What is the specific problem?
For cities and towns in the European Union, one of the major challenges in becoming zero carbon is supporting their buildings with the transition to a sustainable heating system. This is particularly challenging because of the various building typologies, the different models of ownership, and the different characteristics of the buildings. In the future, sustainable heating systems will often be developed for multiple consumers and buildings at a neighbourhood or district-level. These will subsequently form an integral part of a wider smart integrated energy system. Thus, the district level is a useful and manageable scale for citizens to be engaged.
District energy has an important part to play in creating smart integrated energy systems that minimise primary energy demand, optimise efficient use of energy through use and re-use of waste heat, and keep the costs of energy affordable. Unfortunately, these large capital projects have a risk profile. The risk is particularly high early on during the capital-intensive development, construction, and early operational years. However, this risk profile rapidly reduces as the network is established, customers are connected, and income starts to flow back into the project through the heat and electricity supplied to customers.
The combination of a risk profile, high upfront costs, and long steady returns means that it can be very difficult to source affordable finance for delivering district energy projects. If they are to be delivered at a large scale, they require low-cost patient capital that is structured to accommodate for the risk profile of the projects. This means that traditional private sector finance is often not appropriate due to the high cost of capital, the low returns expected for the accommodated risk profile, and the inflexible nature of the re-payment profile.
What action is needed?
This Action is designed to bring district energy and financing experts together to share experiences, collaborating to identify potential funding mechanisms and to identify the most appropriate sources of finance. The present Action will identify and address issues such as:
- The key risks and opportunities in developing and delivering these projects;
- How to mitigate such risks;
- How to structure financing support – from the development activity through to construction and ultimately operation – to enable commercially viable projects to be developed and delivered in a quick and easy manner.
A paper will be developed and presented to the European Commission (DG ENER). The goal of this will be to explore and identify existing forums, such as the Energy Efficiency Financial Institutions Group (EEFIG), to start an open dialogue on how cities can become engaged on the topic at the European-level. The outcomes of this dialogue will then be used to raise awareness on the topic across EU institutions, so to specifically identify the most appropriate existing forum in which to develop possible solutions to the challenge faced.
How to implement the action?
Short term: A paper will be developed to explain the challenges of financing district energy projects. This will be presented to the European Commission (DG ENER). The goal is to explore, identify, and engage with existing forums, such as EEFIG, to start an open dialogue for mapping potentials and exploring how cities can be engaged. Consequently, this dialogue will be shaped to inform the policy-making process, which will help to address financing challenges.
Medium term: The outcomes of this dialogue will then be used to raise awareness on the topic across EU institutions. This will help to identify the most appropriate existing forum in which to address these relevant issues and to identify possible solutions to the challenges.
Long term: These depend on the short and medium term.
- Introduction to the Draft Action Plan of the Partnership on Energy Transition
- Draft Action 2
- Draft Action 3
- Draft Action 4
- Draft Action 5
- Energy Transition full Draft Action Plan
- About the Public Feedback