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5 Leadership, Strategy, and Institutional Arrangements This report has mentioned a number of urban and institutional district heating and cooling systems as examples of what has been and could be done to extend the technology's use. Successful systems have been characterized by three important elements: leadership, an implementation strategy, and innovative institutional arrangements. Because of the complexity of large systems and their correspondingly high costs, the strategy of starting small and growing later has proved most effective. Chapter 1 identified three basic types of district heating and cooling systems: urban systems run by for-profit corporations, usually electric utilities; urban systems run by nonprofit corporations, often owned or incorporated by a municipal government; and institutional systems, such as those of government agencies, the U.S. Army, and universities. The most common organizational structure in Europe is like that of a municipal public works department in the United States. In Europe, independent staffs operate as entrepreneurial private enterprises, with public corporations either for shareholders or board. The European approach tailors the staff and corporate structure to match the competition, to avoid unnecessary bureaucracy, or both. LEADERSH I P AND STRATEGY Leadership is an important factor in the success of district heating and cooling systems. Coordinating the actions of various municipal, state, and federal agencies, local utilities and banks, community action groups, labor unions, and trade and professional organizations is no easy task. Leadership can come from the business community, municipal, state, or federal officials, or concerned citizens. 76

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Leadership is necessary to bridge the gap at the community level between energy consumers and providers. Energy is often considered a product rather than a resource or community service like water supply and waste disposal. These conditions and perceptions further complicate the already complex planning and implementation of district heating and cooling. Successful projects combine leadership and strategy to manage the different views and interests of local government entities, developers, property owners, labor, consumers, and large energy producers and users. The preconstruction phases of a project need to develop appropriate community arrangements. The demonstration of technical, economic, and financial feasibility can consume up to 10 percent of a project's costs. Leadership, strategy, and institutional arrangements are essential to controlling these costs (OTA, 1982~. Regarding strategy, community partnerships need to be established and lead organizations identified for assessing, planning, and developing district heating and cooling. Two examples--Baltimore and St. Paul--show the interrelated roles of strategy, leadership, and innovative institutional arrangements. Both these cases have been discussed in previous chapters and are discussed in greater detail in Appendix A. In Baltimore, the Housing Authority of Baltimore County (HA9C) experienced difficulties heating the Cherry Hill public housing projects. Baltimore Gas and Electric Company (BG&E) also decided in 1983 to leave the district heating business after nearly 80 years of providing service. One reason was the closing of a municipal incinerator, which produced steam from burning solid waste. Independently, the Northeast Maryland Waste Disposal Authority built a new facility capable of burning 2,250 tons of waste per day. The new disposal facility is located only about two miles from Cherry Hill. With the construction of a new waste-to-energy facility underway, the Maryland Waste Disposal Authority and the facility's owner and operator, Refuse Energy System Company (RESCO), pursued the possibility of developing markets for the thermal energy and electricity that waste incineration could produce. These markets were identified in feasibility studies and were taken into consideration in developing project financing. Thus, the elements for a successful strategy were present: a source of thermal energy, 1,600 units of public housing with an old steam distribution system, a reliable source of low-cost municipal solid waste as a fuel, and the interest of municipal authorities in district heating and cooling. The most important strategic decisions were made by the two primary project participants--HABC and RESCO--and they were made early in the system's development. The Baltimore Planning Department established a panel of agencies interested in district heating and cooling systems, which provided the basis for expanding and developing the system. In St. Paul, Minnesota, the personal commitment and involvement of the mayor led to an innovative and rapid implementation of a new

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78 district heating and cooling system. St. Paul formed the nonprofit District Heating Development Company (DHDC) in 1979 to build a new system for the city. m e local electrical utility, Northern States Power Company (NSP), owned and operated an old steam system that served about one-third of the St. Paul business district. This system was reaching the end of its useful life by the late 1970s . NSP cooperated with DHDC in designing and implementing the new system. To get the project approved and completed, the mayor of St. Paul had to work with the city council, the local Housing and Redevelopment Authority, the Minnesota Energy Agency, and the U.S. Department of Housing and Urban Development (HUD). Negotiations had to be conducted with banks to secure financing and then with the system's customers to get them to agree to the binding 30-year contracts that the lenders required. Cooperation had to be secured from labor unions, building owners, and various community groups. In addition, arrangements had to be made with NSP to use its old Third Street District Heating Plant and to purchase cogenerated thermal energy from its nearby High Bridge Power Plant. Finally, complex legal and political work was required to establish DHDC and to appoint its 15-person board of directors. The board was set up to include representatives of the various participants, thus giving each a stake in the project's success. The leadership and ingenuity shown in the Baltimore and St. Paul projects is common in U.S. and European developments. Good local leadership and creative strategies and institutional arrangements are essential for the success of district heating and cooling systems. These cases also show the importance of institutional arrangements for regulation, taxes, costs, and financing. The lack of information on these systems impedes the development of others by requiring that exceptional leadership or creative strategies and institutional arrangements be developed anew each time. COORDINATED POLICY ACTION Because district heating and cooling projects can be used to address number of urban problems, there is the temptation to address all simultaneously. The opportunity to dispose of municipal solid wastes, restore local infrastructures, and improve streets and traffic patterns, however, complicates an already complex implementation. Fortunately, policymakers in the United States more often tend to attack problems piecemeal--by adjusting the tax code, refining technology, or creating new organizational mechanisms. Owing to the complexity of district heating and cooling systems, more effective results can probably be achieved by addressing individual problems in sequence according to a coordinated policy. A key to successfully integrating district heating and cooling in local planning is a coordinated policy that clearly states objectives and opportunities. The policy should be flexible enough to capitalize on

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79 opportunities as they develop. Evolution, rather than revolution, is the most appropriate way to proceed. Again, energy is not recognized as a community asset in many cities and towns. Local governments have not often considered the effects that transportation, land use, site development, and zoning actions all have on energy use. Traditionally, local governments have lacked the personnel to undertake such planning, although energy costs are second only to personnel costs in municipal budgets (U.S. Department of Energy, unpublished data, 1984~. As was shown in the Baltimore and St. Paul cases, the achievement of long-term, community-wide energy efficiency requires the involvement of local and state governments, utilities, the business community (particularly large consumers!, and the community at large. A comprehensive energy plan will provide participants with a number of alternatives relating to energy resources, including for generation and distribution systems, design variables, equipment, capital resource development, and institutional arrangements. Choosing among the options requires coordinated policies. Identifying the effects of community energy systems on the environment, economics, costs, jobs, and system siting are further products of comprehensive planning. Benefit and impact analysis techniques would help identify the best opportunities. The development of community energy systems, including district heating and cooling, could be furthered by case studies, including an analysis of the methods, costs, benefits, and other effects of successful projects. On the national level, the U.S. Department of Energy (DOE) has long sought to encourage conservation, efficient energy use, and reduced dependence on imported oil. District heating and cooling can help achieve these objectives. To do so, coordination is needed among the various offices within DOE and among federal, local, and state government agencies (Teotia and Payer, 1983~. In addition, both DOE and HUD have sponsored community energy programs. HUD-sponsored programs include those in Portland, Oregon, Lincoln, Nebraska, and Ann Arbor, Michigan. DOE's site and neighborhood design program includes about 10 projects that integrate energy supply and demand for communities. Five of these projects sought to achieve the most self-sufficient combination of land uses, site design, landscaping, and building orientation. Jointly, HUD and DOE have sponsored technical and economic feasibility assessments of district heating and cooling systems in 28 cities; 24 of these projects were rated as having positive potential. In addition to showing the potential for district heating and cooling, these cooperative programs have contributed to public and private knowledge about such systems, aided in developing technical and economic assessment techniques, and provided a number of interesting case studies in planning, leadership, and institutional arrangements. Organizationally, HUD programs are divided between offices for housing and for community development. Public housing programs (see

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80 Chapter 3) are administered by the first while the district heating and cooling assessment program falls under the second. Sometimes, however, the former may replace an old district heating system with individual boilers, contrary to what the latter office is trying to promote. Better coordination between these two HUD offices would help. Federal policy discussions about urban revitalization and reindustrialization now offer opportunities to develop new district heating and cooling systems as a part of municipal water, sewer, and street repairs. Siting of industrial facilities can favorably affect district heating and cooling costs since the facilities' waste heat can be used as a fuel. Integrating planning and development could substantially reduce the cost of the distribution system. The retrofit of existing systems could be included as part of urban rehabilitation. Coordinating new and existing systems offers another opportunity. If HUD made district heating and cooling systems specifically eligible for community development block grants, it would increase interest in and information about district heating and cooling nationally. At the same time, HUD could expand the technical information and assistance it provides to community energy projects. Municipal officials, planners, engineers, developers, and architects might then begin to apply the technology more in community development. Congress may pass urban enterprise zone legislation in 1985. Smaller systems are well suited for heating and cooling these sites, as St. Paul's Energy Park project shows. The use of industrial waste heat would reduce fuel costs for such projects. Thus, district heating and cooling could be a part of urban enterprise zone projects. Here, HUD could help supply knowledge of how to build and manage the district heating and cooling part of these projects. Both DOE and HUD have worked with professional, public interest, and trade groups in carrying out a variety of programs. These organizations sponsor conferences and issue publications that can help disseminate information and encourage technology transfer. Government funding for such activities has been reduced in recent years. These organizations and their programs represent an opportunity for further public and private cooperation on district heating and cooling (see Chapter 3~.