The Energy and Natural Resources Unit at LK Shields Solicitors assists and guides a client list that boasts a wide variety of Irish and international clients in the growth areas of law relating to energy and natural resources.

Dalkia and Geothermal Energy Limited are two such clients. Dalkia is one of Europe's leading companies in energy management, utilities and facilities solutions. One such solution provided by Dalkia is the supply of district heating and cooling systems. Geothermal Energy Limited is a leading Irish company that specialises in the harnessing of deep geothermal energy for the production of renewable heat and electricity internationally. Geothermal Energy has a two fold approach to business development harnessing of deep geothermal energy: to provide renewable heat solutions to supply district heating networks and to generate electricity to supply to a national grid. The whole district heating area throws up a range of issues such as pricing issues, property way leave issues, competition law issues relating to contracts with end users. Regulation of this whole area is far from clear and indeed we are currently assisting Geothermal Energy in drafting terms of legislation relating to the development of geothermal energy in Ireland.

District heating is a convenient and sustainable way of heating space and tap water. In many processes, for example when electricity is generated or waste is burned, large parts of energy are set free in the form of surplus heat. The fundamental idea behind modern district heating is to recycle this surplus heat which otherwise would be wasted from electricity production, fuel and biofuel-refining and different industrial processes. The preferred distribution medium is water.

Furthermore district heating can make use of many kinds of renewables such as biomass, geothermal and solar thermal. In Europe, wood-fired district heating schemes are very common. Boilers to burn woodfuels such as wood chips and pellets tend to be physically larger and more expensive than equivalent gas or oil boilers. As boilers get larger however the disparity with gas and oil boilers becomes comparatively smaller and so woodfuel becomes more economically attractive, especially for installations of the scale of a few hundred kilowatt.

District heating plants can provide higher efficiencies and better pollution control than localised boilers. District heating can serve residential, public and commercial buildings as well as meeting industrial demands for low-temperature heat.

The core element of a district heating system is usually a cogeneration plant (also called combined heat and power or CHP) or a heat-only boiler. Both systems are typically based on combustion of primary energy carriers while the difference between the two systems is that, in a cogeneration plant heat and electricity are generated simultaneously, whereas in heat-only boiler station only heat is generated.

While district heating has been around for over a century in the US and Europe it has not had the same penetration in Ireland for a number of reasons. Ireland's relatively mild climate has not helped the economics of installing district heating on a large scale. However, given the increased cost of traditional fuels and increased density in housing, district heating is becoming a more commercially viable and economically friendly source of heat.

The European Union has set targets to reduce energy consumption by 20% and to reduce CO2 emissions by at least 20% by 2020. District heating can greatly contribute to achieving such objectives. For example over half of Denmark's power comes from CHP, while the figure is less than 5% in France. Cities like Copenhagen and Helsinki have huge district heating schemes with around 90% of all heat in Copenhagen provided in this way. Denmark has traditionally been associated with large-scale CHP/district heating systems supplied from central power stations. The advent of natural gas in Denmark and the potential identified for renewable sources has led to a diversification of CHP plants and smaller scale CHP/district heating schemes being developed to serve smaller communities. Researchers in the UK have concentrated recently in seeking new approaches to CHP/district heating in order to achieve a higher market penetration. The UK has a target for an increase of 5000 MW CHP capacity and there is much debate about what form this should take. In Austria there is a well established protocol for introducing a district heating scheme to a village or district. Farmers can form a co-operative to sell wood chips in the form of heat by installing and operating a district heating plant.

International studies have shown that district heating prices are on national average lower than natural gas prices. Prices, however vary from one system to another, due to local circumstances and due to locally available resources. Modern heat meters or allocators can ensure that every customer pays only for his/her consumption. In Denmark price regulation on district heating was introduced with the heat supply act of 1979. The fact that district heating in Denmark supplies a large number of individual houses, together with the option of compulsory connection, gives it a dominating position in the heat market and for all practical purposes a natural monopoly. Therefore the act specifies that district heating must be operated as a non-profit activity, with cost-based pricing. Establishment of the principle met little or no resistance, as the sector already operated by what was already a non-profit organisation being consumer owned cooperatives or municipal utilities. In Denmark the average price for district heating based as it is on the cost of the supplying the heat with no profit has remained below the price of most likely alternatives like oil, gas or electricity. Today it is about 1/3 lower than the price of individual oil heating in Denmark.

To promote district heating systems in Ireland, the issues below need to be considered to help promote the sector:

• A legislative framework as to pricing, standards and rights necessary
  to operate an effective district heating system, and
  
  
• Setting up a REFIT (renewable energy feed in tariff) type scheme for
  the support of heating generated in district heating schemes.

While undoubtedly district heating does have its share of sceptics it would be important to consider how successful such schemes have and continue to be in other countries such as Denmark, the Netherlands and Finland. We believe that this will be an area of growth in the Irish market and such growth can be supported by the right governmental supports. It is likely that this will become a more regulated area in the future and therefore the implications of such remain to be seen. For further information contact Jennifer McGuire or Philip Daly of our Energy and Natural Resources Unit

For further information please contact Jennifer McGuire or Philip Daly of our Energy Unit.

June 2010.