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District Energy: Policies & Regulation to Watch

By District Energy posted 03-22-2024 13:45

  

In 2022 and 2023, the conversation in the energy industry was dominated by the Inflation Reduction Act (IRA) and its impact. The landmark law committed more than $400 billion to clean energy solutions and spurred private investment and activity across the sector. 2024 is already shaping up to be another busy year in the energy sector, and what follows are the policies that IDEA’s Legislative Director and Principal at FVB Energy, Mark Spurr, says district energy professionals need to watch throughout 2024.

Geo-exchange and thermal energy storage tax credits

Because of its massive size, the IRA is taking an extended amount of time to implement, and details of some of the programs associated with the law are still being announced. Recently published proposed implementation rules on investment tax credits (ITCs) addressed treatment of two technologies of great relevance to the district energy industry – geothermal heat pumps (GHP) and thermal energy storage (TES).

The proposed regulations made clear what IDEA had urged -- that the credit for GHP may include a portion of the costs for district energy thermal distribution systems and building systems connected to GHP systems. The amount of credit for pipes and building systems depends on the percentage of thermal energy being produced through GHP.

Although the wording of the IRA and the proposed regulations appear to also include a portion of the costs of thermal distribution systems and building systems connected to TES, this was not made explicit. IDEA will be pressing for specific recognition of these costs.

The proposed regulations did explicitly state that TES costs include systems to produce energy to charge TES. IDEA is seeking to make explicit that such costs include, for example, electric chillers or boilers that produce chilled water or hot water for storage.

For more information regarding the recently published proposed regulations, see our recent blog post on IRA Guidance.

Through the rest of this year, we can expect to see several announcements from the federal governments on tax credits associated with the IRA, including on credits for clean electricity, nuclear power and carbon sequestration.

Energy policies at the local level

It’s also shaping up to be an active year - not just at the federal level, but at the local level as well. The two cities to watch in terms of decarbonization laws in 2024 and beyond are New York City and Boston.

Local Law 97

In New York, all eyes have been on Local Law 97 since it took effect on January 1st, 2024. The law establishes carbon emission limits for the city’s largest buildings. It mandates that any building over 25,000 square feet will have to meet certain energy efficiency requirements and greenhouse gas limits and will face an annual financial penalty of $268 per ton of CO2 equivalent over the limit. The limits get stricter in 2030.

According to an analysis the city conducted in 2022, 11% of buildings required to comply with the law exceeded emissions limits for the 2024-2029 compliance period, and 63% exceeded limits for the 2030-2034 period.

For our industry, Con Edison is the company most affected by Local Law 97, and for more on the strategies the company’s steam system has identified to help it, and its customers, decarbonize, check out our previous blog on this topic.

MA Stretch Code and Boston’s Building Emissions Reduction & Disclosure Ordinance (BERDO)

Now to Boston, where city leaders are also actively implementing a range of compliance and reporting measures aimed at improving building energy efficiency and reducing carbon emissions.

At a fundamental level, the Specialized Stretch Energy Code (Stretch Code) and the Building Emissions Reduction & Disclosure Ordinance (BERDO) are similar to Local Law 97, using a carrot and stick approach to encourage electrification and incent efficiency improvements along with carbon emission reductions.  These policies have annual reporting requirements, penalties for non-compliance and declining targets over time. 

 

While neither Local Law 97 nor the Stretch Code are perfect, they are steps in the right direction, with an overall goal of decarbonization. However, there are important aspects to the laws that still need refinement.


These policies neglect to recognize that district energy systems can provide a similar decarbonization benefit, even though it is delivered in the form of steam, hot water or chilled water, rather than electricity.  Additionally, instead of installing new equipment inside a building, district energy systems allow clean thermal energy produced outside the building to be delivered in useful form via a thermal distribution network for use inside the building.  This also reduces disruption and risk for building owners and helps them avoid exposure to retail electricity pricing during peak demand periods. 

In aggregating the heating and cooling needs of dozens or even hundreds of connected buildings, district energy systems achieve economies of scale to enable low-carbon technologies like industrial heat pumps, sewer heat recovery, energy sharing, geo-exchange and even electrification of heating.  By mandating that buildings invest in electrical wiring, these codes may unintentionally discourage optimization of readily available lower carbon solutions.

A groundswell of support for the decarbonization solution beneath our feet

Because many parts of district energy systems are underground and often go unrecognized, it really is the decarbonization solution beneath our feet. However, there is growing realization and recognition that district energy can open up a myriad of decarbonization strategies, in ways that are far more cost-effective and efficient than converting buildings individually to renewable sources. 

District energy is only getting more flexible and more utilized as the energy transition moves forward, as evidenced by its prominent position in the Global Cooling Pledge at COP28. District energy is sometimes referred to as community energy, and that sense of community is key, as we all work together and employ a variety of solutions to reach a common goal of providing reliable, resilient energy while also reducing carbon emissions.


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