District energy (DE) systems supply heating and cooling from a central energy source to multiple customers (commercial, residential, and industrial). In the U.S., the beginning of district heating (DH) can be traced back to the late 18th century, when Benjamin Franklin sold heat to several adjacent residences in Philadelphia. Almost 100 years later, in 1877, Birdsill Holley designed the first financially successful DH system in Lockport, New York. This system, based on the delivery of steam, was widely imitated. By 1887, 20 DH systems were in operation in the U.S. Cogeneration was introduced as early as 1890. In the U.S., the distribution medium was steam, while in Europe, the predominant distribution medium was hot water. In Europe, especially Scandinavia, the DH systems adopted low temperature water for supply, and that trend continues today with systems using supply temperatures of 160°F or lower. The disadvantages of steam systems (high heat losses, relative low cogeneration rate, and high capital intensive steam distribution systems) limited the spread of DE systems in the U.S. In the last 25 years, some modern medium hot water temperature systems have been developed in the U.S., however such systems are not widely used. 

District heating systems are best used in city downtowns where the thermal load density and the annual load factor are high. A high-load density is needed to cover the capital investment for the distribution piping system, which usually constitutes a significant portion of the capital cost for the overall system, often amounting to 70% of the total cost. This makes district energy systems most attractive in serving densely populated urban areas and high-density building clusters with high thermal loads. Low-density residential areas do not represent the most attractive markets for DH; however, through the use of low temperature hot water and advanced piping design, Denmark has more than 1 million detached family homes on DH. 

Benefits of District Systems in Comparison with Individual Systems 

The main economic and environmental advantages of district energy systems are: 

Higher Energy Efficiency — A larger DE plant has higher seasonal thermal and emission efficiencies than multiple individual units. Field surveys and operational data demonstrate that the seasonal efficiency of typical individual boilers is 57%, while energy utilization efficiency in district systems can reach 93% in cities like Helsinki, Finland. Generating heating and cooling in a DE plant is more efficient than using building equipment, thus the environmental impacts are substantially reduced. The greater efficiencies arise due to the larger equipment and the ability to stage that equipment to closely follow the load yet remain within the equipment’s range of highest efficiency. DE systems also use a variety of fuels and implement technologies such as thermal storage more readily than individual building DE systems. Finally, from an emissions and efficiency standpoint, generating thermal energy in a DE plant has the additional advantage of higher quality of equipment, higher seasonal efficiencies, less system heat loss from cycling, and higher levels of maintenance.  

In a DE plant, emissions are easier to control than those from individual plants. Control technologies that are not technically or economically viable on a small scale may be used. With concerns about global warming, it is also clear that decarbonization of urban areas will be easier to accomplish with DE plants than for many smaller in-building thermal energy generating plants.   

The DE plants have the ability to use heat sources that would not be viable to use on an individual building scale, such as thermal energy from low-grade heat sources (sewage, lakes, rivers, flue gases, biomass, and municipal wastes), which can provide an environmentally sound system, an option not available on a building scale system. 

Demand Diversity — The generation capacity of the DE system is reduced because of individual buildings load diversity. 

Building Space and Operating Personnel — The individual customers do not require space and personnel to operate and maintain the energy source. 

Insurance — Both property and liability insurance costs (fire and accident) are significantly reduced for building owners. 

Economic Development, Job Creation, Cities Revitalization, and the Elimination of City Downtown Environmental Justice Problems 

Substantial emphasis on reduction of greenhouse gas (GHG) emission resulted in substantial attention to the development of electric-driven heat pump applications. This offers opportunities for the development of DE systems integrated with heat pumps. 

Large and medium-size heat pumps are widely used in European and Chinese DE systems; however, the heat pumps were introduced after a mature DE infrastructure was developed. This permitted the use of large heat pumps reaching 100 MW in size (Table 1). 

Benefits of DE Systems with Heat Pumps 

In the last 15-20 years, in order to improve the environmental conditions and particularly to reduce GHGs, large heat pumps were incorporated into district energy systems. The most developed DE systems typically utilize various heat sources for heat pumps (ambient air; ground soil; sewage; sea, river, and lake water; and various industrial, commercial, and residential waste). Heat pumps consume a small amount of energy for a lot of heat that they extract from the external environment. 

The performance of heat pumps is determined by the coefficient of performance (COP), which is the ratio between thermal energy supplied and electricity consumed. For more than 30 years, heat pumps have constantly improved their performance and reliability (including variable-speed compressors, permanent magnet motors, vapor injection, electronic expansion valves, and high-performance heat exchangers).  

Heat pumps dedicated to the production of domestic hot water use water from wash basins, sinks, and showers. These heat pumps can have a COP of 6-7.  

The benefits of heat pumps in the DE systems include: 

  • A 30%-70% reduction in energy consumption;  
  • With a heat pump, up to 80% of the total energy demand can be drawn from nature; 
  • Elimination of fossil fuel use and reduction of the GHG emission;  
  • Flexibility of the district heating systems; 
  • Protection from fossil fuel price fluctuation; 
  • Increase of renewable energy production; 
  • Improvement of the profitability of the entire DE system; 
  • Production of combined district heating and cooling supply; 
  • Utilization of low temperature heat sources;  
  • The heat from the source is free or available at a very low price; 
  • A large thermal storage can be incorporated in the DE system at reasonable cost; 
  • Environmental water-source heat pumps, which cost a lot less than ground pumps, because no well digging is involved, and as water maintains its temperature much better, they offer more consistent performance than air pumps. 

Overseas Experience 

DE systems are widely used in Europe and the Far and Middle East, particularly in Scandinavian countries. Thousands of DE systems can be found all over Europe today, representing a large proportion of the commercial and residential thermal energy sector. Scandinavian, Baltic, and Eastern European countries have a high percentage of DE systems with large heat pumps. The recent surveys show that in major European DE systems, there are currently 170 large and medium-size heat pumps with a total thermal capacity of close to 2,000 MW in operation. A brief overview of some countries is provided below. 


DH is the most common heating form, and the country is the largest producer of DH in the Nordics. The overall market share of DH in Finland is 46% in residential, commercial, and public buildings. In residential blocks of flats, the market share is as high as 88%. CO2-neutral energy sources have reached a share of 46%. In Finland, a country with 5 million people, the heat pump investment is about a half billion dollars per year. 

Currently, more than 60% of district cooling in Helsinki is produced in the Katri Vala DE plant. The plant heat pump production is 105 MW, cooling 70 MW, including 11 MW for heating, 7.5 MW for cooling, and 40 MW of cooling storage. Heat sources include purified waste water, return water from district cooling, and electricity. The plant reduces carbon dioxide emissions by more than 20,000 Mtons a year. 


In Sweden, 270 of 290 municipalities have DH systems. More than 90% of apartment buildings are connected to district heating. The Swedish district heating infrastructure includes 12,000 miles of thermal energy distribution piping. It is estimated that Sweden’s share of DH will reach 50% of the entire heat demand by 2050 with approximately 25-30% of it being supplied by large-scale electric heat pumps. 

The Hammarbyverket plant in Stockholm has a total installed capacity of 500 MW and heats the equivalent of about 25,000 homes. The plant is the largest heat pump plant using wastewater treatment plant with water temperatures between 45°F-72°F, depending on season. The plant is also equipped by two hot water accumulators, each holding 640,000 gallons of water.  

In the City of Goteborg, more than 80% of DH is based on waste heat. Waste heat from two large refinery incinerator is used. The city is planning to be entirely fossil free by 2050. 


DH is presently reaching 64% of the total Danish heat supply. As a result, DE is increasingly becoming a service similar to potable water and electric supply. A city like Aarhus, for example, supplies 84% of its 260,000 inhabitants with DH. In 2019, a Copenhagen DH company commissioned a 5-MW heat pump using ammonia as its refrigerant. It is also using seawater and waste water as heat sources from a wastewater pumping station in Copenhagen’s harbor. 


The percentage for electricity use for DE in Norway is 45%. In the City of Drammen (population 60,000), water from the fjord at 43°F is the source for the 13.2-MW heat pumps, providing 85% of city DH supply (Figure 1). 


A large heat pump of 30 MW is installed in Basel’s DH network. The pump recovers heat from flue gases. Other plants exist in Lausanne, Champagne, and other cities. 


It is estimated that heat pumps using the Thames River as a heat source could generate 1.25GW of capacity, enough to heat 500,000 homes. 


France’s Electric Utility (EDF) offers financial support for households switching to electric based heat pumps. The French heat pump market is the leading comfort source in Europe, assessed at the 2.4 billion euros with 20 manufacturing plants and 24,000 jobs. Figure 2 presents a 13-MW heat pump in Brive, recovering low-pressure steam from a turbine. The new heat pump system has been installed in 2019 to inject 3.1 MW of heat energy into Nantes' district heating system. 


A large-scale DE system using groundwater geothermal energy has been developed in Milan by AEM, the local public utility, for the city energy needs. The total system capacity is 26 MW. 

Potential Developments in the US 

In the last few years, a number of U.S. states started actively promoting heat pumps. For example on Jan. 16, 2020, New York State Public Service Commission (PSC) allocated $2 billion for support of energy efficiency and heat pump promotion for commercial and residential customers by electric utilities (case #18-M-0084). Extensive use of heat pumps allows to reduce substantially the energy consumption and cost by the customers and the GHG emissions. According to the New York State Energy Research and Development Authority (NYSERDA), the heat pumps are two to four times as efficient as conventional oil, propane, or electric resistance heating. They are also a safer and healthier choice for homes with no combustion of fossil fuels, fuel storage, or carbon monoxide emissions. 

With active promotion of heat pumps in the U.S. there is an opportunity to develop DE systems integrated with heat pumps. The major advantage of such a system, particularly those with ground and various water and waste energy source based heat pumps, is the opportunity to reduce substantially the piping distribution cost as compared with conventional DE systems 

The current optimum hot water systems include a welded steel core pipe with a layer of polyurethane insulation incased in a plastic jacket. The installation cost of such piping in medium size cities is in the range of $700-$1,100 per installed foot. This cost can be substantially reduced in DE systems with heat pumps where uninsulated plastic piping can be used. 

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How to Start Development of a DE System 

The economics of DE are based on a series of local conditions that require significant study, such as the potential customer base, fuel usage and cost, age of existing energy systems, new planned developments, and the availability of local renewable sources of energy. One action that cities can take is to commission a community energy study that analyzes the local market both to understand what areas of the city would have the appropriate demand characteristics to justify a DE system and what local renewable sources are available. 

DE system development should start with the development of building clusters that are most feasible for interconnection. The clusters could be supplied from a central heat pump system or interconnected individual building heat pump systems connected by a piping loop. It is well known that consolidation of various buildings into a combined DE system allows managers to reduce the peak combined load demand. 

Barriers to the implementation of new DEs are most often institutional rather than technical; therefore, the goal of DE stakeholders’ engagement strategies is to address the institutional issues. In many countries, the driving force were governments or municipalities. Joseph Technology Corporation’s extensive experience with the development of DE systems demonstrate that the best project proponents are elected officials or administrative managers within municipal governments (mayor, directors of economic development, directors of public work departments, and city engineers). The major incentive of the aforementioned officials is the economic development, job creation, city revitalization, GHG reduction, and environmental justice issues. 

Many different types of individuals and organizations, such as municipal governments, utilities, owners and managers of buildings, and private developers, are affected by the DE. Each of these organizations has its own interests, perceptions, and, in many cases, misperceptions of DE. A major challenge exists, therefore, for the proponent or "champion" of a DE to gain the acceptance and support from this diverse set of organizations for a proposed project.  

Gaining support for a new DE system requires the effective promotion of the benefits of the proposed DE system. The proponent must clearly and credibly communicate the ways in which DE can contribute to meeting each group's self-interest. However, many do not have experience in marketing and promotion and have difficulty seeing themselves in the role of promoters. Implementing DE requires local champions and developers with patient and a willingness to stick to long-term plans. 

In Europe, most cities have municipal power companies. In the U.S., only a few cities have their own municipal power companies. Most U.S. cities have little control over the energy cost, emissions, and cost of electricity they consume, as generation is controlled by state-regulated utilities or independent power producers. When that mix relies heavily on fossil fuels, as remains too often the case, a city’s climate goals become that much harder to reach. 

The development should start in the high-priority, energy-dense energy consumption districts where the most efficient heat pump technology could be easier implemented. 

The successful international and U.S. experience with community-scale projects indicates that one of the feasible options is to create a district loop connecting the customers. The loop will allow managers to aggregate customers into a district heat pump system and increase the efficiency of the energy source. The district loop will be permitted to balance and dispatch multiple heat pump sources and customer energy use in the most efficient fashion. The priory district loops will gradually be interconnected into a community-scale system.  

The project should be located in the downtown areas. This allows relatively easy aggregation of energy consumption for multiple customers and the creation of the first stages of the district/heat pump system. The collocated municipal buildings, like a city hall, should also be connected to the CES.  

The proposed project will lead to the following benefits for the city community: direct energy cost savings, pollution reduction particularly GHG, economic development, job creation and improvement of living conditions.