company (MUSCO). The phased

infrastructure of the Docklands will also benefit an ESCO or MUSCO as capital expenditure can be spread over a longer period of time instead of all at the start of the project.

E S C O

B E N E F I T


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8. FINANCIAL MODELS (COST BENEFIT ANALYSIS)

FINANCIAL MODELING SCENARIOS 4 key scenarios assessed…

1. Base case analysis with reasonable assumptions 2. Fuel Cost and Sales price sensitivity analysis 3. Spine Pipeline installation analysis by party other than the

ESCO 4. Late phasing of project

KEY NETWORK AND PHASING ASSUMPTIONS 1. No heat input of waste heat from the current ESB CCGT unit

2. 500MM Diameter network pipe for hot and cold loops

3. Heating only included in financial model

4. Buildings rated as A3 (Building Energy Rating for heat demand)

5. Network model limited to termination points in main buildings for commercial and retail

6. Network model runs up to heat exchangers in the individual residential blocks

7. Spine network of 500mm pipeline length of 5KM, Cost per km district heating €1,398,900

8. Energy Usage phasing across site (of total when development is completed) • Phase 1 - 10% Year 1 • Phase 2 - 20% Year 3 • Phase 3 - 30% Year 7 • Phase 4 - 40% Year 12

9. Deployment of technologies – As a percentage of load Technology Phasing

Technology Phase 1 Phase 2 Phase 3 Phase 4 Gas CHP 0% 20% 15% 10% Gas Boilers 100% 60% 60% 60% Biomass 0% 20% 25% 30%

10. Energy Requirements

• Total Heat Energy Requirement 366,750MWh/annum • Efficiency (network losses) 78% • Design Load 50MW • No cooling load or network costs are assumed in base case

11. Technology Costs

• Gas Fired CHP cost per MWe installed €1,000,000 • Gas boiler cost per MW installed €80,000 • Biomass Boiler cost per MW installed (under 3MW) €300,000 • Biomass Boiler cost per MW installed (over 3MW) €150,000

INTRODUCTION Several financial scenarios/phases were modeled. The purpose of

the high level financial modelling is to demonstrate the viability of the

project from a financial perspective and to look at the sensitivity of the

model to different scenarios. Overall conclusions are that some

scenarios are obviously more positive than others, however, a viable

business exist if the project goes ahead. In the development of a

more rigorous analysis for business case funding a thorough risk

analysis would be required. From the stakeholder consultation,

financial institutions typically lend based on a 15 year loan term with a

20 year plant operating life. In order for the energy strategy to be

viable, it needs to break even before 20 years and ideally before 15

years.

F I N A N C I A L

M O D E L S


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F I N A N C I A L

M O D E L S

REMAINING KEY ASSUMPTIONS 1. Residential Data

• Number of residential units 7,000 • Average size 700M2 • Average heat requirement MWh/m2/y - 0.07 • Cost of residential heat exchanger €2,750 • Annual Standing Charge €100

2. Commercial Building Data

• Number of commercial units = 50 • Average size 5,000 M2 • Average heat requirement MWh/m2/y - 0.10 • Cost of commercial heat exchanger €5,000 • Standing Charge €500

3. Charges & Costs

• Average heat charge, per MWh €60 • Fuel Costs: Gas €31 per MWh, Biomass €27 per MWh. • Maintenance cost as % of total investment = 4.00%

4. Key financials • Loan interest 6.0% • Cash account deficit 6.0% • Cash account surplus 4.0% • Loan Period - From Year 1 = 20 years • Inflation 2.5% • Rate of return 4.0%

NOTE :- Assumptions are based on multiple sources and represent best and most reasonable available data.

BASE CASE FINANCIAL MODELING RESULTS Cumulative NPV value curve indicates a model very sensitive to all key parameters:-

• Fuel and sales price

• Interest Rates

• Capital Costs User load profile is conservative Reasonably neutral cash position Profitability firmly established year 12 Annual sales at year 12 is €22m (Approx) Total capital costs are approximately €35m Fuel and technology mix is brought in early to facilitate fuel flexibility and exploiting electricity sales to supplier (ESB, Airtricity, BGE) NPV - Cumulative and Annual

-€5,000,000

€0

€5,000,000

€10,000,000

€15,000,000

€20,000,000

€25,000,000

€30,000,000

€35,000,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Cumulative NPVAnnual NPV Values


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FINANCIAL MODELING RESULTS

1. Individual cost and revenue curves reflect additional

investment and customers.

2. Short-term cumulative NPV value is below -€1m for first 7

years, which is a reasonably positive position.

3. Heat consumption chart shows an annual heat load of

approximately 360,000 MWh/Annum.

Conclusion – reasonable assumptions applied indicates a

reasonable return for investors.

Heat Consumption Chart

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Years

MW

H/A

nnum

Revenue / Cost Curve

-€40,000,000

-€30,000,000

-€20,000,000

-€10,000,000

€0

€10,000,000

€20,000,000

€30,000,000

€40,000,000

€50,000,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Years

Euro

Annual Revenue

Annual Costs

Net Annual Cash

Periodic Capital Expenditure

Annual Finance Charges

NPV - Cumulative and Annual - Years 1 to 13

-€2,000,000

-€1,000,000

€0

€1,000,000

€2,000,000

€3,000,000

€4,000,000

1 2 3 4 5 6 7 8 9 10 11 12 13

Years

CumulativeNPV

Annual NPVValues

F I N A N C I A L

M O D E L S


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F I N A N C I A L

M O D E L S

FINANCIAL MODEL KEY FEATURES

Scenarios assess and demonstrate the sensitivity of the models to fluctuations in different parameters. In this case the price of Biomass fuel is reduced

• Biomass Price Reduction from €27 to €24 per MWh

• Fuel Costs –

• Delta of 100K per annum by year 4



• Annual Figures – Adjusted for inflation

• Chart shows reduced Biomass Price Vs. the Baseline Cumulative NPV

Sensitivity Analysis – Biomass Fuel Costs

NPV - Cumulative and Annual

-€5,000,000

€0

€5,000,000

€10,000,000

€15,000,000

€20,000,000

€25,000,000

€30,000,000

€35,000,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Years

CumulativeNPVAnnual NPVValues

Cumulative NPV - Baseline VRS Lower Biomass Fuel Costs

-€4,000,000

-€2,000,000

€0

€2,000,000

€4,000,000

€6,000,000

€8,000,000

€10,000,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Years

CumulativeNPV

BaselineCumulativeNPV

KEY CONCLUSIONS

Delta in fuel costs can only be exploited when the Biomass Boilers are actually installed. (Phase 2 – Start of year 3) Biomass fuel cost reductions can be realised if there is scale to the operation and beneficial contracts negotiated. Relative biomass fuel cost reductions of the order shown are possible. If these fuel cost reductions were available then the run-time for the biomass boilers would be increased further to increase benefits further This fuel price sensitivity can be equally applied to the other fuels used (Gas) and provide similar benefits as long as there is the boiler capacity to use the additional fuels to take advantage. Additional off-site biomass storage may be an advantage to allow stockpiling during periods of low prices or to dry-off lower quality fuels.


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F I N A N C I A L

M O D E L S

FINANCIAL MODELING KEY FEATURES

Baseline sales price per unit €60/MWh Analysis 1 - Proposed increase to €63/MWh -Provides a near positive financial position from year 1 Analysis 2 - Proposed increase to €66/MWh – Positive financial position from year 1 Note – Data from ESCOs has sales price structures varying from €50 to €80/MW hdepending on the scale of the project and the financing arrangements. Graph shows years 1 to 12 only for clarity purposes

Sensitivity Analysis – Sales Price

KEY CONCLUSIONS

Improvement in financial position is obvious. Price increase of only 5% (€60 to €63/MWH) provides a near positive financial position from the start. Price increase of 10% provides positive financial position from year 1 compared with baseline. Coupled with a fuel cost reduction and good management the project could be profitable in a couple of years.

NPV - Cumulative and Annual - Price €66/MWH

-€2,000,000

€0

€2,000,000

€4,000,000

€6,000,000

€8,000,000

€10,000,000

1 2 3 4 5 6 7 8 9 10 11 12

Years

Cumulative NPV

BaselineCumulative NPV

NPV - Cumulative and Annual - Price €63/MWH

-€2,000,000

-€1,000,000

€0

€1,000,000

€2,000,000

€3,000,000

€4,000,000

1 2 3 4 5 6 7 8 9 10 11 12

Years

Cumulative NPV

BaselineCumulative NPV


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80% of the spine pipeline installed by City Council • 4km length – CCC • 1km length for local connections – Utility Company Conclusion - Significant impact in making the project cash positive almost from the start.

Sensitivity Analysis – Spine Pipeline installation analysis by party other than the ESCO

F I N A N C I A L

M O D E L S


Changing the interest rate on the capital loans from 6% to 5% makes the project cash positive from the outset. Up to year three the project is cash neutral and profitable thereafter. Conclusion - the profitability is very sensitive to the interest rate charged.

Sensitivity Analysis – Interest Rates

NPV - Cumulative and Annual - 5% Interest Rate

-€2,000,000

-€1,000,000

€0

€1,000,000

€2,000,000

€3,000,000

€4,000,000

1 2 3 4 5 6 7 8 9 10 11 12

Years

Cumulative NPVBaseline Cumulative NPV

NPV - Cumulative and Annual - CCC Supplied Spine Network

-€2,000,000

-€1,000,000

€0

€1,000,000

€2,000,000

€3,000,000

€4,000,000

€5,000,000

€6,000,000

1 2 3 4 5 6 7 8 9 10 11 12

Years Cumulative NPVBaseline Cumulative NPV


- 18 -


Baseline phasing % Year • Phase 1 10% 1 • Phase 2 20% 3 • Phase 3 30% 7 • Phase 4 40% 12 Late Phasing % Year • Phase 1 5% 1 • Phase 2 10% 3 • Phase 3 20% 7 • Phase 4 20% 12 Asset investments also reduced – Spine, commercial and residential equipment Delayed implementation of CHP and Biomass Conclusion – Still a viable project but at a smaller scale

Sensitivity Analysis – Late Phasing of Project

NPV - Cumulative and Annual - Delayed Phasing

-€5,000,000

€0

€5,000,000

€10,000,000

€15,000,000

€20,000,000

€25,000,000

€30,000,000

€35,000,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

CumulativeNPV

Annual NPVValues

BaselineCumulativeNPV

F I N A N C I A L

M O D E L S


- 19 -

9. PROPOSED DELIVERY PLAN

This section examines a proposed delivery plan for the strategy delivery. The delivery plan extends over several years matching the overall development of the South Docklands. The City Council’s role is currently that of supporting the process. The major element is setting up the project and ensuring the key elements listed below are completed. When this is done the design process can begin.

D E L I V E R Y

P L A N

Project Set-up to Design – Build – Commission - Operate The plans below show an outline of the key steps required to set up the project

and then deliver it in a phased manner.

Some of the key activities shown below may change as the project progresses

in terms of order or scope. They represent a reasonable view at this point in

time.

The time-line shown will lengthen or shorten depending on market conditions

and planning approvals for the development

Establish an initial partnership organsation

Develop Business Plan and Financial Model

Secure seed capital funding

Agree preliminary off-take agreements

Initiate discussions with funding bodies

Identify site(s) for energy centres

Review partnership model

Preliminary technical design

Enhanced financial model

Formalise off-take agreements

Secure Funding (in principle)

Contract design team

2009 to 2010 – Approximate Timescales

Project Set-up

Contract Operator

Establish management team


- 20 -

Detailed Design Phase 1

Spine Pipework Design – Phase 1

Construct and Commission

Phase 1

2010 to 2020 – Approximate Timescales

Design – Construct – Commission - Operate

Operate Phase 1




Phase 2

Operate Phase 2




Phase 3

Operate Phase 3

D E L I V E R Y

P L A N


- 21 -

10. PROPOSED NEXT STEPS

This section outlines the proposed next steps to be addressed by the Cork City Council - Docklands Directorate in relation to facilitating the ongoing development of the Energy Strategy.

N E X T

S T E P S

Proposed steps 1 - Setting up Cork Energy Forum

Draft Objectives • Bring together parties who have a potential stake in the project • Bring possible candidates together who are interested in setting up or

supporting an Energy Services Company • Provide the network required to promote the benefits • Provide resources to continue the development of analysis and promotional

materials • Start the process of forming an entity to deliver the business opportunity

Possible Members of the Forum might include (but not be limited to)

• Cork City Council - Docklands Directorate • Cork City Energy Agency • Bord Gais • ESB • Developers or representative • Energy Service Companies or representative • SEI

2 - Develop additional collateral to support the proposal

• Management policy for district heating scheme • Additional energy centre and fuel technical analysis • Pipe network analysis • Additional financial modelling • Communications materials for presentations etc.

3 - Review the opportunity to change the City Corporate Plan to help promote energy efficient developments and take advantage of the benefits of the Energy Strategy.

4 - Actively engage with additional stakeholders through meetings and presentations. These may include the following.

• South Docklands Developers • South Docklands Forum • Cork City Council Departments • Cork County Council • Central Energy Regulator • Sustainable Energy Ireland (SEI) • Department of Communications, Energy and Natural Resources • Department of Environment, Heritage and Local Government • Energy Service Companies • General public • Engineers Ireland • IDA


- 22 -

11. STAKEHOLDER ANALYSIS VIEWS

INTRODUCTION

Overall, there has been a very positive response from the Council, Developers, Financial Institutions, ESCO’s and the Utilities providers. All the stakeholders can see advantages to

the scheme. The key findings of the initial stages of the Energy Strategy are outlined below; comments included are summaries from the interviews with the stakeholders and

represent their views and not of the City Council. The issues that require addressing have been identified.

KEY ISSUES & OPPORTUNITIES

Cork City Council, the initiators of the study, are keen for the project to proceed and have indicated that in addition

to facilitating the sustainability agenda they may be in a position to install the distribution pipework as part of the

infrastructure upgrade for the Docklands;

Zoning change may be required for the site that is eventually selected. For the possible ESB and BGE sites, the

continuation of existing related uses may be exempted in the Local Area Plan. This can also be achieved by

strengthening this particular potential use on the site under the City Development Plan which is currently up for

review;

There is a sound economic basis for a district heating and possibly cooling system to be installed in the Docklands;

Developers are generally enthusiastic about the project as a district heating scheme will reduce their investment

costs and also reduce space required for plant on site;

Implementation timeframe for the overall Docklands development is 15 – 20 years. The phasing of the project will

need to track this;

There are several sites where the energy centre could be located. The requirements for the site are detailed in the

site options section of the report. The main requirement is an area of approximately 4 acres with good access for

deliveries and connection to the district heating pipe network. Several landowners including BGE and ESB have

land areas of this size (This area could be reduced if silos were located underground or other fuel management

strategies developed);

ESCO’s see this as a very viable proposition and are keen to invest in it;

Options for a number of business models are set out in this report.

S T A K E H O L D E R S


- 23 -

CORK CITY COUNCIL

Want to facilitate project but would prefer not to be directly involved in its operation.

Are considering installing pipework for district heating/cooling in roads as part of the

infrastructure for the Docklands.

The district heating pipework could potentially be funded through City Council

development contribution levies – small proportion of overall infrastructure cost.

Council have investigated and development levies are allowable for district heating

pipework possibly under a section special section 48 or supplementary section 49

scheme of the Planning and Development Act 2000.

Zoning issue – change to City Development Plan to be progressed

Model discussed – PPP can take a significant amount of time

Zone (SDZ) – Also Cork City Council would prefer not to adopt this route but other

options may become viable in the future

Important goal is to secure funds for pipework installation.

DEVELOPERS

In favour of centralised Energy Supply – one developer would also like to include

waste management facility (e.g. ENVAC)

Getting agreement between various developers may be time consuming – however

only 2 are needed for project to be viable.

Developers willing to pursue private Energy Centre Programme in support of the

City Council strategy.

Plan on implementation – Scheduling & Timelines required.

ESB Marina Power station is a suitable site for the energy centre.

Current LAP zoning for 3rd/4th level education for Marina Power Station to be

amended via City Plan for Utilities.

Current economic climate may prove barrier to overall development

SEVESO Issues, Conservation issues remain for the overall development and need

addressing

Aim to encourage local employment opportunities

BGE - Corporate Strategy & Strategic Investments

Scheme is aligned with BGE objective of providing heating solutions with a greener emphasis.

Corporate Strategy division within BGE looks at the macro energy market in Ireland and determines the optimum position for BGE at high level.

Strategic Investments division are involved in electricity and gas investments in Northern Ireland and the Republic of Ireland.

BGE are potentially interested in becoming involved in the energy strategy in a number of ways:

a) Equity Share in energy scheme

b) Customer interface / billing aspect of the scheme

c) Involvement through an ESCO partner

d) BGE are a supplier of gas and electricity and could be included in the package from the ESCO.

BGE Networks are a regulated business with the primary function of installing & maintaining gas pipework.



- 24 -

UTILICOM (SOUTHAMPTON DISTRICT HEATING SCHEME)

Have several schemes in UK in addition to Southampton (10 MW) –

Birmingham (8 -12MW), Manchester, London.

Use ‘Joint Co-Operation Model’ – Full partnership with councils

Drivers – Councils have carbon targets that are required to meet

Councils encourage rather than enforce use of district heating scheme

(Carrot)

Persuade - Easiest way for businesses to meet carbon targets

Savings: Users 5-10% (guarantee 5%)

Developers – 20% against conventional heating system


ESB POWER GENERATION – STRATEGY & SUSTAINABILITY

ESB new Corporate Strategy – Carbon Neutral by 2035

Want to be actively involved in high profile sustainability projects

View Docklands Energy Strategy as one such potential project

Currently anticipate keeping generating capacity at Marina for at

least next 20 years

Marina plant to provide back up wind generation / peak lopping

Potentially retain Marina site – possibly use for future generation

Are open to Energy Centre being located on site


- 25 -

ESCO’S – (Note Several Energy Service Companies were contacted and this summary represents key points made)

District heating projects all over Europe, Dundalk 2020, Heuston Quarter. It is not a new

concept.

Funding Options / Business Models– Cash, Utility Co. with Council Levies, Developers,

BGE, ESB, and ESCOs set up private utility co.

PPP not suitable as council do not own assets in Docklands.

Timeframe of the order of 20 years - Scheduling & Implementation timeline required to

establish feasibility.

May involve consortium of ESCO’s providing different functions e.g. installation, servicing,

front end customer interface.

Piping infrastructure cost > 50% of overall cost. Generally not viewed as asset by financial

institutions. In Europe part funded by public sector.

Banks see value in Purchase Contracts – Heat to customers, electricity to ESB.

CORPORATE FINANCE

All assets with Developers & ESB (PPP not necessarily feasible)

2 -3 major developers required for project to be viable

Funding may be difficult in current economic climate

Private finance most viable option

Or Utilities company with council development levies

SDZ– accelerated delivery

ESTATE AGENTS

Certainty on Delivery of District heating required.

More interest in ‘green’ labels on buildings

Economic basis which results in cost neutral or cost beneficial heating system for

developers & rental tenants.

Cork competes with Dublin in office letting market

Cork Docklands will provide high quality large buildings that will attract large corporate

occupiers (FDI).



- 26 -

12. RISK & MITIGATION STRATEGIES RISK DESCRIPTION MITIGATION STRATEGY STAKEHOLDER

(S) IMPACTED LIKELIHOOD

USING HEATING AND COOLNG FROM THE DISTRICT SCHEME PRECLUDES THE USE OF ALTERNATIVE/ADDITIONAL TECHNOLOGIES

HEATING AND COOLING WATER PROVIDED BY THE DISTRCT SCHEME COULD BE USED IN CONJUNCTION WITH BUILDING SPECIFIC ADDITIONAL TECHNOLOGIES. IN SOME CASES THIS MAY BE DESIRABLE IF THE DEVELOPER OF BUILDING OWNER WANTED TO MAKE INVESTMENT. EXAMPLES MIGHT BE USING GROUND SOURCE HEAT PUMPS FOR INDIVIDUAL BUILDINGS FOR COOLING AND USING ONLY THE DISTIRCT HOT WATER FOR HEATING. SOLAR THERMAL OR PHOTO VOLTAIC COULD ALSO BE USED ON INDIVIDUAL BUILDINGS IN CONJUNCTION WITH THE DISTRICT HEATING AND COOLING.

ALL LOW

BIOMASS FUEL SOURCES MAY BE CONSTRAINED

BY USING A MIXTURE OF TECHNOLOGIES TO PROVIDE HEATING AND COOLING (GAS, BIOMASS ETC.) EXPOSURE TO CONSTRAINTS IN THE SUPPLY OF FUELS CAN BE MITIGATED. LONG-TERM SUPPLY CONTACTS WITH ORGANISATIONS LIKE GREEN-BELT OR SWS FOR EXAMPLE, CAN BE USED TO ENSURE SUPPLY IS SECURED. REGARDLESS WHICH FUEL SOURCE IS USED DUE TO THE NATURE OF THE GLOBAL ENERGY MARKET NO FUEL SOURCE WILL BE IMMUNE FROM THE IMPACT OF GAS AND OIL SHORTAGES.

ALL LOW – ALL DEVELOPMENTS AT RISK OF CONSTRAINTS IN THE GLOBAL ENERGY MARKETS AS OIL AND GAS SUPPLIES BECOME CONSTRAINED

POTENTIAL OF THE SCHEME TYING IN THE CUSTOMERS TO A SINGLE SUPPLIER

UTILICO WILL NEED TO PROVIDE TRANSPARENCY OF PRICING AND CONTRACTS. CORK CITY COUNCIL REPRESENTATION ON BOARD OF THE UTILITY COMPANY WOULD HELP REDUCE ANY ISSUES. BUILDING OWNERS COULD FIT CONVENTIONAL ALTERNATIVE EQUIPMENT, E.G. GAS BOILERS, IF THEY FELT THAT THE SERVICE NEEDED WAS NOT BEING PROVIDED OR CHOOSE TO OPT OUT OF THE SCHEME. THIS WOULD THEN MEAN HIGHER HEATING AND COOLING COSTS FOR BUILDING OCCUPIERS.

ALL LOW – SOME OF THE DEVELOPERS MAY OPT OUT BUT THE SCALE OF THE DEVELOPMENT AND THE BENEFITS ARE SIGNIFICANT

INTRODUCTION

Risks and mitigation strategies need to be assessed from the perspective of each key stakeholder. This section will outline some of the key risks but is not an exhaustive assessment. Some risks are perceived as such but in reality are based on a lack of clarity of what can be done to mitigate them.

R I S K

&

M I T I G A T I O N


- 27 -

12. RISK & MITIGATION STRATEGIES - CONT

RISK DESCRIPTION MITIGATION STRATEGY STAKEHOLDER(S) IMPACTED

LIKELIHOOD

GAS SUPPLIES WILL EVENTUALLY RUN-OUT

YES GAS SUPPLIES WILL EVENTUALLY RUN OUT, BUT NOT IN THE SHORT-TERM. A DISTRICT HEATING AND COOLING SCHEME PROVIDES THE FLEXIBILITY TO ‘PLUG AND PLAY’ TECHNOLOGIES IN THE ENERGY CENTRE. IF GAS RUNS OUT OR COSTS BECOME PROHIBITIVE THEN THE GAS BOILERS CAN BE REPLACED.

ALL LOW – WE ARE ALL AT RISK OF CONSTRAINTS IN THE GLOBAL ENERGY MARKETS AS OIL AND GAS SUPPLIES BECOME CONSTRAINED

THE DISTRICT SCHEME IS LIABLE TO FAILURE

RELIABILITY OF DISTRICT HEATING AND COOLING SCHEMES IS GENERALLY HIGHER THAN STAND-ALONE SYSTEMS AS REDUNDANCY IS BUILT INTO THE SYSTEM TO SUPPORT MAINTENANCE PROGRAMMES. PIPELINES ARE GENERALLY VERY RELIABLE. HOWEVER THEY CAN FAIL WHEN DAMAGED BY EXCAVATORS. AS CAN GAS PIPELINES AND ELECTRICITY CABLES…..

ALL LOW

IS THERE ENOUGH DEMAND IF ONLY PART OF THE SOUTH DOCKLANDS IS PART OF THE SCHEME

THE SCALE OF THE DOCKLANDS SCHEME MEANS THAT IF ONLY 5% OF THE DEVELOPMENT USED A DISTRICT HEATING AND COOLING SCHEME THE PROJECT FOR THAT 5% WOULD BE VIABLE.

ALL LOW

WHAT IF THE LAND IS NOT AVAILABLE TO SET UP AN ENERGY CENTRE

A DISTRIBUTED NETWORK OF SMALLER ENERGY CENTRES WOULD STILL BE A VIABLE OPTION. SOME CAPITAL AND OPERATING COSTS MAY INCREASE.

ALL LOW

WOULD BIOMASS LORRIES CLOG UP THE ROAD NETWORK BRINGING FUEL TO THE ENERGY CENTRE

LORRIES TAKE ABOUT 15MINUTES TO OFF-LOAD AND THE SCHEME WOULD NEED ABOUT 10 TO 15 LORRIES PER DAY WHEN FULLY OPERATIONAL AT PEAK PERIODS. THIS IS VERY LITTLE ADDITIONAL TRAFFIC RELATIVE TO ALL THE OTHER TRAFFIC. LORRIES CAN ALSO BE BROUGHT IN AT NIGHT. SUPPLIES COULD ALSO BE TRANSPORTED BY SHIP IF THE INFRASTRUCTURE WAS AVAILABLE.

ALL LOW

WHAT ABOUT THE EMISSIONS FROM THE BOILERS

MODERN BIOMASS BOILERS CAN HAVE SCRUBBING EQUIPMENT ATTACHED WHICH REMOVES ANY ISSUES. EUROPEAN COUNTRIES OFTEN HAVE BIOMASS BOILERS IN THE CENTRE OF TOWNS AND HAVE MORE STRINGENT AIR QUALITY REQUIREMENTS.

ALL LOW

R I S K

&

M I T I G A T I O N


- 28 -

12. RISK & MITIGATION STRATEGIES - CONT

RISK DESCRIPTION MITIGATION STRATEGY STAKEHOLDER(S) IMPACTED

LIKELIHOOD

THE COST OF PUTTING IN THIS TYPE OF SYSTEM IS MORE EXPENSIVE FOR THE DEVELOPER

BY SETTING UP A UTILITY COMPANY THE COSTS OF HEATING AND COOLING EQUIPMENT CAN BE REDUCED FOR THE DEVELOPER. THESE COSTS CAN BE IN THE ORDER OF €1000 PER APARTMENT AND UP TO 30% REDUCTION IN EQUIVALENT M&E COSTS.

DEVELOPERS LOW

WHAT IS THE RISK OF THE SUPPLIER BEING CHARGED MORE FOR THEIR HEATING AND HOT WATER THAN BY USING TRADITIONAL METHODS

IN MANY CASES THE UTILITY COMPANY IS OBLIGED TO PROVIDE THE HEATING AT 5 OR 10% LESS COST THAN THE EQUIVALENT GAS OR ELECTRICAL HEATING SOURCE. THIS CAN BE SHOWN ON THE HEATING BILL AS THE EQUIVALENT COSTS FROM A BASKET OF ENERGY SUPPLIER PRICES. THIS ENSURES TRANSPARENCY. THIS IS COMMON PRACTICE FOR ENERGY SERVICE COMPANIES AND THERE ARE MANY EXAMPLES. THE HEATING AND COOLING SUPPLIER IS THEREFORE INCENTIVISED TO ENSURE THE COST OF PROVIDING HEATING AND COOLING IS DONE IN THE MOST EFFICIENT MANNER.

CUSTOMERS LOW

WHAT HAPPENS IF THE UTILITY COMPANY PROVIDING THE HEATING AND COOLING GOES BUST

BY CHOOSING A LARGE AND RELIABLE COMPANY OR PARTNERSHIP IT IS UNLIKELY THE BUSINESS WOULD GO UNDER. TO HELP SAFEGUARD THE CUSTOMERS CONTRACTUAL ARRANGEMENTS WOULD BE PUT IN PLACE AND POTENTAILLY THE CITY COUNCIL CHARGED WITH ENSURING THE SERVICE PROVISION CONTINUED UNTIL BUYERS FOUND.

ALL LOW

R I S K

&

M I T I G A T I O N


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13. ROLE OF LOCAL GOVERNMENT

INTRODUCTION The role of local government is important from a number of perspectives. Cork City Council has a number of options regarding the level of local authority involvement in the

scheme. These options or models are outlined in this section. At present, the Council has indicated that it would like to facilitate the scheme but not become directly involved

in the operation of it. This energy strategy was commissioned by the City Council, therefore they have an interest in establishing the viability of a district heating scheme. It

aligns with the overall sustainability agenda for the Docklands development and is viewed as an effective way of reducing Carbon emissions. There is one key area where the

City Council is in a position to have a significant influence on the scheme – through installation of the pipe network. Regardless of the model adopted, this would have a very

beneficial effect in moving the scheme forward.

In the UK, local governments have been assigned Carbon reduction targets by central government in an effort to tackle climate change and reduce greenhouse gas emissions.

Any new development in the Council’s jurisdiction has to comply with strict criteria in terms of Carbon reduction in order to get planning permission for the development to

proceed. The same criteria applies to public buildings. The Birmingham and Southampton city councils encourage the use of district heating by promoting it as an effective

way of meeting the carbon reduction target. Should a similar measure be introduced by the Irish Government, the Docklands energy strategy would be in a position to assist

Cork City Council in meeting Carbon or energy reduction goals.

L O C A L

G O V E R N M E N T


- 30 -

LOCAL AUTHORITY MODELS The level of involvement of the local authority in district heating schemes varies widely in various schemes. In

European countries such as Austria, Denmark etc. the local authorities are often heavily involved in the

schemes, owning operating and administering in some cases. In the UK, the Joint partnership model is used in

Southampton and Birmingham Schemes. District heating schemes have also been installed in Ireland and other

countries with no Local Authority involvement. This section aims to give Cork City Council a brief summary of

the advantages and disadvantages of the various options that are open to them.

i. No involvement

ii. Promotion & encouragement of District heating through planning policies & Provision of pipe network

iii. Joint Partnership Model

iv. Other partial involvement – PPP, DBO, DBFO, SDZ

v. Full involvement - Council Owner & Operator of Scheme

vi. Combination / Variation of the schemes above

PIPE NETWORK INSTALLATION The City Council will be building the infrastructure for the development. This provides an opportunity to include a spine network of heating and cooling pipeline loops which are

installed with the roads and other key services. The cost of doing this work at this stage is significantly lower than retrofitting later. It is estimated that cost of installing the spine

network at this stage is 60% of the alternative. Funding for the installation may be sourced from development contributions or levies possibly under a special section 48 or

supplementary section 49 schemes under the Planning and Development Act 2000. The Council will then have an asset from which they can obtain revenue by selling capacity in the pipeline network. The operator of the district heating scheme would then pay a fee to the Council for utilising the pipeline network. The resultant benefits of the

City Council installing the pipeline network would be significant and are likely to include:

Increased public confidence in the scheme

Demonstrated local authority commitment to the energy strategy

Increasing the attractiveness of the scheme for investors

Minimising disruption to road network and infrastructure compared to pipes installed at a later date

Generation of revenue on an ongoing basis for the local authority.

L O C A L

G O V E R N M E N T


- 31 -

ii. Encouragement, Promotion & installation of pipe network Encouragement & promotion of the scheme through methods such as: 1. Setting of carbon reduction targets, renewable energy

use targets, energy reduction targets etc. 2. Promotion of the cost saving benefits where whole life

cycle cost savings can be demonstrated. 3. Installation of the main pipeline network across the

entire site. Likely to be installed with the other services and roads to reduce costs.

Advantages 1. Installation costs are reduced as the pipeline network is

installed at the same time as the infrastructure.

2. Installation can be phased to match infrastructure

schedule.

3. Could provide a revenue stream for the City Council

through a charging mechanism for access to the

pipeline network

4. Helps to ensure a more robust business case for a utility

company

5. Supports the financing of the scheme and enhances its

viability

Disadvantages 1. Funding required for the pipeline network needs to be

sourced – represents approximately 1% to 1.5% of the

overall infrastructure costs.

i. No involvement The energy strategy would be developed and

implemented as a private partnership with no local

authority involvement other than compulsory items such

as planning.

Advantages 1. No risk borne by the local authority

Disadvantages 1. No local authority input into the strategic planning of

the scheme

2. ‘Greater public good’ may not be taken into

consideration in decision making.

3. No revenue generation for local authority

4. Scheme not be aligned with Sustainability agenda of

City Council

5. No knowledge of district heating gained by local

authority

L O C A L

G O V E R N M E N T

iii. Joint Partnership Model Local authority in partnership with a utility company. Utility

company runs the scheme on a day-to-day basis. Local

authority role is as follows:

1. Provide land 2. Provide assistance during works – plant and machinery 3. Agree to use heating / cooling from the scheme in council

buildings where possible 4. Promote the scheme where cost savings can be

demonstrated to potential customers 5. Educational, policy and information dissemination role 6. Do not have power to approve / withhold approval but can

have input into planning through observation & comments 7. Apply for grants that only public bodies can receive for the

benefit of the scheme 8. Receive a profit share from the scheme. Advantages 1. Helps facilitate the launch of the scheme

2. Provides revenue stream for council

3. Encourages developers to use heating/cooling

4. Utility company not linked to developer

5. Perceived as being more ‘civic and customer’ orientated

6. Financing likely to be easily accessible

7. Potential access to heating for social housing

Disadvantages 1. Need to provide land for site

2. May need to underwrite finance

3. May need to install pipe network


- 32 -

v. Full Involvement City council builds own and operator of the district heating/cooling/ generation scheme. Advantages 1. Revenue stream for council

2. Customers perceive value due to civic nature of management

3. Can be completed in parallel with the infrastructure construction

4. Heating can be used for social housing

5. Network could be extended by City Council to other parts of the city.

Disadvantages 1. Council has no current experience of operating assets of this type

2. Perception that the council may not operate as efficiently as the private sector

3. All financial risk sits with the council

4. Developers not required to use the system

iv. PPP, DBO, DBFO, SDZ Set up the project as a PPP or BDO or similar. Will require provision of some value element – e.g. Land, guaranteed Offtake etc.

Advantages 1. Once the decision has been made to proceed then project is likely to go ahead

2. Offtake will need to be guaranteed hence developers will be strongly encourage

to participate

3. Asset to be handed over to City Council at some time in the future

Disadvantages 1. Process to bid PPP or DBO is lengthy and expensive

2. City Council will need to provide some item of value – for example land or

guaranteed energy sales.

L O C A L

G O V E R N M E N T


- 33 -

13. PARTNERSHIP MODELS FOR ‘UTILITY COMPANY’

INTRODUCTION This section provides examples of different partnership models for a ‘Utility Co.’ which could be used and their relative merits. The ‘Utility Co.’ would be a company set up to

implement the energy strategy. An overview of each option along with an assessment of the optimum solutions is given here. Detailed analysis of each option is included in the

Appendices. Likely participants have been chosen based on the interest shown to-date and their involvement in the Cork Docklands site. Involvement is based on land ownership, municipal

role or provisions of energy services.

OPTIONS Option 1 – Private sector initiative – no council involvement

Option 2 – Semi state body supported initiative with private sector

partnerships

Option 3 – Semi state body supported initiative with private sector

partnership and Cork City Council involvement at a limited level

Option 4 – Semi state body only

Option 5 – Semi state body and Cork City Council

Option 6 – Cork City Council only initiative

Option 7 – Private Sector and Cork City Council

P A R T N E R S H I P

M O D E L S

ASSESSMENT CRITERIA Track record or ease of accessing to funding

Access to land

Ability to access to market for heating and cooling

Alignment with docklands phasing

Ability to attract and support customers

Attractive brand to customers

Ability to manage project through to delivery in a timely manner

Access to secondary means of heating/cooling

Political/Organisational complexity


- 34 -

Options Review

0

2

4

6

8

10

12

14

16

0 5 10 15 20 25 30 35

Finance and Infrastuture Alignment

Trac

k R

ecor

d an

d B

rand

Con

fiden

ce

Option 1

Option 2

Option 3

Option 4

Option 5

Option 6

Option 7

Cork City CouncilSemi State Bodies – ESB, Bord Gais

Private Sector – e.g. Property Developers, Energy Service Companies

Key Potential Partners

Option 1

Option 2

Option 3

Option 4

Option 5

Option 6

Option 7

P A R T N E R S H I P

M O D E L S

Partnership Options.

Partnership Options EVALUATION MATRIX – Based on a set of business evaluation criteria we

have assessed each option based on three key themes and then a further subset of criteria.

The following is summary of the themes and criteria with the scores. The results are indicative of the

most appropriate approach to support and These scores are subjective and based on opinion to

some degree as we do not have absolutes.

The diagram opposite shows the Options relative to the involvement of stakeholder groups.

Options Review Results:- Based on the assessment indicates that options 2, 3, 4 and 5 represents the options

with the most potential for being developed or success. The main reasons driving this

are spreading the facility to sign-up customers/agreements with other parties and

established capability and reputation for delivery. This capability leads to the ability to

raise capital. Political and Organisation risks are also a component of the model and

can lead to difficulties.

Options 1, 6 and 7 are less positive as they have more issues to overcome. This

does not necessarily negate them as a potential operating model.


- 35 -

14. UTILITY COMPANY (ENERGY SERVICE COMPANY) MODELS

INTRODUCTION This section provides different examples of the type of Energy Service Company operating models. An interesting feature is many of these models are from the US

where district heating schemes are popular as they provide the opportunity for saving heating and cooling costs.

E S C O

M O D E L S

1. Chauffage

A very frequently used type of contract in Europe is the ‘chauffage’ contract, where an ESCO takes over complete responsibility for the provision to the client of an

agreed set of energy services (e.g. space heat, lighting, motive power, etc.). This arrangement is an extreme form of energy management outsourcing. Where the

energy supply market is competitive, the ESCO in a chauffage arrangement also takes over full responsibility for fuel/electricity purchasing. The fee paid by the

client under a chauffage arrangement is calculated on the basis of its existing energy bill minus a percentage saving (often in the range of 5-10 %). Thus the client

is guaranteed an immediate saving relative to its current bill. The ESCO takes on the responsibility for providing the agreed level of energy service for lower than

the current bill or for providing improved level of service for the same bill. The more efficiently and cheaply it can do this, the greater its earnings: chauffage

contracts give the strongest incentive to ESCOs to provide services in an efficient way.

Such contracts may have an element of shared savings in addition to the guaranteed savings element to provide incentive for the customer. For instance, all

savings up to an agreed figure would go to the ESCO to repay project costs and return on capital the remainder would then be shared between the ESCO and the

customer.


- 36 -

4. Multi-Utility Supply Company (MUSCO)

This is a new innovative form of contract introduced in the UK in 2001. It covers all

utilities used on site and clients are charged by volume of usage. This contract includes

the facility for shared savings projects in which both the client the ESCO could benefit.

The important innovation in this form of contract was that these projects could be

identified by either party. This was an attempt to encourage the conservation of energy

generation and usage.

2. Build, Own, Operate, Turnover (BOOT)

A BOOT model may involve an ESCO designing, building, financing, owning and

operating the equipment for a defined period of time and then transferring this ownership

to the client. This model resembles a special purpose enterprise created for a particular

project. Clients enter into long term supply contracts with the BOOT operator and are

charged accordingly for the service delivered; the service charge includes capital and

operating cost recovery and project profit. BOOT schemes are becoming an increasingly

popular means of financing CHP projects in Europe.

The revenue to the ESCO can either be a straight fee or related to utility sales, for

example, volume of hot water taken by the client. In the latter case the ESCO will need

to seek some form of ‘take or pay’ contract in order to recover the capital investment

irrespective of the energy demands made by the client.

E S C O

M O D E L S

5. Energy Saving Performance Contracting (ESPC)

This form of contract was first developed in the US public sector. This model

focuses on making improvements to an existing energy system and hence savings.

This contract takes two forms; shared savings or guaranteed savings. The

proposed project is for a brown-field site with no pre-existing energy supply

equipment therefore this model will not be further developed upon.

3. Joint Co-operation Model

The joint co-operation model consists of a full partnership with typically a local

authority and an energy or utility supply company. This is the model used by

Utilicom for all their schemes including the Southampton project. The local

authority or council is a full partner and receives a profit share from the district

heating scheme. The scheme has also been implemented with a private

partnership instead of council.

A separate company is set up between the energy or utility supply company and

the council. This company undertakes the day to day running of the scheme

incorporating central plant, laying of pipes, connecting and billing customers. The

role of the council is to assist in bringing on board new developers and other roles

such as aiding the procurement of grant aid funds for the network. This company

also has a strategic board which large scale customers e.g. hotels, hospitals,

universities have the option of joining. The board meets quarterly to discuss high

level issues and strategies such as expansion of the scheme and development

phasing.


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15. FINANCING OPTIONS

ESCO finance

ESCO financing refers to financing with internal funds of the ESCO and may involve own capital or equipment lease. ESCOs rarely use equity

for financing, as this option limits their capability of implementing projects on a sustainable basis.

Leasing can be an attractive alternative to borrowing because the lease payments tend to be lower than the loan payments; it is commonly

used for industrial equipment. The ESCO makes payments of principal and interest; the frequency of payments depends on the contract. The

stream of income from the cost savings or profits covers the lease payment. The ESCO can tender and arrange an equipment lease-purchase

agreement with a financial institution. If the ESCO is not affiliated to an equipment manufacturer or supplier, it can perform competitive analysis

on the suppliers by means of a tender process. There are two major types of leases: capital and operating. Capital leases are instalment

purchases of equipment. In a capital lease, the ESCO owns and depreciates the equipment and may benefit from associated tax benefits. A

capital asset and associated liability appears on the balance sheet. In operating lease the owner of the asset (ESCO) owns the equipment and

essentially rents it for a fixed monthly fee; this is off-balance sheet financing source. It shifts the risk from the ESCO to the user but tends to be

more expensive to the user. Unlike in a capital lease, the ESCO claims any tax benefits associated with the depreciation of the equipment.

Therefore the financing is not seen as debt.

INTRODUCTION Objective – Provide a review of financing options for the project.

Three broad options for financing options can be distinguished. The partnership model will influence to some extent which financing model is most appropriate.

ESCO finance

Energy user / customer financing

Third Party Financing

F I N A N C I N G


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Figure 16.1: Third Party Financing

Energy-user/customer financing

Energy-user/customer financing usually involves financing with internal funds of the user/customer backed by an energy savings guarantee provided by the ESCO (for instance, a

university can use its endowment fund to finance an energy project, in which the energy savings are guaranteed by an ESCO). Energy-user/customer financing may also be

associated with borrowing in the case when the energy-user/customer as a direct borrower has to provide a guarantee (collateral) to the financial institution. In this instance an

ESCO is only a technical engineering company that guarantees results.

Third-party financing (TPF)

TPF refers solely to debt financing. As its name suggests, project financing comes from a third party,

e.g. a finance institution, and not from internal funds of the ESCO or of the customer. The finance

institution may either assume the rights to the energy savings or may take a security interest in the

project equipment. There are two conceptually different TPF arrangements; the key difference between

them is which party borrows the money: the ESCO or the client. The first option is that the ESCO

borrows the financial sources necessary for project implementation. Below is a diagram representing

the ESCO’s borrowing of funds to pay for the capital equipment.

The second option is that the energy-user/customer takes a loan from a finance institution, backed by

an energy savings guarantee agreement by the ESCO. The purpose of the savings guarantee is to

demonstrate to the bank that the project for which the customer borrows will generate a positive cash

flow, i.e. that the savings achieved will cover the debt repayment. Thus the energy savings guarantee

reduces the risk to the bank, which has implications for the interest rates at which financing is acquired.

The ‘cost of borrowing’ is strongly influenced by the size and credit history of the borrower.

F I N A N C I N G


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Third-party financing (TPF) - Continued

When the ESCO is the borrower the customer is safeguarded from financial risks related to the project’s

technical performance because the savings guarantee provided by the ESCO is either coming from the

project value itself or is appearing on the balance sheet of the ESCO; hence the debt resides on

someone else’s balance list (ESCOs, finance institution’s). Both public and private customers benefit

from off-balance sheet financing because the debt service is treated as an operational expense and not

a capital obligation; debt ratings are therefore not impacted. However, different countries apply various

conditions that need to be met in order financing to be viewed as an operating lease, for example;

unless conditions are met, financing is automatically considered e.g. capital lease. Therefore parties

seeking financing need to first ascertain the country-specific conditions for operational financing.

Large ESCOs with deep pockets and hence high credit rating are favouring TPF to own financing

because the costs of equity financing and long-term financing are too high: the weighed capital costs for

internal funds are often much greater than what can be accessed on the financial markets. If an ESCO

arranges TPF, then its own risk is smaller. This would allow for lower cost of money and hence for the

same level of investment more money would be assigned to the project. The cost associated with non-

recourse project financing by a third party – e.g. one where project loans are secured only by the

project’s assets – is the most expensive as it entails more risk and hence higher interest rates.

F I N A N C I N G


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KEY LENDING CRITERIA

Examples of key lending criteria used by banks and other financial institutions are outlined below. A typical scenario would be where the energy centre would have an operating life of

20 years and the loan duration would be 15 years. The key point is that the contract agreements for the purchase of heat are viewed as one of the main securities. The main

categories detailed are

Security – what the utility company or ESCO is borrowing against

Financial Covenants

Pre-conditions before loan can be drawn down

2. Financial Covenants

Historic ADSCR ≥1.15x

Dividend lock up: Historic ADSCR

≥1.20x

Forward looking LLCR ≥1.15x

4. Other Conditions

Funds transferred to specific project bank account.

Payment priority as follows:

o Project operating costs

o Taxes

o Debt

o Debt Service Reserve account

o Maintenance reserve fund

o Investors

All fees payable to above account

Ability to meet cost overruns

Prohibition on debt increases

Debt service reserve fund in place

Major maintenance reserve fund in place

Investor monies to be spent prior to bank loan

being drawn down

Restrictions on dividend payments

1. Security

Contracts & Agreements including:

o Heat supply

o Interface / Management

o Equipment supply

All material project documentation

Borrower bank A/C’s

Insurances & liquidation protection

Licenses & permits

F I N A N C I N G

3. Pre-conditions to drawdown

Technical consultant / financial advisor to

be satisfied with:

o Financial projections & assumptions

used

o Technical aspects

o Insurance

o O&M Agreement

o Equipment suppliers & other relevant

contractors

75% debt on fixed rate

Accounts of sponsors in order

Certification by Engineer

Equipment supplier accounts in order (

based on 3 yrs audited accounts)

Satisfaction with customer profile

Satisfaction with offtake agreements


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16. SCALABILITY & PROJECT PHASING

S C A L I B I L I T Y

&

P H A S I N G

INTRODUCTION A possible phasing of the development of the South Docks has been set out in the South Docks LAP. The main objective here is to show that the phasing of a viable district heating

scheme fits with the phasing of the infrastructure development of the area. The financial model has also looked at phasing and details of that are included in the Financial Model

section. This phasing assumes that close to 100% of the Docklands will be connected to the district heating scheme. It may transpire that only a portion of the site may connect to

the district heating scheme, even if this is the case, the overall phasing is likely to be aligned along the principles outlined below.

Phasing is dependant on 2 main items:

Infrastructure - pipe network installation

Customer demand

Phase 1 – Anchor Site – A (Back-up site A)

Phase 2 – Anchor Sites A and B (Back-up sites A and B)

Phase 3 – Anchor Sites A and B and 50% (Back-up sites A and B and 50% estimated demand of the rest of the development, connected via Centre Parks Road)

Phase 4 - Anchor Sites A and B and 80% (Back-up sites A and B and 80% estimated demand of the rest of the development, connected via Centre Parks Road)


- 42 -

PHASE 1 – Anchor site A – Howard Holdings (Backup site A)

PHASE 2 – Anchor sites A & B – HH & Origin (Backup sites A & B)

A

AB

PHASE 3 – Anchor sites A&B and 50% – HH, Origin and 50% of the remaining Docklands

PHASE 4 – Anchor sites A & B and 80% – HH, Origin and 80% of the remaining Docklands

A

AB

B


&

P H A S I N G


- 43 -

Figure 16.1 Short term phasing from South Docks LAP 2008

Infrastructure Phasing The infrastructure phasing for the Docklands will also determine the roll out of the pipe networks for the

district heating and cooling, if included, networks. Cork City Council are finalising the phasing of the

infrastructure but the intention is to commence at the eastern end of the Docklands. The eastern gateway

bridge is due to be the first piece of infrastructure to be procured. Following on from this Centre Park Road

with interconnecting roads are due to proceed on a phased basis. Finally, the city end of Monaghan’s road

will be the last section to be completed. The majority of the City Council Infrastructure works are due to be

completed by 2014, according to the South Docks LAP.

Phase 1 the Docklands development as defined by Cork City Council is to incorporate the Infrastructure

implementation for the area. The timescale for this phase is from 2007 to 2010 for Phase 1a and 2011 to

2013 for Phase 1b. The construction of the eastern gateway bridge is the first item in Phase 1a. The

downturn in the national and global economies as well as the lack of provision of government funding for the

infrastructure may affect this timescale.

If the City Council were to install the pipe network for the district heating scheme as part of the road

infrastructure project for the Docklands, it is anticipated that this would be complete by 2014. The pipe

network needs to be in place for all the buildings to connect to the district heating or energy scheme.

However, elements of the scheme may be able to proceed if a small energy centre were located at one or

two individual sites if they are developed prior to the infrastructure being completed. These small energy

centres would then be used for backup when the main energy centre comes on line. The phasing of the

main energy centre, which will supply the majority of the demand would need to come on stream after

Anchor Sites A & B have been developed.


&

P H A S I N

G


- 44 -


&

P H A S I N G

Customer Demand In order for the energy strategy to be a viable business proposition, the installation of plant and equipment

needs to coincide with increases in customer demand. In terms of phasing, what this means is that the main

energy centre, or distributed energy centre must be constructed in a phased basis.

As the demand from customers comes on line, the plant capacity of the district heating scheme needs to

increase. What is to be avoided is the installation of plant that will not be utilised for several years as this will

add costs to the business without generating any revenue.

The phasing of customer demand is difficult to predict over the 20 year period during which the Docklands

will be developed. However, planning permission applications are a good indication of forthcoming demand

in the short to medium term. At present, two sites in the Docklands have applied for planning permission. It

is recommended that any business set up to implement the energy strategy lease with the landowners and

ascertain the percentage take up of district heating their developments are likely to have.

Demand estimates used in the financial model were based on an assessment of when various landowners

are likely to develop their assets. See the financial model section for further details. Typical phasing may

occur as follows:

• Phase 1 10% Year 1





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17. SITE OPTIONS

INTRODUCTION There are two main options for locating the energy centre:

Centralised energy centre

Distributed energy centres spread across each of the developments.

These are illustrated below with the pros and cons of each outlined. The centralised site has many more advantages than the distributed energy centres and for that reason it is

the preferred option.

S I T E

O P T I O N S

Site Criteria – Centralised energy centre The centralised plant model consists of one large energy centre with two smaller energy centres for backup. The phasing of this model would consist of the smaller backup

centres being installed first, followed by the construction of the larger energy centre as the load on the district heating scheme increases. The smaller backup centres would be

retained to provide redundancy in the event of the main energy centre being unable to supply the district heating grid, e.g. maintenance, bringing new plant on line, breakdown.

Mandatory criteria for the location of the Energy Centre under the Centralised Plant model are as follows:

Area sufficient to accommodate energy centre building and adequate fuel storage (estimated at approximately 4 acres)

Road access for bulk deliveries of fuel

Access to gas network where large volumes of gas can be provided

Connection to road infrastructure for pipe network either via Centre Park Road or Monahan’s Road

Site owner agreeable to locating energy centre on site

No planning or zoning restrictions to construction of energy centre

Other criteria which would enhance the potential of a site may include:

Access to port for fuel deliveries by sea

Potential to use waste heat from existing installations

High voltage electrical grid backup if CHP is used for electricity generation

Precedent for HGV traffic for truck deliveries


- 46 -

S I T E

O P T I O N S

Site Criteria – Centralised energy centre - CONTINUED

The distributed centres can be located in any part of the Docklands provided there is

reasonable area for plant and storage volumes available. On the schematic they are

shown on the sites that have applied for planning permission to date. These locations

are indicative only and do not represent preferred sites.

The infrastructure development of roads and the associated installation of district heating

pipework will result in some developments proceeding prior to the construction of the

necessary infrastructure. Buildings will be constructed and will require heat before the

district heating system will be fully installed. To meet this heating need, prior to the

construction of the large energy centre, smaller energy centres would be constructed at

2 individual sites. These smaller centres would be owned and operated by the utility

company developing the energy strategy and would initially serve the sites on which they

were located. When the pipe network is fully installed the two sites could then be

connected via the pipe network. As the docklands is developed further and more

potential customers come on line, the main energy centre would then be constructed

and the two smaller sites used as backup for the scheme. The pipe network spine would

be laid along Centre Park Road with branch connections to each of the developments or

buildings.


- 47 -

Site Criteria – Distributed Energy Centres The distributed plant model consists of several energy centres located at various sites in the Docklands. The distributed

model would require greater co-operation from a significant number of the landowners in the Docklands as this model is

dependant on several sites being made available.

Mandatory criteria for the location of the Energy Centre under the Distributed sites model are as follows:

Area sufficient to accommodate energy centre building and adequate fuel storage (area & storage dependant on

capacity of distributed centre – e.g. four 1/2 acre sites)

Road access for bulk deliveries of fuel

Access to gas network where sufficient volumes of gas can be provided

Connection to road infrastructure for pipe network either via Centre Park Road or Monahan’s Road

Co-operation of landowner to locate distributed energy centre on their site

No planning or zoning restrictions to construction of energy centre

Other criteria which would enhance the potential of a site may include:

Access to port for fuel deliveries by sea

Precedent for HGV traffic for truck deliveries

Two or more smaller energy centres could also be integrated into the phased roll out of infrastructure. Several sites

around the docklands would contain heat or cooling generating plant which would feed into a common pipe network.

These distributed energy centres would be owned, operated and maintained by the utility company delivering the energy

strategy and not the individual developers. The advantage of this model is that the distributed centres could deliver

heating or cooling to the developments in their immediate vicinity and would not be as dependant on the installation of the

overall pipe network. The disadvantage is that this model requires land to be purchased from several landowners in order

to locate the distributed centres. This will reduce the developers available land areas and will significantly reduce the

benefits of the energy strategy from their perspective. The size of individual centres would also be limited, reducing the

economies of scale. In addition this plant may often not operate at full capacity, resulting in a loss of efficiency.

S I T E

O P T I O N S


- 48 -

CENTRALISED ENERGY CENTRE - A

CENTRALISED ENERGY CENTRE - B

CENTRALISED ENERGY CENTRE

PROS

1. Greater carbon savings possible

2. Economies of scale & increased efficiency of generation

3. Single supplier on to district heating / cooling network

4. Easier to manage & maintain

5. Enables large scale bulk delivery

6. Increased electricity generating capacity – high value product

7. May be possible to incorporate waste heat into energy mix & reduce

energy costs

8. Phased expansion of energy centre possible

9. Delivery of fuel & truck movements limited to a single site

10. Only dealing with single landowner for large site.

11. Plant impact restricted to single site. Single building & associated stacks

limited to central location instead of having large chimney stacks at

several locations around the Docklands. Backup sites relatively small

and will not require large flues.

CONS

1. Large initial capital outlay required

2. Security of supply – backup may be required (can be provided by backup

centres)

S I T E

O P T I O N S


- 49 -

DISTRIBUTED ENERGY CENTRES

PROS

1. Reduced initial capital outlay

2. If overcapacity is installed, sites can provide backup for overall network to

enable maintenance.

3. Large capacity electrical grid backup not required

CONS

1. Reduces lettable area in developments – Development land is high value

and landowners may not be amenable to using it for an energy centre.

2. Requires co-operation from a number of landowners

3. May be planning restrictions if not integral to the development

4. Efficiency of system reduced

5. Reduced carbon savings

6. Customers dependent on individual developers for availability of

connection to network

7. Limited capacity for electricity generation

8. Multiple suppliers to heating /cooling network – reduces reliability

9. Mix of technologies limited

10. Scale of generation at any one site is limited

11. Visual impact of plant, chimney flues etc. at several locations around

Docklands.

12. Truck movements for deliveries of fuel at several sites – increase HGV

traffic Docklands.

S I T E

O P T I O N S

DISTRIBUITED ENERGY CENTRES


- 50 -

SITE OPTIONS - SUMMARY The centralised energy centre has significantly more advantages than the distributed model as outlined in the section above. Its primary advantage is that a centralised energy centre

has the capacity to generate energy more efficiently than several smaller centres. This leads to reduced carbon emissions and reduced costs.

Procuring the land required for either the centralised or distributed model is vital for either to succeed. The centralised model requires a larger area but the land would be provided by

a single party. For the distributed model, it is unlikely that 4 or 5 landowners in the Docklands will be willing to provide land areas of approximately 1 acre on each of their sites for the

distributed energy centres.

Planning permission and zoning may also become an issue. If the energy centre is located on a site which is already being used for energy supply (e.g. BGE) then the centralised

energy centre may be allowed as it does not conflict with the principal operations of the site. The distributed centres may be more difficult to obtain planning permission for as they

may not be considered as ancillary to the development, hence there may present a zoning conflict.

S I T E

O P T I O N S


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18. SCOPE OF SUPPLY – HEATING, COOLING, ELECTRICITY - OTHER

Objective – Outlines the case for the provision of heating, cooling and electricity from a centralized energy centre to the Docklands.

The financial analysis only considered the heating case, there area other options available for the energy strategy. Other options include of cooling and waste heat take off

from the ESB Marina plant. It is recommended that the business case for these be examined in further detail before being included or excluded from the strategy.

OPTION 3 – HEATING, COOLING & WASTE HEAT OFFTAKE

Waste heat from ESB Marina CCGT

Sale of Electricity into grid

Trigeneration cooling

Gas boiler backup

S C O P E

O F

S U P P L Y

OPTION 2 – HEATING & COOLING

Expanded CHP

Double network (F&R Heating, F&R Cooling)


Geothermal cooling

Trigeneration cooling

OPTION 1 – HEATING ONLY

Limited CHP

Single network (flow & return pipework)


Possible biomass

Gas boiler backup


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19. TECHNICAL OPTIONS

T E C H N I C A L

O P T I O N S

INTRODUCTION The technologies proposed are well established and have proven their reliability adaptability. The estimated installed capacity for the docklands will be between 25 to 30MW

thermal if the entire site is connected to the energy scheme. This installed capacity is based on an estimated peak load demand of 70MW with thermal storage installed.

The main technical options are as follows:

CHP

Biomass CHP

Backup Gas boilers

Supplementary heating from solar thermal installation

Geothermal heating/cooling using aquifer source & heat pump technology

Waste heat from ESB Marina Power Station

Waste to Energy

CHP Gas fired CHP is the most extensively used technology for district heating systems in

Europe. The use of Gas fired CHP would necessitate BGE enhancing the gas network to

supply sufficient volumes to run the plant. However, the network requires removal of the

existing pipework and installation of new pipework infrastructure as part of the development

of the Docklands. Any increased loads may be included in the design, provided a decision

is made in time to make provision in terms of pipework.

Most feasible technology

Proportion dependant on heat demand load profile

Guaranteed sale of electricity to grid


- 53 -

Solar Thermal Solar thermal input into the technology mix would be limited by the supply and

return temperatures of the district heating system. If steam is used, solar

thermal cannot be employed as the water will not be heated to sufficiently high

temperatures. If MTHW with a supply temperature of 120 - 90 deg C and a

return temperature of 40/50 deg C were used, then the solar thermal panels

could be use to pre-heat the return water, prior to it entering the CHP or boiler

plant. However, the requirement to have the water at 65deg C for hot water

usage will mean that supply temperatures will typically be in excess of 70 deg

C and return temperatures will typically 10 to 15 deg C lower. Southampton

operates at 76 deg C supply temperature and Birmingham district heating

scheme operates at 90 deg C on supply. Losses: 0.5 deg C/km temp loss

(Southampton). The return temperature would need to be 50 deg C or lower

for solar thermal to contribution to the heating mix in autumn / winter / spring.

Therefore the panels would only be able to contribute in the summer months

when heating demand is at its lowest. Solar thermal could be used to meet

the renewables requirement by contributing to hot water generation in summer

months.

It is recommended that the solar thermal to be considered for domestic hot

water demand. It might be the case that Solar can hardly contribute any heat

into the 50deg C primary network, but the Solar panels can still be installed at

any building for the domestic hot water demand of the building itself. However,

due to the scale of the buildings planned for the Docklands (i.e. 20 floors or

greater), there will be insufficient area for the installation of solar thermal

panels for each dwelling and the application of this technology at localised

buildings will be limited.

Biomass Biomass boilers combined with gas fired CHP and/or biomass CHP is likely to be the

second key technology used in the energy centre. Biomass, in addition to generating cost

savings also has the significant advantage of low or zero Carbon Dioxide emissions.

Biomass has to potential to meet and exceed the 10kWh/m2/yr per dwelling renewables

requirement in the 2007 Building Regulations Part L for Dwellings, depending on the

proportion used in the technology mix.

There is a potential conflict between biomass boilers and gas fired CHP. If the gas fired

CHP operates as the primary heat source, due to the electricity component being the high

value product, then a biomass boiler may not be operating for sufficient hours to make

viable returns on the installation investment. Biomass CHP avoids this potential conflict.

Another possible route is to install CHP sized to meet the summer heat load (i.e. mainly

DHW heating) with some capacity for Trigeneration cooling and then use biomass boilers

for winter heating only.

Renewables Requirement

Needs to be balanced with CHP.

T E C H N I C A L

O P T I O N S


- 54 -

Geothermal Geothermal or ground source heating and cooling has been put forward as it has been

successfully employed in a number of buildings in cork City. The Glucksmann Art Gallery and

the new extension to City Council offices are two of the most notable examples. Both of these

systems operate on an open loop well, extracting water from the buried valley gravel aquifer that

underlies Cork City, passing the water through heat exchangers coupled to heat pumps and

returning the water to the river. The heat pumps extract between 4 and 6 deg C of heat from the

water and upgrade this heat to a usable temperature of between 45 deg C and 50 deg C when

operating in heating mode. When operating in cooling mode, the heat pumps reject heat

collected from the building thereby raising the rejected water temperature between 4 and 6 deg

C. The integration of a ground source heat pump system into an energy centre may prove

difficult on the heating side but may work well on the cooling side. The potential problems with

adding heat pumps to the heating mix is again limited by the temperature at which they can

contribute. Because heat pumps maximum output temperature is 45/50 deg C. If the high

temperature (2 stages) heat pump system is employed, the output temperature can easily reach

75 deg C, the return temperature of the district heating system needs to be less than this in order

for the ground source heat pump system to add heat. The potential for ground source heat

pumps to contribute to a district cooling system is more feasible. The ground water temperature,

while elevated due to the heat island effect, is typically between 13 and 17 deg C in Cork city.

Groundwater temperature ranges from 11 to 15 deg C constantly throughout the year.

Recommended only if cooling provided.

Single building/development using geothermal for heating/cooling is acceptable. The

discharging water from the heat pump can be recycled/reused for non-drinking

purposes i.e. irrigation, toilet flushing, building maintenance etc. the overflow can be

discharged into the river or re-inject into the aquifer.

The Solar and geothermal option should be left open as the technical difficulties can always be

overcome.

POSSIBLE TECHNOLOGY COMBINATIONS A workable combination would be to have plant consisting of:

30% gas fired CHP

40% biomass boilers

10% other – solar panels / geothermal cooling

Heat input from Marina open cycle gas turbine displacing

biomass boilers when operational.

Gas fired boiler backup plant.

T E C H N I C A L

O P T I O N S


- 55 -

STEAM V’S LTHW /MTHW The choice of delivery fluid between steam and LTHW/MTHW was briefly

analysed. Since the 1970’s steam is generally only used where there is a

specific requirement e.g. for steam turbines in power plants or manufacturing

process. Where LTHW/MTHW can be substituted for steam it is the

preferred option due to reduced Health & Safety risks and increased

efficiency due to reduced standing losses.

In conclusion, it is recommended that LTHW/MTHW be used at the lowest

temperature feasible as it gives increased efficiency and allows renewable

technologies such as solar thermal to contribute to the energy mix.

Steam

Advantages Disadvantages Reduced pipe diameters Decreased Efficiency due to high standing

losses

Increased delivery temperatures & reduced

volumes of heating fluid

Increased risk to H&S of workers.

Requirement for personnel monitoring in

boilers houses.

Increased employer responsibility due to

safety risks.

Increased pipework testing, quality standards

higher

Reduced pumping power requirements Health & Safety risk to public if pipe is burst or

damaged.

Cost of pressure reducing stations

Losses due to non-return of condensate

Higher maintenance costs

Increased energy required to generate steam

Risk of leaks

Stainless steel (316) pipework recommended.

Increased costs.

Solar thermal cannot contribute to mix

LTHW/MTHW

Advantages Disadvantages

Increased generating efficiency Increased pipe diameter

Solar thermal can contribute to

mix

Increased pipework costs

Lower risk

Lower testing standards

Lower maintenance costs

Lower risk of leaks

T E C H N I C A L

O P T I O N S


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20. FUEL OPTIONS & SUPPLY

Objective – Sets out proposed fuel mix and the feasibility of supply to the energy centre. Fuel deliveries to site are a significant issue for large energy centres. Fuel sources on site will depend on the mix of technologies selected under the detailed technical review

but are likely to include:

Natural gas

Biomass – chip

Waste heat

Possible localised use of GSHP /Thermal Solar

Photovoltaic

Small Scale Wind / Large Scale Wind

F U E L

O P T I O N S

Natural gas will be supplied via the BGE gas network. Modifications to the network are required as part of the docklands

development and will most likely involve a complete new installation on the BGE ‘new town’ model.

Bulk deliveries of Biomass may be carried out via ship or barge in addition to truck deliveries. This would minimise disruption to

residents and business in the Docklands. Bulk deliveries in excess of the conventional 4 tonnes would also be achievable. It

may also be possible to locate a fuel depot at a less prime location in Cork harbour. Fuel could then be shipped by barge to the

energy centre as required. The storage area requirement for biomass boiler/CHP needs to be identified, the woodchip

transportation from the vehicle/ship to onsite storage, and to the boiler needs to be addressed. The boiler/CHP plant operational

procedure needs to be considered. The approximate size of the proposed district heating plant building needs to be addressed.

This is a high level strategy document and it is recommended these issues be dealt with in a more detailed technical review. The

estimated area required for an energy centre to supply heating to the whole of the Docklands is approximately 4 acres. This

would include 40-60% of the heat generated by Biomass with the associated necessary storage.

Waste heat from the existing ESB gas turbine may also be considered as part of the heat source mix for the energy centre. The

addition of heat from this source would be dependant on electrical demand and the operation of the plant as required by the ESB.


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21. EXAMPLES OF SIMILAR SCHEMES

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INTRODUCTION Examples of similar schemes in Ireland & the rest of Europe include the Southampton & Birmingham schemes,

District heating schemes already in operation in other jurisdictions were examined to determine if the models used could be applied to the Cork Docklands. District heating

schemes are common in other European countries such as France, Austria and Germany. In the UK, which does not, historically, have a track record of the use of district heating

schemes, the Southampton scheme is a notable exception. Ireland does not have a history of using district heating schemes and so the market has more similarities with the UK

than mainland Europe.


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Southampton As part of the stakeholder consultation, WYG contacted Mike Smith, Commercial Director of Utilicom Ltd., the operators of the Southampton scheme, to gain an understanding of

how the scheme operates.

The district heating scheme began in the 1970’s with 1-2MWth produced from a deep geothermal borehole. It has been added to in recent years and now has 8MWth from CHP.

This is backed up with high efficiency gas fired boilers. A cooling loop has been added and cooling generation is provided by absorption and compression chillers. The energy

used to run the chillers is generated on site. The first users were council buildings but there are now 42 private and public customers connected to the network.

The business model used for the Southampton scheme is known as a ‘Joint Co-operation Agreement’. The council wished to set up a district heating scheme to heat several of

their buildings but did not want to administer it directly. To this end they set up a limited company called Utilicom Ltd. Utilicom was staffed by a mixture of council employees and

outside staff. The council acted as a full partner in the scheme providing the land on which to build, enabling the installation of the distribution network and taking a share of the

profits of the company. They also encouraged connection to the district heating network by private developers through planning policy. Utilicom in turn was treated as a statutory

utility and billed customers in a manner similar to electricity and gas providers. In recent years, Utilicom has become independent of the council but the partnership agreement

remains in place. It is now owned by a French parent company IDEX.

As a result of the success of the Southampton scheme, Utilicom have developed other schemes in Birmingham, Manchester, University College London, Eastly, Hatfield and

Greenwich Millennium Village.

Southampton oldest, 21 years in operation. Started with deep geothermal well 1-2MW. Have expanded to include

Gas fired CHP 5.7MW and 1.5MW, 0.75MW

Backed up by gas fired boilers

Trigeneration

Electricity generated sold via private wire network to Docks in Southampton.

42 Customers including University, Hospital, Luxury Apts, office, retail, hotels.

Business model: Joint Co-operation agreement with City Council. Work together to grow scheme.

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Charlestown Shopping Centre – Finglas, Dublin The new Charlestown shopping centre in Finglas is a mixed used development consisting of 285 apartments and a

shopping centre complex with one large anchor tenant and 25 other smaller retailers. Varmings design / Dalkia operation collaboration – Farm Out contractual model – plant owned by client

A replacement guarantee service (RGS) is offered to the client

Base heat load 1.25 MWth KOB biomass boiler,

Supplemented by firing of 2 x Rendamax 1020 kW gas boilers & gas fired 227kW CHP unit

Generates electricity to meet approximately half of the 500kW baseload of Dunnes stores retail outlet.

Dedicated heat exchanger room in 5 Blocks providing space heating

Apartment substations are of the hot water storage type, and feed anywhere between 5 and 12 radiators per

apartment

Billing based on consumption monitored by heat metering with centralised data collection.

Birmingham Utilicom also operate a scheme in Birmingham. It is at present their second largest and will soon become their largest district heating scheme.

Commissioned October 2007.

Public procurement project. Partner with Birmingham city council in Joint co-operation agreement built on Southampton model.

Smaller local energy centres used instead of centralised energy centre due to electric power backup requirements from grid.

Gas fired CHP with Trigeneration.

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Dundalk 2020 Biomass district heating is to be provided as part of the creation of a sustainable energy community zone in Dundalk, Co. Louth. Other elements within

the scheme include wind turbine installation, improving the energy efficiency of existing buildings and demand side management of energy supply.

4 MWth Biomass Boiler plant with 10 MWth gas boiler for peak load and backup

ESCO model used – currently at tender stage

Joint venture with SEI as public body coordinating and administering the scheme

Part funded by the EU Commission under Framework 6 Concerto II programme

Part of an EU project (HOLISTIC) with partners in Austria & Switzerland

Additional financing provided by local authorities, Cross border funding, DKIT, IDA, ESB Networks,

Energy Centre to be located in DKIT

Sustainable sourcing of wood chip fuel from local sources.

Dublin City Council – Waste to Energy Scheme Dublin City Council intend to install a district heating scheme in Dublin city centre which will use heat from the proposed waste to energy

(WTE) plant at Poolbeg. It is a condition of operation of the WTE plant that the heat be utilised in a district heating scheme. This is a

primary differentiator between what is proposed for the Cork Docklands and the Dublin scheme. The Dublin District Heating (DDH) scheme

is at the technical feasibility stage and intends to supply heat to Spencer Dock in the Dublin Docklands, the area around Heuston Station

and other parts of Dublin City Centre. A Danish engineering consultancy were involved in the initial stages of the assessment as district

heating is viewed as an important component in reducing carbon emissions in Denmark. The main features of the scheme are:

Capacity: 79MW to 285MW depending on the extent of the scheme

Before the WTE plant is up and running, heating will be provided from gas fired boilers in the Dublin Docklands area from 2010 to 2012

Heat will be sold from the Poolbeg WTE plant to the operators of the DDH scheme after 2012

90 / 120 deg C flow temperature, 40 deg C return temperature

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GLOSSARY OF TERMS BER – Building Energy Rating BRE – Building Research Establishment CLG – Department of Communities and Local Government (UK) CPC – Carbon Performance Coefficient CCC – Cork City Council IES – Integrated Environmental Solutions (Thermal Modelling Calculation Software) MPCPC – Maximum Permissible Carbon Performance Coefficient MPEPC – Maximum Permissible Energy Performance Coefficient NEAP – Non-Domestic Energy Assessment Procedure SBEM – Simplified Building Energy Model (Thermal Modelling Calculation Software) SEI – Sustainable Energy Ireland TDGL – Technical Guidance Document L CEEQUAL – Civil Engineering Environmental Quality Assessment and Award Scheme BREEAM – Building Research Establishment Environmental Assessment Method


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Contributors and Interviewees

• Seamus Coghlan - Cork City Council, Docklands Directorate

• Cathal Gallagher, Colm O’Duibhir & Sean O’Casey - BGE

• John Walsh - Cork City Energy Agency

• Michael O’Brien - Cork City Council, Environment

• Pat Naughton & Joe Dalton - ESB

• Jason Clerkin & Clwyd Evans - Howard Holdings PLC

• Conn O’Shea - Marina Commercial Park

• John Colgan – Tedcastle oil products Ltd. / Top oil

• Margaret Cuddigan – McCarthy Developments

• John Burges - Arup Consulting Engineers

• Brendan Marren & Tony Corbett - CES Energy

• Sean Fitzpatrick & Alan Fairman - Dalkia

• Michael Flynn – Deloitte

• Frank Ryan - DTZ Sherry Fitzgerald

• Joe O’Carroll & Alex Slane - Imperative Energy

• Dan Murphy - KPMG

• Ed Hanafin - Lisney

• Brian Motherway - SEI

• Karen Doyle & Stephen Dalton - Ulster Bank

• Mike D. Smith - Utilicom Ltd.

high level district heating feasibility study - … · reference: cork docklands high level...

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